The blockchain industry may cool down after the FTX collapse, but many are not betting long

The spectacular fall of FTX, once the second largest cryptocurrency exchange in the world, is another black eye for blockchain, a growing technology industry in Massachusetts.

The crash occurred following revelations that FTX used customer funds to make risky bets without proper security. The bomb wiped out nearly $150 billion in digital currency.

Many investors now worry that they have lost all the money they placed with FTX, which froze accounts and filed for bankruptcy.

Cryptocurrencies, such as Bitcoin, are built on a technology called blockchain, which is essentially a record of transactions maintained across a network of computers. It allows users to make digital transactions without an intermediary, such as a bank. According to an estimate by state lawmakers, the blockchain industry in Massachusetts was worth about $12 billion as of June.

When scandals like the one involving FTX happen, people in the industry brace themselves for backlash.

“I think like everyone else, I was a little bit in shock,” said Steve Derezinski, who co-founded Hashchat.xyz, a company that uses blockchain to send encrypted messages. “I think it’s going to have a chilling effect on the general tension around that area.”

While cryptocurrencies aren’t the only way to use blockchain, people unfamiliar with the technology tend to conflate the two, Derezinski said. He hopes that once the initial shock of the FTX flame wears off, more people will pay attention to blockchain projects beyond cryptocurrencies.

“I think there are still a lot of people who are ready to build and create new things,” he said.

Representative Kate Lipper-Garabedian, a Democratic state legislator from Melrose, said she is convinced blockchain is here to stay.

“There are a lot of other practices where it can be deployed that are going to be critical, and frankly, become integrated into the way we do business,” she said.

Some examples include the potential to authenticate and securely store legal documents, she explained.

Lipper-Garabedian recently filed a bill that would create a legislative commission on blockchain. If passed, the commission would be tasked with making recommendations to “appropriately support the industry.” It will likely include funding for education and workforce training in blockchain technology.

Lipper-Garabedian acknowledges that events like the FTX scandal, following other crypto scandals, increase pressure on lawmakers to regulate the industry. She expects state lawmakers to introduce more bills related to blockchain in future legislative sessions.

Blockchain enthusiasts have traditionally been skeptical of government regulation, but recent crashes have softened the view of many. Investors in particular are usually not fans of volatile markets.

“No one is saying, “Let’s do whatever we want,” said Giuseppe Stuto, co-founder of 186 Ventures, which has invested in several local blockchain startups. “People are saying, ‘Tell us what we can and can’t do with clarity, please. “

In the short term, Stuto said he expects many larger investors to pull back on their investments in new blockchain ventures. In the longer term, he believes that more scrutiny from investors will lead to more viable blockchain companies.

“I actually think a lot of positive things will come when the dust settles, he said. People will ask themselves what is worth working on and building, so there will be much more intense focus on the right areas.

Rob Sarnie, who spent 23 years at Fidelity and now teaches financial technology at Worcester Polytechnic Institute, expects a shift in the role of digital currencies. Sarnie said the proliferation of scams is likely to deter more people from using cryptocurrency as a speculative asset or get-rich-quick scheme.

“I’m about where’s the value?” he said. “With my [U.S.] dollar…I know what it’s worth. I know the US supports it.” Not so with cryptocurrency.

Sarnie remains convinced that the future of currency is digital. But he said it could be in the form of a government-issued digital currency or stablecoins, a type of cryptocurrency pegged to the US dollar.

Boston-based Circle is the second largest stablecoin issuer in the world. The value of the currency, USDC, has remained stable despite recent digital currency crashes.