The dramatic fall of FTX, once the world’s second-largest cryptocurrency exchange, is another black eye for blockchain, a growing tech industry in Massachusetts.
Many investors are now worried about having lost all the money they placed with FTX, which froze the accounts and filed for bankruptcy.
Cryptocurrencies, like Bitcoin, are built on a technology called blockchain, which is essentially a record of transactions kept on a network of computers. It allows users to perform digital transactions without an intermediary, such as a bank. According to an estimate by state lawmakers, the blockchain industry in Massachusetts was worth around $12 billion from June.
When scandals like the one involving FTX occur, people in the industry brace for a backlash.
“I think like everyone else, I was a bit in shock,” said Steve Derezinski, who co-founded Hashchat.xyz, a company that uses blockchain to send encrypted messages. “I think that’s going to have a chilling effect on the general enthusiasm about this area.”
While cryptocurrencies aren’t the only way to use blockchain, people unfamiliar with the technology tend to confuse the two, Derezinski said. He hopes that once the initial shock of FTX going extinct has passed, more people will pay attention to blockchain projects beyond cryptocurrencies.
“I think there are still a lot of people who are ready to build and create new things,” he said.
Rep. Kate Lipper-Garabedian, a Democratic lawmaker from Melrose State, said she is confident blockchain is here to stay.
“There are many other practices in which it can be deployed that are going to be critical and, frankly, woven into the way we do business,” she said.
Some examples include the ability to authenticate and securely store legal documents, she explained.
Lipper-Garabedian recently introduced a bill that would create a blockchain legislative commission. If passed, the commission would be tasked with creating recommendations to “appropriately support the industry.” This will likely include funding education and training of the workforce in blockchain technology.
Lipper-Garabedian acknowledges that events like the FTX scandal, after other crypto scandals, adding to the pressure on lawmakers to regulate the industry. She expects state lawmakers to introduce more blockchain-related bills in future legislative sessions.
Blockchain enthusiasts have traditionally been skeptical of government regulation, but recent mishaps have softened many people’s opinions. Investors, in particular, are generally not fans of volatile markets.
“Nobody says, “Let’s do what we want,” said Giuseppe Stuto, co-founder of 186 Ventures, which has invested in several local blockchain startups. “People say, ‘Tell us what we can and cannot do with clarity, please. “
In the short term, Stuto said he expects many large investors to pull back from their investments in new blockchain ventures. In the longer term, he believes that greater scrutiny from investors will lead to more viable blockchain ventures.
“I actually think a lot of positive things will come once the dust settles,” he said. “People are going to be wondering what is worth working and building, so there will be a lot more intense focus on the right areas.”
Rob Sarnie, who spent 23 years at Fidelity and now teaches financial technology at Worcester Polytechnic Institute, expects a change in the role of digital currencies. Sarnie said the proliferation of scams is likely to discourage more people from using cryptocurrency as a speculative asset or a get-rich-quick scheme.
“I’m pretty much where’s the value?” he said. “With my [U.S.] dollar… I know what it’s worth. I know the United States supports this.” This is not the case with cryptocurrency.
Sarnie is still convinced that the future of money is digital. But he said it could take the form of a government digital currency or stablecoins, a type of cryptocurrency pegged to the US dollar.
Boston-based Circle is the second-largest stablecoin issuer in the world. The value of its currency, USDChas held steady despite recent digital currency crashes.