FTX is now defunct. Does crypto have a future?

(SOUNDBITE OF AD)

UNIDENTIFIED PERSON: Like I was saying, it's FTX. It's a safe and easy way to get into crypto.

LARRY DAVID: Yeah, I don't think so. And I'm never wrong about this stuff. Never.

AYESHA RASCOE, HOST:

That's from an ad for FTX featuring Larry David. The cryptocurrency trading platform is defunct after collapsing a year ago. Its CEO, Sam Bankman-Fried, was convicted Thursday on seven counts of fraud and conspiracy. Molly White is a fellow at the Harvard Library Innovation Lab and the Berkman Klein Center for Internet & Society, and she joins us now. Good morning.

MOLLY WHITE: Good morning.

RASCOE: So you attended Bankman-Fried's trial. As someone who researches and comments on and criticizes cryptocurrency, did anything from the trial surprise you?

WHITE: Well, I was surprised to see Sam Bankman-Fried take the stand to testify in his own defense. That is a very unusual thing to see in white-collar cases like this. And most of his testimony involved him saying he couldn't recall the things that the prosecutor was asking him about. But generally speaking, he was trying to make the same claims that he has made since the collapse of FTX, which is that it was all just a big mistake; he wasn't deeply involved in the day-to-day operations of Alameda Research, which was a sister trading firm to FTX, and that things had gone poorly, and he had regrets, but there was no crime involved.

RASCOE: So I mean, FTX collapsed a year ago, but cryptocurrency as a thing is still very much alive. And for those of us who don't follow the industry closely, what do you think explains the enduring appeal?

WHITE: Well, I think it doesn't take much to keep something like cryptocurrency alive. You know, as long as there are two people willing to trade something, there's a market for it. But overall, the industry has gone through a pretty massive downturn since this time last year and even maybe two years ago. And I think it's really struggled since then to overcome the reputational damage that came from both the collapse of FTX but also some other major failures in the industry where, you know, massive lenders or cryptocurrency brokers have all collapsed in the span of only months and a year or so.

RASCOE: If FTX had been run the way Bankman-Fried said he was running it, transparently and ethically, you know, kind of pioneeringly, would it have survived? Is the issue the theory of cryptocurrency, or is it the practice of cryptocurrency?

WHITE: Well, I think it could have survived had everything been aboveboard, although I don't think it would have been quite as lucrative as they at least claim to be. I do think that, you know, the challenge with cryptocurrency is in an industry that is not well-regulated, much of the business relies on taking advantage of the gap between the regulated financial markets and an unregulated sort of Wild West. And so the more these companies try to play by the rules and comply with regulations, the less of a business opportunity there is, especially because the underlying asset doesn't have much in the way of inherent value.

You know, there is no physical asset backing it. There's no real revenue stream. And so a lot of the industry thus far has really been predicated on this sort of regulatory arbitrage. And the more people are willing to go outside of the bounds, you know, the more profitable it is. And so I think that's why we've seen so many flagrant frauds and abuses of customer funds and things like that within the industry - is that it is very lucrative to do so. And the regulators have been somewhat asleep at the wheel.

RASCOE: So what's the future of cryptocurrency, in your opinion, for the next year or so and in the long run?

WHITE: I think it really depends on what we see from a regulatory standpoint. You know, there have been attempts by regulators to crack down on the industry. Legislators are beginning to pay more attention. And so depending on what companies are required to do from a regulatory standpoint, it really could change the track of the industry, which, again, I think has flourished to the extent that it has because of the lack of regulation. And so if these companies are required to play by the same rules as the traditional financial system, I think it could really stifle a lot of the profit that has come in the industry and also a lot of the fraud, fortunately.

RASCOE: That's Molly White. She researches cryptocurrency and writes the blog Web3 Is Going Just Great. Thank you for speaking with us.

WHITE: Thank you for having me. Transcript provided by NPR, Copyright NPR.