When FTX, once the world’s second-largest crypto exchange, collapsed in November 2022, everything fell apart rapidly. Billions of dollars in customer funds vanished. Prices plummeted, and the trust in the entire market suffered heavily. Traders went from “I kind of trust the exchanges” to “I don’t trust them at all.”
But what exactly went wrong then, the technology or those behind it?
Blockchain, the tech that powers crypto, didn’t crash. It has been functioning well for several years. It is the people running the system that have failed. Funds were being abused, there was no control, and fraud was occurring behind the scenes.
The FTX meltdown did not reveal bugs in their code. It exposed broken trust. And that’s what this article is really about.
Technology Wasn’t the Main Problem.
The problem isn’t blockchain technology. It’s people.
The technology behind crypto has been rock-solid. The blockchains have been functioning successfully, with billions of operations carried out without interruption or compromise. Not a single coding bug caused the collapse of the entire crypto market.
But why did trust in crypto fall apart? It was people, not the technology, that screwed it up.
As Agustín Carstens from the Bank for International Settlements pointed out, many investors who didn’t trust banks ended up trusting crypto exchanges and wallet providers instead; however, some of those middlemen turned out to be reckless, hacked, or outright fraudulent.
Harvard researchers even stated it clearly: the failure of FTX wasn’t a crypto blow-up; it was a case of bad governance, the same sort of tragedy as those suffered at companies such as Lehman Brothers or Enron. This means customer money went to risky gambling, fake records, secret transfers, and no blockchain bug. Simply human greed and zero oversight.
The Human Side of Failure
FTX didn’t collapse because the technology failed; it collapsed because people did.
Behind the scenes, executives were quietly using customers’ money to make risky bets. They were concealing losses. An estimated $10 billion had been shifted to their own hedge fund, and they kept poor records. At one stage, Sam Bankman-Fried’s own documents showed that $1-2 billion of customer funds were missing. No hack or code malfunction. Just poor judgment, lack of supervision, and lots of secrecy.
The signs were showing already. Lack of a proper board structure, operations set up offshore, and a team that prioritized profit over protecting users. As one crypto lawyer commented, FTX’s leaders were operating in a gray zone, chasing profit first, and ignoring the people who trusted them.
But real users have had to pay the price for this. Every day users lost their savings. Some had tens or hundreds of thousands of dollars on the exchange because they thought it to be a sound investment and, in their belief, “too big to fail.” Even experienced investors were blindsided.
That’s the irony: people left their regular banks to have something more transparent. Well, they put their faith in a whole system they still couldn’t understand and got burned.
It is a tough truth to say, but it is important nonetheless. Trust is not established through technology alone; it is established through people. And in this case, it was people, founders, executives, investors, and even customers who did not ask enough questions that broke it.
Where Technology Makes Human Mistakes Worse.
Not trying to say technology has nothing to do with trust. In crypto, the tech sometimes magnifies human mistakes instead of fixing them.
Blockchains never forgive or forget. Once a transaction is verified, it is permanent, with no option to delete it or to call customer support. As someone put it, “Blockchains are infallible, but humans are not.”
A sender might transfer funds to the wrong address or enter one zero fewer (or more) than they meant to send. It’s recorded forever,
A real example? An NFT seller decided to list their item for 100 ETH but accidentally entered 1 ETH. It went through immediately, and the deal couldn’t be reversed. This is the tough aspect of immutability.
Then there’s the problem of anonymity. Crypto was built on the promise that you don’t need to know or trust the other person. But when people have the opportunity to remain anonymous, it is also easy for scammers to run away with funds. That is why most people still feel safer using centralized exchanges, although it goes against the original decentralized dream.
But it’s only fair to say that this technology also provides solutions to avoid errors. For instance, with tools such as multi-signature wallets and open-source smart contracts. Indeed, they can only be successful if adopted. But many big crypto companies didn’t. They had private ledgers with no audit trail and simply repeated the same old financial mistakes. Blockchain is transparent with every record it makes public, and yet trust just fails because of how people treat it.
Ultimately, crypto technology does not replace trust. It just changes the way it is tested. The ledger is perfect. But we aren’t.
Can Crypto Rebuild Trust?
Yes — but only if it earns it back.
After the FTX fallout, both the crypto community and regulators realized something obvious but necessary. Which is, trust is not established with promises or excitement but with proof. And we’re seeing real changes emerge.
Some exchanges have begun to offer proof of their reserves, that is, they have rolled open their ledgers to show they actually hold customers’ funds. Regulators have been working to ensure that there are clearer rules, like Europe’s MiCA framework and new U.S. guidelines that focus on custody, transparency, and user protection. These moves don’t fix everything. However, it deals with the real problem, which is human accountability.
Technology can be of help too. Provided it is used correctly.
Rather than hiding numbers in private spreadsheets, blockchain can ensure that everything is traceable. For instance, there is Gluwa. It is one of those initiatives utilizing blockchain technology to link individuals with those who borrow money in places that lack banking services.
Each loan and repayment is recorded on a public ledger. This means that instead of lenders needing to trust borrowers, they can check to verify. Partners at Gluwa in Nigeria say it makes it easier to track credit, disburse more loans, and trust borrowers more confidently.
And Gluwa isn’t the only one trying to rebuild trust this way. Across crypto, people are experimenting with things like:
- On-chain identity and reputation scores
- Smart contracts that handle escrow and payments automatically
- More decentralized governance and less backroom politics
- Zero-knowledge proofs and MPC encryption methods that preserve privacy even as they prove legitimacy.
The tools are there. The technology is ready. But it can only succeed if people choose to use it openly and with integrity.
Because in the end, no amount of coding can force a person to be honest.
Conclusion
The fall of FTX didn’t prove that crypto is a flawed technology. It showed that people can abuse it. As many have noted, the real threats to trust in crypto aren’t flaws in blockchain nodes, but fraud, poor judgment, and human manipulation. The technology did what it was built to do. It was people who didn’t.
Yes, blockchain can help: It makes transactions transparent, smart contracts can lock funds until conditions are satisfied, and identity tools can prevent bad behaviors. But code can’t prevent greed.
So, rebuilding trust is not just a technology upgrade; it is a people upgrade.
Featured Image – Freepik
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