SBF's jail sentence marks the end of the crypto grift era — so what's next? | Tech Crunch

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On Thursday, a federal judge sentenced former FTX CEO Sam Bankman-Fried to 25 years in prison after pleading guilty to seven counts of wire fraud and money-laundering.

The scam he pulled was simple: He and his partners created FTX, an exchange that took customer deposits to invest and trade in cryptocurrencies. Some of those deposits were secretly sent to his other company, the hedge fund Alameda Research, which he originally created to arbitrate differences between crypto prices in different countries. According to the government case it won, Alameda used that money to invest in other crypto startups, buy some prime real estate, support political campaigns and — most importantly — for the purposes of the scam. — Propping FTT, FTX's proprietary crypto token.

A few document leaks and some clever work by journalists at Coindesk, combined with a well-timed tweet by Changpeng “CZ” Zhao, who ran rival crypto exchange Binance, caused a run on FTX. The scheme unraveled in a matter of days, wiping out billions in customer money (although, apparently, they could get some of that money back). CZ itself is no longer running Binance, having pleaded guilty to money-laundering violations related to insufficient controls.

The punishment marked the end of crypto's recent era, which was characterized by greater fool get-rich-quick schemes — investors lured with promises of impossibly high returns on everything from digitally watermarked images to simple interest. Payments on the token of the week – and fraud investigations and convictions are on the decline.

Crypto optimists like Andreessen-Horowitz's Chris Dixon suggest that we're now entering a more sober phase of crypto, where software developers will eventually build useful applications on one of the many blockchains derived from the original blockchain — the underlying Bitcoin — first proposed under the pseudonym Satoshi Nakamoto and distributed on Halloween 2008.

The problem with this perspective is that developers have been building a variety of applications on top of Ethereum and Solana and other layer-1 blockchains for years, and the economically viable benefit any of them provide is speculative. Yes, it is possible to create a digitally authenticated work of art, but the value of that art is not in the aesthetic pleasure it brings, but rather in the likelihood that someone will buy it for more money.

Almost everything built or enabled by blockchains will replace what is already being done very well. Self-executing smart contracts will replace — you know, regular contracts. They're not perfect, but they're not ridiculously inefficient enough to freeze the economy. Decentralized autonomous organizations, or DAOs, where decision-making power is shared equally among all participants, replace other decentralized organizational schemes characterized by hours of deliberation and few specific decisions, such as holacracy or the San Francisco Board of Supervisors meetings. Jokes aside, where is the clear killer app for blockchains? Where is the runaway success story?

Forget runaway success: There isn't a single blockchain-based startup with enough cash flow or profitability to go public. Yes, there are Bitcoin mining companies like Riot. Yes, there are companies that facilitate crypto trades like Coinbase and Block (formerly Square). But there is no real company that has developed economic value by doing something new or better on blockchain.

I'm ready to convince – pitch me, blockchain geniuses, with startups that create incredible value! – but my view right now is that crypto will return to Bitcoin's original function as an alternative to country-based currencies to store and exchange value. Its volatility may not make sense to people living in relatively stable economies, but in countries with runaway inflation, corrupt regimes, civil unrest, or war, the method of converting a collapsing local currency to bitcoin is a stable national currency such as the US dollar. Those ways remain a reasonable and demanding way for people who have some means to preserve them. It can also serve as a digital replacement for cash suitcases for sending payments without having to pay exorbitant fees to international money changers and – sometimes – for all kinds of underground financial activity.

Why Bitcoin Instead of One of the New Coins? Because those other coins are almost universally based on faith, belief and pixie dust; The main value they have is the value assigned by the people who own and trade in them. You can make the college sophomore bong hit argument that money is everything, but in reality the US dollar is backed by the massive economic and military power of the United States: real control over real resources that people really want and need.

Bitcoin is similarly backed by something real and tangible: energy. Because of its proof-of-work model, the only way to create and validate new bitcoins is to consume energy, whether it's burning natural gas or hooking up to a nearby nuclear plant. Energy drives the real-world economy, and unless Sam Altman or someone successfully unlocks fusion and delivers truly “cheap per meter” energy, it will remain a real asset with real value for some time. In order for demand for Bitcoin to be stable, the price should theoretically track the price of electricity. In fact, it wouldn't surprise me if Satoshi had some kind of connection to the energy industry.

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