The Collapse of FTX and the Future of Blockchain


The world’s third-largest cryptocurrency exchange in the world has now filed for bankruptcy following a liquidity crisis as of November 11th, 2022. FTX, also known as “Futures Exchanges” was founded by Sam Bankman-Fried (SBF), an MIT graduate, renowned philanthropist, and advocate of industry regulation who quickly rose to the top of the digital currency sector. Bankman-Fried was crowned the posterchild of crypto and named the people’s next Warren Buffet and world’s first predicted trillionaire due to his counterintuitive investment strategy. Bankman-Fried was trusted by famous politicians, celebrities, and renowned investment companies such as Blackrock and Vanguard to invest on their behalf. Despite his rapid rise to the crypto top, Bankman-Fried is now being compared to Bernie Madoff, an American fraudster known for running one of the world’s largest Ponzi schemes as chairman of the NASDAQ stock exchange.  

It all went downhill for the Bahamas-based FTX after Binance, the world’s largest cryptocurrency exchange and FTX rival reversed on an initial deal to acquire the company. This due to a due diligence investigation that lasted a mere 24 hours after which FTX filed for bankruptcy after freezing all withdrawals from the exchange platform. FTX was namely unable to meet customer withdrawals where customers were unable to purchase, sell, or trade their currencies on the blockchain. Reports say an unknown FTX employee was responsible for converting over $600 million in $48 million of Ether after being registered as the 35th largest owner of cryptocurrency. Another $400 million of FTX’s native tokens were released into circulation which resulted in Binance’s decision to block all deposits. Other allegations claim that the Bahama Commission ordered all FTX’s digital assets to be transferred to a Commission-controlled digital wallet for safe keeping. The notice claimed that FTX was ordered to move the assets “to protect the interests of customers and creditors.” 

Although Binance has not yet provided a detailed explanation for seizing the acquisition of FTX other than “due to corporate due diligence”, financial reports and crypto media show that FTX had not been transparent about its relationship with another trading firm owned by Bankman-Fried, Alameda Research. FTX was caught shifting customer funds and crypto investments into the firm and using those funds to make risky trades that are not legal in the United States. The savings of hundreds of thousands of customers who deposited on the FTX platform are now in jeopardy.


Blockchain is the technology that powers Bitcoin and other cryptocurrencies. Blockchain is a distributed, encrypted ledger that can be used to record transactions between two parties. 

Blockchain is a decentralized, distributed, and public digital ledger that records transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically. The blockchain is composed of individual blocks which are chained together using cryptography to ensure that each block cannot be altered without changing all subsequent blocks as well. 

This allows the blockchain to be decentralized, open and secure. The decentralization means there is no single owner or administrator — instead, the blockchain exists on multiple computersw which makes it so secure. The blockchain can be accessed by anyone with an internet connection and is updated by various nodes to ensure every ledger is identical and valid. Bitcoin was the first ever use case of blockchain technology. It works by using cryptography to generate an address for each user and then creating a transaction record on a public ledger that is accessible to all users. These transactions are then verified by “miners” who use their computing power to solve complex algorithms in order to validate transactions. Miners are rewarded with new bitcoins for their work. This process ensures that all transactions are irreversible and secure from fraud or theft.

To understand blockchain, it is necessary to understand what a database is. A database is a collection of information stored in a file. It’s used to store and manipulate data to solve problems. A database consists of records (also known as rows), and each record consists of fields (also known as columns). When you create a database, you define your own structure for each record, meaning you decide how many fields there are per record and what type these fields are. For example, you have a database with information about people who live in your neighborhood: their names, ages, and addresses. This would be considered a relational database because it uses relationships between different pieces of information. Blockchain works on the same principle as relational databases but adds another layer of security by creating links between records that cannot be altered once they’ve been added to the ledger. These links can only be changed if there’s consensus from all parties involved in maintaining the blockchain network.

What does the collapse of FTX mean for the future of crypto? 

Blockchain technology has been gaining momentum over the past few years, but there are still several questions surrounding its potential applications and risks. Financial institutions have been exploring how they can use blockchain technology to improve their operations for several years now. Blockchain also has potential applications in identity management, payments processing and risk management. In fact, many banks are using blockchain technology internally for their own operations before rolling it out publicly to customers. For example, IBM partnered with major banks including Barclays, UBS and HSBC to develop a blockchain platform called Batavia that allows banks to issue internationally recognized “legal entity identifiers” (LEI) on a public blockchain network. The irony of the FTX collapse is that Bankman-Fried has spent millions lobbying legislators in the United States to institute crypto-friendly regulation. 

According to Pete Earle, economist at the American Institute for Economic Research, crypto will still be around for a long time and believes the FTX scandal is far from destroying crypto. Binance also stated that, “Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient. We believe in time that outliers that misuse user funds will be weeded out by the free market.” This due to several attempts to instill sufficient regulation around cryptocurrency. After the FTX scandal, lawmakers who focus on cryptocurrency and finance could instill laws that prevent industry kingpins from abusing customers by using their funds to illegally invest elsewhere. 

Whilst cryptocurrency patiently waits for regulatory intervention, banks could set an example by embracing the new digital asset and mitigate the associated risks and losses that affect millions of crypto users today in the hope that events like FTX never occur again.  


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