There was a time when the decentralisation and apparent freedom crypto promised was set to transform the world. It would free us from tyranny, protect us from government overreach, and give us control over our money in a way that was simply never possible before. Fast-forward to the end of 2023 and you see an industry that’s apparently in flames, on the scrap heap and with a reputation that’s seen as a bust in the mainstream. What’s been happening and where is it all going?
A quick review of the landscape
One of the stories of the moment are the big frauds cases being exposed in the crypto world. Sam Bankman-Fried, the head of FTX, just got found guilty and the head Binance stepped down recently in a separate case. The reason this matters is that for some time Binance and FTX have been the two biggest exchanges in the crypto landscape. These are the software platforms that allow investors and users to buy and sell various coins in a way that is (in theory) safe and secure. The fact that both platforms have become embroiled in fraud doesn’t do the industry any favours.
Putting aside for a minute the missing billions and the negative impact on investors, it’s the way the industry is coming to be seen by the mainstream that is the biggest downside. Crypto began as something somewhat niche and underground, moved into something that was opening up and becoming accessible, only to apparently shoot itself in the foot and kill all the progress it had been making.
Thinking about what it all means
One of the downsides of the crypto world is that few people actually understand the intricacies of something as complicated as blockchain. Prior to these large fraud revelations, a sizeable section of the market was willing to look past the technical complexity and simply trade something that made them money. They made the fair assumption that the exchanges were being run morally and correctly, and they assumed that they could predict a volatile price with a fair degree of accuracy. Do those two things and you can make money, but unwittingly buy into a rigged game and you could lose everything.
Once an industry builds a reputation (or gains it in this case) it can be impossible to shake it unless something transformative happens. Unfortunately, history tells us that transformative shifts are far more likely to go in an increasingly more negative direction. It’s very easy to destroy your reputation with a single costly mistake than it is to gradually rebuild it after a seismic shock. Add in the fact that TikTok videos of SBF flaunted his wealth and generosity in his own unique way are being reposted everywhere and you get a sense that this is an industry that’s seen as rather infantile by many.
Diving into tech bro culture
SBF is seen as the epitome of the tech bro culture gone wrong. His geeky, idiosyncratic demeanour was supposed to sit atop a fierce intellect and generational insight into how the world is going to change. The truth turned out to be that he was happy to do whatever it took to continue to grow his company, regardless of whether or not it crossed multiple redlines along the way.
Tech startups have long had a reputation for moving fast and breaking things, which is not a bad thing if they create something that’s useful and do no harm along the way. The problems occur when innocent people lose their life savings and a whole industry comes to be seen as nothing more than the manifestation of greed, excess and guesswork. Many see the so-called tech boys at the top — typically young college educated Americans from Ivy League institutions — as being detached from reality and the man in the street. They seem to be playing with fire and ignoring the consequences of their actions, so engrossed are they by what they produce on their laptop screens.
While we use the creations they have come up with every single day, it may be time to ask if this culture has turned a corner and started to become toxic. SBF’s demise in particular was marked by explicit disdain for everyone from litigators to legislators, all of whom need to be appeased if you are to work in a truly constructive manner. The problem here is one of perception: are we dealing with a class of people who are so detached from reality that they think the billion dollar valuations they can generate put them above the law?
A look to the future
Will it turn out that crypto is an example of technology outpacing regulation to such an extent that it kills itself? Look around you and there’s a lot the industry could learn from other sectors. Streaming platforms are founded on a solid foundation of copyright law; the best online slots safeguard data and promote responsible play; and fast fashion is becoming increasingly aware of the eco-conscious outlook of a large section of their consumer base.
All is not lost for the crypto industry, but it does need to get its house in order as quickly as possible. When mainstream investors and the general public decide something is toxic, that can be enough to push it back into a niche industry populated largely by outsiders. The hardcore may not mind this because they will still have their blockchains, but they won’t have the billions of dollars that would have been on the table as a result of mainstream adoption.
So, what’s the answer? Regulation is the word that springs to mind. With suitable regulation, oversight and good governance, the industry can get back on its feet and stand on a solid foundation. This would give the coins and tokens currently being traded a trustworthy reputation and a sense of belonging to the wider world of finance.
The key will be regulating in a way that keeps pace with the rate of change. Unfortunately, this is much easier said than done…
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