TradFi error is NOT a crypto issue. Blockchain fixes this.

Legacy media quickly reverted to tired and misguided accusations that all cryptographics are a scam after the collapse of FTX, Voyager, Celsius and BlockFi last year. Yet none of the problems these failed companies faced were caused by blockchain. Instead, criminal activity, greed, poor risk management, novice business processes, hubris and malicious actions were to blame – all of which occurred outside the chain.

I mean, the “Bitcoin is dead” mantra even made a comeback, with mainstream media declaring the top cryptocurrency “dead” 27 times in 2022. Interestingly, this was down about 50% from the previous year.

It’s not a crypto thing – it’s an IRL thing.

Now two TradFi banks are insolvent to the point of collapse – Silvergate and Silicon Valley Bank – and the contagion to the crypto industry is felt most notably by Circle’s USDC, which has billions of dollars deposited in Silicon Valley Bank.

Again, none of the factors negatively impacting the crypto industry right now are due to on-chain failure. Instead, these are issues of the legacy financial industry, and they only affect crypto because of government resistance to adopting distributed ledger technology like blockchain.

In fact, TradFi and legacy financial markets have hit the crypto industry harder in the past two years than any other sector. Blockchain solves many problems, but one in particular was clearly seen during the collapse of FTX when centralized off-chain exchanges were adversely affected while DeFi loans linked to the contagion worked as intended, and liquidations occurred without affecting the underlying DeFi protocols themselves. . DeFi worked where TradFi failed.

The same thing happens again. Every time there has been a bank run on Tether, it has survived and cashed out tens of billions of dollars over the past 12 months while operating flawlessly. Likewise, the blockchain record of USDT’s supply has been proven time and time again, even with countless investors doubting Tether’s reserves.

However, Circle’s USDC may suffer a different fate as the reserves, which were held in a traditional bank, are now unavailable to them. As a result, their USDC on-chain tokens continue to function correctly, but the underlying assets in the physical world are unavailable.

This is not a crypto bug.

This is not a failure of blockchain.

This is a failure of the traditional banking system.

TradFi dinosaurs

Satoshi invented Bitcoin after the 2008 global financial crisis, and while he may have worked on the project before, the events clearly spurred his motivation. For example, he wrote in a post from 2009:

“The root problem with conventional currency is all the trust required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is littered with breaches of that trust.”

While we all at ETHDenver talk about the potential of zk proof, worry about the problems with bridges and look to improve account abstraction, TradFi falls for the same rudimentary mistakes over and over again. We are concerned that our global interconnected distributed ledger network of Turing complete systems could be better. Meanwhile, banks running ATMs on Windows XP are leveraging fractional reserve banking and high-risk investments to make themselves billions until they go broke.

Everyone said the banks were “too big to fail” in 2008 and all we did was kick the can down the road with hardly any arrests for financial crimes. So while we may have Sam Bankman-Fried awaiting trial, there are potentially hundreds of white collar criminals still working in TradFi or TradFi-related businesses to this day.

Capitalist greed and outdated financial systems are on the verge of activating a snowball financial crisis that started over 15 years ago.

Blockchain fixes this

At the risk of being labeled a “crypto bro”, blockchain fixes this. Of course, blockchain doesn’t cure all ailments, but it’s damn good at solving financial problems. Why? It is certain, proven and immutable.

The problem? It is secure, proven and immutable, so it cannot be exploited. FTX would likely never have gotten to the position it did if all the financial activity happened on-chain. SBF. Instead, he used proprietary in-house technology, with a spread of QuickBooks, to handle his allegedly criminal needs.

Likewise, governments cannot issue frivolous expenses on the chain, partake in bribes, or misuse funds. I am not pointing fingers at any government in particular, but it is naive in 2023 to assume that all governments operate with 100% efficiency and 100% honesty at all times. A well-designed blockchain does this, and through the integration of zero-knowledge technology, privacy can even be maintained for private transactions, but in a trustless environment.

No time for fear

The Crypto Fear and Greed Index fell back into the “fear” category following the Silvergate liquidation announcement, and is likely to decline further following this weekend’s USDC events. However, I don’t think this is a time to be afraid of the crypto industry. The infrastructure being built outclasses the legacy financial industry at every level, and the utility of on-chain transactions surpasses anything cash can do.

This is not the time to be afraid of crypto. This is a time to be afraid of FIAT.

So often I hear people talk about the ‘use case’ for crypto and if the situation is appropriate I will explain the myriad uses of blockchain technology across many industries. However, the most important use case is to replace our current outdated pseudo-digital financial system.

My heart goes out to everyone losing their savings through this banking crisis – if that’s where we’re headed – but it’s just another reminder that the current system is broken and it’s time for a change.

A new financial system

It won’t happen overnight, but don’t give up on a technology that can help build a better, fairer, more inclusive world.

I entered the world of cryptocurrency to use the privileges afforded to me by my loving family in the UK, private schooling and attending a top UK university to make a real difference. For the most part, the current economic system worked for me – but I was in the minority. I firmly believe in the potential of blockchain technology and have no faith in the traditional banking system.

As I write this, I laugh that some may think that I am stuck in the “cult” of crypto, that I have been indoctrinated into a web of meme coins and Ponzi schemes. Yet that is the irony.

Crypto has no leader; it has no centralized leadership, demands for loyalty, demands or shyness from criticism. However, Crypto has fixed beliefs – decentralization, financial freedom, self-storage, security and transparency. But if you think you have to be in a cult to hold those beliefs, you’re probably in a cult yourself.

In fact, I fully accept that the entire crypto industry is essentially in beta right now – and in my view – the most exciting beta of all time. Screw ChatGPT; I’ll take an interconnected EVM/IBC landscape backed by the strength and security of Bitcoin any day.