2022 was not a great year for crypto. It started with a bang as crypto ads went mainstream in the Super Bowl.
And then the year ended with an implosion.
Crypto hacks piled on scandals and sliding valuations, one company fell and then another, culminating with the spectacular collapse of the FTX cryptocurrency exchange and its founder Sam Bankman-Fried, who is now under investigation for fraud.
So will this crypto winter start to thaw in 2023 or head into deep freeze?
Marketplace’s Meghan McCarty Carino spoke with crypto journalist and host of the “Unchained” podcast, Laura Shin, about what she thinks is in store for the industry this year.
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The following is an edited transcript of their conversation.
Laura Shin: There’s probably going to be a big battle over how to regulate the space. There’s already been a sort of turf war between some different agencies for a few years. And I think we’re probably going to see that heat up a little bit. I also think that there’s a perception amongst the community that certain types of legislation do not fully understand how the technology works and so they will definitely fight tooth and nail over that. We actually saw that happen about a year and a half ago with the infrastructure bill in August 2021, where there was a crypto provision that they felt didn’t make sense, basically, for how the technology works. And the top lobbyist told me later, she said, the crypto community flooded Congress with 40,000 calls in just a few days. And other lobbyists were calling her to ask her how they had gotten the community so engaged, and she was like, “oh, I didn’t have to do very much.” It’s just they’re paying attention, they’re very passionate about this. Like I said, I expect something quite similar [to] what happened because this FTX fraud case, obviously has been so extensive, and so massive, for sure, regulators are going to take notice.
Meghan McCarty Carino: To what extent do you expect, you know, less money or interest in investing in crypto, whether because of all these recent scandals, or potentially a broader slowdown in the economy?
Shin: We will definitely see decreased interest, I don’t know if it will be any more decreased than we’ve already seen this year. If you look back over the history of crypto, essentially, some people say that the markets of crypto sort of “breathe,” and what they mean by that is that there will be periods of kind of quiet activity, at least in terms of the markets, and then suddenly you’ll see a sort of bull market that potentially often leads to a mania or a bubble. And in general, because of the larger macro environment, like with high interest rates, the cost of money of borrowing money is high, people aren’t willing to put their money into risky assets. And so because of all the bankruptcies this year, and the general bad public perception of crypto at the moment that I would expect that the crypto markets would not revive too much.
McCarty Carino: So it sounds like for the general public, this kind of bear market is going to represent a lot of risk and probably, you know, not be too enticing. But what about when we’re talking about, you know, the true believers, the ones who are really committed to this idea of decentralized finance?
Shin: Yeah, well, it’s exactly the true believers who view this as the perfect buying opportunity. A lot of times, you’ll hear crypto people say things like, the bear markets are actually more fun for them. And these are definitely those, you know, real builders, entrepreneurs who truly believe in the technology of it, [they’re] kind of in it for more than just a get rich quick scheme. And it’s during the bubbles that they’re kind of like less happy, because that’s when they feel that a lot of scammers enter the space, a lot of people who do just want to get rich quick who don’t understand the technology [and] don’t really care for it on a deep level. And so basically, a lot of kind of my true or realer sources who, you know, help explain the technology to me, they’re actually quite happy right now that things are much calmer than they were a year ago.
McCarty Carino: Now, crypto isn’t just about finance. There’s also all this technological innovation behind it, the blockchain. Were there any interesting developments, you know, behind these systems that you think might move forward this coming year?
Shin: Well, what I would say is that because of the FTX case, there’s a renewed interest in solutions that help people manage their own private keys. When you own coins, you hold them in this “address.” Now that address has what’s known as a public address, which is a random string of numbers and letters that you can send to other people, and they can use that to send money to you. So it’s sort of like your mailbox, right? Then your private keys are what allows you to send money out of that wallet or location. When you hold crypto on an exchange, you are giving your private keys basically to the exchange or they’re managing those private keys for you. They’re managing your ability to send your coins. Now, obviously, in the case of FTX, you know, allegedly there was massive fraud there and they were using the customer funds in a way that the customers did not authorise. This is why you’ll hear a lot of people in crypto say things like not your keys, not your coins.
Shin: And what that means is if you’re not managing your own private keys, then you could very well lose that money if you’re trusting somebody else to do it and they don’t do it well. The risk now of managing your own private keys has traditionally been that a lot of these people will lose their private keys. You know, it’s a tricky situation to try to store them in a secure way where other people cannot then also steal your private keys and therefore your coins. But there’s newer solutions that have gotten a lot of interest, where you can manage your own private keys, but not have too much of a risk of losing them. And they use things like biometric solutions, and other things like that. You can kind of manage them in a way that’s a bit more user friendly. So that’s one area that I think people will be focusing on.
McCarty Carino: Where do you think we are in the kind of trajectory of the fall of this industry? Is this kind of, you know, are we at the beginning or with the middle? Are we at the end of things [hitting] bottom? You know, is this kind of the cleansing fire and things will kind of start to rebuild from here? Where are we?
Shin: Yeah, well, I don’t think that the industry will fall completely. In fact, you know, when I started covering all this stuff in 2015, it was so much smaller than now it’s so big that I have, it’s basically impossible for me to keep up even as a journalist. But what I will say is that, you know, Bitcoin was birthed out of the great financial crisis, the white paper for Bitcoin was published in the midst of that. And all the big bankruptcies this year have been of these centralized entities. I’ve been hearing from a lot of people that they’re going to double down on decentralization, that they’re not going to trust any more intermediaries. And they find it very ironic that the community basically, you know, was first born to be an antidote to the great financial crisis. And then years later, [it] essentially created its own because it went back to the centralized model. So I think that community at this point is going to definitely veer further away from centralized entities and more into decentralization.
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Laura Shin mentioned the importance of private and public keys for people holding cryptocurrencies, but you can read this article from Coindesk explaining the difference between the two.
In general, a public key is sort of like a mailbox while a private key is like a password that unlocks your “crypto wallet.”
As Laura explained, forgetting how to “unlock” your private key or losing it entirely is really bad. It means you lose access to your cryptocurrency.
And yes, you can absolutely lose this.
James Howells, a computer engineer from the U.K., accidentally threw out an old hard drive in 2013 that contained keys to a wallet with more than $100 million worth of bitcoin. He’s been trying to get permission from his town in Wales to search the dump.
Officials have denied his requests so far so he’s come up with a proposal to use a combination of human pickers, robot dogs and a machine with a mechanical arm that uses AI trained to seek out hard drives. (The robot dogs are to provide security, obviously.)
Howells told Business Insider in July 2022 that he’s got a team of experts and venture-capital backing. The scheme could take up to three years and cost as much as $11 million.
That’s all from the guy who literally already threw away more than $100 million.