What the collapse of FTX reveals about crypto media

With help from Derek Robertson

Listen to the sixth episode of POLITICO Tech’s multi-part cybercrime podcast series below and find the whole thing series here.

How does it look when a crypto tycoon holds crypto’s version of a press conference and he’s confronted about his role in a crypto media scandal?

This morning, Sam Bankman-Fried was put to the test about Friday’s disclosure of his secret payments to The Block, a crypto publication founded in 2018. The question came at the end of a Twitter Spaces hosted by Unusual Whales, a pseudonymous Twitter account that one follows tweeting about trading congressional stocks during the pandemic and offers a financial information service that contains a lot of crypto data.

For the record, it turned out to be much like many old-fashioned press conferences, only in a new forum: Bankman-Fried evaded the question and left the conversation. But the moment highlights just how much crypto-native media there is, and the speed at which it has become its own online information sphere that is largely different from that of mainstream media.

Last week I wrote about the symbiosis between Elon Musk’s Twitter and the email newsletter platform Substack, fueling the rise of a more developed anti-establishment digital media ecosystem.

Well, cryptomedia is also a full-fledged thing. A lot of it looks like traditional outlets that just happen to cover a niche topic, with newsrooms, articles, and podcasts.

But it is also deeply intertwined with Twitter, the chat platform Discord and the encrypted messaging app Telegram, as well as tools for direct analysis of blockchain data. And it has a lot of overlap of its own with the rest of the anti-establishment digital media sphere – as the collapse of FTX illustrates better than perhaps anything else.

Crypto entrepreneur Mario Nawfal, who hosted Musk for a Twitter Spaces to discuss the “Twitter Files,” even hosted a Spaces with Bankman-Fried as part of the mogul’s ongoing apology tour.

To really understand the crypto media sphere, it’s worth going back to the earliest stages of the FTX collapse – one of the biggest stories in the world right now – and considering how much of it played out in this largely self-contained ecosystem.

Bankman-Fried’s troubles began seriously with one November 2 report by CoinDesk, a decade-old crypto news service owned by Digital Currency Group, a crypto-focused VC firm. CoinDesk obtained financial data showing that FTX was more financially intertwined with its sister company, the hedge fund Alameda Research, than previously known.

The report sparked online chatter speculating that the Bankman-Fried empire was not financially healthy and that the price of FTX’s native token, FTT, had been inflated.

Four days laterthe CEO of rival exchange Binance, Changpeng Zhao, announced on Twitter that his company sold its holdings to FTT.

Bankman-Fried and Alamada CEO Caroline Ellison fought back, including on Twitter, to reassure the crypto world that their finances were solid.

On-chain analysis – the interpretation of public blockchain data – hinted that the two were not as confident in FTX’s financial position as they seemed. The Data Nerd, a pseudonymous Twitter account dedicated to on-chain analytics, reported that Alameda has more than Worth $250 million from stablecoins to FTX in a day, in what appeared to be an effort to prop up the embattled exchange.

When the collapse beganmany of the most prescient real time analysis of FTX’s precarious financial position came in Tweet threads and Twitter Spaces from 21-year-old financial analyst Dylan LeClair, a contributor to Bitcoin Magazine.

As the fallout’s effects unfold, a source of extensive leads and tips on this is Autism Capital – a Twitter account created in 2020 and linked to a Discord chat – who obsessively chronicled it. Sometimes it reports details of the impact ahead of regular outlets. On Dec. 4, the account tweeted that Ellison was be represented by the law firm of WilmerHale. Bloomberg has since reported the same.

Of course, regular outlets have also been all over the FTX story. POLITICO has covered the ins and outs of Washington’s response; the FT and Wall Street Journal have landed firsts on internal crimes; a Vox reporter published a scathing chat with Bankman-Fried; and the New York Times posted a much-watched live interview with Bankman-Fried.

However, the tenor of the reporting often diverges. In mainstream outlets, the FTX story is largely about the dangers of crypto, with its lack of regulation and ever-present scams. In the crypto media world, more emphasis is being placed on the extent to which Bankman-Fried funded established media outlets and politicians while becoming the crypto tycoon most embraced by those established institutions. (For Bitcoiners, the lesson is that both non-Bitcoin crypto and the political media establishment are hopelessly corrupt)

What’s the bigger picture?

Media ecosystems tend to settle around important places of human interaction, such as governments and markets.

The core activities of governments issue basic information (eg bills and executive orders). Same with markets (prices and trading volumes). More elaborate media ecosystems can emerge around this core data that can overlay everything else that is going on.

As I discussed with information warfare analyst John Robb last weekare digitally connected networks a new kind of human coordination mechanism.

These digital networks also produce basic bits of information, such as social media posts. And blockchain networks – a new subset of digital networks – leave behind on-chain data.

Could they one day support media ecosystems that are just as robust?

It is impressive how large and developed the crypto media ecosystem has become. But it could be at big.

After all, as Byron Guilliam, senior market strategist at Blockworks, a crypto media company focused on financial institutions, pointed out to DFD, “The entire crypto market cap is smaller than Apple’s, and Apple doesn’t have 15 media outlets covering it. ”

The collapse of the FTX power pointing the way to the future of digital information. Or – as crypto markets remain in the doldrums and the bloc is now rocked by scandal – it could be the last hurray for a crypto media bubble about to burst.

Speaking of scandalswas a player in European technology regulation accused of corruption yesterday in Belgium.

Eva Kaili, a Greek socialist, is accused of taking bribes from Qatar to represent Qatar’s interests in the European Parliament, where she was one of 14 vice presidents until her suspension following her arrest on Friday. at least four others and invaded more than a dozen locations.

Before her arrest, Kaili was a prominent pro-blockchain voice European debates about regulating the technology. (Last month, I talked DeFi and AI with Kaili — who helped draft the new EU blockchain regulations — on the sidelines of the Milken Middle East summit in the United Arab Emirates, a neighbor and rival of Qatar.)

We’ve written about the aspects of the most popular cryptos that make them useful for criminal activity – such as pseudonymity – and some that aid law enforcement, such as a public ledger that records all transactions. There are also secrecy-oriented cryptos which are better than Bitcoin for hiding crime.

A lesson from the current scandal: It seems that even the most tech-savvy alleged crooks still see value in old-fashioned paper money.

According to Belgian pressKaili was arrested after authorities searched her house and “bags of money.” —Ben Schreckinger

For the non-podcast leanings: Mohar Chatterjee from POLITICO released a report yesterday about the vast network of cybercriminals still active on the dark web and the international efforts to tackle them, a counterpoint to the ongoing POLITICO Tech Podcast on the same subject.

One of the biggest problems for governments pursuing that goal is that criminals’ grasp of the cutting-edge technology they use to carry out their plans is outpacing law enforcement’s ability to keep pace. Rep. Jim Himes (D-Conn.), chairman of the House subcommittee on national security, international development and monetary policy, told Mohar that this is the “ultimate asymmetric threat”: “Everybody understands bridges, right? Nobody understands Monero,” he said. Himes, referring to the darknet currency of your choice for illegal transactions.

Law enforcement scored a victory in April when German authorities shut down Hydra, then the world’s largest and most enduring darknet marketplaces, but there have been few victories since then – including when it comes to tracking down those behind Hydra itself, such as Mohar notes that the vast majority of its users have escaped prosecution due to a combination of technological foot-dragging and the lack of international coordination. — Dirk Robertson