HomeBlockchainThe collapse of FTX highlights the importance on decentralization

The collapse of FTX highlights the importance on decentralization

As the analysis of the aftermath of the FTX collapse continues, various findings have emerged regarding the importance of the Distributed Ledger Technology.

The collapse of one of the most important exchanges has greatly stirred analysts and experts in the crypto world, leading them to compare blockchain with Distributed Ledger Technology (DLT).

There is still much confusion about the meaning of the terms Blockchain and DLT. Blockchain technologies are included in the broader family of Distributed Ledger technologies to which they add some features typical of other technologies and solutions.

What does Distributed Ledger Technology (DLT) mean and what is the link to FTX?

Distributed Ledger Technologies (DLT) are ledger-based distributed systems, that is, systems in which all nodes in a network own the same copy of a database that can be read and modified independently by individual nodes. 

Nodes that own a copy of the database, must go through a central entity to modify its data. These data modifications occur through consensus algorithms. It is the Consensus management models that determine the difference between Public and Private type Distributed Ledger Technology.

In addition to consensus algorithms, to maintain the security and immutability of the ledger, Distributed Ledgers and Blockchains also make extensive use of cryptography.

Precisely because of the particularity and relevance of the way the network updates the ledger, there are three key characteristics that distinguish the various Distributed Ledger systems:

  • type of network
  • consensus mechanism
  • ledger structure

But what is the connection with FTX?

The FTX crisis, which led to the failure of the exchange platform, has given several analysts and experts an opportunity to analyze the situation very well, coming to infer several issues about trading. 

In fact, according to SIX analysts, the Distributed Ledger Technology (DLT) system, with proper use, could result in considerably greater economic returns than crypto trading

SIX manages and develops infrastructure services for the Swiss and Spanish Exchanges, post-trade services, banking services, and financial information with the goal of increasing the efficiency, quality, and innovativeness of the entire value chain of the Swiss and Spanish financial centers. 

The results of SIX’s survey and analysis

The survey was conducted by FOFIN and analyzed by SIX Swiss Exchange and resulted in staggering results. In the cryptocurrency ecosystem, only 20% of companies believe that trading is the best use of Distributed Ledger Technology. 

More than 50% believe that it would be most productive to use it to generate new revenue or to save on existing business costs. More than one-third of investment banks (35.71%) said DLT is best used for currency payment and cash settlement services.

So we can infer that trading, is not the best use of blockchain. On the contrary, blockchain would yield more if used for currency payment and cash settlement services. 

David Newns, Head at SIX Digital Exchange, said:

“FTX operated from a jurisdiction [the Bahamas] which lacked effective and transparent regulation governing the crypto trading services that it was offering customers. However the trading of crypto, as our research shows, is not ultimately where the central benefits of this technology lie. 

There are numerous ways digital assets could be deployed in the traditional financial system to create more resilient markets. Using digital tokens for the issuance, trading and settlement of equities and bonds, for instance, could remove significant delays, costs and risks across the market.”

According to many, Distributed Ledger Technology (DLT) will be the key to greater efficiency and equal transparency in the cryptocurrency industry. Thus, this technology will be the foundation of many positive developments, which in the future will bring about great revolutions.