The collapse of FTX has caused yet another destructive wave to wash over crypto – the world of altcoins, crypto exchanges and overleveraged entities.
It’s impossible to say at this point how much collateral damage the loss of what was once the third-largest crypto exchange – whose founder had a foot in the door in Washington, D.C., his face plastered on sports stadiums and subway stations as well as his fingers in untold financial pies – will bring.
BlockFi, which was rescued by FTX just months ago, has paused withdrawals, Genesis, a CoinDesk sister company, needs another lifeline and rumors are circulating that many Solana-based projects are facing insolvency. (Bankman-Fried was a notable supporter of SOL.)
Will Szamosszegi is founder and CEO of Sazmining.
The lesson to sufferers and outside witnesses alike is the same, and it is simple: Self-custody your bitcoin. Do not fall to the temptation of staking rewards, harebrained tokenomics schemes or the simplicity of using an exchange.
Bitcoin maximalists are called “toxic” for being so hardlined about this issue, but they've been proven right time and time again. A new generation of ardent bitcoin maximalists will be born from FTX's implosion.
‘Toxic’ maximalism wins the day
During the summer of 2022, controversy struck the Bitcoin community regarding toxic maximalism: Partner at Castle Island Ventures (and CoinDesk columnist) Nic Carter (then a vocal bitcoin supporter) had participated in an investment in a Web3 wallet company, and was called out for building beyond bitcoin.
In response to his critics, Carter wrote a lengthy Medium article in which he distanced himself from the bitcoin maximalist community: “I am not a “bitcoin maximalist, I have never been one, I will never be one.” Entering and exiting the bitcoin community is voluntary, but on his way out Carter showed maybe he never understood bitcoin’s “toxicity.”
Bitcoiners certainly take up a few unapologetic, uncompromising stances. Tomer Strolight, editor in chief at Swan Bitcoin, has argued that bitcoin maximalists’ perceived toxicity is really just principled opposition. When maximalists criticize centralized crypto exchanges, curse the altcoin ecosystem or call creators of new tokens scam artists, they are actually working to uphold the integrity of the Bitcoin network.
Read more: The Collapse of the FTX Empire
For these views, bitcoiners have been called parochial. For instance, Stephan Livera, managing director of Swan Bitcoin, wrote in Bitcoin Magazine that maximalists are often criticized for not “understanding” the broader cryptocurrency ecosystem. This is incorrect because bitcoiners (many of them former “crypto” advocates) understand blockchains only too well.
There are technological limits to what blockchains can achieve, social contagions in crypto that foment scams and economic principles such as creating a viable alternative to fiat currencies at play. Bitcoiners think bitcoin eventually will become the next global reserve asset – and so can argue in good faith that playing with other cryptocurrencies or trusting one’s BTC to a third-party is a waste of one’s time at best and a dangerous risk at worst.
This hardline stance certainly looks good today because the broader crypto industry is facing its “Lehman moment.” Bitcoin maximalists are entirely correct that if all you did was buy bitcoin and store it in a hard wallet you would have placed yourself completely outside of FTX’s economic blast radius.
Read more: It’s Time to End Maximalism in Crypto / Opinion
One may quibble over bitcoin maximalists’ choice of words (like the vulgar term for a supposedly scat-related coin) but perhaps they have been strident for a reason. From their perspective, altcoins and “easy” crypto rewards have always had zero value, and the people selling you them have always been snake oil salesmen. Crypto calamities are always around the corner, and bitcoiners are only trying to warn others.
A new generation of maxis
Many crypto enthusiasts who are suffering due to FTX’s implosion are likely to take a second look at all of the “toxic” messaging that bitcoin maximalists have been shouting from the rooftops. It could begin with a simple question. Were the maximalists right?
They will begin their journey anew, assuming they do not exit crypto entirely, no longer so susceptible to crypto scams. But if they keep an open mind, and try to return to the principles of decentralization, self-custody and self-reliance, they will find that bitcoin is unique.
It’s not just bitcoin’s origin story – the first “cryptocurrency” was founded by a pseudonymous developer who launched the network fairly and stepped away from his vast trove of tokens earned just like anyone else – that sets it apart. But also, what Bitcoin has become: A decentralized financial network that anyone can use, that’s governed transparently by predetermined rules and that no one can shut down. What is crypto in comparison?
Well, crypto is Sam Bankman-Fried: a (former) billionaire who lied to investors and his own users. Crypto is FTX: an underfunded exchange that provided little social or economic value even when it was in operation, that people trusted. Crypto is Alameda Research: a hedge fund that in all probability traded against FTX users, backed dubious projects and had a hole so big in its balance sheet it swallowed the crypto industry.
The new generation of ardent bitcoin maximalists born from FTX’s ashes will, in time, hold their bitcoin keys on their own wallets (perhaps a Trezor or Ledger) and they will not be susceptible to Ponzi schemes propped up by the reputation of whoever the next paper billionaire with his/her own coin.
The pain felt right now is real. The feeling of having been deceived must be unbearable. But know that whatever shame, guilt, anger, depression or rage you have ties back to one source. Bankman-Fried got away with his lies for so long because “crypto” itself is built on a lie: What calls itself a revolution is really just the fiat system par excellence. Satoshi Nakamoto started a new network that makes double-counting impossible because everyone has the same view of what’s going on. It exists, while crypto can vanish.
This is the free market in action: Mistakes are punished and correct choices are rewarded. Both ideologically and economically, this week’s crypto fallout have only strengthened bitcoin and its advocates’ argument.