Waking up last week to the news of Sam Bankman-Fried’s arrest and criminal charges was a huge relief. This individual, once a leading and inspiring visionary for crypto’s potential to create financial freedom, has broken the public's trust.
Since FTX collapsed, my algorithmic trading tool company, which never handled customers’ money but did help them execute trades on platforms like FTX, has been hearing from hundreds of our clients who are now unable to access their funds on the exchange.
People have called us crying, asking us how we can help them. “How could someone do this to us?” It’s heartbreaking. It’s criminal. But at least now justice is taking its course.
Bankman-Fried’s charges and arrest are a positive development not just because they are part of a functioning law enforcement and justice system, but because it is a sign that crypto may survive the ongoing storm. In order for the crypto economy to survive, governments need to, at minimum, enforce basic laws in the sector–as they have finally done with the charges against Bankman-Fried. But the government is taking too long to develop coherent regulations. As an industry, we can’t afford to wait.
Beyond government enforcement, the industry needs to be more proactive and united about developing its own standards and a system of self-regulation. If the collapse of FTX ultimately brings about these developments now, crypto can thrive.
When the history of cryptocurrency is written, chroniclers will likely use Nov. 11, 2022, to refer to the change in what crypto and DeFi are all about–“BFTX” and “AFTX,” before and after the bankruptcy and subsequent disgrace of the company that many saw as the best chance for cryptocurrencies and DeFi to “go mainstream.”
With the collapse of Bankman-Fried's exchange, even former advocates are turning their backs on crypto, taking steps to limit or even ban its use. The idea of crypto and DeFi as a way towards financial freedom and the liberation of finance from gatekeepers–formerly a common theme in articles and blog posts–is increasingly being questioned.
However, those ideas are not dead. The negligence, bad practices, and perhaps even outright fraud that led to the collapse of FTX–need to be separated from the principles crypto stands for.
Those are principles that speak to billions of people around the world: freedom of commerce, unchained from the system that dictates not only how we can do business, but also whether we can preserve the value of our earnings.
To allow those principles to thrive, the government does not even have to develop a new regulatory framework for the industry, it simply needs to enforce basic laws. In addition to the charges against Bankman-Fried, the recent news that the U.S. Department of Justice is weighing money laundering charges against Binance, another major crypto exchange, are steps in the right direction. Enforcing laws, rather than letting the sector rot away, with millions of people losing money, will go a long way in making it a legitimate space and protecting consumers from outright fraud.
After a decade of talking about regulating crypto, nothing has happened. Any government regulations would likely favor the traditional financial system, with a seemingly endless boom-and-bust cycle managed by the Fed, to either promote growth or tamp down inflation, as gatekeepers see fit.
Instead, the various major players in the crypto industry need to come together and develop basic financial protocols, like keeping money in custody, risk management standards, and methods of communicating the full risk to the public. In addition, the industry needs to develop internal standards for enforcing and overseeing these financial protocols, as well as ensuring transparency in other parts of its operations. We have seen successful similar efforts at operating standards in many other industries, including 5G and the Internet. This will give the average person more confidence, security, and understanding.
Friedman’s arrest is not just the first step in bringing him and FTX to justice. It will help create a crypto sector that can survive–and deliver on the ideals of freedom and transparency on which the industry was built.
Dmitry Gooshchin is the COO and co-founder of EndoTech.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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