Summary: QuadrigaCX, BTC-e, MtGox, and now FTX have three things in common: they were stoppable, they were stopped, and regular people lost a lot of cash.
Crypto giant FTX is no more. Latest news confirms that even the Binance deal is off the table and suggests the possibility that no one is coming to the rescue of hundreds of thousands of affected users and investors.
The impact on crypto is notable; Bitcoin treaded downward all the way to the upper 15,000s – a value loss of over 16% from the previous week. Ethereum shows even worse losses from this trend, with over 22% of its value vanishing compared to last week. Solana, an established Layer 1 token in which FTX was heavily invested, was slapped with a staggering weekly valuation loss of over 50%.
This event hurts all crypto investors — notably individuals caught with high exposure to SOL and FTT, but especially all users that held funds on FTX-controlled crypto addresses. And while it is easy to point the finger at FTX’s poor financial decisions, or its reckless use of its own FTT token, the real takeaway is that yet another centralized, custodial exchange went bottom-up.
Doing The Same Thing Over And Over
FTX is far from the first CEX to go bankrupt on the back of its users – and it never happens quite the same way every time. MTGox, the original top dog exchange, was hacked in 2014 and millions of its users’ funds were lost. BTC-e, another ‘OG’ exchange known for its thriving altcoin markets, was taken offline in 2017 following server seizures and arrests relating to an international money laundering scheme — again, lots of users that held funds in their wallets were affected.
The QuadrigaCX exchange debacle, which came later, was even more outlandish; the story goes that in 2019, the website’s owner, who owned the wallets’ private keys, died suddenly before a contingency mechanism could be put in place. As a result, nearly 200 million dollars were lost with those keys — nearly all users’ funds, held in custody by the website on offline ‘cold wallets’.
The common thread here is not greed, government overreach, or even death itself; the common thread is that we are still much too willing to trust centralized and custodial financial entities with our trades and the custody of our assets.
A Path Ahead
Even the widely acclaimed “Web3 revolution” sometimes seems almost entirely reliant on legacy, centralized infrastructure.
It seems this centralization of operations may amount to a serious danger to the stability and resilience of the entire cryptocurrency ecosystem. What we desperately need to explore is a shift towards new, entirely non-custodial, and preferably fully decentralized avenues to accomplish exactly what centralized exchanges do: facilitate cryptocurrency trades between parties. This is where the future lies: decentralized systems with strong privacy, strong security, and an eye to eradicate the need for trust.
Although there is much work to be done in the decentralized crypto trade world to rival giants like Binance and FTX, several projects already offer alternative avenues that can serve as inspiration or the building blocks to future full-featured decentralized exchanges.
Simple platforms like Localbitcoins and Hodlhodl facilitate buyers and sellers coming together, similar to classified ads, on a web-based platform with no asset custody. The peer to peer element solves many of the issues that centralization and asset custody cause, but the user experience can be lacking, trades take much longer, and it is understandable that average users would not want to flock from Binance to HodlHodl en masse. Other platforms, like the open source Bisq protocol, also allow users to trade their assets without custodial wallets and sometimes even without centralized servers – but the experience is radically different from standard centralized exchanges, which can be daunting for most users.
We also got a hold of the team behind BasicSwap, an upcoming DEX platform, which is currently in closed beta with an open beta close on the horizon, and which promises an elaborate synthesis of peer-to-peer decentralization and traditional CEX experience. Although it is still under development, the vision is clear: there is a pressing need for open-source solutions that leave customers in total control of their assets and experience. However, for real change to happen, ease of use and general user experience cannot take too much of a hit.
“It's high time that the global community starts moving away from centralized gatekeepers,”
says the project manager CryptoGuard on Twitter,
“but there’s a lot [to catch up on]. A lot of things, like ease of onboarding or an intuitive GUI, are non-negotiable at a larger scale, things that as of last week were more important to average users than even owning their keys”.
We agreed that, while a public change of heart on the topic of centralized exchanges seems inevitable when this change in collective consciousness will come is a bit more at issue. This is a good starting point: a “no compromise” approach on custodianship and privacy while also remaining realistic as to the needs and wants of the average crypto user — cryptocurrency user — a group that can be hard to please, but that often has the most to lose.
BasicSwap is a cross-chain and privacy-first decentralized exchange (DEX) protocol and a trading app that allows you to swap one cryptocurrency for another without any middleman or third-party being involved.
It lets you make or take orders on a distributed order book, with no fees, and execute swaps that are private, unrestricted, and trustless.
BasicSwap fosters a safe and pro-freedom trading environment without central points of failure, providing healthier conditions for all.