Ben Simpson is remarkably upbeat for a man who gave up a successful business he founded as a teenager to throw his lot into cryptocurrency.
Since the spectacular collapse of the crypto exchange FTX, and the arrest of its shaggy-haired founder, Sam Bankman-Fried, on fraud charges, the world of digital currency has been in turmoil.
Yet the 24-year-old entrepreneur, who began a clothing company while still a schoolboy in Tasmania before pivoting to crypto, paints a very different picture.
Stories of investors losing fortunes, families losing savings and employees losing their jobs, have flooded the media as the crypto market has tanked and obituaries of the nascent industry have been written.
“This crypto contagion is good for crypto” he declared in a recent tweet.
Asked to explain why Simpson told Umbrella News that crypto was going through a painful but necessary case of growing pains.
“In the short term, people will get hurt badly & I’m sorry to those that have been. But it will weed out bad actors & broken business models. In 3 years, no one will remember Block-Fi, Luna or Celsius. We’ll come back stronger.”
The bad actors and broken business models Simpson refers to are headlined by Bankman-Fried and FTX, which in early November went from having over a million customers (including 30,000 Australians) and a net worth of more than $30 billion to go bankrupt in the space of a week.
“It wasn’t Bitcoin that was doing the wrong thing, it wasn’t Ethereum that was doing the wrong thing. It was just people in positions in these (such) companies doing the wrong thing,” stresses Simpson, who believes the collapse of an extensive, centralised exchange like FTX will bring crypto back to its roots as a source of decentralized finance.
This quality that attracted Simpson to crypto while running his clothing business which required sending thousands of dollars to China every month.
“The fees and exchange rate and how long it’ll take to get to China was just ridiculous. Like it was taking you know, a week or two to arrive at the bank, and they would question and freeze my account. Every time I’d send money over, there was just a nightmare.”
After a friend introduced him to Bitcoin, Simpson not only found a way to transfer money overseas seamlessly but a whole new financial system free from the control of governments or banks.
Within a few years, Simpson closed the clothing business, moved to Melbourne and threw himself into the digital currency world, founding crypto education service, Collective Shift, for which he also acts as CEO. Through podcasts, seminars, courses and newsletters, he offers investment advice to his clients, including a warning to get out of FXT a week before its collapse.
Simpson’s unshakeable confidence in crypto is matched by the scepticism of its critics, many of whom reside in the upper ranks of business, finance and politics. Among the most strident is London-based Australian journalist David Gerard, author of the book ‘Attack of the 50 ft Blockchain: Bitcoin, Blockchain, Ethereum and Smart Contracts‘.
He scoffs at the idea the current downturn will purge the industry of bad actors.
“Crypto’s only use case ever, since bitcoin was invented, was to work around regulations. This means crypto attracts dodgy operators by its nature, and it’s done so since you could first exchange bitcoins for money in 2011. Sam Bankman-Fried is a symptom.”
While proponents like Simpson tout fast overseas remittances as one of its benefits, Gerard argues crypto’s main weakness is its lack of usefulness.
“Bitcoin didn’t work at all as cash, so speculation was the only remaining use case – approximately 100% of people who are into crypto are in it to make money,” he says.
“Crypto’s problems are structural. Crypto doesn’t have an economy of its own – nobody buys or sells anything in crypto – so the only way early investors can cash out is with money from later investors.”
The latter point is conceded by Melbourne crypto entrepreneur and blogger Moresh Kokane, who says crypto moving from a problem-solving tool to a get-rich-quick scheme has attracted many people who aren’t suited to it.
“I know people who personally lost money in UST, Luna and Terra and these were young kids. I mean there was one of my friend’s sister who lost $25,000 and she was putting part of her salary in it and she was treating it as a savings account because it gave her 20%. Now somebody should’ve told her that 20% as a safety deposit interest rate is infeasible.”
Unsurprisingly for an advocate of something initially designed to bypass regulations, Kokane isn’t keen on government intervention to protect consumers, preferring a more Darwinian approach instead.
“People need to take a bit of responsibility for their actions. And the sooner they do that, they need to be cognizant of the actions which they take and become aware of that and understand if you do put stuff into something like this, then there is a very good possibility that if you don’t understand what your money is being used for, then you are very likely to lose.”
While regulatory authorities cast about for solutions – including banning cryptocurrencies – an alternative is under development.
Central Bank Backed Digital Currencies, or CBDC’s are already being used in some countries and are being developed in many more, including Australia. Kokane is one of many in the crypto community who believe state-run digital currencies seriously threaten civil liberties. These concerns which are gaining traction elsewhere too, including in mainstream politics.
Central to these concerns is the programmability of CBDCs, something critics say would reduce personal freedoms and pose security risks. The General Manager of the Bank for International Settlements claims that central banks would have ‘absolute control on the rules and regulations‘ for how CBDCs are used – and would have the ‘technology to enforce them’ – didn’t help matters either.
Kokane says CBDCs, like the one being trialled in his native India, is something he can’t abide.
“I can live in a world where crypto didn’t achieve its best potential outcome which it could have achieved. But to live in a world where CBDCs are the norm is basically to submit to slavery. Because if you think that governments won’t use that power to silence its opponents, then you’re mistaken. I think anybody who gets that kind of power is very likely to abuse it.”
To prevent such abuse, Kokane advocates so-called Zero-knowledge proofs that would limit the amount of data made accessible through CBDC’s. Privacy protections are also front of mind for a digital strategist and Managing Director of Blockchain APAC, Steve Vallas.
“We have the opportunity here to reinvent what it is to create, own and share information. How much information should, could and will be shared are discussions that must be had in advance of the development of architected solutions.”
Vallas says that while development will continue in 2023, an Australian CBDC remains some years away. However, he says both CBDCs and cryptocurrencies can co-exist and will develop independently.
In light of recent problems though, he argues that development must happen under a regulatory regime.
“A key tenet of that regime should include both Government and industry establishing a more public and nuanced discussion about what constitutes a scam such that bad actors are more readily identifiable.”
Afterall, not every bad actor will have a mop of shaggy-hair.