If you’re like most people, trying to understand cryptocurrencies, blockchains, bitcoins, and the like is likely to give you a headache.

One of the basic tenets of the entire crypto scam is to make the entire thing as opaque as possible, thereby ensuring that you can snare as many marks — excuse me, “investors” — as you can with important and wise-sounding gobbledygook.

This has been the modus operandi of Sam Bankman-Fried (SBF), the self-styled king of crypto who was so good at dishing important-sounding bullshit that he managed to snare “Smartest Guys In The Room” venture capitalists — Ivy League grads, many of them — into investing gladly and knowingly in his scams.

Fortunately, Professor Jennifer Taub, Esq., has one of the best bullet-pointed explanations I’ve seen of what’s happening with SBF, FTX, Alameda Research, etc. — and what will likely happen to SBFin the future:

• A Hedge Fund Is Born: In October 2017, SBF, then a 25-year-old MIT grad, and his friend Gary Wang founded a hedge fund called Alameda Research LLC, with SBF owning 90 percent and Wang the remainder. Organized under Delaware law, it operated in the U.S., the Bahamas, and Hong Kong.
• Hedge Fund Control and Funding: SBF was the CEO of Alameda from its founding until October 2021, when his friends Caroline Ellison and Sam Trabucco became co-CEOs. Then in August 2022, Ellison became Alameda’s sole CEO. Despite the title change, even after October 2021, SBF “remained the ultimate decision maker in Alameda” and “directed investment and operational decisions, frequently communicated with Alameda employees, and had full access to Alameda’s records and databases.”
• Borrowed Money, Volatile Assets at Alameda: Alameda borrowed to invest in crypto assets. Don’t worry about what the hell a crypto asset is. Just pretend it’s some highly volatile asset you’ve read about before, like Dutch tulips in the 1630s or ostrich feathers in the early 20th century, or toxic mortgage-linked securities in the early 21st century.
• A Sibling Corporation Is Born: In May 2019, SBF, Wang, and Nishad Singh started a new business with SBF as the majority owner. This business let customers trade crypto assets with each other. Organized in Antigua and Barbuda as a limited corporation, it did business as FTX.com or FTX.
• FTX Control and Investors: From the time of FTX’s birth until SBF resigned as its head in November of 2022, SBF was the “ultimate decision-maker” at FTX. To fund this trading platform, SBF raised more than $1.8 billion from investors who purchased an equity stake in the corporation.
• Risky Business at FTX: Customers of FTX could trade crypto assets (think tulips, ostrich plumes, and crappy investments) for fiat currency (meaning legal tender, such as dollars). They could also engage in still riskier transactions involving lots of borrowed money.
• Allegations by SEC: The SEC alleges that between 2019 and 2022, SBF defrauded the FTX investors (at the same time, he was defrauding the customers). Specifically, for years, he had been diverting FTX customer funds for his use and to support Alameda. The SEC detailed that SBF used customer assets to purchase luxury real estate, make venture investments, and to fund significant political donations. The SEC said he lied to prospective investors in FTX when he claimed that sophisticated systems protected customer assets and that Alameda was not given any special treatment. The SEC said he “provided Alameda with significant special treatment on the FTX platform, including virtually unlimited ‘line of credit’ funded by the platform’s customers.”
• More Investor Fraud After the Crypto Crash: In May 2022, when crypto assets began to plummet, Alameda faced repayment demands from lenders. So, on top of the money SBF siphoned from FTX customer accounts, he allegedly “directed FTX to divert billions more in customer assets to Alameda to ensure that Alameda maintained its lending relationships and that money could continue to flow in from lenders and other investors.” It was only in November 2022 that this “brazen, multi-year scheme finally came to an end when FTX, Alameda, and their tangled web of affiliated entities filed for bankruptcy.”

It contains explanations for some things I did not know already.

Jennifer Taub is the author of Big Dirty Money: The Shocking Injustice and Unseen Cost of White Collar Crime (Viking), is a professor at the Western New England University School of Law and the host of the new podcast Booked Up With Jen Taub. Follow Jennifer on Twitter @jentaub. 

Charlie Warzel, the guy behind The Atlantic’s column Galaxy Brain, talks to James Block, the amateur online sleuth who helped bring down Sam Bankmam-Fried (styled “SBF”) and his FTX/Alameda empire. Block followed the money and eventually figure out that FTX was likely commingling investor deposits in ways that it should not have been doing.

On Nov. 4 Block did a post titled “Is Alameda Research Insolvent” that helped create a run on FTX by investors after everyone started realizing that it was all a house of cards.

But, then again, much of crypto is one big Ponzi scheme, pumped and dumped by ultra-wealthy investors like Elon Musk while the little guys lose their life savings.

These parts of the James Block interview caught my eye most:

Warzel: There’s this idea that crypto is supposed to be decentralized and deeply transparent, that it’s supposed to be so easy to see where all the money is going at all times. And some of your work speaks to that promise. But it also strikes me that these centralized entities like Alameda or FTX play in the crypto world, and yet their balance sheets are not transparent. FTX is not a decentralized entity.

Block: There’s always stuff going on the blockchain, but these companies also have agreements off of the blockchain, right? Everything they have inside these exchanges is not on the blockchain. It’s using regular old database technology, and it’s not traceable at all. So yeah, a lot of the most important economic activity in crypto has nothing to do with blockchain at all. Huge percentages of people who do this kind of retail crypto trading, they don’t even know how to take what they bought off the exchange and put it in their own wallet.

Warzel: Post-FTX, I’ve heard a lot of chatter from crypto true believers about what needs to happen to the ecosystem. But what’s always struck me as a foundational problem in this space is that decentralized finance seems to have no real utility behind it. So much of what is created is just financial instruments and speculative assets. Can you speak to that part a bit?

Block: The AMC-meme-stock thing is a good example of how this can happen. People buy the stock of a semi-worthless company because they have this idea about short squeezing, or whatever. They are not financial experts and have a loose or maybe even wrong understanding of how finance works, and want to try to move the market. Crypto takes this abstraction a step further, because there’s nothing linked to it at all. There’s no economic activity in this space. There’s nothing produced by these companies. In fact, it’s a negative-sum game because of the cost of running the blockchains alone—the computational cost is tremendous. The amount of time and money people put into just running these things is tremendous. And they produce nothing of value. There’s a reason these massive companies aren’t all using blockchain for their processes: It is incredibly inefficient. And realistically, who actually wants their financial information public and visible to everybody?

The vast majority of people who got involved in this have no interest related to the technology or in the political or ideological aspects of crypto. They just see an opportunity to get rich. And a lot of those people end up absorbing and parroting some of the crypto ideals back to you, but they don’t really care to understand what’s going on. It’s just their excuse for what they’ve already done, which is gamble on something they thought was going to make them wealthy.

Warzel: Do you think most entities in the crypto space are insolvent and know it, and are just pretending right now, post-FTX?

Block: Absolutely. That’s because of what I said earlier about crypto. There’s no value created by any of these companies. It’s all just moving money from Person A to Person B. And look at the economic conditions. You have interest rates rising; people and companies are being squeezed economically and not willing to gamble. The fact is that there are fewer suckers aping into this system, and Ponzi schemes rely on new money to survive. I think most crypto companies are, like FTX, just borrowing from customer deposits to keep things afloat. And even the companies that aren’t doing that—I think Coinbase, for example, isn’t doing anything illicit, but their business model is based on this ecosystem where new money comes in. And that’s stopping.

Warzel: By that logic then, what is the future for crypto? Do you see this ecosystem existing in a few years?

Block: I mean, Beanie Babies still exist. Pogs still exist. Will bitcoin still exist? I think it’ll be like owning a ham radio, with hobbyists doing their niche thing together. I mean, who knows. But you know if they were to really regulate the industry, it couldn’t work the way it does. It would look unrecognizable.

Just another way for the mega-rich to get even wealthier by screwing retail investors. But yet there are still untold people out there who worship Elon Musk and the ground he walks on.

Here! Take my money!