Trust in digital technologies is broken

(MENAFN-Syndication Bureau) By Joseph Dana

November 2022 will go down in history as a pivotal month in contemporary technology. Twitter, the small but influential social media network, is imploding under Elon Musk’s leadership while other leading tech companies begin mass layoffs. Crypto exchange FTX, once considered a stable titan in the cryptocurrency market, has filed for bankruptcy and its eccentric founder has resigned after failing to raise $8 billion to keep the exchange afloat (and maybe even a to avoid jail time). There are immediate implications for investors and users of these platforms, but the damaging aspect of these events could be an erosion of trust in technological innovation.

Social media has fundamentally changed the way people communicate and share information worldwide. Cryptocurrency has changed the way money is exchanged and controlled. If eccentric billionaires can implode the cornerstones of these platforms, why should the general public adopt them? Given the pace of innovation across all technology sectors, what should people put their trust in? These questions are not easy to answer. Recent events force a new conversation with new perspectives on the future.

At the end of October, the global cryptocurrency markets were dominated by two major exchanges, Binance and FTX. While Chinese-Canadian Binance co-founder and CEO Changpeng Zhao was known for his outspoken demeanor, the founder of FTX was a crypto industry darling. The son of Stanford law professors, 30-year-old Sam Bankman-Fried, has been cast as a visionary savior in crypto. He became the face of the “effective altruism” movement, popular among Silicon Valley’s elite, which urges wealthy tech executives to give away portions of their wealth to enact larger social change. With magazine advertising and sports sponsorships, FTX has been seen by many as a reputable and reliable crypto exchange.

Bankman-Fried, or SBF as he is known, has also bailed out several crypto companies during the recent downturn and is credited with single-handedly keeping parts of the sector afloat. That was last month when Bankman-Fried was worth more than $25 billion. Today, his net worth is less than $1 billion and is shrinking rapidly. Last week, Binance announced it would rescue FTX. The news sent shockwaves through the industry and Bitcoin’s price plummeted.

Then it got worse. Binance pulled out of the takeover deal after looking at FTX’s books. They found a nearly $8 billion hole. How did that happen? Essentially, Bankman-Fried used client assets held on FTX to fund his small crypto trading platform, Alameda Research. When Binance announced it would sell most of its FTT token – a FTX self-issued token that gives holders a discount on trading fees on its marketplace, there was a run on FTX by users to remove their assets. It’s unclear how much FTX is short of covering client assets, but it’s at least $6 billion.

This development has given ammunition to crypto critics, who have long said the sector is riddled with Ponzi schemes. Popular crypto skeptic Matt Stoller recently tweeted, “Sam Bankman-Fried’s gossipy bad deeds don’t matter. Crypto is an ongoing series of Ponzi schemes and this has been evident for years. The coverage of the personalities is a distraction from the thousands of corrupt BigLaw crypto attorneys who have promoted knowledge of Ponzi schemes.”

With FTX’s spectacular demise, regulators worldwide are promising a thorough scrutiny of the crypto sector. This could be one of the silver linings of the developments. Crypto was partly born out of a desire to dampen the grip of government regulators, but the number of shady characters in the room has rendered much of the incredible technology useless. When an exchange like FTX implodes thanks to what appears to be a Ponzi scheme, how can users have faith in the technology? While overt government control over cryptocurrency is virtually impossible, there will be a major push in government-backed crypto projects, including better regulation of exchanges and the adoption of central bank digital currencies.

That’s not a bad thing. Central bank digital currencies will continue the evolution of money. Critics have warned that these currencies allow for deeper control over individuals and surveillance. That may be true, but the use of smartphones already alleviates these concerns. Even if central bank digital currencies fail to take off in the short term, they could help restore confidence in the technology that underlies cryptocurrencies.

The Central Bank of the United Arab Emirates completed the world’s largest pilot project for central bank digital currency (CBDC) transactions late last month. Given that the UAE is one of the world’s hotspots for remittances, this is a good time. The UAE has become a trusted place in the remittance market and can build on that with its own central bank digital currency. Again, critics need not use this digital token, but its existence and the fact that it is backed by the UAE should inspire some confidence in the technology itself.

It’s still unclear how all chips will fall with the FTX saga and the future of Twitter. With bleak earnings forecasts and mass layoffs, the tech sector faces some rough seas over the next few months. But that doesn’t mean that the spirit of innovation that drove all of these technologies needs to be jettisoned. Some concrete confidence-building measures just need to be put in place, and central bank digital currencies like that of the UAE are a good place to start building.

Joseph Dana is the former Editor-in-Chief of Exponential View, a weekly newsletter about technology and its impact on society. He was also Editor-in-Chief of emerge85, a laboratory that studies change in emerging markets and its global implications.

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