FTX Lesson: Crypto Needs the Press, the Press Needs Crypto

CoinDesk played a central role in this week’s FTX meltdown, following our coverage of Alameda Research’s suspect balance sheet last week. But the crypto industry's maturation and eventual success requires that we flesh out these unstable structures and bad practices.

AccessTimeIconNov 11, 2022 at 5:30 p.m. UTCUpdated Nov 11, 2022 at 7:50 p.m. UTCLayer 2
AccessTimeIconNov 11, 2022 at 5:30 p.m. UTCUpdated Nov 11, 2022 at 7:50 p.m. UTCLayer 2
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Michael J. Casey is CoinDesk's Chief Content Officer.

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Join the most important conversation in crypto and Web3 taking place in Austin, Texas, April 26-28.

Journalists don’t like to be the story. We prefer to tell it.

But with CoinDesk playing a central role in this week’s FTX meltdown – following Ian Allison’s bombshell on Alameda Research’s suspect balance sheet last week – I got to thinking that we media folk may have to be the story this time around. So, let’s examine journalism’s place in the crypto industry. TLDR: It’s complicated, to say the least.

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On the one hand, there’s an unreasonable hostility toward journalists in some quarters of the crypto community. It’s exacerbated by a blinkered, self-interested perspective fostered by price-dependent online communities and by a tech utopianism popular in Silicon Valley. This anti-press mindset breeds conspiracy theories and, in steering everyone into the confines of the subcommunities gathered around their pet investment projects, fuels a toxic fragmentation in which each clings to their own narrow version of the truth. It’s “my token, right or wrong.”

This was evident in the unfounded charges laid against CoinDesk on Twitter by people alarmed by the fallout from the FTX revelations: the Alameda story was “fake news”; CoinDesk ran a story planted by Binance to play its “games”; it was a clear case of FUD (stories sowing fear, uncertainty and doubt) to undermine confidence in the market.

(Needless to say, those charges are all patently untrue. I shouldn’t need proof, but the haste with which Binance abandoned its buyout of FTX laid bare how bad FTX and Alameda's finances truly were at the time of Ian Allison’s report.)

On the other hand, the multiyear story of FTX’s rise and fall, now culminating in stunning evidence of gross misuse of users’ funds, reminds us that journalists can fall victim to the blindness of hero worship. Tough questions should have been asked earlier of FTX founder Sam Bankman-Fried. Alameda Research’s phantom balance sheet, propped up with a self-issued currency from sister company FTX, was there in plain sight and we in the press failed to see it until now. Too many accepted the fairytale story of the altruistic “SBF” wunderkind.

It’s noteworthy that this story broke just after a tweet from privacy activist Edward Snowden highlighted a history of Central Intelligence Agency representatives abusing the trust of journalists – and their inability to verify those agents’ privileged-access claims – to sow disinformation. It’s also in the vein of how local television news takes police reports of violence at face value, the social injustice of which was highlighted in a recent episode of John Oliver’s ”This Week Tonight” show on HBO.

Both sides need introspection, in other words: critics of the press and the press itself.

Transparency is in your interests, truly

Let me start with the lesson for press critics. These include the token investors who barge their way into CoinDesk reporters’ Twitter mentions to accuse them of bias or corruption or stupidity just because they didn’t cover some protocol development of non-fungible token drop that to their biased perspective is the “biggest untold story in crypto.”

My message to them: Try, maybe, to step outside the narrow confines of your financial interests and look at the bigger picture. It is not the crypto press’s role to protect or promote the participants in an NFT project, the short-term financial interests of FTT investors or bitcoin HODLers. It is to bring transparency to the companies and other institutions that hold influence over how this industry and its markets function, regardless of price impact. That responsibility extends both to what we choose to cover and what we choose not to cover.

Transparency exposes malfeasance and entails reporting on otherwise hidden corporate accounts that reveal fragile finances. In the biggest cases, such as that of this past week, doing so will mean that a house of cards will inevitably fall, and, along with it, token prices. But sooner or later these issues would be revealed anyway.

It’s better if these revelations can be revealed sooner, because then we can learn the lessons and react accordingly. Can more effective regulation be introduced to protect consumers? What can investors learn about token valuation? Is it time to “do your own research?”

If the crypto industry is to mature, and if its underlying technology is to live up its vast potential, we must flesh out these unstable structures and bad practices. Sorry. There is no free lunch.

This is the purpose that we at CoinDesk have set for ourselves. Like any media company, we strive to be profitable, but the route to that is defined by a broader mission: to lead the narrative on the development of this industry by bringing transparency to the global movement that’s driving it. We see this honest, warts-and-all exposure as our contribution to the better world that this technology has the potential to support.

Don’t trust, verify

Now for our own introspection.

“Trust, but verify” was a term – lifted, ironically, from a Russian proverb – made popular by former U.S. President Ronald Reagan during his negotiations with the Soviet Union over nuclear disarmament. In the late 1990s, cryptographer Adam Back and entrepreneur Austin Hill, who later co-founded Blockstream, paraphrased the line to rewrite it as “Don’t Trust. Verify.” The negative wording was stronger for a reason, based on the notion that reliance on a third party with the capacity to censor, change or control information is dangerous.

The imperative to verify was a nod to cryptographic tools such as zero-knowledge proofs, with which people can prove the veracity of information without having to trust assurances from those with an interest in lying to you.

The thinking behind the first, Reagan-era coinage is something all journalists should embrace as a matter of course. It’s the “show me the money” idea. You don’t necessarily assume your source is untrustworthy but, without some other independent means of verification, you simply can’t run with the information they provide.

The problem is that it is often difficult, if not impossible, to obtain independent verification because all means of communication around the relevant topic are controlled by the party you’re covering. It’s the problem of “asymmetric information” that underpins U.S. securities laws: those with the data have the power to control how it is used. And that’s where the dependence on powerful people kicks in, which then gets distorted by the hero worship identified above.

This is where cryptography comes into play. Already, Binance CEO Changpeng Zhao, better known as CZ, is declaring that his exchange is embracing a “proof of reserves” model based on the cryptographic instrument of Merkle trees and calling on others to follow suit. This would presumably offer anyone, including an investigating journalist, a tamper-proof source of information on a company’s assets.

There are also efforts afoot to bring blockchain verification of evidence trails into journalism, notably by the Starling Project at Stanford University, while other projects – including Refound, a winner of the Web3athon launched at CoinDesk’s Consensus this year – apply encryption solutions to protect journalists’ information gathering from snoopers.

If such tools become the norm, a “Don’t Trust. Verify” standard could arise in journalism. Claims from powerful people need no longer be taken at face value.

But although there are some cryptographic tools that journalists can independently apply to their truth-seeking efforts, it really can’t be up to them to fix this. We need an overhaul of the system for recording and proving information, and that requires change by the investigated, not by the investigators. In reality, it needs regulation, or at the very least industry-driven self-regulation, to change practices.

So let’s hope that, for transparency and the healthy growth of this industry, regulators will look to zero-knowledge proofs, Merkle trees and encryption to impose crypto-savvy data requirements on entities operating in this space.

In the meantime, please support the journalists who are working against an asymmetric information system to try to bring transparency to this industry.

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Michael J. Casey is CoinDesk's Chief Content Officer.