Lessons to be learned from the collapse of the FTX cryptocurrency exchange: the view of Etherium creator Vitalik Buterin
Vitalik Buterin, the creator of Etherium, was interviewed by Bloomberg about the implications and lessons everyone should learn after the collapse of crypto exchange FTX. The FTX exchange itself, already founded by former billionaire Sam Bankman-Friede, declared bankruptcy this month, leaving it with huge debts to a long list of creditors. The crisis caused by the platform’s problems has become so widespread that it has affected almost everyone in the digital asset sector. We tell you more about the situation.
As a reminder, FTX’s collapse has been commented on by many in the blockchain industry. Binance chief executive Changpen Zhao touched on it. He believes that this month’s events have set the coin niche back several years in development. Accordingly, it will take time for the industry to regain its former position.
In the meantime, the bankruptcy of FTX has already resulted in a decline in cryptocurrency users’ confidence in centralised exchanges. This is evident, among other things, in the Bitcoin withdrawals from trading platforms, as cited by Glassnode. As noted by analysts, the current bitcoin withdrawal rate from cryptocurrency exchanges is 172.7 thousand BTC per month.
Bitcoin withdrawals from cryptocurrency exchanges
This is a record figure, and it also surpassed the results of June 2022, when the digital asset industry suffered a serious collapse and Bitcoin fell to the $17,000 zone for the first time in several years.
What happens after the collapse of FTX?
The main point Vitalik made was that the stability of blockchains and distributed ledger technology itself is not in question, but the root of the problem in this situation remains in people. According to Buterin, the FTX incident itself was a “great tragedy” for the entire industry. However, for many in the Etherium community, the collapse of the exchange came as no surprise. Here’s his rejoinder, cited by Cointelegraph.
Nevertheless, many members of the Etherium community also see the situation as a confirmation of what they believed all along – something centralised by default should be suspect.
Recall that the source of all the problems in the first place was FTX founder Sam Bankman-Fried. It was he who mismanaged the money of exchange users. In particular, it is known that Bankman-Fried gave his own trading firm Alameda Research a large part of the platform. In fact, this led to a notorious lack of liquidity, with users withdrawing their own assets from FTX en masse.
As noted by experts, the FTX crash also led to at least a temporary loss of about 70,000 bitcoins from circulation. We wrote about other amounts due to the various crashes of cryptocurrency exchanges in a separate article.
Etherium co-founder Vitalik Buterin
The ethics proposed by Buterin include trust in open and transparent code, which ranks above human error. Earlier, the Eth co-founder published an article in which he talked about the main problems of centralised exchanges and how they can be solved by crypto.
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Overall, the crisis caused by the collapse of FTX may have a negative impact on the crypto industry for a long time to come, but it will definitely not lead to the disappearance of Bitcoin and cryptocurrencies in general. That’s exactly the statement that billionaire and founder of hedge fund Pershing Square Capital Management Bill Ackman made the day before. Here’s his quote.
I don’t think cryptocurrencies are going anywhere. With proper oversight and regulation, they have the potential to be of great benefit to society and help grow the global economy.
Recall, a similar viewpoint was previously voiced by Twitter and Tesla CEO Ilon Musk. He believes that the cryptocurrency industry will survive today's problems, although such a thing could turn out to be a longer cryptozyme.
Billionaire Bill Ackman
Unfortunately, the emergence of new technologies and their improvement opens the door to new types of fraud, the billionaire noted. He continues.
The problem with cryptocurrencies is that fraudsters can create tokens simply to run pump-and-dump schemes [i.e. artificially raising and collapsing coin values through predetermined actions – editor’s note]. In fact, it may turn out that the vast majority of coins are being used for fraudulent purposes rather than to generate legitimate business.
Overall, Ackman calls for more regulation of the industry. On the one hand, this may help a little. On the other, it does not address the key problems of centralised exchanges in the form of providing transparency to customers. Rather, the issue should resort to proof of reserves with cryptographic proof, which is in the aforementioned article by Vitalik Buterin.
We believe that in the long run, the collapse of FTX will not prevent the cryptocurrency industry from continuing its development and reaching new heights. Still, the cause of the current problems was indeed the actions of Sam Bankman-Fried and his colleagues. There is no point in giving up on the digital asset niche: the fundamental advantages of blockchain and decentralised protocols remain the same.
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