FTX fraud highlights Bitcoin’s greatness, ‘Shitcoins’ not – Stafford Masie on Crypto Chaos 

Our go-to guy on all things digital, Stafford Masie, believes the FTX collapse and associated contagion will once and for all highlight the vast difference between Bitcoin and its many imitators – so called ‘shitcoins’. In this fascinating interview with Alec Hogg of BizNews, he discusses FTX and its fraudster founder Sam Bankman-Fried, explains how the FTX collapse was inevitable and why what happened proves that in direct contrast to other crypto currencies, Bitcoin is a fundamental, technological gift to humanity that redefines value exchange on a global basis”. A Bitcoin maximalist, he reckons Cathie Wood’s updated forecast this week that Bitcoin’s price will hit $1m by 2030 “is conservative”.  Sceptical? Keep an open mind, invest half an hour, and chances are you’ll change that opinion.Alec Hogg

Below is a rough excerpt of the interview with Stafford Masie

Stafford Masie on the difficulties of start ups

You get two challenges, one is making sure that you don’t fail and die. The other one is that you don’t collapse under the weight of your own success. And that’s the harder challenge, you know, like mitigating failure and bootstrapping a business that’s failing and pivoting. I almost find that easier. But when you’ve got all the opportunity in the world and it’s all coming at you all at once. Building capacity, building scale, building sustainability, and just building a cadence that allows you to execute against the particular opportunity that you force yourself to focus on is the biggest challenge that a Start-Up has. It’s collapsing under your own weight of your own success. And that’s I mean, someone’s got to write something about that. Maybe I should just about how many start-ups I’ve invested in and I’ve been involved in where the opportunity was significant. But the problem was the underlying fundamentals around building a sustainable business with the ability to execute. And I think that’s when the fun stops. Then when the pitch stops, that’s when you’re looking at human resources and you’re looking at the management and you’re looking at the control of the business, you’re looking at the finance aspects of the business. That’s where you start building scale and you’re building that substrate to build on those opportunities. That’s where every business either dies or it goes to the next level.  

On the complexities surrounding crypto and Bitcoin

I want to make it very clear that bitcoin and crypto are split apart. They’re not the same. The original was Bitcoin. The Satoshi whitepaper goes back to that. Everything else that you see Etherium, Solana keep going down, FDT’s, private blockchain implementations, etc. All of that is trying to do what Bitcoin has done and continues to do. Bitcoin is, as we sit here, you look at the price going up and down. I don’t look at it as a speculative asset class. I look at it as a fundamental technological gift that was given to us that redefines value exchange on a global basis. We’ve never seen anything like this. I mean, I’ve said it at the conference and I’ll say it again, the wheel, fire, Bitcoin. And what I mean by that is when you take away value friction from value exchange, you change human lives. I was involved in a company called Thumbs Up a Start-Up that went global. We raised a lot of capital, and what we built was the capability to take a little dongle, plug it into a phone, a non-secure device, and allow for a car to be inserted in a way before Yoco and all of that, more or less the same time that square, Jack Dorsey had his little white dongle there plugged in. I had my little thumbs up payment pebble that plugged in. I have a fundamental understanding of when a cord goes into a machine, when it’s that chip is energised and the key exchange happens with the back office of a bank and that fabric, what happens when a payment occurs? So I speak from that background and when I touched Bitcoin for the first time I thought it was impossible because of its simplicity and its beauty, but it was just too simple because I knew how my skeuomorphic way of thinking around payments, their payments go into. And you know, there’s a card issuer, there’s an acquirer for the merchant. The money moves and there’s this handshake that happens, etc. If you understood that and you understood how money flows on a global basis and if you just kind of three things – understand our card network works when you settle, understand how when you’re trying to F.T. funds on a global basis and think about whether it’s any money to someone in Pakistan and sending someone to the UK. Look at the amount of friction involved in it. And then the third thing while looking takes a look at remittances and how remittances work today. You know, a guy walks into pep to do remittances and paypal’s one of the biggest remittances bodies in this country, PEP Ackermans Shoprite. These are organisations that, in my opinion, move more money than any of our banks, and that’s remittances. So the guy walks and the problem with remittances now looks at the friction and looks at the cost. You know, you have to build up four or 5000 rounds worth of value to make a single remittance payment to Zimbabwe because of the cost associated with it. If I took that friction away and you could when your Granny sms’es says you’re in the bread line looking for you to settle the total of that bread loaf you have the ability from your phone to do it instantaneously in less than 2 seconds at the cost per transaction, less than $0.02. That fundamentally changes your life completely. 

Bitcoin has provided us with an architecture that provides censorship resistance. It provides immutability and allows for privacy it allows for security, unlike we’ve ever seen before, for me to send from point A to B has never been more possible in as quick as we can now with bitcoin. Bitcoin has grown up. When I say bitcoin has grown up, bitcoin has this other layer on top of it now. And with the next conference, I wanted to actually tell you this is what I want to speak about, and that’s the Lightning network. I alluded to it before, and when I was on another business show a couple of weeks ago, someone asked me for a business book that I’m reading right now, and I said, The one that’s changed me, incredible the last 24 months is Mastering the Lightning network. This is layer two. It takes Bitcoin, which is a very slow mechanism. The ledger people say it’s slow, it can’t scale, etc. Lightning creates a layer on top of it. For you to exchange bitcoin value in nanoseconds at cost per transaction that’s negligible.  

On the Lightning network and retailers

They’re utilising the lightning network and that’s where you can walk into pick and pay with your loaf of bread and pay for Bitcoin instantaneously and the money comes out of the top. That is not the Bitcoin network. That’s the ledger being transacted. That’s a layer on top called the lightning network. That’s a peer to peer layer. It’s a very simple concept. You and I walk into the bar, I open up a tab with the barman, I give him my card, and I start drinking my beers and he knows more or less what the limit of my card is. You walk in and then say, Stafford, can I get a beer? I tell the barman to give him a beer, put it on my tab. Then you stand next to me and you see Lisa over there saying Stafford I owe Lisa ten bucks. Can you put it on your tab? I go, No problem, barman, give me ten bucks out of the till I give it to her and then you owe me. That’s the lightning network. 

On crypto and banks

My view on this is that we always think about whether Bitcoin equals no banks or lightning equals no banks. Banks have a lot of other purposes and I sit on a bank board. I see the view in the future where from a maturity perspective, banks start augmenting their services with these capabilities because crypto is what I like about crypto, the innovation, the intent. I like what people are building there and the tools and the instrumentation there. I don’t like the implementation of it. I think the implementations are bad and I think the speculative asset class on the tokens are bad, but I love certain technological aspects of it like NFT is. I like NFT not as a speculative asset class but as a form of authentication and identity starting to create the pipes, the protocols that allows us to store something that’s, you know, a non fungible, an NFT non fungible token. That is a form of me identifying myself, I think. What if I stored my electronic patient health record that way? What if I was identified going through a turnstile utilising a token which is completely under my control.

On the Sam Bankman-Fried debacle and how he got away with it

Let’s first contextualise it. This is not systemic in the broader scheme of things. Meta lost more market cap than the entire market cap of every crypto asset, including bitcoin in the last year. So just to give you the size perspective of this problem surrounding FTX. Now it makes beautiful headlines and like everyone says is going to make a great Netflix documentary. But in the broader scheme of things, it’s not systemic. It’s not going to incur an increase in inflation. It’s not going to create any systemic risk or massive job fallout. What’s happened here? No matter what, bitcoin goes down to $1 tomorrow and all the cryptos fry up. What’s going to happen in the broader scheme of things? So if you put it in context, this is not a big issue. It really, really isn’t. It is a massive issue in terms of rule of law and fraud and you know, really being introspective around how do we, you know, while other governments get involved in or do they get involved? There was an article that came out saying Let crypto burn, just let it burn because it doesn’t involve us. It doesn’t create any systemic challenges or anything either. I think that’s one way to look at it. But if you really want to contextualise it, meta lost more money. And from a market cap perspective, then this entire industry is value combined today. 

This is nothing more, nothing less than fraud. This is nothing. We will call it systemic and all that. It’s not that it makes a great headline, but it’s not. This is beyond other just fraud. He is a guy who created an exchange called FTX. He was part of this thing called Alameda. Okay. It was a sister company. His girlfriend was involved in that thing and headed up to Alameda. Money came into the exchange. He took those funds and he loaned it to Alameda as a hedge fund on a loan basis to go and trade speculatively on that side delivered on the other side. Then they discovered, wait a minute, we can create additional leverage in this place, three dimensional chess and create a token called FTT coin. Right. And then FTT coin started being hustled between Alameda and FTX and the game theory and you know, you call it what you want. Binance then dropped in because of San Bankman-Friends relationship and other people dumped him and he took those FTT tokens and he got media personalities. He got NFL superstars, Giselle and this quarterback from the Miami Dolphins or whatever involved. And he created a market frenzy around the coin. The coin went up speculatively, and then suddenly someone leaked what was going on and leaked the balance sheet of Alameda, which showed the losses actually and the liabilities. And that went to Binance and Binance’s CEO looked at that and he owned about, I think, 30, 40% of the FTT tokens. And he was also propping up FTX. He looked at this and said, wait a minute, this is crazy. If this is true, I’m going to leak this. Then he goes off and he sends out a tweet and he says, Hey, look, guys, this is interesting.  

On regulation and transparency in SA

I think before we get to regulation, I think we need to perhaps and this is just my opinion because we don’t want to regulate innovation away. And that’s the danger if we are too heavy, we break it. I think transparency and I think the exchanges that we have in South Africa, VALR and Luno. I commend them for being very transparent but I’ve heard them on some of the shows so far. And I’ll just say they and I don’t think that’s enough transparency. It doesn’t give me any peace of mind whatsoever. I think I want to know how the liquidity pooling stitches together, I want to know the flow of funds in a lot more detail. I want to know what system is being used to do that. I want to know, is there any leverage happening here in any way or form on an audited basis? And, you know, there’s a term called the proof of reserve. And then, you know, the Binance CEO, I think, came out and it’s floating around called the Merkle Tree Proof of Reserve. And Merkle tree is a computer science patented way of determining whether the blockchain piece that you have, the Bitcoin blockchain piece that you have in your exchange, has actually mined all the coins relative to the purchase of that have come in. I’m making it very simplistic and that’s a Merkle tree way. So now we’re not depending on an accounting system in any of you showing us that all the money inflows that bought bitcoin here’s the actual transaction piece of the ledger and that’s the Merkle tree, that’s all the nodes, everything in it that demonstrates that you’ve done the transactions. It’s a very computer science way of doing it. But it still doesn’t speak to leverage. It still doesn’t speak to the day to day movement of money. So a lot more transparency before we start getting into let’s regulate the hell out of them. I think that’s dangerous.  

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