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On Thursday, a federal judge sentenced former FTX CEO Sam Bankman-Fried to 25 years in prison<\/a> after he was found guilty on seven charges of wire fraud and money-laundering.<\/p>\n The scam he pulled was fairly simple: He and his partners created an exchange, FTX, that took customer deposits to invest in and trade cryptocurrencies. Some of those deposits were secretly funneled to his other company, hedge fund Alameda Research, which he\u2019d originally created to arbitrage differences among crypto prices in various countries. According to the government\u2019s case, which it won, Alameda used that money for various things it shouldn\u2019t have,<\/a> like investing in other crypto startups, buying some very nice real estate, supporting political campaigns and \u2014 most important for purposes of the scam \u2014 propping up FTX\u2019s proprietary crypto token, FTT.<\/p>\n A few document leaks and some clever work by journalists at Coindesk<\/a>, combined with a well-timed tweet by Changpeng \u201cCZ\u201d Zhao, who ran rival crypto exchange Binance, caused a run on FTX. The scheme unraveled in a matter of days, wiping out billions in customer money (although, apparently, they may get a fair portion of that money back<\/a>). CZ himself is no longer running Binance, having pleaded guilty<\/a> to money-laundering violations related to insufficient controls.<\/p>\n The sentencing brings to an end the most recent era of crypto, which was characterized by greater-fool get-rich-quick schemes on the way up \u2014 investors were lured in with promises of impossibly high returns on everything from digitally watermarked images to simple interest payments on the token of the week \u2014 and fraud investigations and indictments<\/a> on the way down.<\/p>\n Crypto optimists like Andreessen-Horowitz\u2019s Chris Dixon suggest that we\u2019re now entering a more sober phase of crypto<\/a>, where software developers will finally build useful applications on one of the many blockchains that have emerged since the original blockchain \u2014 the one underlying bitcoin \u2014 was first proposed<\/a> by the pseudonymous Satoshi Nakamoto and distributed on Halloween 2008.<\/p>\n The problem with this point of view is that developers have been building a wide variety of applications on top of Ethereum and Solana and other Layer-1 blockchains for years now, and the only economically viable purpose any of them have served is speculation. Yes, it\u2019s possible to create a digitally authenticated piece of art, but the value of that art isn\u2019t in the aesthetic pleasure it brings, but rather in the possibility that somebody else will buy it for more money later.<\/p>\n Nearly everything else that\u2019s being built on or enabled by blockchains replaces something that\u2019s already being done fairly well. Self-executing smart contracts replace \u2014 you know, regular contracts. Which aren\u2019t perfect, but aren\u2019t so ridiculously inefficient that they grind the economy to a halt. Decentralized autonomous organizations, or DAOs, where decision-making is shared equally among all participants, replaces other decentralized organizational schemes characterized by hours of debate and few concrete decisions, like holacracy<\/a> or San Francisco Board of Supervisors\u2019 meetings<\/a>. Jokes aside, where is the clear killer app for blockchains? Where\u2019s the runaway success story?<\/p>\n Forget runaway success: There hasn\u2019t even been a single blockchain-based startup with enough cashflow or profitability to go public. Yes, there are bitcoin mining companies like Riot<\/a>. Yes, there are companies that facilitate crypto trades like Coinbase<\/a> and Block<\/a> (formerly Square). But there\u2019s no actual company that\u2019s developed economic value by doing something brand new or better on a blockchain.<\/p>\n I\u2019m open to persuasion \u2014 pitch me, blockchain geniuses, with incredible value-creating startups! \u2014 but my view right now is that crypto will revert to the original function of Bitcoin as an alternative to nation-based currencies for storing and exchanging value. Its volatility may not make sense to people living in relatively stable economies, but in countries with runaway inflation, corrupt governance, civil unrest or war, the method of converting collapsing local currency to bitcoin to stablecoin to a stable national currency like the U.S. dollar will remain a reasonable and in-demand way for people with some means to preserve those means. It\u2019s also useful for sending remittances without having to pay outrageous fees for international money changers, and \u2014 sometimes \u2014 as a digital replacement for suitcases of cash for all kinds of underground economic activity.<\/p>\n Why bitcoin instead of one of the newer coins? Because those other coins are almost universally based on faith, trust and pixie dust; the main value they have is the value they\u2019re assigned by the people who hold and trade them. You can make a college sophomore bong hit argument that all money is that way, man, but in fact the U.S. dollar is backed by the massive economic and military power of the United States: actual control over actual resources that people actually want and need.<\/p>\n Bitcoin is similarly backed by something real and tangible: energy. Because of its proof-of-work model, the only way to make and validate new bitcoins is by consuming energy, whether it\u2019s burning natural gas or hooking up to a nearby nuclear plant. Energy drives the real-world economy, and unless Sam Altman<\/a> or somebody successfully unlocks fusion and delivers energy that\u2019s truly \u201ctoo cheap to meter,<\/a>\u201d it\u2019s going to remain a real asset with real value for some time. If demand for bitcoin were to stabilize, the price should theoretically track to the price of electricity. In fact, it wouldn\u2019t surprise me in the least if Satoshi had some kind of connection to the energy industry.<\/p>\n<\/p><\/div>\n