Speaker 1: Welcome to text, a production from I Heart Radio. Hey there,
Speaker 1: and welcome to tech Stuff. I'm your host, Jonathan Strickland.
Speaker 1: I'm an executive producer with I Heart Radio and how
Speaker 1: the tech are you? So we're continuing to look back
Speaker 1: on the big tech news stories of two as we
Speaker 1: round out the year. And of course you'll already know
Speaker 1: what this episode covers, because I'm sure I titled it
Speaker 1: in a way that reveals it. But just in case,
Speaker 1: I thought I would try my hand at a little theater.
Speaker 1: Now is the winter of our crypto coin, made even
Speaker 1: worse by Sam Bankman freed, and all the doubts that
Speaker 1: lowered upon n f T s now cross the blockchain
Speaker 1: entire are laid. Now are our wallets, but home for
Speaker 1: moths are sub bredits filled with bros calling hoddle our
Speaker 1: stern skeptics, doth say, I told e thus, dreadful partners,
Speaker 1: asking where the hell is our money? Okay, my apologies
Speaker 1: to you and to a certain master Shakespeare, But honestly,
Speaker 1: I doubt I'm ever going to have the opportunity to
Speaker 1: play Richard the third, And so that's the best I
Speaker 1: will ever hope for. And yes, this episode we are
Speaker 1: going to cover some of the big stories that revolved
Speaker 1: around cryptocurrency in two and there is a lot to
Speaker 1: go over, from crypto in general declining and value over
Speaker 1: the year, to some cryptocurrencies making a big important change
Speaker 1: in how they operate, to the infamous collapse of the
Speaker 1: ft X crypto exchange, to related stuff like blockchain and
Speaker 1: web three hype. You don't very much web three hype
Speaker 1: right now? Huh, Well, we'll talk about why, but let's
Speaker 1: get to it now. First up, I think it's important
Speaker 1: to do a quick refresher on cryptocurrency. It's a term
Speaker 1: that is used a lot often without very much explanation
Speaker 1: as to what goes into cryptocurrency. People just think, oh,
Speaker 1: it's a digital form of money, and so I think
Speaker 1: we need to have a little bit of groundwork laid now.
Speaker 1: The whole trend began thanks to a white paper that
Speaker 1: proposed a blockchain, a shared ledger, and a digital currency
Speaker 1: called bitcoin. Now, unlike other currencies, bitcoin wouldn't be dependent
Speaker 1: upon a country's government or some central financial institution. It
Speaker 1: would be a decentralized digital currency. Participants in the system
Speaker 1: could even earn rewards by helping to verify bitcoin transactions.
Speaker 1: So each transaction would join others and they would form
Speaker 1: a block, and each block would be laid in front
Speaker 1: of the last block in a chain of blocks. Thus
Speaker 1: the block chain. The values represented within a block would
Speaker 1: depend upon all the blocks that came before it. Now,
Speaker 1: this would mean that no one would be able to
Speaker 1: go back to earlier transactions and alter one of them,
Speaker 1: you know, like in an effort to say return some
Speaker 1: bitcoins they had they had spent. Let's say that you
Speaker 1: had five bitcoins, you spent four of them, and then
Speaker 1: later on you thought, I need more money. So what
Speaker 1: if I just go in and erase that transaction and
Speaker 1: magically give myself back the four bitcoins that I had spent.
Speaker 1: That way, I could double spend the same bitcoins. Well,
Speaker 1: if you did that, if you went back into the
Speaker 1: blockchain and you changed that transaction, if you found a
Speaker 1: way to do it, that would actually change all the
Speaker 1: values of the blocks that came after it. And that
Speaker 1: means everyone would know that you try to be very
Speaker 1: very naughty. Now, there are a few different ways to
Speaker 1: verify transactions and to award cryptocurrency units. The way Bitcoin
Speaker 1: does it is called proof of work. Now we're going
Speaker 1: to be super high level with this. But in this method,
Speaker 1: computers in the system are essentially competing against each other
Speaker 1: in order to solve a math problem. Or really it's
Speaker 1: about guessing the right number, and it should take about
Speaker 1: ten minutes to get the right answer on average. But
Speaker 1: if computers start to take longer to answer it because
Speaker 1: the problems are really hard, well, the system actually adjusts
Speaker 1: to make those problems easier to get closer to that
Speaker 1: ten minute benchmark. If it starts taking less time. If
Speaker 1: systems are solving the problem earlier, well, then the system
Speaker 1: makes the problems harder to solve. Now, a downside to
Speaker 1: this approach is that as the currency increases in value,
Speaker 1: there's a greater incentive for people to try and earn
Speaker 1: the cryptocurrency by verifying these transactions. This is called mining.
Speaker 1: So these people start pouring more money into their computer
Speaker 1: systems so that they have more computer power to dedicate
Speaker 1: to this, and they get an edge on all the
Speaker 1: other competitors in the system. If the value keeps going up,
Speaker 1: this becomes an escalating war between the various mining operations.
Speaker 1: So with Bitcoin, the value at the beginning of two
Speaker 1: was nearly forty eight thousand dollars per bitcoin, and each
Speaker 1: time you verified a block of transactions, which again was
Speaker 1: every ten minutes, you would get six point to five
Speaker 1: bitcoins as a reward if you were the system that
Speaker 1: got the problem right first, so that would be worth
Speaker 1: around three hundred thousand dollars at the beginning of two,
Speaker 1: and you would have a chance to do it all
Speaker 1: over again in just ten minutes. So if you managed
Speaker 1: to be the winning computer system for every single block
Speaker 1: in a in a single day, you would end up
Speaker 1: solving around one hundred forty four blocks at that point,
Speaker 1: that would be nine d bitcoins, which would be worth
Speaker 1: around forty three million, two hundred thousand dollars in US
Speaker 1: dollars at the beginning of January two. That's a huge
Speaker 1: amount of money right now. It would not be likely
Speaker 1: for you to be able to do that. Chances are
Speaker 1: other systems would be solving some of these throughout the day,
Speaker 1: but even if you only needed a few, that's still
Speaker 1: a huge amount of money. So it was no wonder
Speaker 1: that there were entire massive networks dedicated to bitcoin mining.
Speaker 1: Folks were taking over decommissioned power plants and then firing
Speaker 1: them back up in order to provide the electricity needed
Speaker 1: to power these customized mining systems that were designed to
Speaker 1: beat out all the other competition. Bitcoin mining was creating
Speaker 1: a strain on power grids. It was actually responsible for
Speaker 1: more electricity usage than some countries create in an entire year,
Speaker 1: which is just wild. But that's just the basics, right,
Speaker 1: That's for the basics for bitcoin, and we will talk
Speaker 1: about an alternative to proof of work later on in
Speaker 1: this episode, but first, let's talk about an early setback
Speaker 1: that happened for cryptocurrency sort of, and that would be
Speaker 1: when Meta a k a. Facebook because that's what it
Speaker 1: was called when it first came up with this plan
Speaker 1: ended up ditching its plans for its own cryptocurrency. So
Speaker 1: some backstory. Back in two thousand nineteen, Facebook, which was
Speaker 1: not yet known as Meta because it adopted that name
Speaker 1: in late announced that it was developing a cryptocurrency that
Speaker 1: at that time was called liber up Now. Instantly, governments
Speaker 1: and regulators around the world started to express concern that
Speaker 1: such an influential tech company was essentially looking into ways
Speaker 1: to print its own money. Even some crypto enthusiasts got
Speaker 1: a little worried as Facebook's approach didn't really follow that
Speaker 1: decentralized path that coins like bitcoin purported to follow, like,
Speaker 1: you would have a centralized authority in the form of
Speaker 1: Facebook or the association that Facebook would create. Now, Facebook
Speaker 1: did not intend to be the soul core of Libra. Instead,
Speaker 1: Facebook created a consortium and association, the Libra Association, a
Speaker 1: group of companies that would serve as sort of the
Speaker 1: custodians of this digital currency. And unlike coins such as bitcoin,
Speaker 1: the average person would not be involved in verifying blocks
Speaker 1: of transactions. You wouldn't have these groups of digital miners
Speaker 1: building massive computer systems trying to beat each other out
Speaker 1: to verify. Instead, the consortium would handle it. So you
Speaker 1: had this against centralized authority in that sense. Now, Facebook
Speaker 1: ended up creating a division called Calibra, and it was
Speaker 1: dedicated to creating digital wallets that Facebook users would be
Speaker 1: able to link to their Facebook accounts, and other members
Speaker 1: of the consortium would also be able to make Libra
Speaker 1: compatible digital wallets. But Facebook had a bad reputation already
Speaker 1: in two thousand nineteen. It would only get worse in
Speaker 1: and it hasn't exactly gotten better this year. So this
Speaker 1: was a company known for not doing enough to keep
Speaker 1: illegal content off its own platform. Governments, particularly the US government,
Speaker 1: were understandably concerned that a company that had shown such
Speaker 1: reluctance or incompetence take your pick when dealing with harmful
Speaker 1: content now wanted to create its own currency. There were
Speaker 1: multiple hearings to hold Facebook accountable to following laws and
Speaker 1: creating safety measures that financial institutions have to have, right,
Speaker 1: so they're essentially saying, hey, we require all the official
Speaker 1: currency institutions in this country to follow these rules. You
Speaker 1: will be expected to do the same. So now we
Speaker 1: have to start making sure that you have the systems
Speaker 1: in place to do that now. Towards the end of
Speaker 1: Libra got a name change. It changed to d M,
Speaker 1: partly to distance itself from Libra because Facebook's reputation was
Speaker 1: getting uglier by the day. Facebook would follow this same
Speaker 1: strategy in late one, that's when it changed its corporate
Speaker 1: name to Meta, and then by early two the project
Speaker 1: was pretty much dead in the water. There were a
Speaker 1: lot of internal discussions and disagreements with the direction of
Speaker 1: the currency company. After company dropped out of the Libra association,
Speaker 1: and the opposing regulation authorities really had killed all momentum.
Speaker 1: So without fanfare, Facebook dissolved the liber Association and it
Speaker 1: sold off the i P connected to Libra slash d
Speaker 1: M for about a d eighty million dollars, and Facebook's
Speaker 1: attempt at making a cryptocurrency would fade into history. All right, Now,
Speaker 1: let's talk about bitcoins declining value. So back in, Bitcoin
Speaker 1: hits some truly monumental highs. It flirted with nearly seventy
Speaker 1: thousand dollars per bitcoin at one point, but by late
Speaker 1: January two it had dipped into the thirty five thousand
Speaker 1: dollar territory, so it had lost nearly half its value
Speaker 1: in about half a year. Now, the coin rallied a
Speaker 1: bit in the spring of two early in the spring,
Speaker 1: but by April things started to slope downhill, and the
Speaker 1: currency gradually followed the performance of the stock market. Now,
Speaker 1: I have long maintained that bitcoin and other cryptocurrencies aren't
Speaker 1: really currencies. They're really more like commodities or investments, at
Speaker 1: least that's how most people treat them. So it isn't
Speaker 1: a big surprise that as people started to lose faith
Speaker 1: in the stock market and that that started to suffer,
Speaker 1: that we saw something similar happen in the cryptocurrency world. Now,
Speaker 1: today the value of bitcoin is around sixteen eight hundred
Speaker 1: dollars as a record. This that's still a lot of money,
Speaker 1: you know. It still means that if you mind a
Speaker 1: block on the Bitcoin blockchain, you would be awarded the
Speaker 1: equivalent of a hundred five thousand dollars worth of bitcoin.
Speaker 1: That's nothing to sneeze at. That's a lot of money,
Speaker 1: but it is not the massive amount that you can
Speaker 1: make back when bitcoin was at its height in one
Speaker 1: let alone at early two And that has meant that
Speaker 1: mining operations have really scaled back because the money coming
Speaker 1: in from mining has declined, but the cost of operations hasn't. Right,
Speaker 1: So as the money you bring in decreases but your
Speaker 1: costs stay the same, it gets harder and harder to
Speaker 1: cover those costs and eventually get to a point where
Speaker 1: it could actually cost you more money to run your
Speaker 1: computer systems. Then you will earn out of mining even
Speaker 1: if you are really successful. So for the moment, the
Speaker 1: runaway race to have the biggest, most powerful computer network
Speaker 1: on the blockchain has taken a little break. You would
Speaker 1: actually lose your shirt if you tried to follow that philosophy. Now,
Speaker 1: also I should add there were some truly wild predictions
Speaker 1: for what Bitcoin's value was going to be by the
Speaker 1: end of this year before you know, all of two happened,
Speaker 1: And to be fair, a lot did happen that people
Speaker 1: just didn't foresee. For example, Russia invading Ukraine. We're gonna
Speaker 1: talk about that in a future episode in this series.
Speaker 1: But one of the effects that had was a massive
Speaker 1: economic impact throughout the entire world. Well, no one foresaw
Speaker 1: that when they were making uh predictions. And keep in
Speaker 1: mind in bitcoin really did look like it was going
Speaker 1: to the moon. Well one venture capitalist, Tim Draper, famous
Speaker 1: venture capitalist, previously predicted that bitcoin was going to reach
Speaker 1: an astounding two hundred fifty thousand dollars per coin by
Speaker 1: the end of this year. A quarter of a million
Speaker 1: dollars per coin. Now, obviously that didn't happen. Instead, like
Speaker 1: I said, bitcoins hovering below seventeen thousand dollars as I
Speaker 1: record this. But even as late as October of two,
Speaker 1: analysts were guessing that was gonna end the year around
Speaker 1: twenty two thousand dollars per coin. Unless we see some
Speaker 1: pretty dramatic surges and value in the next ten days
Speaker 1: or so, that's just not gonna happen. Now, I'm not
Speaker 1: a financial expert, so it's possible it will happen, but
Speaker 1: I will not be surpri eyes if it's closer to
Speaker 1: between sixteen to eighteen thousand dollars per coin. Even if
Speaker 1: it dropped a little below sixteen, I wouldn't be super surprised. Now, Draper,
Speaker 1: for what it's worth, says that he now thinks that
Speaker 1: bitcoin will hit two d fifty dollars. Is just going
Speaker 1: to take until the middle of next year for that
Speaker 1: to happen. But then there are also doomsday cults that
Speaker 1: when the world continues to exist past it's predicted to
Speaker 1: doomsday deadline, they just moved the deadline back a bit.
Speaker 1: This feels kind of similar to that to me. But
Speaker 1: then again, Draper is a very very rich man and
Speaker 1: I am not. So maybe my doubts are unfounded and
Speaker 1: I just can't see the way he can. We'll have
Speaker 1: to wait until June and next year, I will say.
Speaker 1: There are other investors like Mark Mobius who have had
Speaker 1: a much more cynical outlook and think that bitcoin could
Speaker 1: fall as low as ten thousand dollars a pop by
Speaker 1: next year. Also, Mark Mobius is a great name Okay,
Speaker 1: we've got a lot more to cover about cryptocurrencies in two,
Speaker 1: but before we do that, let's take a quick break.
Speaker 1: We're back now. Some cryptocurrencies are linked to fiat currency
Speaker 1: or other real world assets. So the idea is that
Speaker 1: these coins will maintain a more consistent value because they
Speaker 1: are tied to things that have other ties that guarantee
Speaker 1: their consistency, and we call these stable coins. There are
Speaker 1: other cryptocurrencies that aren't linked to such things, and they
Speaker 1: aren't linked to each other, at least not directly. However,
Speaker 1: when one coin, especially a really influential one, starts to
Speaker 1: go down in value, then you start to see other
Speaker 1: coins follow suit. This is pretty common, so when Bitcoin
Speaker 1: goes down, often you'll see other coins that are not
Speaker 1: directly tied to Bitcoin go down to Now, maybe investors
Speaker 1: are getting cold feet and they're losing confidence overall in cryptocurrency.
Speaker 1: Maybe it's more of a reflection of the overall economy
Speaker 1: and its movement. It's probably a combination of tons of factors,
Speaker 1: but it means that two was a year where you'd
Speaker 1: see various crypto values decrease, though most didn't have nearly
Speaker 1: as far to fall as Bitcoin did. Let's talk about
Speaker 1: a coin that made a long awaited change this year,
Speaker 1: and I'm talking about Ethereum. Now, Ethereum is one of
Speaker 1: the more popular and well known cryptocurrencies that doesn't happen
Speaker 1: to be Bitcoin. It has always felt a bit more
Speaker 1: accessible to the common investor. Back in early twenty while
Speaker 1: bitcoins were worth like seven thousand dollars a pop, ethereum
Speaker 1: was trading closer to a hundred thirty dollars. But by
Speaker 1: the end of twenty ethereum was trading it around six
Speaker 1: hundred dollars each and then in early twenty twenty one
Speaker 1: it went up twice as high and it just kept
Speaker 1: on climbing for a good long while. Now you may
Speaker 1: have heard that cryptocurrency mining had a really big impact
Speaker 1: on things like the graphics card market, and that is
Speaker 1: true now for Bitcoin. The value of the currency had
Speaker 1: grown so much that someone running even a network of
Speaker 1: computers with screaming fast graphics cards just would not be
Speaker 1: able to compete because other miners with deeper pockets had
Speaker 1: moved on to purpose built circuits such as applications specific
Speaker 1: integrated circuits or a s i C. But for cryptocurrencies
Speaker 1: that weren't up to these astronomic values that Bitcoin was enjoying,
Speaker 1: Miners were relying on computers with just powerful graphics processors
Speaker 1: because that still made economic sense, and so Ethereum miners
Speaker 1: were scooping up the best graphics cards really quickly, and
Speaker 1: then they would either sell older ones or you know,
Speaker 1: used ones at really high prices on the secondary market,
Speaker 1: and gamers were faced with very few options when they
Speaker 1: were trying to build out their gaming rigs. They couldn't
Speaker 1: easily get new cards because miners or people who were
Speaker 1: selling the cards to miners were gobbling them up, or
Speaker 1: else they would have to pay a ridiculous premium on
Speaker 1: top of the already high cost of these cards, like
Speaker 1: sometimes well over twice as much as what they were
Speaker 1: originally going to be sold at. But Ethereum was preparing
Speaker 1: to switch how it awarded cryptocurrency. So it had been
Speaker 1: operating on a proof of work system just like Bitcoin,
Speaker 1: although it was it worked much faster than bitcoins ten
Speaker 1: minutes per block, but it was instead going to make
Speaker 1: a shift to something called proof of steak. So with
Speaker 1: a proof of steak that's s T a k E.
Speaker 1: With that kind of system, participants have to put up
Speaker 1: a share of their own cryptocurrency holdings, that is the steak.
Speaker 1: The system decides which stakeholder gets awarded new units of
Speaker 1: cryptocurrency at the end of each block's verification, so this
Speaker 1: system does not require the same massive amounts of computer
Speaker 1: work that a proof of work system requires, and as
Speaker 1: a consequence, we saw GPUs become more available and less
Speaker 1: expensive because miners didn't need them anymore. So it took
Speaker 1: a little bit of time, but gradually things settled down,
Speaker 1: and a lot of former ethereum miners also had to
Speaker 1: figure out if they were going to switch to mining
Speaker 1: some other proof of work cryptocurrency, potentially at a much
Speaker 1: lower value, which could mean that you know, your costs
Speaker 1: eat into any profits you make, or if they were
Speaker 1: just going to sell off their old gear. So a
Speaker 1: lot of them chose to sell stuff off. Now, if
Speaker 1: you are in the market for a GPU, personally, I
Speaker 1: would recommend against buying a used mining rig. You might
Speaker 1: get a top card from the previous generation of cards,
Speaker 1: like the already eighty generation, but it will have been
Speaker 1: used hard and these cards can and do burnout over time.
Speaker 1: Plus they have moving parts like a lot of these
Speaker 1: cards have their own cooling fans built into them, and
Speaker 1: those are also going to get worn down. So personally,
Speaker 1: I would suggest you don't go for a used GPU,
Speaker 1: especially if you know it was used in a mining rig,
Speaker 1: because you probably want a card that's gonna last you
Speaker 1: for a good long while, and those just aren't guaranteed
Speaker 1: to do that anyway. The proof of Steak branch of
Speaker 1: Ethereum actually launched a couple of years ago, but it
Speaker 1: was kind of almost like an a beta program, and
Speaker 1: it wasn't until this September September two that the proof
Speaker 1: of work branch of Ethereum would merge with the proof
Speaker 1: of Steak branch and the whole thing would become proof
Speaker 1: of Steak. So again, this event is called the merge
Speaker 1: capital m So the GPU stuff is fairly recent news.
Speaker 1: It's been pretty recent that you could actually get hold
Speaker 1: of GPUs and pretty much at the manufactured suggested retail price,
Speaker 1: which is a nice change of pace. Now. At its peak,
Speaker 1: Etherory was worth more than four thousand, six hundred dollars
Speaker 1: a coin. Now that was in November of Today, Ethereum's
Speaker 1: value is closer to twelve hundred dollars per coin, so
Speaker 1: it's still nearly ten times more valuable than it was
Speaker 1: the beginning of So I don't want to make it
Speaker 1: sound like Ethereum is like crashing and burning. It's still
Speaker 1: way better than it was just two years ago, but
Speaker 1: like Bitcoin and so many other cryptocurrencies, and has lost
Speaker 1: a ton of value over the last year. And again,
Speaker 1: that loss of value is a very complex issue. It
Speaker 1: is tempting for me to say that people are generally
Speaker 1: losing faith in cryptocurrency, and since the currency depends largely
Speaker 1: upon people believing and then behaving as if it in
Speaker 1: fact has value, well if they stopped believing, the value
Speaker 1: goes away. But honestly, that's just not true, or at
Speaker 1: least it's not the whole truth. Yes, many cryptocurrencies are
Speaker 1: based on little more than how investors and miners and
Speaker 1: participants are treating it, but external economic factors are also
Speaker 1: at play, and ignoring that just means you're being dishonest. Now,
Speaker 1: I think we started to get a feel for how
Speaker 1: rough two was really going to be for cryptocurrencies back
Speaker 1: in mid spring of this year. One early indication that
Speaker 1: things were headed south was the collapse of a crypto
Speaker 1: firm called Three Arrows Capital. So this company was based
Speaker 1: out of Singapore at least until very recently when it
Speaker 1: moved to Dubai before it imploded. And Three Arrows Capital
Speaker 1: a k A. Three a C was a hedge fund
Speaker 1: specializing an investment in cryptocurrencies, and it had been around
Speaker 1: for a decade, so this was not some brand new company.
Speaker 1: It had, you know, been around for ten years. But
Speaker 1: by the spring of two the company had a billion
Speaker 1: dollars in assets. That's impressive, but it also had more
Speaker 1: than three billion dollars in debts. Oh. Now, as cryptocurrencies
Speaker 1: began to decline in value, three a C was starting
Speaker 1: to feel the pinch, but that pinch became crushing when
Speaker 1: a couple of crypto coins collapsed. Those coins were Terra
Speaker 1: U S D that's T E R R A so
Speaker 1: Terra USD, which was shortened to just U S T
Speaker 1: as its acronym or initialism, and then there was Luna,
Speaker 1: and both of these called the Terra blockchain their home.
Speaker 1: So Terra USD was supposed to be a stable coin
Speaker 1: tied to the U S dollar through a very complicated
Speaker 1: relationship with Luna, but in May two that complicated relationship
Speaker 1: unraveled rapidly, and so the U S T coin, the
Speaker 1: became unpegged to the US dollar. It no longer was
Speaker 1: tied to the dollars value, and its value collapsed to
Speaker 1: just ten cents per coin. The value of Luna dropped
Speaker 1: to almost nothing. We're talking fractions of a penny, like
Speaker 1: point zero zero zero zero some sense. Well, Three Arrow
Speaker 1: Capital had unfortunately invested very heavily in Luna, so when
Speaker 1: suddenly all that value just went away, it tore the
Speaker 1: foundations out from underneath three A C. The company spiraled
Speaker 1: into bankruptcy. The collapse of UST and Luna wiped out
Speaker 1: more than forty billion dollars in investor wealth. I think
Speaker 1: I've seen estimates between forty two and forty five billion dollars,
Speaker 1: and when your estimates have a range of three billion,
Speaker 1: things are bad now. It also tied off another stable
Speaker 1: coin going into a crisis. That one was d e
Speaker 1: I briefly got unpegged from the U. S dollar as
Speaker 1: well and plunged in value by thirty percent, which really
Speaker 1: made things worse. And you can look at the U
Speaker 1: S T and Luna collapses as kind of the first
Speaker 1: domino to set off a chain reaction in the crypto world.
Speaker 1: In general, it caused three A C to implode, and
Speaker 1: three A C happened to owe a lot of money
Speaker 1: to a crypto lending company called Voyager Digital based on
Speaker 1: New Jersey. So three A C was taking loans from
Speaker 1: Voyager Digital in order to fund its various investments. So
Speaker 1: when all of that collapsed, Voyager Digital was left holding
Speaker 1: the bag. So when three A C went under, it
Speaker 1: could not pay the money it owed to Voyager Digital,
Speaker 1: and it defaulted on the loan and Voyager Digital in
Speaker 1: turn was over extended, so it also began to spiral
Speaker 1: into bankruptcy. Now, the hope for Voyager was to get
Speaker 1: through bankruptcy, to manage its debts and its creditors, and
Speaker 1: to eventually get throw own a lifeline by a different
Speaker 1: crypto company. That company was drum roll please f t X.
Speaker 1: We will talk about f t X more in a
Speaker 1: bit in this episode. So the U, S T and
Speaker 1: Luna collapse also undermined another crypto firm, another crypto lender
Speaker 1: in fact, called Celsius Network. The company also entered into
Speaker 1: bankruptcy in July of the bankruptcy courts were really busy
Speaker 1: with cryptocurrency in July of this past year, so in
Speaker 1: that bankruptcy process, there were some questions that were popping
Speaker 1: up about how Celsius had been run as a company.
Speaker 1: In fact, we're seeing lots of questions about lots of
Speaker 1: crypto firms, because it turns out many of them were
Speaker 1: run at least incompetently, if not outright unethically or badly.
Speaker 1: So with Celsius, there have been allegations of fraud. There
Speaker 1: have been some issues about how some customers may have
Speaker 1: received preferential treatment over others, and the judge overseeing the
Speaker 1: bankruptcy case has had concerns and so assigned an examiner
Speaker 1: to look into Celsius's operations. There was even a fear
Speaker 1: that the company was essentially operating as a Ponzi scheme,
Speaker 1: whereas my colleague Chuck Bryant would say, it's a Ponzi scheme. Well,
Speaker 1: in case you're not familiar with the term Ponzi scheme,
Speaker 1: it's an unfortunately common scam in which someone running a
Speaker 1: supposed business first gets a group of investors to pour
Speaker 1: money into whatever the venture is, and the nature of
Speaker 1: the venture doesn't really matter, it's just smoke screen. So
Speaker 1: they get a first round of investments from people who think,
Speaker 1: you know, oh this sounds like a good idea, or
Speaker 1: I believe in this person or whatever, so they put
Speaker 1: their money into it. Then the scam artist starts looking
Speaker 1: for a second round of investors and convinces them to
Speaker 1: put money into the venture the supposed company. Then they
Speaker 1: use some of the money that's coming from the second
Speaker 1: round of investors to pay out some returns to the
Speaker 1: first round of investors. So the first round of investors
Speaker 1: are given the implication that they are getting money on
Speaker 1: top of the investment they have made, so a lot
Speaker 1: of them will end up reinvesting into the company because
Speaker 1: they're like, oh, wow, it's working, I'm making money. I'm
Speaker 1: gonna put the money I made back into the company.
Speaker 1: I'm gonna make even more money. So the scheme perpetuates,
Speaker 1: and the scam artist continues to try and get round
Speaker 1: after round of investment and then using the incoming money
Speaker 1: to give little payments out to the earlier investors in
Speaker 1: order to keep the scheme going. But the venture itself
Speaker 1: isn't actually generating revenue. It's not necessarily doing anything other
Speaker 1: than let the con artists run around and make money
Speaker 1: off of other people, like getting rich off other people's money.
Speaker 1: The scheme is also not sustainable. It will ultimately get
Speaker 1: to a point where you cannot get enough investments frequently
Speaker 1: enough to pay out returns to earlier investors, and the
Speaker 1: whole thing will come crashing down. Anyways, generally not good
Speaker 1: news if a judge suspects that your crypto firm was
Speaker 1: little more than a Ponzi scheme. The Celsias Network, for
Speaker 1: its part, has said it welcomes third party investigations, which
Speaker 1: is a good thing because it currently has a whole
Speaker 1: bunch of them from the bankruptcy court and securities regulators,
Speaker 1: and of course it's creditors. Okay, we're gonna take another
Speaker 1: quick break. When we come back, we will tackle the
Speaker 1: elephant in the crypto room f t X. But first
Speaker 1: let's take this break. Okay, f t X, I have
Speaker 1: covered this several times recently, but you know that we're
Speaker 1: looking back on the year and this was a big story.
Speaker 1: So I also say this every single time I cover this,
Speaker 1: in case you haven't picked up on it. The crypto
Speaker 1: world in general loves acronyms and initialisms. This is like
Speaker 1: extra true for the f t X story. But the
Speaker 1: short version of the story is that f t X,
Speaker 1: which is a crypto or was a cryptocurrency exchange, imploded
Speaker 1: in November of this year, and the ripples from that
Speaker 1: event are playing out across the cryptocurrency space, including the
Speaker 1: aforementioned Voyager Digital Lender, because the plan initially was for
Speaker 1: f t X to bail that company out. But we're
Speaker 1: going to dive into a tiny bit more detailed to
Speaker 1: understand exactly what happened with this company. Okay, so the
Speaker 1: main person involved in this story is a guy named
Speaker 1: Sam Bankman Freed, whom the crypto world often refers to
Speaker 1: as SBF. But I'm going to call him Sam because otherwise,
Speaker 1: as we go on with the story, it's gonna start
Speaker 1: to sound like I'm intoxicated and trying to say the
Speaker 1: alphabet and I'm just getting it all wrong. So a
Speaker 1: few years back, Sam Co founds an investment company called
Speaker 1: Alameda Research, and this company, like three a C, made
Speaker 1: its business in investing in various cryptocurrencies. So this company
Speaker 1: operates for a couple of years and then sam Co
Speaker 1: founds another company. This one is called ft X, and
Speaker 1: it is a cryptocurrency exchange now, and exchange is a
Speaker 1: business that exchanges currencies for other currencies. If you've ever
Speaker 1: traveled internationally, you may have used a traditional exchange where
Speaker 1: you convert some of your currency for whatever the local
Speaker 1: currency is. So, for example, if you're from America and
Speaker 1: you go to the UK, you might visit an exchange
Speaker 1: to change out your U S dollars for British pounds.
Speaker 1: Or if you're an American and you go to Canada,
Speaker 1: you might exchange dollars for poutine. If you were to
Speaker 1: come to my home state of Georgia, our currency is
Speaker 1: coca cola, and let me tell you, it is very
Speaker 1: hard to hold onto your money when you've got a
Speaker 1: pocket full of loose cocola. Jokes aside, Currency exchanges make
Speaker 1: their money by taking a little transaction fee or sometimes
Speaker 1: a not so little transaction fee, every time they're changing
Speaker 1: one form of currency into another for a customer. The
Speaker 1: ft X exchange also minted its own cryptocurrency called f
Speaker 1: t T, so if you wanted to, you could exchange
Speaker 1: your dollars, or your bitcoin, or your a theory um
Speaker 1: or whatever into f t T. In addition, customers could
Speaker 1: store their wealth in f t X itself. Now, a
Speaker 1: lot of folks will tell you that the best thing
Speaker 1: to do with cryptocurrencies is not get involved. But for
Speaker 1: those who are not skeptics like myself, then they might
Speaker 1: say the best thing to do is to store your
Speaker 1: cryptocurrency in a digital wallet that's living on a machine
Speaker 1: that you have in your physical possession. That you store
Speaker 1: it on a device that you own. Now, the danger
Speaker 1: of that is if anything happens to that machine, then
Speaker 1: your money is gone. It's kind of like a physical
Speaker 1: wallet in that respect. If you drop your wallet, chances
Speaker 1: are your money is a goner. Except for that one
Speaker 1: time where I did drop my wallet while I was
Speaker 1: walking to work, and a very nice person found the
Speaker 1: wallet and drove all the way to my house and
Speaker 1: returned my wallet to my wife, And that person is
Speaker 1: a saint. I don't know how many people like that
Speaker 1: are in the world, but I'm hoping that we see
Speaker 1: more of them, because that's inspiring. Anyway. Some companies offer
Speaker 1: a kind of cloud based wallet, so instead of keeping
Speaker 1: your money on a physical machine that's in your possession,
Speaker 1: your money lives in an account with whatever crypto company
Speaker 1: this happens to be. So f t X had these accounts,
Speaker 1: and a lot of customers had wealth stored in f
Speaker 1: t X is coffers. Now, so far, there's not really
Speaker 1: a problem with any of this. Meanwhile, Sam gets a
Speaker 1: repute station for being kind of a philanthropic superbro in
Speaker 1: the world of crypto. He donates to charities, He supports
Speaker 1: progressive political candidates. He helps bail out other crypto companies
Speaker 1: that are in trouble. He acts as a representative to
Speaker 1: talk with regulators about ways to responsibly regulate cryptocurrency. Over time,
Speaker 1: ft X establishes its headquarters in the Bahamas, which is
Speaker 1: not unusual. A lot of crypto companies look to establish
Speaker 1: themselves in places that have less regulatory oversight than say,
Speaker 1: places like the United States. Fd X grows to become
Speaker 1: the second largest cryptocurrency exchange in the world. The largest
Speaker 1: one is a company called Binance, and it had been
Speaker 1: an early investor in f t X, but fd X
Speaker 1: had subsequently bought out finances investment with the aforementioned ft
Speaker 1: T cryptocurrency. So they're like, here's this currency we made,
Speaker 1: we're paying you back thanks for the early investment. So
Speaker 1: Finance at the time was holding thousands and thousands of
Speaker 1: f t T coins, so that represented a ton of
Speaker 1: wealth and now our stage is set. So in November,
Speaker 1: a cryptocurrency journal called coin Desk published an article that
Speaker 1: included a leaked balance sheet that showed Alimator Research, Sam's
Speaker 1: crypto investment company, had a very large source of ft
Speaker 1: T tokens coming in to help cover investments, and apparently
Speaker 1: what was happening was it was funneling ft T tokens
Speaker 1: from f t X. So the implication was that Alimaated
Speaker 1: Research was quote unquote borrowing money from f t X,
Speaker 1: but fd X was not informing its customers its investors
Speaker 1: that this was happening. So this meant that f t
Speaker 1: X potentially would not have the money on hand to
Speaker 1: pay out someone if they wanted to withdraw all of
Speaker 1: their money that had been stored in f t X.
Speaker 1: That's a big no no. It's the kind of thing
Speaker 1: that can lead to a run on the bank, and
Speaker 1: if the bank cannot cover all the cash, things get
Speaker 1: real ugly, real fast. So Sam seemed to be robbing
Speaker 1: Peter to pay Paul. He was taking customer money from
Speaker 1: f t X and using it to cover investments at Alimato.
Speaker 1: And while I'm saying Sam, really, I mean f t X,
Speaker 1: and you know Sam is not the only person involved
Speaker 1: in this. There's a whole group of people who were
Speaker 1: in charge of running f t X. Sam himself has
Speaker 1: argued multiple times that he was not aware of a
Speaker 1: lot of this. I don't know how true that is,
Speaker 1: but I'm using Sam kind of as a representative of
Speaker 1: the company as a whole. Now. I'm sure that the
Speaker 1: hope was that the investments that Alimator Research was making
Speaker 1: would end up paying off big time, and that Alimated
Speaker 1: would thus be able to pay back f t X
Speaker 1: all that money and it borrowed, and then make profit
Speaker 1: off of the rest. But things unraveled pretty quickly after
Speaker 1: this leaked balance sheet made the news. So in the
Speaker 1: wake of the report, Binance CEO Chung Peng Jao a
Speaker 1: K A c Z because again initialisms, he announced that
Speaker 1: Finance was going to sell off its massive vault of
Speaker 1: ft t coins. So remember it held those f t
Speaker 1: t coins because ft X had paid back Binance for
Speaker 1: its initial investment. Well, I'm sure you realize that if
Speaker 1: a market is suddenly flooded with any asset, the value
Speaker 1: of that asset will go into decline. It's all supply
Speaker 1: and demand, right Like if suddenly there's way more supply
Speaker 1: than there is demand, and the value of that supply
Speaker 1: goes down. So now you had all these f t
Speaker 1: X customers who were worried that their coins were going
Speaker 1: to be worthless, or at least worth less than they
Speaker 1: had been, and so there was effectively a run on
Speaker 1: the bank, and f t X, unable to cover this
Speaker 1: contingency due to you know, sending way too much money
Speaker 1: over to alimated research, which is what caused all this
Speaker 1: in the first place, went into free fall. Now arguably
Speaker 1: the killing blow for f t X came when c
Speaker 1: Z said that finance would bail out the company and
Speaker 1: then one day later backed out of that deal. Now
Speaker 1: to be clear, there was nothing binding about that deal
Speaker 1: in the first place, so it's not like they did
Speaker 1: something illegal. But with no rescuer on the horizon, f
Speaker 1: t X spiraled and crashed. Sam got the boot as CEO,
Speaker 1: and the company brought in John Jay Ray, the third
Speaker 1: to essentially oversee the dismantling and liquidation of f t X.
Speaker 1: Ray had previously overseen similar duties when he was called
Speaker 1: in to get as much value out of the company
Speaker 1: in Ron in the wake of its bankruptcy that's a
Speaker 1: heck of a story on its own right. So literally,
Speaker 1: his job is to ring as much out of this
Speaker 1: collapsed company as he possibly can in order to return
Speaker 1: money to creditors and then investors as much of it
Speaker 1: as he can manage anyway. Sam meanwhile remained in the Bahamas,
Speaker 1: occasionally giving remote interviews where he said that there was
Speaker 1: no intent to cause harm, that he didn't know anything
Speaker 1: about any alleged wrongdoing, and even if he did know,
Speaker 1: he didn't mean it, and so on. There were allegations
Speaker 1: that hundreds of millions of dollars had mysteriously vanished out
Speaker 1: of ftx's coffers immediately in the wake of the collapse,
Speaker 1: and there were a lot of uh theories online that
Speaker 1: perhaps Sam or one of his close friends had been
Speaker 1: behind all that. There were others that were saying maybe
Speaker 1: it was a hacker. There were a lot of questions.
Speaker 1: Over time, folks started looking at what Sam was saying,
Speaker 1: and they got all Shakespearean, you know, they said, the
Speaker 1: crypto bro doth protest too much, methinks. And last week
Speaker 1: Bahamanian police arrested Sam on behalf of the United States,
Speaker 1: which has now charged Sam with multiple counts including money
Speaker 1: laundering and securities fraud, among some others, and as a
Speaker 1: record these episodes, the word is that Sam is preparing
Speaker 1: to be extradited to the United States in order to
Speaker 1: stand trial. He was also supposed to appear before the
Speaker 1: US Senate to answer questions about the failure of f
Speaker 1: t X, but declined that invitation just before he got
Speaker 1: scooped up by the Pope po. Meanwhile, Finance is also
Speaker 1: the subject of multiple investigations. So remember Finances the largest
Speaker 1: cryptocurrency exchange in the world, it is also under a
Speaker 1: law of scrutiny. The company has been accused of processing
Speaker 1: ten billion dollars worth of illegal transactions just this year,
Speaker 1: including stuff like money laundering. So in the wake of
Speaker 1: so many cryptocurrency companies collapsing, there's an understandable concern that
Speaker 1: the world largest cryptocurrency exchange could suffer the same fate. Ultimately, now,
Speaker 1: c Z has tried to reassure investors, investors, customers, regulators
Speaker 1: that there's nothing really to worry about, and that Finance
Speaker 1: even commissioned a third party to review Finances reserves to
Speaker 1: show that the exchange has a one to one reserve
Speaker 1: representing all customer investments in the exchange. In other words,
Speaker 1: if every single customer wanted to withdraw their money from finance,
Speaker 1: finance would be able to cover it, except the report
Speaker 1: did not say that. In fact, it showed that finances
Speaker 1: reserves fall a little short of covering the wealth invested
Speaker 1: in it. Not a lot short, not like f TX,
Speaker 1: but it's a little short, probably because finance also issues loans,
Speaker 1: So some of binances money is actually out in circulation
Speaker 1: and customer hands, and presumably will ultimately return to Binance
Speaker 1: as these customers pay it back with interest in the future.
Speaker 1: But even before all these crypto failures, regulators around the
Speaker 1: world we're already starting to scrutinize cryptocurrency more intensely in
Speaker 1: the wake of collapse. After collapse, there is a new
Speaker 1: sense of urgency around the world, particularly as folks like
Speaker 1: John Jay Ray the Third proclaim that ft X experienced
Speaker 1: a quote complete failure of corporate controls end quote, suggesting
Speaker 1: that these crypto companies are operating like fly by night
Speaker 1: shady organizations that also happened to have access to hundreds
Speaker 1: of millions of dollars worth of customer funds. There's a
Speaker 1: general perception that crypto is going to have to adjust
Speaker 1: to a world of increased regulation in the not too
Speaker 1: distant future, maybe next Sunday a d So that's a
Speaker 1: summary of some of the big stories that happened in
Speaker 1: crypto this year. Now I did mention n f t
Speaker 1: s and web three as well, so I should give
Speaker 1: a super quick update on those ideas. So n f
Speaker 1: t s or non fungible tokens represents some sort of
Speaker 1: unique asset, a digital asset typically, and I've often equated
Speaker 1: n f t s as being kind of like a
Speaker 1: receipt for something, usually something digital. So it's not the
Speaker 1: thing itself, it's representation of ownership of that thing. So
Speaker 1: in January of two, n f t s were trading
Speaker 1: at a peak. The value of those trades was around
Speaker 1: seventeen billion dollars, but over the course of twenty twenty two,
Speaker 1: trading dropped precipitously and then absolutely plummeted. It's down scent
Speaker 1: from the beginning of the year, according to Bloomberg, and
Speaker 1: that seventeen billion dollars of value is down to four
Speaker 1: hundred sixty six million. That's still a lot, but it's
Speaker 1: nothing close to what it was at the beginning of
Speaker 1: the year. A lot of folks became disenchanted with n
Speaker 1: f t s fairly early in twenty two, and it
Speaker 1: didn't help that there were plenty of opportunists who were
Speaker 1: running n f T scams. They were taking the money
Speaker 1: and running really damaged the image of n f T
Speaker 1: s overall, like they were already overvalued in my opinion,
Speaker 1: but the scams definitely kind of showed the ugly side
Speaker 1: of this this world, and it was exacerbated by campaigns
Speaker 1: that hired influencers to hype up n f t s,
Speaker 1: some of which ended up being cash grabs and total scams.
Speaker 1: So even Justin Bieber hyped up and n f T
Speaker 1: without first disclosing that he actually had some ownership interest
Speaker 1: in the venture itself. So if you can't trust Justin Bieber,
Speaker 1: who can you trust, baby Baby Baby. So n f
Speaker 1: T s have a damaged reputation at this point, as
Speaker 1: does crypto in general, and that brings us to Web three.
Speaker 1: So Web three is a really hazy, ill defined concept.
Speaker 1: Generally speaking, Web three proponents say the future web is
Speaker 1: going to be built on top of blockchain, and that
Speaker 1: it's going to be a decentralized approach to the web.
Speaker 1: It'll free us from the current anchors holding down the web,
Speaker 1: these massive companies like Google and Amazon and Meta, Except
Speaker 1: that in reality such a web would still be centralized
Speaker 1: because it would really fall into the hands of whatever
Speaker 1: powerful entities had invested in those blockchains. So at best,
Speaker 1: you're really talking about a poorly defined infrastructure that has
Speaker 1: just switched out the names of who is the most influential,
Speaker 1: right like the names of change, But the situation is
Speaker 1: still the same. Also, I should point out the original
Speaker 1: concept of the Internet was decentralized. It is a network
Speaker 1: of networks that doesn't have centralized power associated with it.
Speaker 1: Like they're trying to solve a problem that was solved
Speaker 1: just by the invention of the Internet. It's not really
Speaker 1: the Internet's fault that there were these massive companies that
Speaker 1: managed to consolidate power over the time that the Internet
Speaker 1: has been an action. So yeah, it's it's taking a
Speaker 1: hammer to a problem that needs a screwdriver in my opinion. Anyway,
Speaker 1: toward the end of into the beginning of two, there
Speaker 1: was this ton of hype around Web three. But since
Speaker 1: those ideas of Web three are also tightly connected to
Speaker 1: other blockchain concepts like cryptocurrency and n f t s,
Speaker 1: and because of the dramatic failure of those things, we
Speaker 1: three hype meisters have really suffered some major setbacks in
Speaker 1: the back half of now I'm not ready to say
Speaker 1: Web three is dead in the water, but i will
Speaker 1: say it's going to have to swim awful hard to
Speaker 1: avoid the riptide that's pulling at its feet, you know,
Speaker 1: to torture a metaphor. Okay, that's it for this episode
Speaker 1: of looking back on the big Tech stories of two,
Speaker 1: the cryptocurrency edition. We will continue this tomorrow with other
Speaker 1: news stories, so stay tuned for that. We've got a
Speaker 1: lot more to cover before we finish out, and I
Speaker 1: am honestly really looking forward to and seeing what that brings.
Speaker 1: I don't know that it's going to be better. I'm
Speaker 1: not being that optimistic, but I'm certainly curious and I'm hopeful.
Speaker 1: I would love to see things start to improve and
Speaker 1: have us learn lessons from the catastrophic failures that we've
Speaker 1: seen this past year. Remember, failure is an opportunity to learn,
Speaker 1: but we have to take the opportunity for it to work.
Speaker 1: That's it. I hope you are all doing well. I
Speaker 1: hope you are happy and healthy during this holiday season,
Speaker 1: and I'll talk to you again really soon. Tech Stuff
Speaker 1: is an I heart Radio production. For more podcasts from
Speaker 1: I Heart Radio, visit the i heart Radio app, Apple Podcasts,
Speaker 1: or wherever you listen to your favorite shows.