Blockchain’s Bumpy Ride
- Sydwell Rammala
- Jun 17
- 8 min read
Updated: Oct 29
Digital assets promised a brave new monetary order—but recent history keeps exposing fault-lines beneath the hype. Below are eight focus areas that reveal both the risks and the still-emerging utility of blockchains, each explained in plain English and grounded in real-world evidence.
Centralized Exchange Failures: Fraud and Insolvency
The most catastrophic losses in digital assets have historically originated not from flaws in the underlying technology, but from human deception and gross mismanagement at centralized custodians.
Case in point: FTX Collapse. The world’s second-largest cryptocurrency exchange collapsed in November 2022 after engaging in massive, undisclosed fraud. The founder, Sam Bankman-Fried (SBF), was later convicted on seven counts of fraud and conspiracy in November 2023, receiving a 25-year federal prison sentence and ordered to forfeit $11 billion in assets in March 2024 [1,. The core mechanism of the failure was the illegal commingling of customer funds: FTX lent billions of customer deposits to its affiliated hedge fund, Alameda Research [1. This violated the exchange’s terms of service and federal securities laws, as FTX had falsely assured investors that it segregated customer assets. This fraudulent commingling of client assets became the defining failure of the era.
Case in point: Mount Gox. The collapse of the Tokyo-based exchange in February 2014 was one of the largest early financial heists, accounting for an early loss of $470 million and fundamentally shaping future exchange security awareness. At its peak, Mt. Gox handled 70 percent of global Bitcoin trading volume. Its downfall was rooted in years of undetected hacks that exploited a Bitcoin vulnerability known as “transaction malleability,” which allowed malicious actors to edit transaction IDs. This vulnerability has since been patched, but the failure underscored the catastrophic risk associated with centralizing vast amounts of customer capital.
Takeaway. Centralized platforms hold single points of failure. Fraudulent practices like asset commingling can result in the loss of billions, regardless of the underlying blockchain’s security. Regulation focused on mandatory segregation of client assets is the only reliable defense against custodian malfeasance.
Scams Disguised as Start-Ups
A rug-pull happens when developers launch a project, hype the token’s price, attract investor funds, and then pull all liquidity, rendering the token worthless before shipping anything useful.
This practice is often paired with pump-and-dump schemes, where fraudsters use social media platforms like Telegram or Discord to hype a low-value token to artificially inflate the price before selling ("dumping") their own holdings, [1].
This risk is acutely visible on new, rapid token launch platforms like Pump.fun, a leading marketplace for memecoin creation and trading. The vast majority of tokens launched on such platforms ultimately end up being frauds, scams, or rug pulls. These highly speculative projects, particularly those on the Solana network, suffered rug pulls with losses reaching millions of dollars in 2024. Investors must look for classic warning signs, such as anonymous teams, lack of security audits, and contract features that allow developers to unilaterally "mint unlimited tokens" or "lock trading," giving them control over the market.
Case in point. OneCoin sold pricey “education packages” while claiming to run a Bitcoin-like network. No public blockchain ever existed; billions flowed through European banks before the masterminds fled.
Takeaway. Flashy marketing and celebrity shout-outs are no substitute for verifiable code, transparent custody, and basic legal protections. Always ask: Where is the money held, and who can move it?
Stablecoins That Weren't: The Terra/Luna Spiral
Stablecoins sound simple: a digital coin whose price sticks to something familiar—usually US $1. Some achieve this with cash or Treasuries in a bank. Others—algorithmic stablecoins—try to hold the peg with software rules and a second, freely floating token.
TerraUSD (UST) was the poster child of the second camp. When UST slipped below $1, traders could burn it for $1 of Luna, its sister token; when it climbed above $1 the process reversed. On paper that see-saw pinned UST to the dollar; in practice it relied on constant faith that Luna itself retained value.
Faith evaporated in May 2022. Savers yanked deposits from Anchor Protocol—a lending app dangling 20 percent yields—nudging UST a few cents off-peg. Arbitrageurs minted floods of new Luna, Luna’s price collapsed, UST slid further, and a death spiral erased roughly $60 billion in days.
Takeaway. An algorithm can shuffle risk, but it can’t summon collateral out of thin air. If yields look magical, fragility is hiding somewhere (investors.bakkt.com).
Decentralization, Not So Much
Bitcoin’s security pitch is “no single party controls the network.” That ideal hinges on hash power being widely distributed. In reality, a handful of industrial miners and pools now command most of the compute.
Case in point. One Texas complex draws more electricity than nearby towns, giving its operator meaningful sway over which transactions reach the blockchain (investors.bakkt.com)
A decade earlier, the GHash IO pool came within a whisker of capturing 51 percent of global hash rate—enough to censor transactions or rewrite recent blocks. Panic spread across forums; rival miners diverted rigs elsewhere, and GHash publicly pledged to cap its share below 40 percent. The scare spurred ideas like automatic pool-hopping software and penalties for excess concentration. The network survived, but the episode showed how fragile “decentralisation by assumption” can be when economics stack the deck.
Takeaway. Hardware scale, cheap electricity, and pool economics can quietly turn a decentralised dream into an oligopoly. Watch concentration metrics, not marketing slogans.
The Power-Hunger Problem
Proof-of-work networks burn serious electricity because computers race nonstop to solve cryptographic puzzles. Early studies put Bitcoin’s annual consumption on par with entire nations, and the number climbs with every bull run.
Case in point. Miners chasing cheap power flock to West Texas gas flares, Icelandic hydro dams, and Kazakhstan’s coal-heavy grid. Each site adds a different carbon footprint, so blanket claims of “green” or “dirty” Bitcoin miss the nuance.
Takeaway. Energy demand is baked into proof-of-work by design. Unless the consensus model changes or power grids decarbonise, environmental debates won’t disappear.
When a Bank Run Goes Viral
A bank run hits when too many customers yank deposits at once and the bank lacks ready cash. In March 2023, social-media panic turned this textbook scenario hyper-real.
Case in point. Silicon Valley Bank served U.S. tech start-ups and parked deposits in long-dated bonds. Rising rates dented bond values; venture capitalists sounded alarms in group chats; $42 billion fled in a single day. Regulators stepped in, but the saga showed how a concentrated client base plus lightning-fast communication can turn a mild accounting wobble into an insolvency cliff.
Takeaway. Even old-school finance can crash at internet speed when crowd psychology and duration risk collide.
Regulated Rails on the Rise
The Intercontinental Exchange (ICE), parent company of the NYSE, launched the first physically delivered Bitcoin futures in 2019, clearing every contract through its CFTC-regulated clearinghouse and parking the underlying coins in a custodian licensed by New York State’s Department of Financial Services. ICE’s thesis was simple: transparent price discovery and segregated customer funds are why commodity markets work, and crypto should be no exception. ice.com
The market didn’t listen—until it did. At first, trading volumes lagged cash-settled rivals. Traders preferred lighter KYC hurdles and higher leverage over belt-and-braces governance. ICE warned that unregulated venues were courting disaster and pointed to tried-and-tested safeguards like daily variation margin and audited storage. When FTX imploded in 2022, wiping out billions in customer assets, ICE’s caution suddenly looked prescient. The clearinghouse model worked flawlessly through the pandemic, the Ukraine commodity shock, and gilt-market turmoil—proof, ICE argues, that trading arcana like “seg funds” and “smart collateral” are more than bureaucratic box-ticking. ice.com
Bakkt’s numbers show the slow-burn payoff. Spun out and now public, Bakkt reported a surprise $16 million net profit in Q1 2025, reversing an $18 million loss a year earlier. Total revenues jumped 26 percent to $1.07 billion, while crypto-enabled accounts hit 6.8 million. Nearly $1.9 billion in customer assets sit in qualified custody—fully segregated, audited, and insured. Management credits the turnaround to institutional clients—banks, broker-dealers, and fintechs—who entered crypto only after a regulated on-ramp became available. investors.bakkt.com
Next stop: tokenised payments. In May 2025, Bakkt inked a partnership with Distributed Technologies Research to embed AI-driven, dollar-backed stable-coin payments into its clearing stack—an attempt to marry on-chain speed with Fedwire-style compliance. If the pilot scales, Bakkt could process retail payments as automatically as it clears futures, all without sacrificing regulator oversight.
Takeaway. The regulated-clearing model looked stodgy during crypto’s wild west phase, but every blow-up—from Quadriga to FTX—pushes capital toward rails that mimic traditional commodities markets. History suggests those rails, while slower to gain traction, tend to endure.
Real-World Utility in the Making
Takeaway. None of these verticals is “finished,” but they show blockchains can anchor verifiable data sets—not just speculative assets—when economics and governance are tuned for real-world friction.
Global Nuance & Grass-Roots Adoption
What the Chinese scholarship actually shows. Peer-reviewed, Chinese-language studies track mining rigs as they migrate seasonally: during Sichuan’s rainy months, roughly 70 percent of China’s hash rate clusters around cheap surplus hydropower, slashing carbon intensity to ~100 g CO₂/kWh; after the rains, miners haul hardware northwest to Xinjiang and Inner Mongolia, where coal-fired electricity pushes emissions up to ~700 g CO₂/kWh. The swing proves Bitcoin’s climate impact is highly dynamic and location-specific—averages that ignore this migration misstate the true footprint and show why blanket bans or blanket endorsements miss the mark.
Bitcoin at street level in Nairobi’s Kibera slum. In Soweto West, a neighbourhood of Kibera—the largest urban slum in Africa—about 200 residents and vendors now accept Bitcoin via the Lightning Network. A non-profit called AfriBit Africa supplies low-end Android phones and free Wi-Fi so garbage collectors, veggie sellers, and motorcycle-taxi drivers can scan QR codes instead of handling cash. Users report two big wins over Kenya’s famed M-Pesa system:
Lower fees on larger transfers. M-Pesa is free only below 100 Kenyan shillings (~US $0.80). Above that, tiered fees rise quickly (e.g., sending 500 KSh costs ~28 KSh). Lightning payments settle for fractions of a cent.
No formal ID required. Some Kibera residents lack the national ID card needed for an M-Pesa SIM. A Lightning wallet needs only a phone and an internet connection.
Locals say Bitcoin lets them save small amounts securely—digital cash is harder to steal than notes under a mattress—while vendors enjoy instant settlement without telco middlemen. Policymakers still fret about price swings, but the pilot shows crypto can patch gaps in fast-growing informal economies. (investors.bakkt.com)
Takeaway. Step outside the Anglo-American lens and the picture is more nuanced: energy profiles, seasonal migrations, and grass-roots payment needs shape crypto’s risks and rewards. Balanced analysis must weigh headline failures against these region-specific realities.
Closing Thoughts
Crypto isn’t doomed. It is simply young, volatile, and brutally transparent. Each episode above offers a lesson in building sturdier guardrails, while the newer use cases hint at value beyond speculation. Ignore the warning signs, and history will rhyme at blockchain speed. Learn from them, while nurturing genuine utility, and the next chapter of digital finance might finally live up to its decentralized ideals.
References
AfriBit Africa. (2024, September 20). Kibera Lightning pilot shows promise for low-fee micro-transactions [Press release].
Bakkt Holdings, Inc. (2025, May 7). Bakkt reports first-quarter 2025 results [Investor relations release].
Cambridge Centre for Alternative Finance. (2024). Cambridge Bitcoin Electricity Consumption Index (CBECI). University of Cambridge.
Greenberg, A. (2014, July 12). Bitcoin mining pool GHash.io briefly controls 51 percent of the network. WIRED.
Hern, A., & Gardiner, B. (2023, March 15). The ugly lessons of Silicon Valley Bank’s collapse. WIRED.
Intercontinental Exchange. (2023, August 7). The failed promise of unregulated crypto. ICE Vox.
Jiang, Z., Osgood, M., & Zhang, B. (2021). Policy assessments for the carbon‐emission flows and sustainability of Bitcoin blockchain operation in China. Nature Communications, 12, 1938.
Khalili, J. (2023, October 12). For Bitcoin mines in Texas, the honeymoon is over. WIRED.
Matsakis, L. (2018, January 30). Cryptocurrency scams are just straight-up trolling at this point. WIRED.
Volpicelli, G. M. (2022, May 12). Terra’s crypto meltdown was inevitable. WIRED.
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