FTX and 130 related companies (!!) declared bankruptcy, losing billions in customers’ money.
I thought the whole point of crypto is only you know the password (the key) to the string of numbers (the wallet), for which the blockchain maintains an unbreakable transaction record that “38.1875 shitEcoins are associated with that string of numbers”.
So if FTX goes bust because, well, crypto is barely more than an investment fad, you still have your 38.1875 shitEcoins. Right! Right?
A site (that Facebook warns is controlled by the Russian government!) explains:
Both the upside and downside of private keys are that they endow complete ownership of the wallet to anyone who knows the key. When users store cryptocurrencies on exchanges like FTX, they don’t hold the private keys to those coins, the exchange does. As far as the Blockchain is concerned, those coins do not belong to the customers, they belong to the exchange.
Hence, “not your keys, not your coins.”
The issue has led to the rise of “decentralized” exchanges. Those exchanges, like Bitcoin itself, are run on a decentralized network and allow users to hold their private keys while trading. Bankman-Fried [the acclaimed founder who turned out to be a putz] “often butted heads with proponents of decentralized exchanges, calling on them to be regulated like brokers.”
Oops. Retail crypto investors keeping their coins in an exchange were and are fools. If I put my money in a bank and it lends it out to deadbeats and, worse, sister companies that it owns like FTX did, the bank is subject to regulation and the Federal Deposit Insurance Corporation insures the first $250,000 of my money.