Bitcoin worth $ 15 quintillion is just another day in the cryptocurrency industry


The cryptocurrency industry is still plagued with business issues, infrastructure issues, hacks, and quirks.

Cryptocurrencies have taken a giant leap forward in 2021, expanding well beyond their niche among geeks and Redditors. Wall Street tightened its embrace, with Morgan Stanley CEO James Gorman saying crypto was out of fashion. New York City Mayor-elect Eric Adams said he would initially be paid in Bitcoin. And tokenmania has invaded pop culture, sports, entertainment and games at high-end auctions. Even Major League Baseball referees wore the FTX exchange logo on their chest.

Yet the cryptocurrency industry has often failed to master the basics, still plagued by the same issues that have plagued it from the start: business issues, infrastructure issues, hacks, and other crypto quirks. Back in the days when digital tokens fetched a paltry sum, it could have been considered a silly spectacle. Now cryptocurrencies are worth real money – over $ 2 trillion, assuming the tally isn’t clouded by a data error – and their backers want to move beyond traditional finance and revolutionize well. more. Their ability to do this – and the durability of crypto – may depend on solving and fixing basic plumbing and security issues, assuming they can.

The industry is using “Facebook’s ‘go fast and break things’ model,” said Larry Tabb, head of market structure research at Bloomberg Intelligence. “There’s no regulatory pressure to fix these issues, so it just becomes a competition issue. If I’m fed up with a trade, I’ll move on to another player.

Crypto supporters argue that problems are to be expected in an industry that is still in its early stages. It will find its place, they say. May be. Whatever the future holds, there have certainly been a ton of major hiccups in 2021.

This month, CoinMarketCap, a go-to source for crypto prices, spat out insanely bogus data for the entire market. Bitcoin prices exceeding $ 800 billion were posted on its website, which valued all tokens in circulation at $ 15 quintillion, or roughly 660,000 times the U.S. gross domestic product.

The company, owned by digital asset exchange Binance, responded in a typically wacky crypto fashion: with simple, memes-filled tweets. “How does it feel to be a billionaire for a few hours?” Read one, followed by the tears of joy emoji. Some industry watchers weren’t so optimistic in their response.

The incident ended and even the market players affected by the gaffe seemed ready to forgive and forget. “Honestly, this is just one of the things that indicates the emergence of an industry,” Coinbase Global Inc. president Emilie Choi said in a Dec. 15 interview at the Bloomberg Technology Summit.

While the CoinMarketCap incident did not appear to hurt anyone, other cases did not. Some mistakes have triggered Bitcoin declines, a situation made worse by the fact that automatic safety devices – like U.S. stock market circuit breakers – are not common in crypto. In October, a trader’s algo went haywire, knocking the world’s largest cryptocurrency down about 87% before rebounding. In early December, Bitcoin experienced a smaller but still heart-wrenching drop of up to 20% as traders recklessly tried to sell too much in the midst of weekend trading, exposing the downsides of the 24/7/365 crypto markets. there are not enough counterparts around.

Some disruption prevented investors from trading at all. When Bitcoin fell more than 10% on May 19, Coinbase and Binance suffered outages. Bitfinex weakened on September 30.

Then there were times when the blockchain infrastructure that powers crypto posed problems. Solana emerged in 2021 as a competitor to Ethereum, which is actually a global supercomputer running software called smart contracts. But Solana went bankrupt for 17 hours in September, crippling a small but growing corner of decentralized finance, or DeFi.

Separately, a Solana-based project – Pyth, which counts major Wall Street traders as contributors – encountered software bugs in September that caused the service to mistakenly report a 90% drop in the price of Bitcoin.

These are just a few examples among many.

“These are absolutely problems that need to be addressed, but I think there are fairly simple solutions to a lot of them,” said Sam Bankman-Fried, the billionaire co-founder and CEO of FTX this month. on Bloomberg’s “What Goes Up”.

Read about snafus in the past years: Ether Thief remains a year of mystery after $ 55 million digital heist. The Mt. Gox shutdown prompts Bitcoin damage control efforts. For example, squirrels were a recurring nightmare for stocks, causing blackouts that brought the Nasdaq market down in 1987, and then again in 1994. then recovered just as quickly, spooked Wall Street. A key Nasdaq price information service erupted in 2013, freezing stocks like Apple Inc. for hours.

Since a 3.5-hour outage on the New York Stock Exchange in 2015, navigation has been mostly smooth for the equity market infrastructure, evidence that a crackdown by the United States Securities and Exchange Commission urged traders and exchanges to make their software more resilient.

Crypto has a lot less oversight – at least for now – which means the industry primarily decides what collateral to implement, if any. Many Wall Streeters are flocking there now, bringing with them conventional ideas about protections. But the space was initially forged mainly by people with no professional background in finance who may not have fully appreciated what it takes to create systems that can handle fast-paced modern commerce.

“It’s a very different perspective than traditional stock exchanges where regulators have focused on safety, security and fundamentally not being down,” Bloomberg Intelligence’s Tabb said.

FTX’s Bankman-Fried and FTX.US Chairman Brett Harrison migrated to crypto after jobs in mainstream finance, including time they both spent at trading firm Jane Street. “We’re used to how other exchanges work,” Harrison said on the “What Goes Up” podcast. FTX has what’s called price brackets, which prevent transactions if they are priced too far from current levels – similar to what we see in traditional markets. “If you didn’t grow up in this environment, you wouldn’t think of doing this stuff,” he added.

Robert Zagotta used to work at CME Group Inc., America’s largest derivatives exchange, and is now CEO of Bitstamp US, a crypto market. He thinks other industry players aren’t worried about technology issues. “I don’t think our competitors think this is critical to their success,” he said. “But based on my experience in traditional technology, I know it’s coming. It will be in 2022 and 2023.

Hacking is also a big problem in crypto, which is deeply connected to the internet, making it vulnerable, while in mainstream finance, computers are often isolated from the internet in monitored data centers. The Nasdaq was hacked a decade ago, but its main trading computers have not been infiltrated.

In crypto, money is drained from projects all the time. Hackers stole around $ 130 million from BadgerDAO earlier this month, while customers of the BitMart crypto exchange lost around $ 150 million.

Crypto culture is simply different from traditional finance, so some weird things are inevitable. Take the $ 532 million non-fungible token swap that took place this year – or, more specifically, which seemed to take place but didn’t really take place since the buyer and seller were the same person. With the exception of the trading fee, no money changed hands, meaning the pseudo-trade really only brought attention to the trending NFT market. Maybe that was the point?

And then there was the person who mistakenly sold a Bored Ape Yacht Club NFT for about 100 times less than they had expected – for $ 3,066 instead of about $ 300,000 – because of a typo. In the stock market, this could have been blocked by what is called a big finger check, which aims to prevent wrong keystrokes from causing wrong trades.

Some are optimistic that crypto technology is becoming more robust and less prone to errors, catching up with traditional finance or TradFi in the crypto language.

“There used to be a lot of bugs and idiosyncrasies in a lot of exchanges,” said Michael Safai, founding partner of proprietary trading firm Dexterity Capital. “The exchanges are definitely investing in the demand they see last year to reach the professional level TradFi has been at for decades.”

Yet much of cryptocurrency relies on the idea of ​​no rework – once a transaction takes place on a blockchain, it is supposed to be a done deal. Thus, passwords protecting Bitcoin and other cryptographic assets must be carefully protected; it is much easier for hackers to swipe this, and therefore your coins, than it is to get real dollars into a real bank account with insurance backing it up. And don’t lose sight of them: some digital tokens are literally lost in landfills, on moldy hard drives. This raises a question: is it too much to expect crypto blocks, creating a big barrier to widespread adoption?


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