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On January 1st each year – New Year’s Day, but also “Public Domain Day”

Why NFT Creators Are Going cc0

Let’s start from the very beginning and go from 0-60 about one of the most important events to ever happen in the history of crypto!

<p><span style="font-size: 12pt;"><strong>The Merge is confusing!</strong></span></p>
<p>Let&rsquo;s start from the very beginning and go from 0-60 about one of the most important events to ever happen in the history of crypto!</p>
<h3 class="header-with-anchor-widget"><span style="font-size: 12pt;"><strong>1. What is &lsquo;the Merge&rsquo;?&nbsp;</strong></span></h3>
<p>&lsquo;The Merge&rsquo; is the name of the event when the Ethereum blockchain changes from using Proof-of-Work (PoW) to Proof-of-Stake (PoS).</p>
<p>It&rsquo;s called &lsquo;the Merge&rsquo; because it is the merging of two independent blockchains that are currently running in parallel. The main Ethereum blockchain is being &lsquo;merged&rsquo; with a special-purpose blockchain called &lsquo;the Beacon Chain&rsquo;.&nbsp;</p>
<p>The Beacon Chain launched on December 1st, 2020. The purpose of the Beacon chain is to do one thing and one thing only:&nbsp;<strong>be a Proof-of-Stake blockchain.</strong></p>
<p>There are no transactions on the beacon chain. There are no tokens or DeFi apps. It is an empty blockchain that is solely meant to be a blockchain that runs a Proof of Stake consensus mechanism.</p>
<p>Because the Beacon Chain is an &lsquo;empty chain&rsquo;, it can merge with the Ethereum blockchain and replace Ethereum&rsquo;s PoW mechanism, without having to be concerned about any other variables.&nbsp;</p>
<p>Once these two chains are merged, Ethereum&rsquo;s PoW validation will be replaced by a brand new PoS consensus mechanism.</p>
<h3 class="header-with-anchor-widget">2. Why is the Merge so hyped?</h3>
<p>The Merge is considered one of the biggest events in crypto history since the genesis of Bitcoin itself.</p>
<p>It&rsquo;s considered this for a number of reasons:</p>
<p>No blockchain has undergone such a significant change in crypto&rsquo;s history. Blockchains do not change such a critical part of its operation very often, and&nbsp;<em>none</em>&nbsp;have made changes with an as large and robust economy built on top of them as Ethereum has.</p>
<p>The ETH asset has a $203B (<em>previously $550b</em>😭) market cap today, with many more billions worth of value based on top of the network. Ethereum is by far the largest and most robust economic ecosystem in crypto, and the security of all of this economic activity will be changed from a PoW-based to a PoS-based economy.&nbsp;</p>
<p>There are certainly a lot of risks involved with getting something wrong, which is one of the main reasons why the Merge has taken so long.</p>
<p>There&rsquo;s lots and lots and lots of testing and perfecting.</p>
<h3 class="header-with-anchor-widget"><strong><span style="font-size: 14pt;">3. How does the Merge impact ETH?</span></strong></h3>
<p>The Merge has a massive effect on the economics of ETH. To investors, this aspect of the Merge is the most significant.</p>
<p>The Merge drastically changes the economics of ETH in two ways: Reducing ETH issuance&nbsp;and imbuing ETH as a native yield-bearing asset.</p>
<h4 class="header-with-anchor-widget"><strong>Reducing ETH issuance&nbsp;</strong></h4>
<p>The Merge will reduce yearly ETH issuance from 4.3% to 0.43%.&nbsp;</p>
<p>This is because of the fundamental improvements to efficiency that a PoS consensus mechanism brings. PoS is designed to provide the highest level of blockchain security, for the lowest amount of cost, and these savings are passed into ETH, by reducing the amount of ETH that needs to be issued to pay for security.</p>
<p>PoW is&nbsp;<em>expensive</em>&nbsp;and requires significant resource overhead to compensate security providers (<em>miners)</em>&nbsp;for their services.&nbsp;</p>
<p>In contrast, the costs of PoS security is merely the&nbsp;<em>opportunity cost&nbsp;</em>of capital, which doesn&rsquo;t represent any real-world commodity or tangible cost. Unlike PoW, PoS does not need to issue significant amounts of currency to pay for security.&nbsp;As a result, these lower costs of security make PoS consensus mechanisms far more efficient.</p>
<p>Thanks to the diminished need to pay PoW miners, Ethereum is capable of reducing yearly ETH issuance from 4.3% to 0.43%. The reduction of new ETH issuance is generally considered&hellip;extremely bullish.&nbsp;</p>
<p>This is because PoW miners sell most of their incoming rewards immediately and over time the portion of their total mined supply that they sell approaches 90+%.</p>
<p>With PoS, issuance is reduced by over 90%, but also the overhead costs of being a PoS validator basically fall to 0.&nbsp;</p>
<p><em>PoW proponents argue that the high-costs of PoW blockchains is a feature, not a bug. They argue that the costs prevent centralization by creating churn in the asset holds, as they are forced sellers to pay for the costs of PoW miners. While PoW likely does create asset decentralization, it simultaneously creates security centralization as a second order effect.</em></p>
<p>👨&zwj;💻&nbsp;<em><a href="https://newsletter.banklesshq.com/p/4-misconceptions-about-pos-vs-pow?s=w" rel="">Further reading on my previous Bankless article available here.</a></em></p>
<h3 class="header-with-anchor-widget"><strong><span style="font-size: 14pt;">4. Why does the Merge make ETH deflationary?&nbsp;</span></strong></h3>
<p>Almost exactly one year ago, on August 5th 2021, Ethereum introduced EIP-1559, an upgrade that changed how transaction fees are managed on Ethereum.</p>
<p>Instead of simply paying the entire transaction fees to the miners, the majority would instead be&nbsp;<strong>burnt.</strong></p>
<p>This is done for a number of reasons; to dive down that rabbit hole,&nbsp;<a href="https://shows.banklesshq.com/p/-eip-1559-hasu" rel="">listen to our podcast with crypto-economic researcher Hasu</a>&nbsp;🎧.</p>
<p>Post-merge, ETH issuance drops by over 90%, increasing the proportional magnitude of how much ETH is burnt every block.&nbsp;</p>
<p>When gas fees on Ethereum are 7 gwei or higher, the rate of ETH being burnt is higher than the rate of ETH being issued, making the supply of ETH&nbsp;<em>decrease.</em></p>
<p>During the peak of the bull market, gas prices sustained 200 gwei or higher for many many months, making that 7 gwei threshold a very low bar to achieve.</p>
<p>👉&nbsp;<em>Review historical gas fees<a href="https://dune.com/hildobby/Gas" rel="">&nbsp;here</a>.</em></p>
<p>👉&nbsp;<em>Simulate the merge on ETH issuance&nbsp;<a href="https://ultrasound.money/" rel="">here</a>.</em></p>
<h3 class="header-with-anchor-widget"><span style="font-size: 14pt;">5. Does the Merge lower Ethereum&rsquo;s gas fees?</span></h3>
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<p>No.&nbsp;</p>
<p>This is a misconception that has occurred with a conflation between &lsquo;Ethereum 2.0&rsquo; and &lsquo;The Merge&rsquo;.</p>
<p>&lsquo;ETH 2.0&rsquo; is a name for the future states of Ethereum that is no longer used in the Ethereum community. &lsquo;ETH 2.0&rsquo; refers to the future version of Ethereum that will have PoS and sharding enabled.</p>
<p>For a while in Ethereum&rsquo;s history, these two updates, PoS and Sharding, were thought to be coming at the same time. As R&amp;D progressed, the developers realized they could compartmentalize these updates and ship them separately.&nbsp;</p>
<p>Sadly, the &lsquo;ETH 2.0&rsquo; nomenclature has stuck around.</p>
<p>Sharding will lower Ethereum&rsquo;s gas fees on the L1, but true gas fee minimization and elimination for end users will ultimately occur on L2s like Optimism, Arbitrum, Polygon, StarkNet, zkSync, or other L2s.</p>
<p>When Ethereum L1 gas fees lower, L2 fees will lower by an order of magnitude&nbsp;<em>more.&nbsp;</em>The solution for Ethereum&rsquo;s gas fees has never been to lower them on the L1, it&rsquo;s been to migrate users to L2s and have them enjoy the fast and cheap transaction experience found there.&nbsp;</p>
<h3 class="header-with-anchor-widget"><strong><span style="font-size: 14pt;">6. Does the Merge increase Ethereum&rsquo;s transaction speeds?</span></strong></h3>
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<p>This is actually the same question as above (<em>does the Merge low gas fees)</em>, but said in a different way.</p>
<p>Transaction volume and transaction costs offer the same supply &amp; demand dynamics in a crypto network.&nbsp;</p>
<p>After the Merge, Ethereum&rsquo;s block time (<em>how often a block is added to the Ethereum blockchain</em>) does get marginally faster, from 13.6 seconds average block time to 12 seconds.</p>
<p>This represents a 12% increase in transaction capacity&nbsp; and therefore also a 12% reduction of gas cost.</p>
<p>But this is a negligible amount, and should not be considered as &ldquo;lowering gas fees&rdquo;.&nbsp;</p>
<h3 class="header-with-anchor-widget"><strong><span style="font-size: 14pt;">7. Does the Merge reduce Ethereum energy consumption?</span></strong></h3>
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<p><strong>Yes. Big time.</strong>&nbsp;That&rsquo;s one of the main outcomes of The Merge and PoS.&nbsp;</p>
<p>Post-Merge, Ethereum will consume ~99.95% less energy than its current usage.&nbsp;</p>
<p>PoS secures a blockchain with&nbsp;<em>capital&nbsp;</em>instead of energy<em>.&nbsp;</em>So the remaining energy that is needed to maintain Ethereum is comparable to basic computer usage; the stuff you are doing right now like reading this article, sending tweets, downloading a movie to your hard drive, etc.</p>
<p>With PoS enabled, the energy cost for Ethereum is just running a node&mdash;about&nbsp;<a href="https://ethereum.org/en/nft/#fn-1" rel="">2.6 MWh</a>&nbsp;per year. That&rsquo;s ~1,300 times lesser than what the entire US gaming industry consumes.</p>
<p>Ethereum will quite literally be the most environmentally-friendly financial system that the world has ever seen.&nbsp;</p>
<p>The banking and financial industry still requires people to physically move around in combustion-engine cars, have the lights on in physical buildings, and otherwise consume energy that would no longer be needed in a crypto-enabled world.&nbsp;</p>
<p>Maybe Wall Street should go green by using Ethereum ;)&nbsp;</p>
<h3 class="header-with-anchor-widget"><strong><span style="font-size: 14pt;">8. Will ETH Stakers dump their ETH after the merge?&nbsp;</span></strong></h3>
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<p>Nope!&nbsp;They can&rsquo;t.&nbsp;</p>
<p>ETH withdrawals from ETH staking nodes are not enabled immediately post-Merge. This is due to simply keeping things as maximally simple as possible, while Ethereum undergoes the largest and most complex upgrade the industry has ever seen.&nbsp;</p>
<p>Withdrawals are expected to be unlocked 6-12 months after the Merge.&nbsp;</p>
<p><em>So will the stakers just dump their ETH once withdrawals are enabled?&nbsp;</em></p>
<p>Maybe, but there are still constraints on this. There&rsquo;s a withdrawal/deposit queue that limits how fast people can stake and unstake. This, again, is a mechanism to keep the chain stable and not let rapid volatility in the app layer of Ethereum impact the security of the chain.</p>
<p>The deposit/withdrawal bottleneck is limited to X/ETH per day, where X equals to:</p>
<blockquote>
<p><em>#validators / 65536, rounded down to the nearest whole number.</em></p>
</blockquote>
<p>The 65536 number is derived from 2^16. The Ethereum devs like these square numbers for some reason. It&rsquo;s apparently called the &lsquo;<strong>Churn Limit Quotient</strong>&rsquo; and you can&nbsp;<a href="https://github.com/ethereum/consensus-specs/blob/dev/specs/phase0/beacon-chain.md#get_validator_churn_limit" rel="">read about it here</a>&nbsp;and&nbsp;<a href="https://benjaminion.xyz/eth2-annotated-spec/phase0/beacon-chain/" rel="">here</a>.</p>
<p>Right now, there are 433,916 Ethereum validators on the Beacon chain. To find our how many validators per epoch, divide that by 65,536 and round down to the nearest whole number.</p>
<blockquote>
<p>433,916 (total validators) / 65,536 &asymp; 6 validators per epoch</p>
</blockquote>
<p>So the activation/deactivation number is 6 validators per epoch. One Ethereum epoch is 6.4 minutes, making 225 epochs in 24 hours.</p>
<p>So the current rate of validator activation/deactivation is 1,350 validators per day.</p>
<blockquote>
<p>225 epochs * 6 validators per epoch = 1350 validators per day</p>
</blockquote>
<p>There are 32 ETH per validator, so that&rsquo;s a maximum of 43,200 ETH unlocked per day.</p>
<blockquote>
<p>32 ETH * 1350 validators = 43,200 ETH</p>
</blockquote>
<p>Additionally, the APY of being an ETH staker&nbsp;<em>increases</em>&nbsp;post-merge, because ETH stakes are then also collecting transaction fees.</p>
<p>This is expected to increase ETH yields from 4.2% to 5%+, but also much higher during times of heavy gas consumption.</p>
<h3 class="header-with-anchor-widget"><strong><span style="font-size: 14pt;">9. Why 32 ETH?</span></strong></h3>
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<p>Why does it take 32 ETH to run a node, not 31, 33, or any other number?</p>
<p>The answer is that the more nodes there are, the more total messaging there is between nodes. If the amount of ETH is low, then more nodes are able to come online. While this is good for decentralization (🙂), it&rsquo;s a constraint on scale (☹️).</p>
<p>32 ETHwas chosen as an optimal balance between these two ends of the spectrum, and also because it&rsquo;s a square number:&nbsp;<strong>2^5.</strong></p>
<p>Since node messaging is&nbsp;<em>exponential,&nbsp;</em>lowering the ETH validator requirement from 32 to 16 would 4x the amount of messaging across all the nodes. 32 has been chosen as the minimum amount of ETH stake that can also produce &lsquo;finality&rsquo; inside of 768 seconds, or &lsquo;2 epochs.&rsquo;</p>
<h4 class="header-with-anchor-widget">Is 32 ETH&nbsp;<strong>permanent</strong>?</h4>
<p>Not necessarily! It could certainly be amended down to 16 or lower with improved consumer hardware, messaging compression, and better signature aggregation.</p>
<h3 class="header-with-anchor-widget"><strong><span style="font-size: 14pt;">10. Proof of Stake is NOT on-chain governance</span></strong></h3>
<p>A frequent critique (<em>largely out of the Bitcoin camp</em>) is that PoS is equivalent to the &lsquo;fiat system&rsquo; that we&rsquo;re trying to get away from.</p>
<p>What they mean to say is that those who hold the capital, hold the power.</p>
<p>This is such a frustratingly misinformed position, and many of the frequent proponents of this opinion are perhaps maliciously spreading this in order to discredit any consensus mechanism outside of Bitcoin&rsquo;s.</p>
<p>The role of ETH validators&nbsp;<em>is the exact same</em>&nbsp;role as PoW miners. It&rsquo;s a 1:1 comparison.</p>
<p>ETH holders do not have governance powers over Ethereum. Just like in Bitcoin, that power is held by non-validating node operators, aka &ldquo;the community&rdquo;.</p>
<p>It&rsquo;s quite ironic that these camps promote PoS as a &lsquo;rich-get-richer&rsquo; scheme when its an inarguable fact that PoW mining facilities generates a larger return on investment for wealthier and more capitalized entities than smaller, lesser capitalized ones.</p>
<p><em>👉&nbsp;<a href="https://newsletter.banklesshq.com/p/4-misconceptions-about-pos-vs-pow?s=w" rel="">I wrote about this here.</a></em></p>
<h4 class="header-with-anchor-widget"><strong>Tl;DR:</strong></h4>
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<p>PoS Ethereum having a native yield in ETH is the most democratizing consensus mechanism possible, as it offers the same proportional returns to 32, 320, 3,200, or 32,000 ETH.</p>
<p>They all receive the same ~5% interest rate.</p>
<p>This is in stark contrast to PoW miners, in which a $100M investment into a mining facility will produce far more than 10x the hash power than a $10M investment due to all the economies of scale that come with PoW hardware &amp; energy costs.</p>
<div>&nbsp;</div>

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Sam Bankman-Fried does not look like the most powerful man in crypto.

<p><span class="sc-iNWwEs idFzmv"><span style="vertical-align: inherit;"><span style="vertical-align: inherit;">杰夫</span></span></span><span class="sc-jfmDQi hoqEOf"><a class="sc-bczRLJ doDMbZ" href="https://fortune.com/author/jeff-john-roberts/" target="_self" rel="" aria-label="转到杰夫约翰罗伯茨作者页面"><span style="vertical-align: inherit;"><span style="vertical-align: inherit;">&middot;约翰&middot;罗伯茨</span></span></a></span></p>
<p><span class="sc-jfmDQi hoqEOf">Winter is &hellip; here</span></p>
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<p><strong>Sam, a lot of people in the industry predicted the current crypto winter. Did you? And if so, did you think it would be this bad?</strong></p>
<p><strong>Bankman-Fried:</strong>&nbsp;Yes and no. I would not have guessed this bad.<strong>&sup2;</strong>&nbsp;But if you told me that&nbsp;<a class="sc-bczRLJ doDMbZ" href="https://fortune.com/company/nasdaq" target="_blank" rel="noopener">Nasdaq</a>&nbsp;was gonna be down 40% from its peak, then I would have guessed. Probably only a third of this [market] move was crypto specific. And the other two-thirds was just macro events.<strong>&sup3;</strong></p>
<p><strong>Previous crypto crashes in 2014 and 2018 were followed by the industry bouncing<br />back stronger than ever. Will it be the same this time?</strong></p>
<p>I think we&rsquo;ve already seen the worst of it; there&rsquo;s a little more to come, but it&rsquo;s not very bad. And I think it&rsquo;s been a healthy weeding out. It&rsquo;s been healthy that people have had to rethink how to value assets and had to be a little more grounded&mdash;and to realize that we&rsquo;ll build back a stronger industry.</p>
<p>Now, that is all with the assumption that the overall macro environment doesn&rsquo;t degrade from here. If the Nasdaq has another 25% left to drop, and if interest rates are actually going up to 7%, and if we&rsquo;re going to be in a recession for two and a half years&mdash;in that world, I think Bitcoin might go down to $15K or $10K. Then there may be a new round of carnage that comes from that.</p>
<h2>Greed is good?</h2>
<p>Once dubbed the &ldquo;prince of risk&rdquo; for his trading exploits, SBF has lived up to the label during the downturn, investing in numerous troubled ventures and exemplifying the Warren Buffett maxim: Be &ldquo;greedy when others are fearful.&rdquo;</p>
<p>Acting much like a one-man central bank, SBF has backstopped players<strong>⁴</strong>&nbsp;including struggling lender BlockFi (with a $400 million credit facility) and crypto asset broker Voyager Digital (a loan of around $500 million), which is now in Chapter 11 bankruptcy proceedings. Meanwhile, he has also taken about a 7.6% stake in trading app Robinhood, and outright acquired a crypto gaming company. SBF&rsquo;s dominance has sparked comparisons to J.P. Morgan and other plutocrats who scooped up assets during earlier eras of turbulence in American finance.</p>
<p><strong>You&rsquo;ve weathered this downturn pretty well⁵&nbsp;and used it to acquire stakes in a number of other companies. What&rsquo;s the strategy here?</strong></p>
<p><strong>Bankman-Fried:&nbsp;</strong>There are a few things that go into it. First: Is there a way for us to backstop customer assets? The second thing is stopping contagion spread. You know, if a place blows up, can it cause more places to blow up? Are we gonna see a chain reaction?</p>
<p>And then the third thing, subordinate to those two: Is there a good deal for us here? Or to be precise, is there a &ldquo;not bad&rdquo; deal for us here? The mandate here was not to try to make amazing acquisitions. The mandate here was to make deals that are kind of reasonable, maybe even a little bad, but not horrific.</p>
<p><strong>A longtime crypto insider told me you&rsquo;re going to come out of this looking like Warren Buffett&mdash;owning a lot, and everyone owing you a lot of favors. Do you think that&rsquo;s overstating it?</strong></p>
<p>I hope it&rsquo;s not overstating it, though it might be. I want to be in a position where when we work with people, we&rsquo;re a little more generous than we have particular reason to be.</p>
<p>The bigger piece of this, frankly, is a trust thing where I don&rsquo;t want to have to worry when I&rsquo;m doing a deal about whether the other side is going to try and fuck me in 20 ways I&rsquo;m not anticipating. Because if that&rsquo;s true, just doing the deal becomes fucking impossible, right?</p>
<p>I want to set a standard, like, &ldquo;Look, we&rsquo;re just not going to try and fuck you, we&rsquo;re gonna try and be reasonable, we&rsquo;re going to try and be generous when we can. Let&rsquo;s just try to work reasonably together and consider things from what is good for the sum-of-us perspective and then we can think about splitting the pie.&rdquo;</p>
<p>Lack of trust is an enormous transaction cost, and I underestimated this when I first got into business.</p>
<p><strong>FTX is known for allowing users to trade derivatives.⁶ But derivatives are a product that few people understand let alone use, even if you splash the FTX brand everywhere.</strong></p>
<p>The branding things we&rsquo;re doing⁷ are not for direct customer acquisition. As you said, most people are not trading crypto derivatives, and we don&rsquo;t even offer them in the United States. It&rsquo;s much more of a corporate branding thing than it is a customer acquisition thing.</p>
<p>But I think your core point is right that, eventually, we need to have use cases that make people&rsquo;s lives directly better. That&rsquo;s something I wish the industry did a lot more.</p>
<p><strong>So are you saying this lack of utility for crypto is FTX&rsquo;s problem too?</strong></p>
<p>Yes, and frankly we&rsquo;ve been trying to find people to [build more practical crypto applications]. I don&rsquo;t think running a blockchain social media network is a great fit for FTX, but we&rsquo;d be super happy to help technologically with that. I want someone to build that out and do a great job of it.</p>
<p>We&rsquo;ve been very actively seeking out projects with compelling use cases that we can invest in. I would be lying if I said I haven&rsquo;t had conversations with our senior developers like, &ldquo;Here are some things I think it is important for the industry to build. How long would it take us to build them?&rdquo;</p>
<p>The sort of response I get back is like, &ldquo;Jesus Christ, Sam, we can&rsquo;t also start a whole new company in the next three months.&rdquo; But at some point, we will pull the trigger on that if no one else is doing it.</p>
<h2>No bro</h2>
<p>The crypto world loves to embrace larger-than-life heroes like Satoshi, Bitcoin&rsquo;s pseudonymous founder, and Changpeng Zhao, maverick CEO of giant trading exchange Binance.</p>
<p>And while SBF looks to be joining that pantheon, he stands out, shattering many of the &ldquo;crypto bro&rdquo; stereotypes. The son of Stanford Law professors, he was among Joe Biden&rsquo;s largest donors in 2020, and he espouses a philosophy of altruism and moral obligation. SBF says he&rsquo;s a vegan because he&rsquo;s repulsed by the cruelty of industrial animal farms, and shows little appetite for the garish consumption practiced by other wealthy crypto figures. He is, in other words, very unlike many people in the community of which he is now the de facto leader.</p>
<p><strong>You&rsquo;ve said you came to crypto because you saw a way to make a lot of money&mdash; not because you want to change the world or replace the government and all that stuff. It&rsquo;s kind of refreshing, frankly. But does your outlook cause tension with crypto true believers?</strong></p>
<p><strong>Bankman-Fried:&nbsp;</strong>I would like to think that I&rsquo;ll do right by the people who believe in this space the most, but that&rsquo;s incumbent on me. There&rsquo;s been skepticism of me from people who, correctly, view me as coming at it from a pragmatic rather than ideological perspective. I believe in blockchain because I think it&rsquo;s useful and can make the world better in very specific practical ways.</p>
<p>My belief is that the industry is contingent on blockchains ultimately being able to have a real positive impact on the world. I&rsquo;d like to think I do a good job of representing other people who believe in the industry even if they came at it from a different angle originally, but there is always a little bit of unease there.</p>
<div class="wp-block-image"><img src="https://content.fortune.com/wp-content/uploads/2022/07/btc_eth.png?w=1440&amp;q=75" sizes="100vw" srcset="https://content.fortune.com/wp-content/uploads/2022/07/btc_eth.png?w=320&amp;q=75 320w, https://content.fortune.com/wp-content/uploads/2022/07/btc_eth.png?w=480&amp;q=75 480w, https://content.fortune.com/wp-content/uploads/2022/07/btc_eth.png?w=576&amp;q=75 576w, https://content.fortune.com/wp-content/uploads/2022/07/btc_eth.png?w=768&amp;q=75 768w, https://content.fortune.com/wp-content/uploads/2022/07/btc_eth.png?w=1024&amp;q=75 1024w, https://content.fortune.com/wp-content/uploads/2022/07/btc_eth.png?w=1280&amp;q=75 1280w, https://content.fortune.com/wp-content/uploads/2022/07/btc_eth.png?w=1440&amp;q=75 1440w" alt="Charts show price of ETH and BTC since November 2021" data-nimg="responsive" /></div>
<p><strong>It feels like the world is on fire right now with the march of authoritarianism, the climate crisis, and so on. To tackle all this, it seems we need, if not Scandinavian-style socialism, at least some form of collectivism. And yet, the crypto community&rsquo;s worldview is typically a hyper-libertarian, individualistic one. Do you ever worry crypto may be contributing to the decline of civic order?</strong></p>
<p>I think it&rsquo;s weird. Let me give you two different takes on the same topic. When you think about authoritarianism, you can think about it in terms of needing collective action to resist it. Or you can think about it in terms of crypto itself being anathema to authoritarianism. And I think there&rsquo;s truth to both of those, right?</p>
<p>I think a domineering and uncaring attitude, and being willing to trample on other people, has brought a lot of these bad things to the world. That is very much not what the crypto space has stood for&mdash;and I think crypto is a good counterpoint to that.</p>
<p>But on the other hand, you can&rsquo;t just not play the game at all, right? You can&rsquo;t just ignore [something like authoritarianism] and say, &ldquo;We&rsquo;re going to have our decentralized island and ignore what&rsquo;s going on around us in the world.&rdquo; You do have to engage, and crypto can be a piece of that. But it can&rsquo;t be the whole answer&mdash;not everything is about everything.</p>
<p><strong>Those are some big ideas. Let&rsquo;s end on something lighter. Barring any major macro shocks, what&rsquo;s your best guess for the price of Ethereum? And could Bitcoin hit $100,000 in two years?</strong>⁸</p>
<p>Boy, Ethereum is interesting. Obviously, with the upcoming merge⁹, there&rsquo;s huge volatility, right? I think it could get way better or way worse&mdash;I just don&rsquo;t know the answer.</p>
<p>I think Bitcoin&rsquo;s a little bit easier to predict. If there&rsquo;s more pain and more liquidations, that changes things. But a bit more recovery from the carnage, and regulatory clarity&mdash;that could be a big exogenous shock, a positive shock that could come over the next year. We&rsquo;d be lucky to hit $100K, but I wouldn&rsquo;t rule it out. But, you know, if you told me at the end of the year, Bitcoin is gonna be at $35K, I&rsquo;d fucking take that.</p>
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<h2>Sam&rsquo;s shopping spree</h2>
<p><strong>While the implosion of the crypto markets has led most survivors to hunker down and conserve cash, SBF has seized the moment as a buying opportunity. As his web of influence grows, will he get too big for an industry that prizes decentralization? Or, despite his Bahamian address, might he attract the ire of U.S. regulators? We&rsquo;ll see. In the meantime, a look at some of his recent deals, which he has conducted both as an individual and through various corporate vehicles he controls.</strong></p>
<h3>BlockFi</h3>
<p>At the height of the crypto boom, the lending company was offering consumers returns of 9% or more through simplified access to so-called DeFi markets. But like many of its peers, BlockFi ran into liquidity trouble this spring. SBF swooped in with a $400&nbsp;million credit facility, saying the loan would help BlockFi &ldquo;navigate the market from a position of strength.&rdquo; Should it fail to do so, the deal also gives SBF an option to acquire BlockFi outright.</p>
<h3>Robinhood</h3>
<p>Since its IPO last year, Robinhood&rsquo;s stock has taken a beating, falling over 80% to below $10 this spring. That led SBF to pounce. In May, he snapped up a 7.6% stake in the troubled stock-trading and crypto app. SBF has been cagey about his plans for Robinhood, but there&rsquo;s been speculation that he could buy it&mdash;and its valuable customer list&mdash;outright.</p>
<h3>Voyager Digital</h3>
<p>Like BlockFi, Voyager is a crypto lender that ran into postcrash solvency problems. SBF offered a loan facility in the form of $200 million and 15,000 Bitcoins in June. The company drew on $75&nbsp;million of that before filing for bankruptcy in May. (The bankruptcy documents reveal that in addition to being one of Voyager&rsquo;s biggest creditors, FTX is also one of its biggest debtors.)</p>
<h3>Good Luck Games</h3>
<p>In March, FTX obtained Good Luck Games, a crypto-focused company founded by veterans of the card game Magic: The Gathering. The deal supports a thesis that SBF is looking ahead to the next phase of crypto, which many believe will have a large gaming component.</p>
<h3>Exchanges in Japan, Canada, Korea</h3>
<p>FTX acquired a Japanese trading platform called Liquid in February and then in June picked up Bitvo, a Canadian exchange. The price of each deal was not disclosed, but each company has previously been valued above $1&nbsp;billion. In late July, news reports said FTX was on the cusp of buying Korean exchange Bithumb. These buys offer a way for FTX to grow its customer base&mdash;but also a fast track to international expansion since the acquired companies have established relations with local regulators.</p>
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<h2>Between the lines</h2>
<p><strong>(1) Steady now:</strong>&nbsp;In January, before the worst of the crypto winter, FTX raised $400 million at a $32 billion valuation. Trading operations appear to be holding strong: FTX says total volume was $76 billion in the first half of 2022 compared to $64 billion in the same period in 2021.</p>
<p><strong>(2) That&rsquo;s trillion with a T:</strong>&nbsp;Cryptocurrencies as a whole have lost about $2&nbsp;trillion since the November 2021 market peak. As a result, numerous startups in the space have gone under or seen their value plummet.</p>
<p><strong>(3) Nowhere to hide:&nbsp;</strong>Forces such as rising inflation and the Ukraine war have battered asset prices across the board, and crypto is no exception. While boosters have long argued that Bitcoin would serve as a safe haven in times of crisis, this has been belied by the current downturn.</p>
<p><strong>(4) Lending a hand:</strong>&nbsp;See sidebar above for more on SBF&rsquo;s latest deals.</p>
<p><strong>(5) Pocket change?&nbsp;</strong>According to the Bloomberg Billionaires Index, SBF&rsquo;s net worth has dropped by $4.7&nbsp;billion in 2022.</p>
<p><strong>(6) Crystal ball bets:</strong>&nbsp;Derivatives are trading instruments that involve predicting the future price of assets. They have a practical use&mdash;for instance, an airline might use them to hedge the future price of jet fuel&mdash;but also form the basis of huge amounts of speculative activity in crypto and elsewhere.</p>
<p><strong>(7) Playing ball:</strong>&nbsp;During the recent crypto boom, companies engaged in a frenzy of marketing&mdash;none more so than FTX. The company paid an undisclosed amount to put its logo on every MLB umpire, spent a reported $135&nbsp;million for naming rights to the arena of the NBA&rsquo;s Miami Heat, and laid out a reported $6.5&nbsp;million for a Super Bowl ad featuring Larry David.</p>
<p><strong>(8) Charting a crash:</strong>&nbsp;See graphics at left for the price trends in Bitcoin and Ethereum.</p>
<p><strong>(9) Merge right:</strong>&nbsp;Ethereum, the smart contract platform that is the second most valuable blockchain after Bitcoin, is planning a major technological upgrade known as the Merge. If successful, it will drastically reduce its energy use and improve transaction speed. The update, which has been delayed repeatedly, is currently set to be attempted in September.</p>
<p><em>This article appears in the August/September 2022 issue of&nbsp;</em>Fortune<em>&nbsp;with the headline,</em>&nbsp;<em>&ldquo;The Conversation: Sam Bankman-Fried</em>.&rdquo;</p>
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The Conversation: Sam Bankman-Fried

Members of Bored Ape Yacht Club, the internet’s hottest NFT project, monkeyed around IRL at Ape Fest 2021. How long can the party last?

<p>If you&rsquo;re not familiar with digital art or don&rsquo;t spend much time on Twitter, you&rsquo;d be forgiven for not knowing what the BAYC is: a members-only group whose entrance fee is an NFT associated with a jpeg of a cartoon primate.</p>
<p>And the club members, who call themselves apes, are a determined lot. They return the next morning as early as 7 a.m.,&nbsp;<a href="https://twitter.com/boredapeyc/status/1454819034302668802?s=27" target="_blank" rel="noopener noreferrer">forming a line</a>&nbsp;that wraps around a Soho block in order to pick up their wristbands at the gallery. The yacht event is the big kickoff party for the weeklong Ape Fest 2021, the first time BAYC members have gathered IRL in such large numbers. It&rsquo;s the highlight of the&nbsp;<a href="https://www.nft.nyc/" target="_blank" rel="noopener noreferrer">NFT.NYC conference</a>, which features speakers like Reddit co-founder Alexis Ohanian and entrepreneur Gary Vaynerchuk and draws more than 5,000 non-fungible token fanatics to the city.</p>
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<p>The BAYC members eat bananas (seriously) and wear branded sweatshirts to show that they belong. Some are dressed in leather jackets or Hawaiian shirts that match their cartoon apes&rsquo; outfits so fellow club members can recognize them IRL. &ldquo;<em>You&rsquo;re [insert Twitter handle]?!</em>&rdquo; is an enthusiastic refrain heard throughout the week.</p>
<p>It is an exciting time to be an ape.&nbsp;<a href="https://www.newyorker.com/culture/infinite-scroll/why-bored-ape-avatars-are-taking-over-twitter" target="_blank" rel="noopener noreferrer">Launched in April</a><strong>&nbsp;</strong>by four pseudonymous thirtysomethings &mdash; Gargamel, Gordon Goner, Emperor Tomato Ketchup, and No Sass &mdash; through their company Yuga Labs, BAYC is a collection of 10,000 unique digital head-and-shoulders drawings with a variety of traits, some quite rare (and thus more valuable). The floor price of a Bored Ape &mdash; which initially went on sale for about $250 each &mdash;&nbsp;<a href="https://www.inputmag.com/tech/bored-ape-nft-collection-just-sold-for-a-killing-in-sothebys-auction">has reached six figures</a>. One rare ape sold at Sotheby&rsquo;s for&nbsp;<a href="https://hypebeast.com/2021/10/bored-ape-yacht-club-nft-3-4-million-record-sothebys-metaverse" target="_blank" rel="noopener noreferrer">more than $3.4 million</a>&nbsp;last month.</p>
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<p><a href="https://hypebeast.com/2021/8/stephen-curry-bored-ape-yacht-club-nft-55-ethereum-purchase" target="_blank" rel="noopener noreferrer">Steph Curry</a>,&nbsp;<a href="https://twitter.com/lilbaby4pf/status/1456130223012032516?s=27" target="_blank" rel="noopener noreferrer">Lil Baby</a>,&nbsp;<a href="https://twitter.com/jimmyfallon/status/1459164143626424321" target="_blank" rel="noopener noreferrer">Jimmy Fallon</a>, and&nbsp;<a href="https://twitter.com/ape_g4ng/status/1460002919709822982" target="_blank" rel="noopener noreferrer">Post Malone</a>&nbsp;all hold apes. Guy Oseary, who manages Madonna and U2,&nbsp;<a href="https://variety.com/2021/digital/news/bored-ape-yacht-club-yuga-labs-sign-with-madonna-u2-manager-guy-oseary-1235086011/" target="_blank" rel="noopener noreferrer">signed a representation deal with Yuga Labs in October</a>, and last week, Universal Music&rsquo;s new Web 3.0 label unveiled&nbsp;<a href="https://www.inputmag.com/culture/bored-ape-yacht-club-supergroup-kingship-interview-celine-joshua-nick-adler">a Bored Ape act called Kingship</a>. Ape Fest 2021 will culminate with an extravagant &ldquo;warehouse&rdquo; party in Brooklyn featuring surprise appearances by Lil Baby, the Strokes, Questlove, Beck, Chris Rock, and Aziz Ansari.</p>
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<p>&ldquo;Now, they&rsquo;re multimillionaires who made it big,&rdquo;&nbsp;<em>Rolling Stone</em>&nbsp;<a href="https://www.rollingstone.com/culture/culture-news/bayc-bored-ape-yacht-club-nft-interview-1250461/" target="_blank" rel="noopener noreferrer">recently enthused</a>, referring to the founders. &ldquo;What&rsquo;s more punk rock than that?&rdquo; Many non-believers on Twitter scoffed at that notion, calling BAYC a straight-up scam. But more on that later.</p>
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<figcaption class="Tr"><em>Rolling Stone</em>&nbsp;x Bored Ape Yacht Club limited-edition zine<cite class="hW"><a href="https://shop.rollingstone.com/products/rolling-stone-x-bored-ape-yacht-club-special-collectors-edition-zine" target="_blank" rel="noopener noreferrer">Rolling Stone</a></cite></figcaption>
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<p>The apes are basically the next generation of&nbsp;<a href="https://www.inputmag.com/features/crypto-art-exchanges-are-about-to-blow-up-the-auction-house-nifty-gateway-superrare">CryptoPunks</a>, an O.G. NFT project launched in 2017 by Canadian duo Larva Labs. But the apes are more intricate &mdash; they were drawn by&nbsp;<a href="https://twitter.com/BoredApeYC/status/1422727938500345864" target="_blank" rel="noopener noreferrer">a team of artists</a>, not entirely generated by an algorithm like the punks &mdash; and with a far greater social component.</p>
<p>The apes&rsquo; backstory &mdash; they&rsquo;re ennui-afflicted crypto billionaires hanging in a swampy yacht club in the year 2031 &mdash; made them not just art pieces, but an opportunity for worldbuilding. And commerce. And crazy parties.</p>
<p>As Josh Ong &mdash; a 38-year-old communications consultant and Brooklyn dad, known by many in the BAYC as an &ldquo;unofficial community manager&rdquo; &mdash; put it in a recent tweet:</p>
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<p>Back in the gallery line, I meet Kevin Rupp, a 37-year-old from California who is dressed like his ape, in a black bowler hat and leather jacket. He&rsquo;s a digital artist who says he&rsquo;s friends with Mike Winkelmann, better known as the artist Beeple, who&nbsp;<a href="https://www.inputmag.com/tech/record-breaking-sale-of-beeples-nft-artwork-seems-kind-of-shady">sold an NFT</a>&nbsp;at Christie&rsquo;s auction house for more than $69 million in March.</p>
<p>Rupp paid 0.5 ETH (then &ldquo;a little over a grand&rdquo;) for his ape five months ago. He recently got an offer for $185,000, which he turned down. But does his ape have a price? &ldquo;My unofficial answer is a million dollars, I guess,&rdquo; he says. &ldquo;But my other unofficial answer is: I wouldn&rsquo;t sell it.&rdquo;</p>
<p>Later in the day, a 30-year-old named Daniel &mdash; who describes himself as &ldquo;old as hell&rdquo; and prefers I use his first name only &mdash; says he wouldn&rsquo;t sell his single ape for &ldquo;less than like a full-blown house in Malibu.&rdquo;</p>
<p>&ldquo;How about for a CryptoPunk?&rdquo; asks a bespectacled man standing nearby.</p>
<p>Daniel doesn&rsquo;t blink. &ldquo;I wouldn&rsquo;t sell it for a punk now,&rdquo; he says, &ldquo;because Steph Curry is not a punk. Lil Baby is not a punk.&rdquo;</p>
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<figcaption class="Tr">Kevin Rupp<cite class="hW">Jessica Klein</cite></figcaption>
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<p>Today, the punks are for art world snobs. The apes are for the sneakerheads and music fans. The investment is not just in the artwork, but in membership to a club &mdash; one skewing white, male, and young &mdash; that grants access to worlds that otherwise might seem unattainable. &ldquo;It&rsquo;s like an adrenaline rush, to be where the culture is going,&rdquo; Daniel says.</p>
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<p>In a different line, for BAYC merch, I meet Digging4Doge, a 34-year-old from Philadelphia, along with his pitbull and older brother. Digging4Doge, who requested that&nbsp;<em>Input</em>&nbsp;not use his real name, says he started off with just $1,150 worth of Dogecoin that his cousin gave him in 2019. He parlayed that into a few apes this past spring before they &ldquo;blew up.&rdquo;</p>
<p>When you buy an ape, you also get to unlock other NFTs, like a &ldquo;mutant serum&rdquo; to create a Mutant Ape and a dog you can get via the Bored Ape Kennel Club. Digging4Doge sold his mutant serums and dogs to buy up more apes. Now he owns an enviable 11 apes. He estimates his total NFT collection, which also includes a CryptoPunk, to be &ldquo;like $10 million.&rdquo;</p>
<p>&ldquo;You couldn&rsquo;t make it up if you tried, right?&rdquo; his brother laughs. And I laugh, too &mdash; maniacally &mdash; in an unexpected fit of FOMO.</p>
<h3 data-md-text-align="center">HYPEBEAST CULTURE</h3>
<p>Finally, I get inside Bright Moments, a gallery space that, according to its website, doubles as an &ldquo;on-chain Decentralized Autonomous Organization (DAO) that&nbsp;<a href="https://www.brightmoments.io/" target="_blank" rel="noopener noreferrer">specializes in live NFT minting experiences</a>.&rdquo; The walls are covered with apes spray-painted onto canvases. There&rsquo;s also a video screen featuring a 3-D rendering of apes lounging in a fountain of radioactive-looking goo.</p>
<p>The crowd, in the words of one staffer, is &ldquo;less subtle&rdquo; than the buyers attracted by other NFT collections the gallery exhibits &mdash; they&rsquo;re more like sneakerheads at a product drop. &ldquo;It&rsquo;s peak hypebeast shoe culture, right?&rdquo; says&nbsp;<a href="https://www.ceyssonbenetiere.com/en/artists/Jesse-Willenbring/" target="_blank" rel="noopener noreferrer">Jesse Willenbring</a>, a 42-year-old artist who works with the gallery on NFT projects.</p>
<p>Indeed, there is plenty of BAYC merchandise. At a separate&nbsp;<a href="https://twitter.com/bragtome/status/1455236471141638155?s=27" target="_blank" rel="noopener noreferrer">pop-up</a>, BAYC sells limited-edition white sweatshirts only available to those attending Ape Fest. Like all BAYC merch, it doubles as a signal. Regular $400 blue sweatshirts, which are available to anyone, show you&rsquo;re in the know. Black sweatshirts signify that the wearer owns an ape; they cost about $800.</p>
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<figcaption class="Tr">Line for the Bored Ape pop-up shop<cite class="hW">Evan Rodgers</cite></figcaption>
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<p>Among the blue- and black-sweatshirt-wearing men mingling with Stellas in hand, I spot Sera, who is 29 and from Hawaii. She&rsquo;s wearing an outfit she made, which features her ape on a shirt. Unlike the other apes I&rsquo;ve seen so far, hers has long, styled, bubblegum-pink hair.</p>
<p>A self-taught artist, Sera designed the hairdo herself. She created and runs the&nbsp;<a href="https://opensea.io/collection/boredapesalon" target="_blank" rel="noopener noreferrer">Bored Ape Salon</a>, a &ldquo;derivative ape service&rdquo; through which NFT holders can personalize their apes. &ldquo;Generally, the apes&nbsp;<a href="https://twitter.com/serastargirl/status/1455993442262208519?s=27" target="_blank" rel="noopener noreferrer">aren&rsquo;t very feminine</a>,&rdquo; she says. &ldquo;So that&rsquo;s my whole niche in the space.&rdquo;</p>
<p>Not long after, she dons a wig that looks just like her ape&rsquo;s &mdash; she&rsquo;s a participant in the Halloween costume contest starting at the back of the gallery. One of the contest&rsquo;s four judges is Andy Milonakis, the star of&nbsp;<em>The Andy Milonakis Show</em>, an absurdist sketch comedy series that debuted on MTV in 2005. Milonakis tells me he does not own an ape yet but wants to &ldquo;grind and make money in the space&rdquo; to eventually buy one. (He somehow&nbsp;<a href="https://twitter.com/andymilonakis/status/1456830007058186256?s=27" target="_blank" rel="noopener noreferrer">manages to obtain an ape</a>&nbsp;a few days later.)</p>
<p>&ldquo;One point for bribery!&rdquo; Milonakis calls out as a woman dressed like her ape &mdash; in a furry hat and wraparound sunglasses &mdash; hands the judges stickers of her avatar. That&rsquo;s not enough to win, alas. A man wearing a burgundy vest, a white-collared shirt, a cap, and tie and stationed behind a life-size valet-parking stand (covered by a giant umbrella) takes first place.</p>
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<div class="vm ap"><img class="uM Ed" src="https://imgix.bustle.com/uploads/image/2021/11/15/32caf511-0776-4bd2-afd8-4bba89c7bf90-costumecontest-cropp.jpg?w=375&amp;h=305&amp;fit=max&amp;auto=format%2Ccompress" sizes="(min-width:768px) 760px, 375px" srcset="https://imgix.bustle.com/uploads/image/2021/11/15/32caf511-0776-4bd2-afd8-4bba89c7bf90-costumecontest-cropp.jpg?w=375&amp;h=305&amp;fit=max&amp;auto=format%2Ccompress 375w, https://imgix.bustle.com/uploads/image/2021/11/15/32caf511-0776-4bd2-afd8-4bba89c7bf90-costumecontest-cropp.jpg?w=375&amp;h=305&amp;fit=max&amp;auto=format%2Ccompress&amp;q=50&amp;dpr=2 750w, https://imgix.bustle.com/uploads/image/2021/11/15/32caf511-0776-4bd2-afd8-4bba89c7bf90-costumecontest-cropp.jpg?w=760&amp;h=618&amp;fit=max&amp;auto=format%2Ccompress 760w, https://imgix.bustle.com/uploads/image/2021/11/15/32caf511-0776-4bd2-afd8-4bba89c7bf90-costumecontest-cropp.jpg?w=760&amp;h=618&amp;fit=max&amp;auto=format%2Ccompress&amp;q=50&amp;dpr=2 1520w" alt="Ape Fest Halloween costume contest judges" /></div>
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<figcaption class="Tr">The costume contest judges<cite class="hW">Jessica Klein</cite></figcaption>
</figure>
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<p>The winner is a 27-year-old with a background in software development who owns an ape called Jenkins. I subsequently learn that Jenkins the ape has taken on a life of his own and become a bona fide business. Jenkins is represented by Creative Artists Agency, a huge talent management company, and has a dedicated following &mdash; a true subculture within the BAYC.</p>