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Your Digital Self: Long live crypto: FTX’s failure doesn’t diminish the worthy purpose of decentralized finance

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The past two weeks have been a rollercoaster ride for crypto, and a good chunk of the chaos can be attributed to one individual.

Sam Bankman-Fried is a controversial figure. Love him or hate him, he’s been the hottest topic in the news lately. But whether he’s deceptive or just terrible at managing money is beside the point.

Despite the magnitude of the FTX fiasco, he’s just a small part of a much larger problem.

What problem?

Read: FTX victims are setting up GoFundMe fundraisers to try to get their money back: ‘It’s $10,000 completely gone’

This is a widespread issue that every current and potential crypto investor should be aware of: There is a shockingly low level of understanding of what cryptocurrencies are and how to use them.

This ignorance has been growing by leaps and bounds, fueled by media headlines touting “institutional adoption” that will somehow ring in the golden age of crypto.

What it did was turn crypto into yet another asset that the masters of traditional finance ruined.

The true purpose of crypto isn’t speculation and institutional adoption. Its goal is to remove the middleman so the entire system can remain decentralized, enabling transactions to flow freely and safely between empowered individuals.

No single entity is supposed to have control over the system, and individuals should have full control over their funds.

In its early days, crypto grew and thrived precisely because users understood one key concept: If you don’t own your keys, you don’t own your crypto. It used to be that you’d maintain a cryptocurrency wallet instead of entrusting your money to an exchange.

But this success attracted centralized entities that saw an opportunity in the crypto space, and they began to open centralized lending and borrowing institutions. They took advantage of users who were more accustomed to trusted TradFi (traditional finance, as opposed to DeFi, or decentralized finance) platforms such as Robinhood Markets
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 and copied their interface for a more user-friendly experience.

But it isn’t worth giving up your financial freedom for a bit of comfort. The cost of depositing and storing your assets on these centralized platforms is sharing your private keys with them. Once your keys are surrendered, it’s possible for these institutions to manipulate your funds however they wish, and that includes locking up your money.

Centralized exchanges such as these are putting investors back to square one by forcing them to give up control of their assets and reintroducing the middleman.

This brings us back to where we are now — inside the crater that is the FTX debacle. The big problem with FTX, once the world’s third-largest crypto platform, is that it was supposed to hold — and safeguard — your assets. Instead, the company lent them out to an affiliate hedge fund for trading purposes.

With FTX on every news channel, some are choosing to view crypto as the scapegoat. They fail to see the big picture and are blaming cryptocurrencies for running off with their money, when centralized crypto exchanges (CEXs) are the real culprit.

According to them, the problem will be solved by regulating all exchanges and possibly outlawing the use of decentralized finance altogether.

But the problem with regulation is that this can add even more TradFi layers to the mix, essentially turning crypto into yet another central bank digital currency under complete control of the government and central banks.

This “Empire Strikes Back”-esque saga of crypto versus TradFi won’t end until every user adopts the crypto mindset. In order to achieve the level of financial independence that crypto can provide, users need to educate themselves on how to properly use this platform.

With that being said, the FTX ordeal remains a harsh reminder of something we already knew: Centralization is the true enemy of crypto.

But it’s not an enemy that’s winning just yet. Even though the broader market seems shaken up right now, crypto remains unscathed. DeFi has kept things running while centralized platforms have been struggling.

DeFi still offers the allure of financial independence, decentralization and transparency, while TradFi continues to show its weaknesses. And DeFi is still growing and evolving every single day.

Those of us who understand crypto’s vast potential will remain faithful, hopeful and unshaken, and following the DeFi’s tenets in our financial lives.

What’s your take on FTX and crypto? Let me know in the comment section below.

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