If everyone stopped using it. That, in five words, is how crypto would go to zero. Still, the journey is more interesting than the destination. The death of ftx, an exchange declared bankrupt on November 11th after a spectacular blow-up, will encourage some people to turn their attention elsewhere. What would have to happen for everyone to give up?
An answer requires a sense of how the industry works. At crypto’s base are blockchains, like Bitcoin and Ethereum, which record transactions verified by computers, a process incentivised by the issuance of new tokens. The Ethereum blockchain validates lines of code, which has made it possible for people to issue their own tokens or build applications. These include stablecoins, which are pegged to real-world currencies, and tokens like Uniswap, which manage decentralised-finance (DeFi) protocols. Major chains and a handful of Ethereum-based tokens, like stablecoins, account for 90% of cryptocurrency value. Big businesses have been built on top of this world, including exchanges, investment funds and lending platforms.
To take out crypto entirely would require killing the underlying blockchain layers. They could either give way first, kicking the stool out from underneath everything else. Or the industry could unravel from the top down, layer by layer like a knitted scarf.
Knocking the stool out is extraordinarily hard, and the current high value of bitcoin and ether makes it even harder. To attack a blockchain and shut it down requires gaining 51% control of the computational power or value of tokens staked to verify transactions. The more valuable the tokens, the more energy it takes to attack a proof-of-work chain, like Bitcoin, and the more money to attack a proof-of-stake chain, like Ethereum. The security of these chains—as measured by the amount someone would have to spend to attack them—is now in the region of $5bn to $10bn. It would require either a government or an extraordinarily rich individual to mount such an attack. And even if Elon Musk was so inclined, he seems a little busy at present.
Unravelling is therefore the more conceivable path. The events of this year have revealed just how prone to this sort of thing crypto is. The implosion that seems to have set the chaos in motion is that of Terra-Luna, a decentralised stablecoin system, worth around $40bn at its peak. It collapsed in May, wiping $200bn off the market capitalisation of crypto. That led a few weeks later to the bankruptcy of several lending platforms and a hedge fund, events which wiped another $200bn off the market cap. The margin calls these platforms faced seem to have imperilled Alameda, the trading firm owned by Sam Bankman-Fried, and led to the decision to use ftx customer funds to plug the gap. When ftx failed, it wiped another $200bn off crypto’s market cap. Now other exchanges and lending platforms looks to be in trouble.
Beady-eyed readers will note that most of this stuff, apart from Terra-Luna, is in the “on top of” category and not actually on-chain tech. DeFi exchanges and lending protocols have continued to whir even as the enterprises more akin to normal businesses have imploded one by one. But the collapse of these enterprises could imperil the underlying tech by taking out chunks of its value, making the chains more exposed to would-be attackers and pushing miners or stakers to switch off their machines. The value of on-chain activity and tokens is self-reinforcing. The more people that use DeFi, the more valuable Ethereum becomes. The higher the price of ether, the higher the hurdle to attack the blockchain and the more confidence people will have that blockchains will endure. This also works in reverse. The more people shy away from crypto out of fear, the less secure it becomes.
The total market cap of cryptocurrencies is currently $820bn. That is 70% below the peak a year ago, but still high compared with most of crypto’s history. It is higher than at the start of last year, for instance, and any point before then, including the peak of the bull market in 2017. Many more layers—such as a major stablecoin, big businesses or perhaps other on-chain protocols—would have to unravel to take crypto’s value back to the levels at which it traded just three or four years ago. Crypto’s reputation has been undermined before. It has collapsed in value repeatedly throughout its lifetime. Although fewer people will use crypto as a result of the ftx collapse, it is very hard to imagine the number will be small enough to take its value to zero.
© 2022 The Economist Newspaper Limited. All rights reserved.
From The Economist, published under licence. The original content can be found on https://www.economist.com/finance-and-economics/2022/11/23/how-crypto-goes-to-zero
Microsoft is likely to face an EU antitrust investigation as regulators intensify their scrutiny into its practices in a case triggered by Salesforce.com's workspace messaging app Slack, people familiar with the matter said on Thursday. Last year, Slack complained to the European Commission, saying that Microsoft has unfairly integrated its workplace chat and video app Teams into its Office product. Microsoft introduced Teams in 2017, seeking a slice of the fast-growing and lucrative workplace collaboration market.
NANTUCKET, Mass. (Reuters) -President Joe Biden said on Thursday that his administration was involved in negotiations to avert a looming U.S. railroad strike that could shut down supply chains across the country but added that he has not directly engaged on the matter yet. Speaking to reporters outside a fire station on Nantucket Island, Massachusetts, during a Thanksgiving holiday visit, Biden declined to provide details on how the talks were going because it was "the middle of negotiations." "My team has been in touch with all the parties, and in (a) room with the parties and I have not directly engaged yet because they're still talking," Biden said.
From saving on Christmas presents to replacing a broken home appliance, the Black Friday sales can be an opportunity to save money – providing you don't get carried away.
(Bloomberg) — China’s central bank cut the amount of cash lenders must hold in reserve for the second time this year, ramping up support for an economy racked by surging Covid cases and a continued property downturn.Most Read from BloombergBinance’s Zhao Flags Possible $1 Billion for Distressed AssetsMalaysia PM Anwar Plans Confidence Vote to Prove to Rival He Commands a MajorityElizabeth Holmes Judge Proposes Texas Prison, Family VisitsChina Covid Cases Jump to Record High, Topping Shanghai Ou
"Tesla Full Self-Driving Beta is now available to anyone in North America who requests it from the car screen, assuming you have bought this option," Musk tweeted. Tesla did not respond to a request for comment. Musk said last month that Tesla's advanced driver assistant software would not gain regulatory approval in 2022.
MetLife (MET) puts its foot forward to assist Federal Families in legal matters by making the Federal Legal plan available to them.
(Bloomberg) — Foxconn Technology Group has begun offering 10,000 yuan ($1,400) to any workers who choose to leave, an unusual decision intended to appease disgruntled new hires who played a central role in violent protests that rocked the world’s largest iPhone factory.Most Read from BloombergBinance’s Zhao Flags Possible $1 Billion for Distressed AssetsMalaysia PM Anwar Plans Confidence Vote to Prove to Rival He Commands a MajorityElizabeth Holmes Judge Proposes Texas Prison, Family VisitsChin
Perhaps it's one last dagger, but Binance CEO Changpeng Zhou just could not resist a little dig at the fallen FTX chief executive Sam Bankman-Fried.
(Bloomberg) — Oil was little changed as the European Union considered a higher-than-expected price cap on Russian crude and evidence mounted of challenges to demand.Most Read from BloombergBinance’s Zhao Flags Possible $1 Billion for Distressed AssetsMalaysia PM Anwar Plans Confidence Vote to Prove to Rival He Commands a MajorityElizabeth Holmes Judge Proposes Texas Prison, Family VisitsChina Covid Cases Jump to Record High, Topping Shanghai OutbreakWest Texas Intermediate rose 3 cents Thursday
AMC (AMC) rallied on Wednesday after news that Amazon AMZN plans on spending $1 billion a year on movie releases. The stock surged over 5% and joins a meme stock rally that started earlier today. Earlier, Tesla (TSLA) surged 6% today. Shares have fallen over 50% and shed a staggering $600 billion this year. That is a sharper decline than…
(Bloomberg) — In the wake of the spectacular meltdown of Sam Bankman-Fried’s crypto empire, many investors are looking for early warning signs that may have foretold the contagion that was about to unfold. One possibility? Coinbase Global Inc.’s junk bonds.Most Read from BloombergElizabeth Holmes Judge Proposes Texas Prison, Family VisitsMost Fed Officials Seek to Slow Pace of Interest-Rate Hikes SoonChina Covid Cases Jump to Record High, Topping Shanghai OutbreakFrom Tom Brady to Shaq, FTX’s C
Nordstrom's (JWN) Q3 results reflect robust demand for apparel and shoes, and supply-chain optimization efforts. However, inflation and higher inventory are headwinds.
Microsoft's proposed $69 billion takeover of Activision Blizzard could reportedly be blocked by an FTC lawsuit.
The tax-free spin-off of Fortune Brands' (FBHS) cabinets business MasterBrand is expected to be completed on Dec 14, allowing both companies to focus on their core operations.
Instead of gearing up to trade Thursday, investors may be defrosting their Thanksgiving turkeys—and clipping coupons ahead of Black Friday.
Many seniors are all too familiar with the name Teva Pharmaceutical when they look at their medications as they refill their pill containers each week. Teva is known primarily as a manufacturer of generic drugs. Trading volume in TEVA looks like it has increased since May.
Germany's Deutsche Bank has a stark warning to European companies borrowing from U.S. lenders: They will drop you when times get tough. The caution, spelled out in an interview with Deutsche Bank board member Fabrizio Campelli, is the latest escalation in a battle with U.S. banks for the business of European firms on its home turf. It comes at a time that the corporate banking unit of Germany's largest lender is seeing a resurgence in the home stretch of an extensive restructuring.
Policy makers need to better understand the importance of Taiwan's role in the health of the global economy, says Chip War author Chris Miller.
Warren Buffett — the Oracle of Omaha — is widely regarded as one of the greatest investors of all time. Berkshire Hathaway Inc. (NYSE: BRK-A) has returned tens of thousands of percent over the years and consistently outperforms the market. Buffett purchased the company for just $8.3 million in 1965, and it’s now valued at nearly $700 billion, roughly a 10 million percent return. But one of Buffett’s top all-time picks and longest-held positions is one you might not expect. Berkshire Hathaway fir
(Bloomberg) — Beijing’s streets are deserted and grocery delivery services are running out of capacity as rising Covid cases trigger lockdown-like restrictions across swathes of the Chinese capital. Most Read from BloombergBinance’s Zhao Flags Possible $1 Billion for Distressed AssetsMalaysia PM Anwar Plans Confidence Vote to Prove to Rival He Commands a MajorityElizabeth Holmes Judge Proposes Texas Prison, Family VisitsChina Covid Cases Jump to Record High, Topping Shanghai OutbreakThe city sa
Author
Administraroot
Related Posts
