At the end of 2008, the launch of the Bitcoin White paper introduced the world to cryptocurrencies. In the years since then, an entire industry known colloquially as cryptography has sprung up. Within this industry, people are constantly creating what they claim is the next best version of Bitcoin. Several companies have also been created to serve as cryptocurrency exchanges, where people can buy and sell cryptocurrencies, giving clients access to these assets and protocols.
Much of the crypto industry has strayed from the principles that were central to the development of Bitcoin.
Bitcoin was a true technological innovation. But much of the crypto industry has strayed from the principles that were central to the development of Bitcoin. As the shocking collapse of cryptocurrency exchange FTX highlights, the cryptocurrency industry is full of scams, ponzi schemes Y bad actors. As a result, it has become increasingly clear that Bitcoin is to be understood as something outside of this crypto industry.
The creation of Bitcoin was not a random discovery, but the product of decades of discussion and development by a group of people known as the cyberpunks. This was an eclectic group of people concerned with privacy issues in the digital age and the way the digital world requires ledgers to keep an electronic record of transactions.
The Cypherpunks wanted an alternative: a deprived type of money. In thinking about how to design this type of money, the cypherpunks studied commodity money and free banking. Along the way, there were a number of attempts to implement this idea, but they never got off the ground or ultimately failed.
Introducing money with the features the cypherpunks wanted would require something resistant to censorship. Creating a new form of money would also have to deal with issuer incentives, as someone who can issue their own money could potentially manipulate the supply to benefit themselves at the expense of others.
Bitcoin solved both problems. Anyone can download Bitcoin software and operate a node on the network. The decentralized network maintains a digital ledger called a blockchain that keeps track of balances of the cryptocurrency known as bitcoin.
To solve the problem of trust in the issuer, the Bitcoin software is programmed so that there is a fixed supply of bitcoin. People don’t have to trust the sender to be honest. Therefore, Bitcoin solved the problem of trusting the issuer by removing trust from the system.
These new projects don’t set out to solve the practical problems that motivated the cypherpunks, but really just treat blockchain as something else for the tech industry to tinker with.
Regardless of what one may think about Bitcoin, it was clearly a significant innovation motivated by a practical problem. It was important not only as a technical problem or a curiosity in economic theory, but also as an important technology in Cuba, Afghanistan, palestinian territories Y Africa — areas where mismanagement and corruption have plagued major financial systems.
However, the modern crypto industry does not necessarily share the same vision that motivated the creation of Bitcoin. These new projects don’t set out to solve the practical problems that motivated the cypherpunks, but really just treat blockchain as something else for the tech industry to tinker with.
While these alternatives often provide additional «features» that are absent from Bitcoin, they do so at the expense of principles like decentralization and censorship resistance that are central to Bitcoin. The most obvious of these is the second largest blockchain known as Ethereum, which allows people to write computer programs on the blockchain. Shortly after it was developed, someone found a flaw in one of these programs and used the flaw to transfer other people’s ether (the Ethereum cryptocurrency) to himself. the Ethereum Developers he responded by creating an alternative version of the blockchain that worked as if the hack never happened. So far decentralization.
This is more than just a difference in views. Crypto has created an entire industry of get-rich-quick schemes. Starting in 2017, this manifested in the form of initial coin offerings (ICOs). Several projects arose to develop programs that could be written on the Ethereum blockchain. Each project created its own digital token that it would sell to generate funds for the project. Once successful, the people who bought the token could use it for the project (although it was often of dubious use) or sell the token for profit when the project was successful. most of these Projects were failures or scams and the Securities and Exchange Commission It was after many of them. The process became so excruciating that someone mockingly created something called Useless Ethereum Token. Although the SEC crackdown limited some of this self-serving and fraudulent behavior, allegations remain that venture capitalists continue to exploit novice investors.
Last year, the intrigues only got worse. The first domino to fall was a project called TerraUSD, launched on the Terra Network. Supposedly, TerraUSD was designed to be a stablecoin, or token that trades one for one against the US dollar. The creators devised a complicated scheme to exchange TerraUSD with another cryptocurrency to make sure that 1 TerraUSD always had a price equal to $1. As one might imagine, exchanging one worthless asset for another is not a sustainable strategy.
However, the project became very popular due to a promise that investors could earn an interest rate of 20% on their assets. This promise was nothing more than a Ponzi scheme. the current value from TerraUSD is worth a few centswhich means that anyone who continued to keep it has lost almost all of their money.
As if that weren’t enough, last week it was revealed that one of the world’s largest crypto exchanges was insolvent. Led by flamboyant media darling Sam Bankman-Fried, cryptocurrency exchange FTX had experienced a meteoric rise since its founding in 2019. With an unprecedented marketing campaign that included the naming rights to an NBA stadium and a Super Bowl commercial, Bankman-Fried and FTX became big players in the crypto space. FTX offered people a way to deposit money and buy and sell cryptocurrency. It also allowed more advanced traders to speculate using more exotic trading strategies. Bankman-Fried also thought of himself as a political expert, testifying to Congress on crypto regulation.
It now appears that the company may have also fraudulently used client funds to speculate for its own gain. The Wall Street Journal and CNBC, citing anonymous sources, reported that a hedge fund owned and founded by Bankman-Fried, known as Alameda Research, received billions of dollars in client funds to use for trading. According to CNBC, all of this was being done without the knowledge of FTX customers. Billions of dollars of customer money may simply have disappeared.
What this story reveals is that what is commonly known as cryptography is clearly distinct both from the cypherpunk vision that motivated the creation of Bitcoin and from developments in and around Bitcoin over the past decade. While Bitcoin was created to be a reliable and censorship-resistant form of digital money, crypto has become a space dominated by get-rich-quick schemes. Whatever this crypto industry is, most Bitcoin and Bitcoiners want no part of it.