FTX’s Sam Bankman-Fried once said Blockchain would have fixed Enron
Sam Bankman-Fried, the founder of hedge fund Alameda Research and crypto platform FTX, was a frequent guest on both mainstream financial news and more niche crypto podcasts. And while digging through his media appearances over the years, Gizmodo stumbled upon a very strange analogy from SBF, as he’s often known, in which the now-former billionaire explained that massive fraud at Enron wouldn’t have been possible if the company used the blockchain.
SBF appeared on the “Jax Jones and Martin Warner Show” on YouTube back in June 2021 and discussed the wonders of blockchain technology, wanting to explain how it could be used to ensure bad things couldn’t happen. SBF asked one of the hosts to give him an example of a company that had been in trouble. Amazingly, one of the hosts suggested Enron as an example, a company name that seems perversely funny in retrospect. And SBF just rolled with it.
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“What were some of the biggest shitshows that major companies have gone through… in the last year? Really negative events that really hurt their user base? What are the first ones to come up?” SBF asked in the YouTube video starting around 52:20.
“Well, take Enron,” suggests one of the hosts.
“Yeah, okay, great, Enron,” says SBF. “Not a good situation.”
“I admit it was a bit of a curve ball, but I think they all apply,” says the host.
“What Happened to Enron? Well, they cooked their books, you know, what could you do? Well, if you get books to be chained, at least some parts of it, some checksums for it, it makes it much more difficult to fabricate them,” SBF said.
Enron, of course, was a Texas-based energy company that manipulated its books, despite audits by a supposedly reputable firm known as Arthur Andersen. Enron saw $74 billion in investor assets disappear when it filed for bankruptcy in 2001. And if the allegations against FTX are correct, and SBF commingled funds by taking customer deposits on FTX and gambling them away at sister company Alameda Research, there is plenty of room for comparison in these multi-billion dollar implosions.
Another reason the mention of Enron is funny? After FTX filed for bankruptcy, the new CEO was John Ray III, the same man who oversaw Enron after its spectacular collapse. After Ray took over, he wrote, “never in my career have I seen such a complete failure of corporate controls.” FTX is apparently worse than Enron, if you believe Ray.
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But was SBF right about blockchain? And what the hell is this blockchain? Blockchain can essentially be thought of as a decentralized database that is maintained by offering incentives for people to keep the network running. In the case of Bitcoin’s blockchain, the incentive is Bitcoin, since that’s what all these “miners” do all day when they use so much energy – they essentially maintain a database of transactions in the sky and get paid for it in Bitcoin.
But would Enron have been kept more honest if the books were kept on the blockchain? May be. But it is hard to imagine that a company would want all its financial records stored in such a public way. The SBF suggests that “some parts” of Enron’s books may have benefited from being on the blockchain, but that is certainly not the case for any other large real-world company.
In fact, most of the “we’re moving to blockchain” articles you read about a few years ago are completely outdated now. The companies that tried to use blockchain technology because of all the hype actually found moving to a blockchain database expensive and unnecessary.
Ironically, FTX did not hold anything important on the blockchain when SBF advocated its use. It would actually be helpful to keep the company honest if there was an accurate ledger of all the ways money moved between FTX and Alameda. But that didn’t happen in the company, and blockchain probably wouldn’t be the answer.
Bitcoin’s blockchain can only process about seven transactions per second, which is just one of the reasons why it hasn’t become a good way to pay for things. And while Ethereum is slightly better at 20 transactions per second, that’s nothing when you take a look at our modern digital financial system. Visa can process 24,000 transactions per second, according to Crypto.com. And until crypto can come close to Visa’s numbers, people will still use Bitcoin for little more than get-rich-quick schemes.
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