If cryptocurrency has its own history, the chapter of 2022 is definitely a remarkable one. The collapse of the top ten cryptocurrencies by market capitalization, the companies filing for bankruptcy or liquidation due to capital flow defects, FTX, the second largest cryptocurrency exchange in the world, made the savings of countless investors wiped out in just 24 hours. By now, we cannot estimate the affects of the fall of the FTX, but what we can assure is: this incident has worsened the situation of the cryptocurrency market. People who don't clearly understand the cryptocurrency market, interpreted the incident as "the fault of cryptocurrency". Some might even consider that crypto industry has come to an end.
Evidently, the fall of FTX was not caused by cryptocurrency, per se. To explain the reason, it's all about the core value of the blockchain: Decentralization.
Most people get to know the blockchain because of Bitcoin. In fact, Bitcoin is only one of the applications of the blockchain, as the underlying technology of Bitcoin, the Blockchain is actually “a distributed database of records or public ledger of all transactions or digital events that have been executed and shared among participating parties”. Simply put, it is an electronic ledger that everyone can participate in, and every transactions on it will be recorded. These natures constitute the "decentralization" characteristic of the blockchain, and moreover, became its core and most prominent essence.
The underlying technology of the blockchain nurtured a variety of cryptocurrencies. In response to the increasing transaction volume of cryptocurrencies, different exchanges have begun to appear, such as Binance, FTX, Coinbase Exchange, etc., investors can have trading on it. Most of the exchanges mentioned above are operated by enterprises, which have their own hierarchical structure with 100% centralized.
As far as the FTX thunderstorm is concerned, the data on the chain clearly records its capital flow. Some people even shouted out as warnings. The PR image of FTX founder, Sam Bankman-Fried, however, was too good to be criticised and people were misled by the "Too Big to Fail" illusion. All these factors led to the shocking fall.
The FTX scandal damaged people’s confidence towards the exchanges. They might assume that “all crows under the sun are black", and some people even considered that "once the cryptocurrency leaves the exchange, it becomes priceless".
This idea is somewhat trained by the traditional finance industry, which believes that once the stock exchange goes bankrupt, the stocks in hand will also become useless. But as mentioned above, cryptocurrencies are based on applications on the blockchain. Even if the exchange goes bankrupt, the coins in your wallet are still valuable. On the other hand, centralized exchange is not the only medium for investors to trade, there are also decentralized exchanges, such as UniSwap, GMX, dYdX, etc.
Apart from the centralized exchanges, we also have decentralized exchanges and decentralized finance. And as a matter of fact, the development space that the latter can open is far larger and richer than everyone imagines. FTX, as a centralized exchange, is only a small slice of the entire cryptocurrency industry and the blockchain field. The fall of FTX remind us to pay attention to the blockchain and a real decentralization.
Find out more about decentralization and decentralized finance in the next article!
