The collapse of FTX has been big news. For many people, it’s been hard to believe how badly the company was managed – or, to be more straightforward, how fake it was. Generally, crypto firms have lost a lot of value this year, and many question marks have been raised around blockchain and Web3 solutions.
But is it fair to say this was a surprise? These markets have shown many signs of uncertainty and risk for years, while also presenting opportunities for people to make quick money. Many shifts in the blockchain space have been based on speculation, not real, valuable solutions.
I have written several times about blockchain, cryptos, Web3, and decentralized solutions. Most recently, in June 2022, I wrote that crypto investors must ask harder questions and demand clear answers. Earlier this year, I wrote that Web3 needs real business models, not more marketing hype. Last year, I wrote that it was crucial to remember that an NFT alone doesn’t create value for a digital item. In 2019, I wrote that it was time for a reality check on blockchain. And in 2017, I wrote that cryptos needed a real finance ecosystem, including KYC, AML, independent analysts and ratings.
I do not list those issues here simply to claim that I have known better than others. The market has serious issues. Actually, I have been quite optimistic about decentralized solutions in that they can be very valuable for many purposes. However, it has been obvious that most transactions and value estimates have been based on speculation rather than real solutions that offer real value to everyone in the value chain.
Critical crypto questions
Many respected finance media outlets have also raised important questions about cryptos, such as the Financial Times’ skeptic’s guide to crypto. However, they have also received some angry reactions for doing so. I have received similar comments after my articles – people have told me they have a solid crypto and Web3 business, and that I just don’t understand it.
Angry reactions are often a sign that everything is not so great. If these people have a great business, they probably wouldn’t spend valuable time sending angry messages to people who ask questions about the business models.
As mentioned above, I’m still positive overall about the potential for decentralized solutions, advanced ownership models for web and digital assets, and digital currencies. I believe they are coming, and the benefits will be substantial. The real issue is how businesses execute to unlock that potential.
It is really important to focus on building models that really work and offer real value to users. Also, it is fundamental that key parties understand the technology properly. Many people still have illusions about how blockchain really works or how mature the technology is.
Where are the real decentralized solutions?
Perhaps a more fundamental question to ask is whether problematic ‘crypto businesses’ have anything to do with real decentralized solutions, Web3, or even proper crypto models. FTX was very much like a centralized investment service that didn’t even handle investments or deposits properly. Other crypto services are in reality tools to launder money or work around sanctions. Some are just pure pyramid schemes.
We also have to consider the behaviour of so-called professional investors, including VCs, who should be able to properly evaluate the risks of new disruptive models. The VC culture is part of the problem. VCs have strong FOMO (the fear of missing out), and they love egotistical people with big stories. Just look at WeWork and Uber to see how VCs finally ended up in trouble alongside the founders they empowered.
The FTX case has also shown us that VCs don’t do their homework properly when they look for opportunities to invest in hot deals. They don’t even require basic corporate governance! As we’ve seen repeatedly, this leads to big problems.
The founder of Theranos, Elizabeth Holmes, just received an 11-year sentence for fraud. Both Holmes and FTX founder Sam Bankman-Fried have been touted on Fortune magazine covers (2014 and 2021, respectively) as young geniuses. You can have big or even crazy visions, but the question to investors should be who is focused on execution and who just wants to get quick money by talking a good game. Beyond that, there are also legal and ethical questions and the consequences involved.
Time to show real value
All in all, the problems in the crypto market aren’t just about cryptos or the underlying technology. It’s also very much about:
- People that just want to make quick money with exciting new ideas, even if they cannot (or are not willing to) implement them
- Investors who want to make quick money but are too lazy to do their own work
- Earning models that are not based on delivering value to other parties and users, but a speculative value of assets.
Blockchain and bitcoin are almost 15-year-old technologies. You would think they’d have already created stable and valuable business models by now. But it should not be a surprise to anyone who has really looked at the technology and businesses in this area that it’s still hard to find solutions and services that offer real value to users.
These things take time. But we really need better solutions for decentralized services, digital finance, and digital asset ownership. It is time to make those things click now. Until that happens, most money in the crypto market will remain speculative, and many people lose money when it is a zero-sum game. I hope that I can write about real success stories in a few years, not about the next crypto, Web3 or metaverse bubble.
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