The FTX Fallout from Fiat Fundamentals
You have undoubtedly heard about the “kInG oF cRyPtO” falling from his throne. This boy-wonder, son-of-the-regulator, low-risk genius being outed as a fraud. Sam Bankman-Fried (SBF) had all the right people backing him, throwing money at him, and over 1,000,000 individuals, businesses and corporations trusting him and his exchange — FTX — to help them on their crypto journey.
Without regurgitating the details of “how” this happened, and before we focus on “why” this happened, I want to first outline exactly why this can’t happen at Bitcoin Well. Not only because this type of fraudulent behaviour is (obviously) against our culture and values (I’m sure everyone will tell you that) but because our platform is actually built differently. Rather than simply signal that virtue, we have developed a platform and adopted principles that make this type of behaviour impossible at our organization.
Our customers do not need to trust us blindly in the same way they need to trust FTX and many other custodial exchanges. We have truly innovated and built a platform taking the Bitcoin ethos first, rather than forcing the legacy financial system’s fundamentals on top of bitcoin.
1. We are not a bitcoin exchange.
2. We are strictly non-custodial
3. We practice low-time preference education
- We are not a bitcoin exchange — we are a retailer
We are not a trading platform. We are a bitcoin retailer. We do not have customer deposits. We sell directly to the consumer. More akin to an online store that sells bitcoin rather than a stock broker or a book-maker allowing individuals to trade with each other. Traditional bitcoin exchanges (like FTX, Binance, and many others) do not hold inventory, they hold customer funds and display it as inventory in the form of an order book. When they allow you to buy or sell bitcoin they are simply peddling that order to the other side of their book and take a cut for playing match-maker. We are the opposite. The “other side of the book” when you purchase bitcoin from Bitcoin Well is Bitcoin Well. We hold inventory and sell it to you. Both at our ATMs and through our Bitcoin Portal at bitcoinwell.com/join, when you buy bitcoin we are transferring ownership from our inventory to your wallet. This transfer of ownership is verifiable on the blockchain; the way a bitcoin transaction was intended.
Now, there are custodial exchanges that act with an “inventory model” (Coinbase, for example) but they commit a cardinal sin: they do not send their customer’s coins by default. They force the customer’s coins into a fake bitcoin wallet (with no backup or sovereign properties), with fake bitcoin inside (numbers on their private database, not on the blockchain). When someone “buys bitcoin” on a custodial platform, that bitcoin doesn’t actually move on the blockchain. I repeat, that bitcoin doesn’t actually move on the blockhain. Customers are effectively sold a promise that the exchange will deliver bitcoin in the future. In the case of Mt. Gox, Quadriga, FTX, and likely more to be seen, that promise can go stale. These are the legacy financial system ideologies of “pool all the money together and pray that everyone doesn’t need it all at once.”
At Bitcoin Well, from the beginning, we have forced our users to bring their own wallet. By default, we send bitcoin on the blockchain to the user’s wallet. Our users don’t rely on our promise to send them bitcoin later on, it just happens — instantly — as part of their transaction. It’s automatic. A platform like this has been harder and more expensive to build, displaying larger market risks and greater uncertainties, because it is true innovation. Rather than taking a legacy financial approach, we have taken a Bitcoin principles first approach in order to truly future-proof money.
2. We are strictly non-custodial — which means we can’t be fractional
Albeit similar to my first anecdote, the point that I am making (or maybe reiterating) here is more related to the customer’s bitcoin journey than to our inventory/lack-of-orderbook style operations. A custodian is a (sometimes) trustworthy party that might hold onto your assets in order to make certain things more convenient. To be clear, when you give any asset to a custodian it is often because you are trading security for convenience. This might be a bank who holds your money to allow you to use it. It may be a securities broker/dealer so you can enter/exit trade positions with their help or input. And unfortunately, it may be a cRyPtO eXcHaNgE that holds your bitcoin (crypto) by default. The commonality amongst these three examples is that you should have access to your assets at any time, but in reality you don’t. The common assumption amongst these three examples is that your assets will be there when you ask for them. The majority of bitcoin exchanges are custodial. All the big names are. This means that by default, a normie will likely be exposed to a custodial platform and start their bitcoin journey there. They will likely stick around because it’s easy (no wallet set up, no backup phrases, etc) and they’ll buy bitcoin and leave it on the exchange simply because they think it’s safe. They might assume that the exchange is holding reserves 1:1, or they might think the exchange operates fractionally (like their bank does) and be comfortable with that. THIS IS A HUGE MISTAKE.
The legacy financial ecosystem only works because of fractional reserve banking working within an infinite money supply world. Without explaining it in detail, fractional reserve banking is the practice of taking deposits, and lending them to others. When you apply this legacy financial ecosystem principle to a custodial exchange, with assets that aren’t as liquid or as stable as century-old fiat currency, you run the risk of being margin-called at unprecedented levels. The result is an unknowing individual having blind trust in the corporations of an emerging market and, again, applying legacy financial principles to their bitcoin journey, which results in their bitcoin (crypto) being gambled away by the platform they trusted. It’s tragic and has no place in this space.
Conversely, our customers are required to provide a bitcoin wallet address before they can send us money. You read that correctly, you cannot transact at Bitcoin Well until you have a bitcoin wallet set up. We offer them help, of course, in the way of 1:1 consultations (in-person and virtual) or links to bitcoin wallets that we use and trust. But at no point in time does the user have the ability to “leave their bitcoin” with Bitcoin Well. This is the art of being non-custodial and applying Bitcoin principles to the bitcoin on-ramp user experience. This means that at no point in time do we hold or control the customer funds, we are simply here to sell bitcoin.
3. We practice low-time preference education — and it’s free for everyone
Lastly, we believe that a sovereign individual needs to be armed with data and information before they can truly understand and be responsible for their funds. Is there a quiz before buying bitcoin? No. Is there a ToS acknowledging you’ve taken the required education materials? Also no. However, we do offer ample opportunities for our users to learn; for free. We have partnered with an Albertan University to provide The Bitcoin Academy. We host live and online monthly Bitcoin for Beginners classes. We offer free 1:1 consultations with a Bitcoin Specialist who can answer the questions that might be more nuanced, or that they might not feel comfortable asking in a “class” environment.
If FTX had operated this way, there would be no collapse. If their education was focused on individual sovereignty, and not on how to margin trade 100x, their customer’s money would be where it belongs. If they were focused on aiding their customers to accumulate bitcoin (or even crypto) in a responsible manner, their customer’s money would be where it belongs. If they were committed to the ethos of Bitcoin, DeFi or any other buzz-word you might hear when markets are hot, their customer’s money would be where it belongs. In the customer’s sole custody. Unfortunately, I do not think FTX is the last one to vanish. I do not think FTX is the only exchange gambling with the fractional reserves of customer funds. I do not think we are finished with the pain from this thread being pulled. I do think, however, there is a silver lining.
More people are interested and understand the value proposition of self-custody than ever before. The conversation is no longer “why should I self custody” but “how do I self custody”. In 2025, and beyond, the world will have more sovereign individuals than it did in 2022, because of the pain and suffering that many are having to experience in 2022. It won’t be because of 100x margin, it won’t be because of fiat companies trying to integrate Bitcoin. It will be because companies with a solid Bitcoin ethos that are truly innovating and offering individuals a chance to learn and offer real opportunities to escape the hamster wheel that is the fiat standard.
If you don’t know who I am, my name is Adam. I am the Founder & CEO of Bitcoin Well, a publicly traded company that is on a mission to future-proof money by making bitcoin useful to every-day people. For more thoughts like what you’ve just read I invite you to follow me on twitter and subscribe to my youtube channel. If you would like to speak to me please book a time here. Thank you for spending your time and reading this article, I hope you find value and it has helped you move closer towards your goals of becoming financially sovereign.
