A proper use of cryptocurrency could have prevented the problem, but FTX and users mutually agreed to give FTX more trust by giving FTX custody of user funds. That's really all it was. Not very interesting.

Ah, the good old “communism would work perfectly but the Soviet Union was doing it all wrong” style argument.

Blind faith in an economic theory against all empirical evidence is a dead end.

Blind faith how so? I merely stated a technical fact. Blockchain is programmable money; they could have programmed a system such that FTX could not run away with user funds – there are defi systems that do this already.

But they didn't. Instead, FTX used crypto as a means to transfer funds into their own, centralized custody. Not much different from a bank wire.

This isn't a "communism would work perfectly" style argument at all. I'm really not sure of what you're getting at, or if you understand how crypto works beyond surface level articles.

What the parent is saying is that "Real X has never been tried" is a common dodge for people defending the indefensible, because it's unfalsifiable. It also fails to take into account human preferences that are preventing Real X. FTX wasn't centralized because they were mustache-twirling villains who hade decentralization, they were centralized because that's what the market demanded, because DeFi is impossible to fucking use so nobody does.

> because DeFi is impossible to fucking use so nobody does.

It's actually pretty easy, and a fair few people do. Uniswap v3 currently has a 24h trading volume of $317,196,156, and the app is trivial to use. Curve's app is ugly but not hard to use, and has a 24h trading volume of $199,693,574. Maybe you think those numbers aren't all that impressive, and sure, I'd like the decentralised trading venues to be doing more, but it's a far cry from 'nobody'.

First, you can't program the fiat you need to buy BTC or other tokens at an exchange to have this property - so you're always going to have to trust someone with your money, at least for a time.

Second, if these defi systems exist, why are so many still keeping their money on exchanges like FTX/Binance/Coinbase/etc without such protections? I suspect it has to do with convenience or maybe cost - smart contracts require "gas" to run, no?

The fact that you can't swap dollars transactionally without trusting an escrow provider or the person you're doing the swap with is a failing of dollars. It's not a failing of e.g. ethereum where you absolutely can set up a smart contract that will do that. Trying to use that as an argument against cryptocurrencies is misguided, and if things go well for cryptocurrency and there's a proliferation of CBDCs or more ways to earn income by being paid in cryptocurrency, it will become irrelevant.

These defi systems do indeed exist and are used by quite a few people (including occasionally me). 'Why are so many still keeping their money on [centralised] exchanges', is a question that a lot of people in the cryptocurrency ecosystem ask themselves despairingly. While UX could be better, it's really not that bad - the real answer is that the vast majority of people investing are 'number go up' investors, used to the stockmarket, rather than people who actually care about the core ideas of decentralisation, programmable money, etc.

Your trust point is valid but needs tweaking: You need to trust someone with your money if you want to buy at an exchange. Although exchanges are the most convenient way to right now, they are not the only way. Peer-to-peer is always an option; you can trade with someone directly, or even do work and get paid directly in e.g. Ethereum.

But even if exchanges were the only way, that trust time is quite minimized, compared to the status quo.

To your second point, I agree it has to do with convenience. IMO the main reason is crypto UX is still very bad. The space is going to need some major new hardware and software solutions before going anywhere near mainstream.

I have held cryptocurrency in my private wallet for a long time, and have transacted on decentralised exchanges. I have never been the victim of a crypto scam, and my cryptocurrency has never been stolen from me. Separately, in that time, I was the victim of a credit card scam involving amazon, that nobody has been able to adequately explain to me. The empirical evidence staring me in the face is that my cryptocurrency is more secure than the money in my bank.

There absolutely are decentralised exchanges, working extremely well and safe ways to keep your cryptocurrency. I use them. It's very odd to come on here and find people claiming that my experience of cryptocurrency is impossible.

Because the trustless nature of crypto is present only at the protocol layer of crypto. The application layer, which is what basically all non institutional users of crypto interact with, isn't trustless at all.

But also we should remember that pretty much every bank in the US would have FTXed it's customers money in 2008 if the government hadn't bailed them out.

I'm pretty sure the US has insured deposits up to a sizeable threshold, so no, the vast majority of customers would not have been FTXed, I think.

This is something that keeps coming up: the regulations and institutions in traditional finance exist largely because it already went through the same pain that crypto finance ia going through now.

Umm, no.

The government forced the banks to take money so people couldn’t tell which ones were in real trouble and which ones were fine.

Because they wanted people to think that all the banks were fucked. That's so much better than just a few. Yeah. That makes sense.