Binance Won’t Bailout FTX – FTX Founder on the Run

Crypto exchange Binance is walking away from bailing out FTX. FTX has a shortfall of up to $8 billion. The Wall Street Journal reports that FTX Chairman and founder Sam Bankman-Fried is missing and may be on the run.

Bitcoin is now around $15000. The overall cryptomarkets are down about 15% in a day. Ethereum is around $1000.

6 thoughts on “Binance Won’t Bailout FTX – FTX Founder on the Run”

  1. Crypto newbie here: does crypto rely on the exchanges or do the people who use crypto do? Having studied the blockchain algorithm and how crypto actually works it seems to me to be the latter. But the bit about guards on the on and off ramps is spot on. And why would I want to use what amounts to a speculative investment as a currency? I would like my currency to have a reasonably stable value.

    • The original idea was to have an uncensorable internet money of sorts. The blockchain is a kind of public ledger with every transaction ever made listed in order. Who owns what is decided by a kind of consensus mechanism. If most people with computing power are honest, the blockchain constructed by honest people solving meaningsless mathematical problems represents the majority opinion about who transacted with who because it will be the chain that grows faster. If someone with more than 50% of all computing power was malicious they would be able to record that all bitcoins where sent to their wallet (as many transactions as will fit into a block at a time). There really wouldn’t be much point in doing this, since it would make bitcoin worthless.

      But people are not transacting bitcoins for goods. It is not functioning as a money. For a while it was used by ransoms, drugs and other illicit uses because it’s uncensorable. The main problem with this is that if I have to mail something to you, I need to know both your physical adress and your wallet adress. Since the ledger is public I can then see every transaction you’ve ever made and connect it with a physical person. I believe for most drug transactions people have chosen other “coins” that contain an inherent money laundering component to make transactions inscrutable.

      Then someone came up with the idea; what if bitcoin is not a money, it’s a store of value like gold (which is also not really a store of value). The primary use of bitcoin was to purchase it and sell it at a later date when the price was higher. Why would the price go higher? Because someone would see that the price increased, get so hyped about it that they would save or borrow money to pay even more for it; hoping someone else would pay them even more in the future when they wanted to liquidate.

      You could purchase bitcoin for dollars or whatever in a peer to peer fashion. But then you need to find these people and agree on a price and trust them enough to complete the transaction and not just take your money and not give you bitcoins (bitcoins are censorship-resistant and any attempt to redress fraud is treated by block chain as if it was the fraud). Since this isn’t a public discussion there is no price discovery; you agreed with some guy about the price but nobody knows you did and you don’t know what prices anyone else agreed to. When there is a centralized exchange you have a system that allows price discovery with bids and asks. When a lot of people want to sell bitcoin, it will deplete the people who are willing to buy bitcoin at a high price and you will press the price down enough to find a buyer at the lower price. There is now a well defined price of a bitcoin thanks to the centralized exchange.

      If there are multiple exchanges they can have slightly different prices; but price arbitrage will prevent them from being too different.

      The purpose of bitcoin is now only to speculate on its price; even if you know it is a bubble and bitcoin is useless and worthless, the fact that you might be able to sell the bitcoin to a greater fool can make speculation rational. The idea that bitcoin or blockchains have any kind of reasonable real world use is what provides the necessary hype to generate greater fools.

      Ontop of bitcoin there are people who want to build a second level network called the lightning network. The idea is that because bitcoin transactions are inherently slow, unreliable (you may not be included in a block) and expensive, you don’t have to fully settle all small transactions on the bitcoin level; you can settle it on a higher level. But this reintroduces all the flaws of centralization that they were trying to avoid to begin with (censorship, fraudulent transactions, government oversight, taxes etc).

  2. Jeez. That guy looks like a street scammer/swindler. How he got to convince so much people to give him millions?

  3. Isn’t it interesting how crypto relies so heavily on centralized exchanges when the whole point is to get away from them? With guards at every on and off-ramp crypto is worthless because people aren’t transacting in crypto directly; they are just using it as a speculative investment. All that cruft about being a decentralized currency is just is just marketing mumbo jumbo. Then it changed to ’decentralized gold/store of value’.

Comments are closed.