What FTX Taught Us

When FTX collapsed in November 2022, Bitcoin was trading at around $16,000.

That same week, the Bitcoin network processed transactions as normal. Blocks were found every ten minutes. No withdrawals were frozen. No customer funds went missing. The protocol functioned exactly as it had on every other day for the previous thirteen years.

This is worth sitting with. The most prominent exchange in the crypto world imploded due to fraud. The asset it primarily traded continued operating flawlessly.

FTX taught several specific lessons.

First: the risks of centralised exchanges are counterparty risks, not Bitcoin risks. When people say they “lost money in crypto,” they often mean they lost money in a centralised platform that failed. The underlying network was untouched.

Second: proof of reserves matters. After FTX, major exchanges faced enormous pressure to demonstrate they actually held the assets they claimed. Transparency tools improved significantly. The industry’s custodial practices became more scrutinised.

Third: the self-custody argument became impossible to dismiss. Every person who had moved their Bitcoin to a hardware wallet before November 2022 was unaffected by FTX’s collapse. Every person who left significant funds on the exchange faced potential total loss.

FTX also damaged Bitcoin’s reputation by association in the short term — the mainstream press covered it as a “crypto” story without always distinguishing the exchange’s fraud from the underlying network.

In the long term, FTX clarified the distinction between Bitcoin and everything else. The fraud happened in the centralised layer. The decentralised network was untouchable.

Tomorrow: Block 2 recap — Bitcoin grows up.

— The Daily Bit