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The US Congress Is Starting to Question This Whole Crypto Thing

The US Congress Is Starting to Question This Whole Crypto Thing

Hundreds of thousands of investors just had billions picked from their collective e-pockets. Yet, crypto remains the untouchable queen in the antiquated marble halls of the US Capitol.

Sure, a handful of lawmakers are waving—or at least limply holding—red flags after cryptocurrency exchange FTX imploded earlier this month. Even as hundreds of millions of dollars worth of happiness, retirements, and even basic health care were erased in the blink of a bro’s cunning eye, Congress is cool, calm, and collectively, well, daft.  

“It’s not really an issue I know a whole lot about,” says Bernie Sanders, the independent US senator from Vermont who plays a Democrat every four years.

“I don’t really understand the technology,” says US senator Josh Hawley, a tech-forward Missouri Republican.

House Democratic leaders seem to be on the same (if antiquated) page. Asked about plans to address the volatile cryptocurrency world following the collapse of FTX, US representative Hakeem Jeffries (D-New York), the current chair of the House Democratic Caucus and (presumed) future leader of House Democrats, demures. “Well, I think, that’s an issue that, I presume, will be taken up by the Financial Services Committee,” he says.

Talking with lawmakers, it seems Congress continues to wrestle with the definition of what “money” is, even as most of us have moved far past the nation’s representatives and keep asking when we’re going to get our money—digital or otherwise—back. And despite the current crypto collapse, according to Jeffries and many other powerful party leaders, there’s time to kill.

“There are a whole host of issues that, I think, we are planning on working through, and I can imagine that the situation related to the cryptocurrency industry will be one of them moving forward,” Jeffries adds. 

According to US senator Cynthia Lummis (R-Wyoming), the rise of cryptocurrencies—and the dangers that come with them—caught Congress by surprise. 

“I think that a lot of members of Congress have assumed that the digital asset industry could be on the back burner because it’s immature,” Lummis says. “It’s growing faster than people recognize. And now with Elon Musk announcing that he might use Twitter as a payment platform, I mean, this industry is much more mature than people realize. It’s time. It’s time to regulate. It’s time to put sideboards on this.”

Lummis isn’t merely a Republican. She’s Wyoming—a state that aims to be the “crypto capital” of the US. She was a founding member of the House Freedom Caucus. Like the caucus itself, she moved toward MAGA in recent years, but her libertarian streaks remain pronounced—and crypto’s the best thing since sliced bars of gold for the laissez-faire Lummises of the world.

As anti-regulation as Lummis is, she’s been out in front calling for constraints—“regulations,” even, though that’s still considered a four-letter word in most Republican circles. She wants bumpers, at the very least.

“There will still be companies that deal in digital assets that will fail even after they’re regulated, but at least we’ll have consumer protections and reporting—and the most important thing there is segregating the customers’ assets from the financial institution’s assets,” Lummis says. “What happened with FTX is they were lending out customer’s assets.”

The Hunt for the FTX Thieves Has Begun

The Hunt for the FTX Thieves Has Begun

That means it will be very difficult for the thieves to abscond with their profits in a spendable form without being identified, says Michelle Lai, a cryptocurrency privacy advocate, investor, and consultant who says she’s been tracking the movements of the stolen FTX funds with “morbid fascination.” But the real question, Lai says, is whether identifying the thieves will offer any recourse: After all, many of the most prolific cryptocurrency thieves are Russians or North Koreans operating in non-extradition countries, beyond the reach of Western law enforcement. “It’s not a question of whether they’ll know who did it. It’s whether it will be actionable,” says Lai. “Whether they’re onshore.”

In the meantime, Lai and many other crypto-watchers have been closely eyeing one Ethereum address that is currently holding around $192 million worth of the funds. The account has been sending small sums of Ethereum-based tokens—some of which appear to have little to no value—to a variety of exchange accounts, as well as Ethereum inventor Vitalik Buterin and Ukrainian cryptocurrency fundraiser accounts. But Lai guesses that these transactions are likely meant to simply complicate the picture for law enforcement or other observers before any real attempt to launder or cash out the money.

The pilfering of FTX—whether the theft totals $338 million or $477 million—hardly represents an unprecedented haul in the world of cryptocurrency crime. In the late-March hack of the Ronin bridge, a gaming cryptocurrency exchange, North Korean thieves took $540 million. And earlier this year, cryptocurrency tracing led to the bust of a New York couple accused of laundering $4.5 billion in crypto.

But in the case of the high-profile FTX theft and the exchange’s overall collapse, tracing the errant funds might help put to rest—or confirm—swirling suspicions that someone within FTX was responsible for the theft. The company’s Bahamas-based CEO, Sam Bankman-Fried, who resigned Friday, lost virtually his entire $16 billion fortune in the collapse. According to an unconfirmed report from CoinTelegraph, he and two other FTX executives are “under supervision” in the Bahamas, preventing them from leaving the country. Reuters also reported late last week that Bankman-Fried possessed a “back door” that was built into FTX’s compliance system, allowing him to withdraw funds without alerting others at the company.

Despite those suspicions, TRM Labs’ Janczewski points out that the chaos of FTX’s meltdown might have provided an opportunity for hackers to exploit panicked employees and trick them into, say, clicking on a phishing email. Or, as Michelle Lai notes, bankrupted insider employees might have collaborated with hackers as a means to recover some of their own lost assets.

As the questions mount over whether—or to what degree—FTX’s own management might be responsible for the theft, the case has begun to resemble, more than any recent crypto heist, a very old one: the theft of a half billion dollars worth of bitcoins, discovered in 2014, from Mt. Gox, the first cryptocurrency exchange. In that case, blockchain analysis carried out by cryptocurrency tracing firm Chainalysis, along with law enforcement, helped to pin the theft on external hackers rather than Mt. Gox’s own staff. Eventually, Alexander Vinnik, a Russian man, was arrested in Greece in 2017 and later convicted of laundering the stolen Mt. Gox funds, exonerating Mt. Gox’s embattled executives.

Whether history will repeat itself, and cryptocurrency tracing will prove the innocence of FTX’s staff, remains far from clear. But as more eyes than ever scour the cryptocurrency economy’s blockchains, it’s a surer bet that the whodunit behind the FTX theft will, sooner or later, produce an answer.

What the Hell Happened to FTX?

What the Hell Happened to FTX?

In response, CZ dropped a bombshell on Twitter: Binance would sell off its entire FTT holding. He claimed the intention was to sell “in a way that minimizes market impact,” but the announcement led to a steep drop in the price of FTT (the token has lost almost 90 percent of its value) and a surge in withdrawals at FTX as customers began to panic about the safety of their crypto.

Bankman-Fried initially denied rumors of insolvency on November 7, claiming that “a competitor is trying to go after us with false rumors” and that “FTX is fine.” (These tweets have since been deleted.) It later became clear the company was scrambling to secure a bailout.

CZ has denied that he deliberately created a liquidity crisis at FTX—“I spend my energy building, not fighting,” he tweeted on November 7—but Tim Mangnall, whose company Capital Block has consulted for both Binance and FTX, says this was a “shrewd” business maneuver by CZ, one that allowed him to “buy one of his biggest competitors for pennies on the dollar.”

All Hail CZ, King of Crypto

Binance has now rejected that deal. The crisis at FTX likely reinforces its rival’s position as the world’s largest cryptocurrency exchange. Binance is already larger, by trading volume, than a clutch of its nearest competitors (Coinbase, Kraken, OKX, Bitfinex, Huobi, and FTX) combined.

Binance will now likely hold greater control over the kinds of coins that are widely listed for purchase. By the same token, the influence of CZ, already one of the most prominent figures in the crypto world, will also be magnified in debates around policy and regulation.

For the portion of the community that believes crypto should stand for decentralization, the merging of two of the world’s largest exchanges will also be cause for concern. Decentralization is all about the even distribution of power and eliminating single points of failure, but the fall of FTX supports neither ambition.

After Binance’s rescue plan was first announced, the prices of bitcoin and ether fell by more than 10 percent, wiping out more than $60 billion from the market. They may now fall further.

The implosion of FTX will also raise questions about what should be done to protect crypto owners in the future. One proposal from CZ is that all exchanges should provide transparent “proof of reserves”—in other words, clearly demonstrate they have enough cash on hand to fund customer withdrawals. In a tweet, he promised that Binance will take up this policy “soon.”

Brian Armstrong, CEO of Coinbase, expressed sympathy for FTX but also pointed to “risky business practices” and “conflicts of interest” that left the company exposed—something that, presumably, transparency requirements would also remedy. Separately, Armstrong moved to dismiss concerns that Coinbase might find itself in a similar liquidity crunch: “We hold all assets dollar for dollar,” he wrote on Twitter.

But others say this latest dance with disaster is evidence that people should not store their wealth with exchanges. “What we’re seeing now is a reminder of the importance of crypto custody,” says Pascal Gauthier, CEO at Ledger, which makes wallets to allow people to manage their own crypto. “You don’t own your crypto unless you use self-custody.”

Updated 11-9-2022, 5:30 pm EST: This article has been updated to reflect Binance’s statement that it would not acquire FTX after all.

Ethereum’s ‘Merge’ Is a Big Deal for Crypto—and the Planet

Ethereum’s ‘Merge’ Is a Big Deal for Crypto—and the Planet

Cryptocurrencies are often criticized for being bad for the planet. Every year, bitcoin mining consumes more energy than Belgium, according to the University of Cambridge’s Bitcoin Electricity Consumption Index. Ethereum’s consumption is usually pegged at roughly a third of Bitcoin’s, even if estimates vary. Although some 39 percent of the energy going into bitcoin mining comes from renewable sources, according to a 2020 Cambridge report, the industry’s carbon footprint is generally regarded as unacceptable. According to a 2019 study, bitcoin mining belches out between 22 and 22.9 million metric tons of CO2 every year.

The problem is that specialized computers powered by eye-popping amounts of electricity are needed to process and verify transactions of cryptocurrencies like bitcoin or Ethereum’s ether on blockchains, via a process called proof-of-work mining. In this system, thousands of computers all over the world (but mostly in the US, China, Kazakhstan, and Russia) vie with each other to solve a mathematical puzzle and earn the privilege of appending a batch of transactions, or “block,” to the ledger. The miner who prevails wins a crypto reward.

Most Bitcoin advocates will tell you that proof-of-work mining is essential to keep the network secure, and would never dream of tampering with something first conceived by the currency’s pseudonymous creator, Satoshi Nakamoto. But Ethereum is on the verge of a monumental change that will substantially reduce its environmental impact.

Ethereum, launched in 2015 by a 21-year-old whiz kid named Vitalik Buterin, is about to swap proof-of-work mining for an alternative system known as proof of stake, which does not require energy-guzzling computers. The Ethereum Foundation, a research nonprofit that spearheads updates and ameliorations to the Ethereum blockchain, says the shift will reduce the network’s energy consumption by 99.5 percent. The big switcheroo is known as the Merge—and it is slated to take place on September 14. 

What Is the Merge?

The Merge hinges on the fusion of Ethereum’s current proof-of-work blockchain with the Beacon Chain, a proof-of-stake blockchain that was launched in December 2020 but so far has not processed any transactions.

A couple of upgrades, scheduled to launch over the next few weeks, will lay the groundwork for a segue from one chain to the other. Justin Drake, a researcher at the Ethereum Foundation, says the way the process has been structured can be compared to a car switching from an internal combustion engine to an electric one. “How do we do that? Step one: We install an electric engine in parallel to the gasoline engine. And then—step two—we connect the wheels to the electric engine and turn off the gasoline engine. That’s exactly what’s going to be happening at the Merge,” Drake says. “We’ve had this parallel engine of the Beacon Chain for a year and a half—and now the old ‘gasoline’ proof-of-work engine is going to be shut off.”

After years of delays, the Ethereum community is positive that the long-awaited shift will finally happen, following a successful dry run carried out on a test blockchain, called the Goerli chain, on August 10. The fact that Buterin has a book titled Proof of Stake coming out in September is probably a coincidence.

How Will Ethereum’s Proof of Stake Work?

Talking about proof of stake is a bit like talking about French cheese: There are myriad varieties—with hundreds of cryptocurrencies claiming to use some version of the process. At its most basic, however, proof of stake is predicated on the idea of securing a network through incentives rather than hardware.

In this scenario, you don’t need an expensive mining computer to partake in the network: You can use your laptop to put down a “stake”—a certain amount of cryptocurrency locked in the network. That gives you the chance of being selected, usually via a random process, to validate a certain block and earn crypto rewards and fees. If you try to game the system, for instance by doctoring a block, the network will punish you and destroy, or “slash,” some or all of your stake.

After Layoffs, Crypto Startups Face a ‘Crucible Moment’

After Layoffs, Crypto Startups Face a ‘Crucible Moment’

In May, the venture capital firm Sequoia circulated a memo among its startup founders. The 52-page presentation warned of a challenging road ahead, paved by inflation, rising interest rates, a Nasdaq drawdown, supply chain issues, war, and a general weariness about the economy. Things were about to get tough, and this time, venture capital would not be coming to the rescue. “We believe this is a Crucible Moment,” the firm’s partners wrote. “Companies who move the quickest and have the most runway are most likely to avoid the death spiral.”

Plenty of startups seem to be taking Sequoia’s advice. The mood has become downright funereal as founders and CEOs cut the excesses of 2021 from their budgets. Most crucially, these reductions have affected head count. More than 10,000 startup employees have been laid off since the start of June, according to, which catalogs job cuts. Since the start of the year, the tally is closer to 40,000.

The latest victims have been crypto companies, and the carnage is not small. On Tuesday, Coinbase laid off 1,100 employees, abruptly cutting their access to corporate email accounts and locking them out of the company’s Slack. Those layoffs came just days after Coinbase rescinded job offers from more than 300 people who planned to start working there in the coming weeks. Two other crypto startups—BlockFi and—each cut hundreds of jobs on Monday; the crypto exchange Gemini also laid off about 10 percent of its staff earlier this month. Collectively, more than 2,000 employees of crypto startups have lost their jobs since the start of June—about one-fifth of all startup layoffs this month.

The conversation around crypto companies has changed abruptly in the past year. In 2021, they were the darling of venture capitalists, who showered them with billions of dollars to fund aggressive growth. Coinbase, which went public in April 2021 at $328 a share, seemed to suggest an emerging gold mine in the sector. Other companies, like BlockFi, started hiring aggressively with ambitions to go public. Four crypto startups took out expensive prime-time ads in the most recent Super Bowl.

Coinbase was also focused on hypergrowth, scaling its staff from 1,250 at the beginning of 2021 to about 5,000 in 2022. “It is now clear to me that we over-hired,” Brian Armstrong, Coinbase’s CEO, wrote in a blog post on Tuesday, where he announced the layoffs. “We grew too quickly.”

“It could be that crypto is the canary in the coal mine,” says David A. Kirsch, associate professor of strategy and entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. He describes the contractions in crypto startups as one potential signal of “a great unraveling,” where more startups are evaluated for how well they can deliver on their promises. If history is any indication, those that can’t are fated for “the death spiral.”

Kirsch has spent years studying the lessons of past crashes; he is also the author of Bubbles and Crashes, a book about boom-bust cycles in tech. Kirsch says that the bubble tends to pop first in high-leverage, high-growth sectors. When the Nasdaq fell in 2000, for example, the value of most ecommerce companies vanished “well in advance of the broader market decline.” Companies like and—which had made big, splashy public debuts—eventually went bankrupt.