Here is my weekly email with some insights and ideas pulled from conversations I had on my podcast.
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The Biggest Crypto Rivalry Just Blew Up — But Don’t Let It Scare You
Are you on Twitter? Or even the internet in general? Great — then you’ve heard at least a whiff of the crypto drama between FTX and Binance. But since we aren’t all crypto fanatics here, you’d be forgiven for feeling a little confused about the whole situation. Let’s break it down.
I don’t usually focus on the latest news in my Success Story podcasts; it just so happened that I got to chat with Dan Roberts from Decrypt in my most recent interview, and he’s one of the most knowledgeable journalists you’ll encounter in the crypto space. He’s also got this incredibly accessible way of explaining tricky concepts. No jargon allowed.
But what’s so important about the sudden Bitcoin crash? Why talk about the FTX crisis here? Well, I’m always looking for ways to make business concepts a little easier for people to grasp. And I really believe crypto can pose awesome opportunities for entrepreneurs like us — especially now when it seems to be maturing a bit more (slowly but surely).
And don’t worry; I’m a big believer in using simple terms that anyone can understand. Crypto newbs are most welcome here. Let’s dig in!
So… What’s Been Happening?
That’s a great question, and one I was fortunate enough to have answered by a guy who truly knows his stuff. Dan Roberts is all about lowering the barrier to knowledge in the crypto world, and he did a great job of breaking things down for me — and by extension, you.
Here’s the gist: there’s been a lot of drama in the crypto community lately, and it all stems from a long-term rivalry between the CEOs of the world’s #1 and #2 crypto exchanges. (Number one is Binance, and number two was FTX. There’s a bit of friendly foreshadowing).
But before I dive too far into that, here are a few important terms and acronyms you should know, courtesy of Mr. Roberts:
SBF: a.k.a. Sam Bankman-Fried, the CEO of FTX
CZ: a.k.a. Changpeng Zhao, the CEO of Binance
Crypto: digital assets, like Bitcoin
Exchanges: marketplaces where you can buy and exchange crypto
DeFi: decentralized finance; a growing industry of financial applications built on Ethereum
Centralized and decentralized: terms used to describe how data is stored and/or controlled. In short, centralized = one party has control, while decentralized = no one party has control
Regulators: organizations put in place to help monitor how crypto is being exchanged and used
Insolvency: like bankruptcy, this is where a crypto exchange isn’t able to pay its liabilities and debts
Got all that? Awesome. Let’s move on.
The Rivalry of the Ages
Our story starts with a long-standing rivalry between Binance and FTX. Word on the street is that their respective CEOs have hated each other for a long time — which is understandable, I suppose, since they’re competing for gold in the same industry.
But they also go about business in two very different ways. It’s important to understand that cryptocurrency — or digital assets that live on blockchains, to use the proper term — is propped up as being the antithesis of centralization.
In other words, crypto is all about giving power back to the people, rather than having it concentrated in the hands of a few. And that’s where SBF and CZ take different approaches.
CZ and SBF
Dan described CZ as an elusive kind of figure. No one really knows where he’s based; he keeps a low profile; he’s not big on interviews or talking to the press. His exchange, Binance, tends to dodge regulators and can even appear a bit shady at times.
In contrast, SBF is very open. He’s been known to support other exchanges that are going bust, and he advocates for more regulation in the space. He’s also more likely to cooperate with authorities, as opposed to CZ, who — according to Roberts — would rather just do his own thing.
So they’re not really compatible in terms of business approaches, and they aren’t in any position to be best friends. But believe it or not, Binance just (as of a day or two ago) offered to save SBF’s butt. Here’s why it didn’t work out.
FTX Goes Insolvent
Perhaps one of the craziest things about this whole debacle is that SBF has been around forever. He’s kind of a legend. He was an early investor in Bitcoin; people know him as this incredibly smart and savvy entrepreneur who knows all the tricks of the trade but still trades in broad daylight.
It turns out that FTX hasn’t been handling money well. The exchange has its own cryptocurrency token called ‘FTT’ — and instead of keeping investors’ money in cash or other assets, as most exchanges do, FTX has been storing most of its funds in FTT.
This is a huge no-no. It’s incredibly risky to keep investor money in your own coin, especially such a large portion. Out of a total of $14.6 billion in assets, the company had a whopping $5.8 billion in FTT.
So if the value of FTT had gone down and people started withdrawing their money, FTX could’ve been in big trouble (which, as it turns out, is exactly what happened). As CZ so eloquently put it:
CZ Strikes Hard
Binance’s CEO, CZ — the fierce rival of SBF — immediately pounced on the opportunity to highlight FTX’s arguably dodgy actions with this Tweet:
To decode that: Binance actually owned some FTT coin, so CZ took the chance to make it ‘liquid’ (aka, sell it all off) to show that he didn’t really trust or want to associate with SBF or FTX.
In the world of business, this is brutal. It’s like a public execution. And like the blade of the guillotine falling, FTT’s value absolutely plummeted as thousands of people started taking their money out.
Binance Saves the Day?
The crypto market has been in absolute shambles since this all went down, including Bitcoin’s drop to the lowest value it’s seen since 2020. But it could have been much worse if not for Binance.
After FTX had canvassed Silicon Valley for cash and attempted to get some big names on board, all options were exhausted — except for a timely offer of a buy-out from Binance. SBF was likely feeling a little queasy, but couldn’t refuse an offer like that.
Here’s the kicker, though: Binance pulled the plug after realizing just how poorly FTX had been managed. Here’s what CZ said:
The Case for Decentralization
This whole case makes me wonder whether we’re missing the point — and the potential — of crypto. What we just witnessed was centralization at its finest. Two companies had major financial monopolies and control over investor funds, and the power struggle between them blew up in a big way.
But crypto was meant to decentralize power, not centralize it. As I mentioned earlier, decentralization is basically a model that strips institutions of their monopoly and gives power back to the people. So when we have these big crypto exchanges controlling billions of dollars, are we really any better off than we were before?
It’s a question worth asking. Dan explained to me that there are pros and cons to both centralization and decentralization, but that the word ‘decentralized’ is often conflated with extreme anonymity, sketchy behavior, and total lawlessness. But look at what just happened: one of the biggest exchanges mishandled funds behind the scenes. If that’s not sketchy, I don’t know what is.
To me, decentralization means being in control of your own money. It means having a say in how things are run, and not being at the mercy of centralized institutions that can make shady decisions with our money.
Some people say it’s too anonymous — but Dan explained that, if anything, the blockchain is one of the most transparent systems in existence. You can literally see every transaction that’s ever been made. It gives me hope.
What’s the Point Here?
What I’m trying to say is this: don’t let the drama between SBF and CZ scare you off from crypto. These two men are just a microcosm of what’s happening in the world of business. Investing will always hold some risk, but at the end of the day, you have the option to take your money out when things are starting to look fishy.
Don’t be put off by buzzwords like ‘decentralization’, or be tricked into thinking that the opposite is always bad. And what I’d also say is this: don’t narrow your view of crypto to big exchanges like Binance and FTX.
There’s so much more to this incredible technology than rivalries and mismanaged funds. Think NFTs; think smart contracts; think crypto as a utility, where you can safely pay to use services and consume content online.
Working With Crypto As An Entrepreneur
At the beginning of all of this, I said I wanted to explore the value of crypto for entrepreneurs like ourselves. Is this an area we should be exploring for our startups? What if you’re completely new to crypto and don’t know where to start?
Here’s the thing: crypto encompasses such a broad range of technologies, industries, and use cases that the possibilities are pretty much endless. We’ve got startups coming out with decentralized streaming services where you pay to stream music with crypto coins; we’ve got online marketplaces where you can buy and sell just about anything using crypto; we’ve even got social media platforms that run on crypto.
And that’s just the tip of the iceberg. Dan was particularly excited about the prospect of using crypto to remove the need for paywalls on news outlets — just pay a few bucks in crypto at the click of a button to read an article, without having to sign up for a subscription. Imagine that!
I did a little research on the side, actually. Here are some of the coolest startups coming out in the crypto space:
Bottlepay. Sending and receiving money is super easy these days, with most banks offering quick transfers, and apps like Venmo and Paypal making things even more convenient. Bottlepay is shaking things up by integrating a blockchain-based payment system with social media — so you can send money via Tweets or messages. It’s already grown by 400% in 5 years.
Decent. Musicians and artists have long been robbed by content platforms, but Decent is working to change that by allowing musicians to monetize their work. They can upload an NFT with audio and price it using one of three models; fans can then purchase and exchange the NFTs.
Courtyard. The crypto space is hyper-digital — but it doesn’t strictly need to be, and Courtyard is bringing a bit of the physical world back into it. They’re developing a platform with digital assets that all correlate to real, physical items; for instance, a 3D rendering of a pair of special edition sneakers will be stored on the blockchain and backed by a physical pair of those sneakers.
Stuff like this makes me so excited to be alive in 2022. Crypto exchange drama aside, this is what I’m here for. Startups like these are making intelligent business decisions by getting in on the ground level of a new industry with so much potential.
What do you think? Are you ready to start exploring crypto for your startup?
What About Investing?
Now, I’m in no position to give financial advice. I’m not a financial advisor, and I don’t play one on the internet. But I am an entrepreneur, and I do know a thing or two about risk vs. reward.
If you’re thinking about investing in crypto, my best advice would be to do your homework first. Crypto is still a very new industry, and it’s important to remember that with any investment, there is always risk involved. That being said, there’s also a lot of potential for huge rewards.
If you’re going to invest, make sure you’re comfortable with the risks. And don’t invest more than you can afford to lose. I know that’s not the most exciting advice, but it’s important nonetheless.
In short: yes, crypto is a risky investment. But it’s also an incredibly exciting one, with lots of potential for big rewards. Just make sure you know what you’re getting into before you take the plunge.
I know this was a little different from my usual shtick, but I hope it was interesting to both seasoned pros and people who are new to the crypto world. I tried to keep things as general and non-technical as possible, but if you have any questions, I’d recommend heading over to Decrypt where the whole situation is explained in detail.
Remember — just because shady stuff happens in crypto doesn’t mean we should throw the baby out with the bathwater. There are still a lot of incredible startups and projects doing amazing things in this space. And goodness knows we see questionable actions from big companies all the time, regardless of industry.
So don’t let the drama scare you off — explore, learn, and find out if crypto is something your startup should be involved in. It’s a pretty exciting space to keep an eye on, that’s for sure.
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Thank you for reading,