Today is the beginning of Sam Bankman-Fried's trial, and can already count as one of the most pivotal days in crypto history. Even if nothing majorly important is happening on the stand, yet. The reason why this trial of just one man matters for an industry is simple enough: SBF, as he was sometimes chummily called, has been elevated into a symbol for everything wrong with crypto. And there's a lot to regret.
But it's a mistake to say that Bankman-Fried is crypto in a nutshell, a representation of its inevitable dangers and excesses or Exhibit A of where this mostly unregulated industry will always end. That is, more or less, what New York Times crypto reporter David Yaffe-Bellany suggested in a recently co-published article: Crypto is on trial, as SBF faces a reckoning.
Per the NYT:
"It's a fraud that was enabled and supercharged by crypto, and by crypto's unique aspects," said Lee Reiners, a crypto expert who teaches at Duke Law School. "It wouldn't have been possible in any other context."
This is an odd idea in a story that was largely just a summary of SBF's journey through the legal system so far, but one that is probably widespread. Thankfully it's easily dispelled by perhaps the person who groks the situation at FTX better than anyone, CEO and restructuring legend John J. Ray, who called SBF's alleged theft of $8 billion "old-fashioned embezzlement."
Crypto lends a patina of novelty to the situation, a sense that this is a crime only possible in the modern day, but the situation is fairly simple. SBF is accused of taking money that belonged to his customers and spending it on luxury real estate, gifts for mom and dad and vegan cheese. And his defenses are equally as classic: my girlfriend caused my financial problems, my lawyers are liars and "woops."
But still, the idea that crypto is uniquely capable of causing a crime of this magnitude, is worth considering. Crypto is on the stand next to SBF, for better or worse, and played a pivotal role in his rise and fall — but is Sam Bankman-Fried a fair representative for a movement (of sorts) that spans industries, interests and the globe and has as many potential "use cases" as the dollars in your pocket?
Well, it's true enough that SBF is as good a figurehead as any for "the unrestrained hubris and shady deal-making" that permeates the industry. But a centralized exchange that primarily grew by buying political clout is not exactly the vision Satoshi Nakamoto set out for Bitcoin. Is this a case of "no true Scotsman," where "true crypto" has never been tried, or "affiliate marketing," a parasitism of branding where bad products are sold through association to something better?
Unfortunately the reasoning behind Reiners' bold claim that SBF couldn't happen without crypto was cut out if it was ever given. Speaking on his behalf (I'll try my best), it's more than fair to say semi-pseudonymous, global money-printing machines that anyone can turn on enable misuse. In fact, crypto is abused for the same reason it's used, these are undiscerning tools that have no need to know who is using them or why.
And that is the principle innovation behind crypto: digital money that has similar guarantees over privacy, ownership and fungibility as cash. Hence Bitcoin's original tagline: digital cash. (People deeper down the crypto rabbit hole might add benefits like: empowering people to transfer and hold wealth like never before, defanging the Westphalian nationstate's monopoly over money and the thing that will prevent poverty, war and social strife…if only it were widely adopted.)
So in a certain sense the question is: Could an SBF-sized empire operate through cash or the traditional financial system? I think the existence of the Sinaloa drug cartel would prove this to be the case, though it's worth noting that some cartel members are apparently using Ethereum for money transfers.
And on the other end: does crypto, in particular, foster crime on the internet? As ransomware expert and reformed blackhat Marcus Hutchins once told me: ransomware existed before crypto, and it'll exist even if every Bitcoin node is powered down. Take that as you will, but it seems likely if there are crimes to commit, money to finance it will be found.
Plus, has anyone ever given thought to the idea that internet crimes are growing because the internet itself is? This doesn't explain away illegal securities offerings or rug pulls, but may explain why crypto is being used for crime in the first place, given that immutable, public ledgers are generally a thing criminals would avoid.
None of this is to downplay crypto's role in Bankman-Fried's story, only to complexify the idea that it was the only means to get to this end. Afterall, it'd be dishonest to claim crypto is a "revolutionary technology," but disclaim the idea that it can have negative effects.
Other "unique aspects" of crypto Reiners might consider are social, like the norm in place where insiders take a cut of the projects they launch — also primed for exploitation (as opposed to Bitcoin's "fair launch," organized by Satoshi Nakamoto). Bankman-Fried, for instance, basically controlled the distribution of the exchange token FTT, which he used to underwrite loans and leverage his hedge fund Alameda Research to the hilt...
Read the full article online.
– D.K.
@danielgkuhn
