Trust in Digital Technologies is Broken

Joseph Dana

Image courtesy of Stefani Reynolds / AFP

November 2022 will go down as a pivotal month in the history of contemporary technology. Twitter, the small but influential social media network, is imploding under the leadership of Elon Musk as other leading tech companies start mass layoffs. The FTX crypto exchange, once considered a stable titan in the cryptocurrency market, has filed for bankruptcy and its eccentric founder has stepped down after failing to find $8 billion to keep the exchange afloat (and maybe even avoid jail time). There is an immediate effect on investors and users of these platforms but the pernicious aspect of these events could be an erosion of trust in technological innovations.

Social media has fundamentally changed how people communicate and share information around the world. Cryptocurrency has changed the way money is exchanged and controlled. If eccentric billionaires can implode the core pillars of these platforms, why should the general public adopt them? Given the pace of innovation across technology sectors, where should people put their faith? These aren’t easy questions to answer. Recent events are forcing a new conversation with fresh perspectives about the future.

At the end of October, global cryptocurrency markets were dominated by two major exchanges, Binance and FTX. While Binance’s Chinese-Canadian co-founder and CEO Changpeng Zhao has been known for his direct demeanor, the founder of FTX was a darling of the crypto sector. The son of Stanford law professors, 30-year-old Sam Bankman-Fried had been cast as a visionary savior in crypto. He became the face of the “effective altruism” movement, which is popular among Silicon Valley’s elite and pushes wealthy tech executives to give away parts of their fortune to create greater social change. With magazine advertisements and sports sponsorships, FTX was viewed by many as a respected and dependable crypto exchange.

Bankman-Fried, or SBF as he is known, also bailed out several crypto companies during the recent downturn and has been viewed as single-handedly keeping parts of the sector alive. That was last month when Bankman-Fried was worth more than $25 billion. Today, his fortune is less than a billion dollars and shrinking fast. Last week, Binance announced that it would be bailing out FTX. The news sent shockwaves through the industry and the price of Bitcoin tumbled.

Then things got worse. Binance backed out of the acquisition deal after looking at FTX’s books. They found a nearly $8 billion hole. How did this come to pass? In essence, Bankman-Fried used customer assets held on FTX to fund his small crypto trading platform Alameda Research. When Binance announced that it was selling most of its FTT token – a token issued by FTX itself, which grants holders a discount on trading fees on its marketplace, there was a run on FTX by users to remove their assets. It’s unclear exactly how much FTX is short in covering customer assets but it’s at least $6 billion.

This development has given ammunition to crypto critics who have long said that the sector is full of Ponzi schemes. Popular crypto skeptic Matt Stoller recently tweeted that, “the gossipy bad acts of Sam Bankman-Fried are not important. Crypto is a rolling series of Ponzi schemes and that’s been obvious for years. Reporting on the personalities is a distraction from the thousands of corrupt BigLaw crypto lawyers who fostered knowing Ponzi schemes.”

With the spectacular downfall of FTX, regulators worldwide are promising deep scrutiny of the crypto sector. This might be one of the silver linings of the developments. Crypto was partially born out of a desire to dull the influence of government regulators but the number of shady figures in the space has rendered a lot of the incredible technology useless. When an exchange like FTX implodes thanks to what looks like a Ponzi scheme, how can users have faith in the technology? While overt government control over cryptocurrency is virtually impossible, there is going to be a big push into government-backed crypto projects including better regulation of exchanges and the advent of central bank digital currencies.

This isn’t a bad thing. Central bank digital currencies will continue the evolution of money. Critics have warned that these currencies enable deeper control over individuals and surveillance. That might be true but the usage of smartphones already facilitates these concerns. Even if central bank digital currencies don’t take off in the short term, they could help bring back some confidence in the technology underpinning cryptocurrencies.

The UAE Central Bank completed the world’s largest pilot of central bank digital currencies (CBDC) transactions at the end of last month. This is good timing given the fact that the UAE is one of the world’s hotspots in remittance transfers. Having become a trusted space in the remittance market, the UAE can build on that with its own central bank digital currency. Again, critics don’t have to use this digital token but its existence and the fact that it is backed by the UAE should inspire some confidence in the technology itself.

It’s still unclear how all the chips will fall with the FTX saga and the future of Twitter. With dire earnings forecasts and mass layoffs, the technology sector is in for some rough seas over the next couple of months. But that doesn’t mean the spirit of innovation that has propelled all this technology forward needs to be thrown out. There just has to be some concrete confidence-building measures put in place and central bank digital currencies like the UAE’s is a good place to start building.

Joseph Dana is the former senior editor of Exponential View, a weekly newsletter about technology and its impact on society. He was also the editor-in-chief of emerge85, a lab exploring change in emerging markets and its global impact. Twitter: @ibnezra