As I write this, Sam Bankman-Fried, once a crypto darling and the man in charge of FTX, has been extradited to the US to face charges for the crypto exchange collapse (opens in a new tab). The byword for corporate scandal in America for decades now has been Enron, and funnily enough, the same lawyer who handled the bankruptcy is now in charge of FTX: saying he is “never seen such a complete failure (opens in a new tab)“.
Cryptocurrency is still a nascent industry, but now that certain tokens like Bitcoin and Ethereum are well established, it feels like the wider landscape has become littered with little more than grifters and endless variations of the classic pump n’ dump scam: and this year many chickens came home to roost. There’s even a collective noun for the many smaller cryptocurrencies launched every month in the vain hope of attracting naive money: shitcoins.
PC Gamer isn’t a crypto site, but as technologies continue to intersect with gaming and the wider PC ecosystem, it feels increasingly important to keep a weather eye on what the hell is going on over there. I’ll take you through the things that hit our radar in 2022, but don’t take this as a comprehensive guide to cryptos 2022, so much as a selective highlight reel from one of the nastiest, weirdest, and most speculative areas of tech.
Hacks
The year began on an eyebrow-raising note: Turns out North Korea stole an absolute boatload of crypto in 2021 (opens in a new tab). The US government in particular is worried about this trend because cyberwarfare is generally one of the big concerns surrounding this regime, and it is going after anyone seen as helping it, including jailing a former Ethereum employee who gave a talk there (opens in a new tab).
The year would quickly bring an example of North Korean capabilities, with the FBI blaming the country’s ‘Lazarus Group’ of hackers for a $617 million heist on blockchain game Axie Infinity (opens in a new tab). Later in the year, it would emerge that while this was going on, the CEO withdrew funds before the feature was disabled for users (opens in a new tab).
In February, hackers found a bug in the code of cryptocurrency platform Wormhole, conjuring away over $300 million worth of user crypto. (opens in a new tab).
Crypto hacks run the risk of seeming a bit abstract: a few million here, the collapse of a derivative you’ve never heard of there. But June provided a shocking example of where this can end, when the Costa Rican healthcare system was hacked and held to ransom for $5 million in cryptocurrency (opens in a new tab)which forces the country to close important medical infrastructure.
In August, an exploit was found on Solana, which a hacker used to siphon $5.2 million from over 8,000 crypto wallets (opens in a new tab). At almost the same time, Nomad, a crypto-bridge sold on its security, suffered a “crazy free-for-all” hack (opens in a new tab) which claimed over $200 million in crypto.
September? Wintermute. A crypto ‘market maker’ that provided liquidity, it was done for 160 million dollars (opens in a new tab).
Functional error
July saw a first in the authorities’ approach to crypto fraud. A former Coinbase employee and associates became the first to be charged by the SEC with cryptocurrency insider trading (opens in a new tab): expect to see many more of these cases in the future. As the cases in this case said, “Fraud is fraud is fraud, whether it happens on the blockchain or on Wall Street.”
In that regard, it is time to talk about Turkey. Last year, an exchange called Thorex collapsed, costing investors $2.5 billion, and founder Faruk Fatih Özer went on the run. In August, Albanian police arrested him, Turkish authorities began seeking his extradition, and he will be charged with a sentence of 40,564 years in prison (opens in a new tab).
Some of the scammers remain out there, for now. Dr. Ruja Ignatova, known as the “Missing Cryptoqueen” since 2017, appeared this year on the FBI’s ten most wanted list (opens in a new tab).
TerraUSD founder Do Kwon was the subject of an Interpol red notice in September (opens in a new tab)and is currently believed to be in Serbia (opens in a new tab) by South Korean authorities.
Crashed
Perhaps “crash” is a misnomer, because what 2022 represented for crypto was an ongoing series of crashes where products previously thought to be reliable were found to be not quite so solid.
It all really kicked off in May with a plunge in value across the ecosystem that even affected Bitcoin (opens in a new tab), and at this time the big villain was seen as TerraUSD. This is a so-called stablecoin, which means that its value should remain consistently tied to the US dollar, and it turned out to be anything but a stable coin: the collapse was so great that there were fears that it could spread contagion among other stablecoins, including the poster boy for these products, Tether (opens in a new tab).
In July, the Celsius network collapsed with a staggering $1.19 billion black hole in the middle of its balance sheet. (opens in a new tab).
The ringing effects were everywhere. The crypto-based game Untamed Isles lost so much money during this period that it basically cost the game its funding, and it was shut down without offering a refund (opens in a new tab)because there was no money left.
The big thing was, of course, FTX. This was a huge crypto exchange estimated to handle over $700 billion worth of trades a year, and it looks like someone made the books (opens in a new tab). It collapsed into bankruptcy, and former employees now appear to have turned on CEO Sam Bankman-Fried.
Funnily enough, FTX sponsored Riot, among many other companies: the League of Legends developer is now doing everything it can to cut ties (opens in a new tab).
The serious stuff
Joe Biden isn’t having any of that crypto malarkey: The president says he wants to know a lot more before committing to something like a digital dollar (opens in a new tab).
Meta aka Facebook once had big plans for cryptocurrency, including releasing their own crypto wallet, which this year they quietly backed away from (opens in a new tab). Yep, crypto is too hard even for the company betting everything on the metaverse. At least you can take solace in a GameStop NFT wallet (opens in a new tab).
In terms of actual good news, a highlight of the year was Ethereum finally moving to a proof-of-stake model (opens in a new tab): basically, the world’s second largest cryptocurrency is making itself more environmentally sustainable. Not a moment too soon either.
Oh, in what way: this trend has seen large-scale mining rigs unable to pay back crypto borrowers (opens in a new tab). Doesn’t your heart just bleed?
Until 2023 and beyond
There is one crypto story of the year that I want to close on, even though it hasn’t made any headlines. I’d always been a fan of the now sadly defunct podcast ReplyAll, which in its heyday was a delightful mix of weird tech stories and investigative deep dives into the weirdest corners of the internet. One of the hosts, PJ Voght, left the show and earlier this year launched an independent podcast: Crypto Island (opens in a new tab).
PJ Voght is a great podcaster, and the pitch here was very much that of a curious outsider exploring the world of cryptocurrency: trying to find out what substance there actually is beneath all the buzzwords and hype. The show is named after a bizarre project to establish a crypto commune, recounted in the first episode, but Voght went on to do things like investigate an attempt to buy a copy of the US Constitution by a crypto collective, attend a crypto conference to talk to the participants, and interview both evangelists and skeptics.
Something interesting happened though. Voght began the show as a crypto-agnostic. In interviews he asked exactly the questions you should, but my sense was that he wanted to be convinced: that if only he got the right person to explain it, the blockchain and the billions and, frankly, the glow might finally make sense. It can’t just be a scam, can it?
The show began with a quick flurry of episodes over March and April, and then in May the Luna collapse happened. Voght quickly produced an episode, “The lunatic who crashed crypto”, which explored the personality of Do Kwon and exactly what was behind what happened. The podcast then had one more episode in late May, one in June about an NFT heist, and one in September where Voght announced the imminent end of the project.
The final episode, ‘The End’, was released just before Christmas. It’s a slightly convoluted account of a trip to Greenland that revolves around the environmental impact of crypto, but is really about climate change (with a pretty excellent Coolio anecdote along the way). Global warming is a problem of such existential consequence that, in this context, crypto, and banter about proof-of-work versus proof-of-stake models, feels like a kind of carnival sideshow.
My point is not that someone started a podcast and got bored of the topic. Because I don’t think Voght got bored. Crypto Island feels like an idea that came at exactly the wrong time, and when it tried to explain crypto and make some of this make sense, the “security” of the crypto world started to collapse around it. You can sense Voght almost becoming more tense towards the end, and a sense that the project may have put too much faith in crypto, been too quick to believe or at least vent some of the bullshit that is gathering around this phenomenon.
Crypto Island is a great listen, even if it wore out. But that in itself summed up the year in cryptocurrency for me, another curious outsider watching in fascination this world of gamblers and grifters who claim these products represent the future of global economies. The space remains wrapped in obfuscating language designed to give the impression of solidity to pure wind (“mint”, “land”, “token”), and if 2022 showed anything, it’s that the scams are not limited to smaller players, but see endemic out. The use cases for crypto remain fringes, while the products become harder to trust with each new collapse.
2022 is a year where cryptocurrencies and the emerging industry around them lost a lot of credibility, starting to look awfully like a space that not only needs regulation, but demands it. The vision behind Bitcoin, which is ultimately to remove middlemen and give individuals more control over their money, feels completely bastardized. And the saddest part of all these stories is that even if some of the villains may eventually face justice, the people who have trusted the jargon and lost serious money to crypto are too numerous to count.
