In this article, we elaborate a little on the silver linings we can see today. We’re listing out a few positives and winners that can come out of a situation like the FTX crash.
It isn’t difficult today to gauge the grim situation of the cryptoverse. The prices of tokens are seemingly on an endless pitfall with no positive news on the horizon. We could tell you that that’s how crypto winters tend to be, but that wouldn’t be the whole truth. The second biggest crypto exchange in the world has never fallen to become a lump of rock before, and the devastation caused is close to $50 billion, directly and indirectly.
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Investors in tokens and projects that revolved around FTX have lost to the tune of billions. What’s worse is their possible loss of faith in cryptocurrency because of this FTX fiasco. It takes special courage today to reiterate that cryptocurrency in itself is infallible, but these men-controlled aspects surrounding it are all the cause of concern.
In this article, we elaborate a little on the silver linings we can see today. We’re listing out a few positives and winners that can come out of a situation like this.
Cryptocurrency itself cannot be regulated. When on a blockchain, with non-custodial wallets and pseudonymous alphanumeric accounts, it is quite impossible for any agency to track your transactions back to you. What are easily regulatable are crypto exchanges that are people with a vested interest. It is the one area where cryptocurrency is vulnerable to human greed and malpractice.
With the fall of FTX, a great positive is the amount of regulation that would come into crypto exchanges. Any organisation doing volumes of billions a day should have some oversight from a governmental regulatory body along with possible insurance. We might soon have it with all the chaos that the fall of one agency has caused.
Proof of Reserves
Simply put, proof of reserves is a way for exchanges to be accountable to their users. It is an independent audit by a third party to ensure that the exchange holds either cash or valid tokens to back the numbers (people’s investments held by the exchange either in cash or tokens). Binance, the largest crypto exchange in the world, is backing proof of reserves to be the solution that could prevent future FTX-like incidents.
Many exchanges across the world, including the big ones in India like CoinSwitch, have agreed to have proof of reserves conducted regularly. This helps in ensuring public trust in the exchange as well as a general check on larger-than-life exchanges.
What went wrong with FTX had nothing to do with a cryptocurrency failing (FTT is a manufactured currency) or with blockchain technology letting people down. It was all because of the people involved and their greed. So, this gives greater ground for something that’s blockchain-related but without any direct involvement of people — DeFi. It is everything great about cryptos and blockchain without any human intervention.
Decentralised finance has already been on the rise in the past few years, and we might see more of it once we recover from this dark crypto winter. It solves real-world problems without any of the rug pulls.
Everyone that lost money (not because of the valuation of their token) was because they had their tokens in a custodial wallet. Simply, it was a case where you had plenty of money but had kept it with someone else for safekeeping. The person you trusted was not trustworthy and ran away with all of the money.
Almost ridiculously, the money itself came down in value because it was stolen. The actual fault, however, had always been with its safekeeping. We might see more and more non-custodial wallets in the future. This way, the money can never be stolen unless the person loses it. Somehow, it is easier to deal with losses when it is your fault instead of the fault of someone else.
To find a silver lining this early seems difficult. We can be rest assured that the overall technology hasn’t faltered. We have no reasons to believe that cryptocurrency will no longer be the currency of the future. We might just have to be more cautious and more aware of what we’re doing in the cryptoverse. We cannot blindly trust big industry names or celebrity endorsements. Doing your own research and taking as much direct control over your funds and tokens is the way forward.