Steemit Crypto Academy Contest / S6W2- Centralized Cryptocurrency Exchange Platforms and Its Risks
Flyer maker
Hello Steemians, You are welcome to @jasminemary post. I hope you are doing very well. In this post, I have discussed a lot based on the questions asked in the Steemit Crypto Academy engagement challenge contest. Let's get straight to my discussion below.
How do you agree with this statement: “Users may be surprised to learn that in a bankruptcy scenario, they may not consider the cryptocurrencies and funds deposited in their accounts as their own”?
Well, the first thing that I will look at here is that cryptocurrencies are not regulated like fiat currency is, and even most of the cryptocurrency exchanges aren't functioning like banks that protect customers' funds.
In my own case, I don't agree with the statement that "Users may be surprised to learn that in a bankruptcy scenario, they may not consider the cryptocurrencies and funds deposited in their accounts as their own." The reason why I disagree with the saying is that every business is supposed to provide insurance for its customers in case the business goes bankrupt.
Also, there should be terms and conditions that state such things for customers to see before investing their money. Any cryptocurrency exchange that goes bankrupt should at least allow their users to withdraw their cryptocurrencies and send them to another exchange.
I think this issue is mostly associated with a centralized crypto exchange, which can easily mix different customers' funds together. In a situation where customers' funds are mixed together, it will appear as if it is the exchange that owns the fund and not the users. It would be very sad for most users who have large amounts of cryptocurrencies to hear that after a bankruptcy, the cryptocurrency is no longer theirs.
Explain, from your point of view, why the FTX platform went bankrupt. How did you find it? What are the other consequences of this accident?
The fall or bankruptcy of the FTX platform happened in November 2022. The issue was sparked by a CoinDesk report from November 2 that showed Alameda Research, which is also a trading company run by Bankman-Fried, with a $5 billion position in FTT, the FTX native token. According to what I read, Alameda had its investment base in FTT, the token that its sister business had created, rather than in fiat money or any type of cryptocurrency such as BTC, Ethereum, BNB, UDST, Steem, etc.
That raised questions about FTX platform Fried's unreported leverage and solvency throughout the cryptocurrency sector. In addition to what triggered the FTX platform to go bankrupt, the tweet/need ghah posted by Binance CEO, which stated that "FTT Tokens Will Be Sold," also played a role.
The largest cryptocurrency exchange in the world, Binance, said on November 6 that it would sell all of its holdings of FTT tokens, or around 23 million tokens worth $529 million. Following the collapse of the Terra (LUNA) cryptocurrency token earlier in 2022, Binance CEO Changpeng "CZ" Zhao claimed that risk management was the basis for the decision to liquidate the exchange's FTT stake.
The following day, the FTX platform was going through a liquidity crisis. Bankman-Fried made an effort to reassure FTX investors that their assets were secure, but in the days following the CoinDesk revelation, investors demanded withdrawals totaling $6 billion. Before resorting to Binance, Bankman-Fried looked for more funding from venture capitalists. FTT's value decreased by almost 85%. Source
I found out about the collapse of FTX from the website above and also from the YouTube video below.
From YouTube
The consequences of this accident are that some customers may not be able to withdraw their funds once FTX opts in for legal action. And also the cryptocurrency industry will suffer a lot from a lack of trust. Investors will start getting afraid to invest in cryptocurrency and instead will prepare by keeping their money in a bank rather than putting it into a cryptocurrency. The Luna crashed after the crypto industry, and today it is the FTX platform that has put fear in the minds of investors.
If you are so pessimistic, what do you think is the worst thing that could happen to cryptocurrency after the FTX incident? And what will be its impact on bitcoin?
The worst thing that I think could happen to cryptocurrency after the FTX incident is as follows:
- The cryptocurrency price will fall.
- A lot of investors will have to leave the industry.
- The government will straighten out the issue of regulations.
- Cryptocurrency will lose its trust
Although, even before the FTX incident, cryptocurrency was full of volatility, which is now worse than before. A lot of people are begging to see cryptocurrency as a Ponzi scheme business and are now afraid to invest in cryptocurrency, which is the reason why Bitcoin and other cryptocurrencies keep falling.
The main impact on Bitcoin is that it will lose its value and the glory that is attached to it. The price of Bitcoin will be affected for a long time before it can bounce back.
Could this incident reinforce the view that cryptocurrencies are outdated and unstable because they do not have collateral, unlike state currencies such as the euro or the dollar?
Yes, this incident can reinforce the view that cryptocurrencies are outdated and unstable since they do not have collateral, unlike state currencies. In fact, this is exactly what millions of people, especially those fighting for regulations, are thinking about.
The government is seriously against cryptocurrency, and due to both Luna and the FTX incident, they now see cryptocurrencies as a Ponzi scheme business where the price is manipulated by the creator instead of the market.
Do you think that Binance's decision to buy FTX will reassure the previous investors of this platform, and what is the future of the FTT cryptocurrency?
Yes, I think Binance's decision to buy FTX will reassure the previous investors in the FTX platform. Binance is seen as the top cryptocurrency exchange in the world, and from time to time Binance publishes audit reports for the public to view, which makes millions of investors trust Binance. If Binance can buy FTX, then surely FTX will likely rise again.
Although, as of now, the future of the FTT cryptocurrency is something that would take a very long time to rise again. For now, the future of FTT cryptocurrency is dead, and investors have pulled out of FTT cryptocurrency.
I am inviting @yakspeace, @temitopef, and @solexybaba.
You are right that Exchanges should allow their users to withdraw their assets but in the bankrupt scenario, they don't have enough funds to allow users to withdraw furthermore they don't want that user to withdraw their coins so they suspend withdrawal and do like this.
I fully agree with this statement that FTT is dead now and no one wants to take the risk even Binance support it same was the case with LUNA, no one take much interest in its new form.
Good luck in this contest if you find time please read my Article too.
Thank you everything you have Said.
Dear @jasminemary,
You have posted a very beautiful post that is exactly reflecting the expected one from the team. The issue of the bankruptcy of the FTX exchange is a matter of a very bad situation among the large investors of the cryptocurrency.
The price of the btc has been effected very much by the incident of the FTX exchange. And likewise other cryptos are also effected by this huge loss. But we can hope for the back move of the market.
I wish many success for you in this week of the contest.
I appreciate your time.
You have explained this post in a very hood manner and I like the way you present the ideas here.
Bankruptcy is actually a state in the daily life when the borrowed funds are enough that could be returned by the individual or the company. So, their account becomes seized and funds are freezed.
Yes you are right friend, actually the centralized exchanges use the assets of the users for their benefits and during the bankruptcy, all of those assets are completely seized.
Yes, this scenery really affect most of the crypto investors as they always though deeply while investing in such kind of risky and non-predictable market.
Thanks a lot for sharing with us. Good luck.
Centralized exchanges are Always at risk of malicious attacks. Since FTX was a centralized exchange, it was susceptible to all of these risks. This resulted in its bankruptcy as well as the loss of millions of dollars in investor funds.
While centralized exchanges are convenient, they are ultimately too risky for serious investors.
Decentralized exchanges offer a much more secure alternative for trading cryptocurrencies. Because decentralized exchanges do not rely on a single entity to facilitate transactions, they can provide greater security and transparency.
Thanks for sharing friend, and goodluck in this contest. #steem-on.
I will appreciate if you equally engage on Mine
@jasminemary
You have written so well. I would love to applaud you for your great resilence towards the contest. I was caught by these too.
This could be a true fact too, they may as well freeze assets of remaining investors. Their legal action might as well make these investors victims of Justice call. You are right in saying that too. I hope to see your publication in the next contest. #steem-on
You have written well with regards to the topic under consideration, you feel that the plans of Binance to buy FTX will go a long way in reassuring previous investor and winning back their trust. This is true because Binance has proven to be trust worthy from day one and that has been the reason it is number one in the line of centralized exchange. I wish you success in this contest my friend.