OPINION | ‘I thought crypto exchanges were safe’: The lesson for everyone in FTX’s collapse By Paul Mazzola and Mitchell Goroch READ:
A deputy principal of a high school in Queensland, over the past year he spent hundreds of thousands of dollars buying cryptocurrencies, borrowing money using his home as equity.He’d bought through FTX, the world’s third-biggest cryptocurrency exchange, endorsed by celebrities such asco-creator Larry David, basketball champions Steph Curry and Shaquille O’Neal, and tennis ace Naomi Osaka.
They’re just private businesses that make money by helping “mum and dad” investors to get into crypto trading, profiting from the commission charged on each transaction. In the early days of Bitcoin the only way to acquire it was to “mine” it — earning new coins by performing the complex computations required to verify and record transactions on a digital ledger .
Before exchanges emerged, trading involved owners selling directly to buyers via online forums, transferring coins from one wallet to another like any electronic funds transfer.Cryptocurrency exchanges reduced the need for such knowledge. They made it easy for less tech-savvy investors to get into the market, in the same way web browsers have made it easy to navigate the internet.
Holding both wallets and keys, founder-owner Sam Bankman-Fried “borrowed” his customers’ funds to prop up his other businesses. Customers realized too late they had little control. When it ran into trouble, FTX simply stopped letting customers withdraw their assets. Such marketing has helped to create the illusion that FTX and other exchanges were as safe as mainstream institutions. Without such marketing, it’s debatable the value of the cryptocurrency market would have risen from US$10 billion in 2014 to US$876 billion in 2022.What this means is that your crypto isn’t safe unless you have self-custody, storing your own coins in your own wallet to which you alone control the private key.
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