Waking up last week to the news of Sam Bankman-Fried’s arrest and criminal charges was a huge relief. This individual, once a visionary leader and inspirer of the potential of cryptocurrencies to create financial freedom, has broken the public’s trust.
Since FTX collapsed, my algorithmic trading tools company, which has never handled clients’ money but has helped them execute trades on platforms like FTX, has listened to hundreds of our clients who are now unable to access to own funds on the exchange.
People have called us crying, asking how we can help them. “How could someone do this to us?” It’s heartbreaking. It’s criminal. But at least now justice is running its course.
The allegations and arrest of Bankman-Fried are a welcome development not only because they are part of a functioning law enforcement and justice system, but because it is a sign that cryptocurrencies can weather the ongoing storm. For the crypto-economy to survive, governments must, at a minimum, enforce basic laws in the industry, as they have finally closed with charges against Bankman-Fried. But the government is taking too long to develop coherent regulations. As an industry, we cannot afford to wait.
Beyond government enforcement, industry needs to be more proactive and united in developing its own standards and self-regulatory system. If the FTX crash finally leads to these developments now, cryptocurrencies can thrive.
When the history of cryptocurrency is written, commentators will likely use November 11, 2022 to refer to the change in what crypto and DeFi are about: “BFTX” and “AFTX”, before and after the bankruptcy and subsequent disgrace of the company that many saw it as cryptocurrencies and DeFi’s best chance to “go mainstream.”
With the collapse of the Bankman-Fried exchange, former stalwarts are also turning their backs on cryptocurrencies, taking steps to limit or even ban their use. The idea of cryptocurrencies and DeFi as a pathway to financial freedom and freeing finance from the gatekeepers – a previously common theme in articles and blog posts – is increasingly being questioned.
However, those ideas are not dead. The negligence, bad practices, and perhaps even outright fraud that led to the collapse of FTX must be separated from the principles that cryptocurrencies stand for.
These are principles that speak to billions of people around the world: freedom of trade, unencumbered by the system that dictates not only how we do business, but also whether we can preserve the value of our earnings.
For these principles to flourish, the government doesn’t even have to develop a new regulatory framework for industry, it simply has to enforce basic laws. In addition to the allegations against Bankman-Fried, the recent news that the US Justice Department is weighing up money laundering charges against Binance, another major cryptocurrency exchange, are steps in the right direction. Enforcing the laws, rather than letting the industry rot, with millions of people losing money, will go a long way towards making it a legitimate space and protecting consumers from outright fraud.
After a decade of discussions about regulating cryptocurrencies, nothing has happened. Any government regulations would likely favor the traditional financial system, with a seemingly endless cycle of boom and bust managed by the Fed, to promote growth or contain inflation, as the gatekeepers see fit.
Instead, the various major players in the cryptocurrency industry need to come together and develop basic financial protocols, such as holding money in custody, risk management standards, and methods for communicating full risk to the public. Additionally, the industry must develop internal standards for the enforcement and oversight of these financial protocols, as well as ensure transparency in other parts of its operations. We have seen similar successful efforts for operational standards in many other industries, including 5G and the internet. This will give the average person more confidence, security, and understanding.
Friedman’s arrest isn’t just the first step in bringing him and FTX to justice. It will help create a crypto industry that can survive and realize the ideals of freedom and transparency on which the industry was built.
Dmitry Gooshchin is COO and co-founder of EndTech.
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