Why Sam Bankman-Fried's world fell apart

Even though there were many reasons to be skeptical of cryptocurrency schemes, the idea of the strange genius doing amazing things was too good to pass up.

In April, I paid $12 to "attend" a virtual event with Sam Bankman-Fried, a 30-year-old crypto billionaire. About 45 other people signed up for the Zoom, which was hosted by Manny Yekutiel, a Democratic organizer in San Francisco and the owner of the venue with the same name as him, Manny's.

Yekutiel is a friendly and smart questioner who sat in front of a hot-pink sequin backdrop and asked SBF (as he is known) about crypto applications and regulations, ideas of liberty and freedom, and the potentially destructive means that might serve the endgame of effective altruism. SBF called in from a dark hotel room in Washington, DC. He seemed happy with his answers. During the 50-minute Zoom, he also looked like he was not paying attention. His eyes were wandering, and his face would light up when he opened another app. What is League of Legends? Maybe. No matter what, I didn't understand the hype any better when I left or when I shut down my computer.

This week, the sharp financial journalist Andrew Ross Sorkin did a livestreamed interview with a different SBF. The crypto entrepreneur's right arm kept shaking, and he looked embarrassed. At one point, SBF said, "Look, I've had a bad month," which might be the biggest understatement of 2022.

In the past few weeks, SBF's $32 billion cryptocurrency exchange, FTX, has fallen apart.

Investors have lost millions. The mostly imaginary wealth of SBF has gone down. Several well-known investors have tried to cut ties with him. And the once-shining star doesn't seem to be able to directly answer questions about his own role in what more and more people think is a fake crypto scheme. "I told you the truth as far as I know it," he told Sorkin. "I don't remember ever lying." (The answer depends on what the word means.)

Were there any signs that FTX was a house of cards or that its founder, a smart kid, might not have known which way was up? The answer depends in part on how skeptical you are and how well you understand how the crypto market works. Yes, in a nutshell. It was said that federal prosecutors were looking into FTX months before it went down. But there were other reasons to be wary of a new business owner who seemed too eager to fit the Silicon Valley "mad genius" stereotype. So why did investors, crypto fans, and the media do it again? Or, as writer and known billionaire-skeptic Anand Giridharadas put it, "My only take on the SBF interview is that I don't know why we keep trusting highly limited, semi-adult men with the keys to our prosperity and society... He doesn't have much to teach. A lot to find out. So many people got it wrong."

Margaret O'Mara is a history professor at the University of Washington and the author of The Code: Silicon Valley and the Remaking of America. I asked her this question. O'Mara said right away that everyone loves the hero's journey. We're still very interested in the idea of the strange genius doing amazing things.

O'Mara says that people still use Bill Gates as a prime example. Gates was the ultimate nerd, but he went on to run a company that changed the world. A generation later, two computer scientists named Larry and Sergey gave the world a clean, uncluttered search portal as an answer to the pop-up chaos of the late dotcom era. They also gave their employees bean-bag chairs to sit on and kept control of a special class of voting shares in their company. It's possible that "founder control" was their best idea, not "search."

In the cases of Sam Bankman-Fried and Elizabeth Holmes, who just got a prison sentence for fraud, the general positive interest in them may have come from old-fashioned solutionism. "Right?" says O'Mara. "They were both trying to fix a mistake." "Holmes comes on the scene at a time when people are asking, "Where are all the women in tech? Also, you people in Silicon Valley only make apps. She makes medical tools that will change the way health care is done.'"

In recent years, people have also thought that the world of crypto isn't perfect and can even be dangerous. Then SBF came along, and the same thing happened again. O'Mara says, "He fits the stereotype of the nerdy guy in cargo shorts with a good background." "He's a quant. Then he talks about politics and helping other people. He doesn't just talk about the technology he's working on; he also talks about the world and how he can use what he's doing in a bigger way.

O'Mara says that the main problem is that people are too optimistic about technology. Even though technology hasn't made us smarter, more efficient, or more productive in the past 20 years—something I talked about in another long conversation I had this week—we still wonder if technology itself can solve the problems it has caused. O'Mara says, "There's this hope that technology will save us, even though we have a lot of proof that it can be a problem."

It might be a simple way to explain why so many people put SBF on a pedestal so quickly, but that doesn't mean it's wrong. We are, after all, people. (This reminds me of something else Giridharadas said about how people look up to tech founders: "They are as limited at people as I am at coding. But because of that, I don't do any coding, and they won't stop ruling over people.

Maybe that's what I was looking for when I watched that Zoom event with SBF in April: proof of humanity and a better idea of how an unregulated exchange for digital coins could be worth the same as billions of US dollars. Now, after a big fall, at least one of those things is clear as day.

Time Travel

When I'm writing Steven's newsletter, this is my favorite part because I get to look through the library in our San Francisco office and flip through old, paper copies of WIRED. (Magazines back then were thicker.)

This month, ten years ago, Mat Honan, who is now the editor-in-chief of MIT Technology Review, wrote a cover story for WIRED about the end of passwords. The story was the best of the best. 2010 WIRED: It was smart and very nerdy. It was about a 14-year-old hacker named Dictate and was based on personal technology. It was written by a white guy.

"The age of the password is over; we just don't know it yet. And nobody knows what will come in its place. What we know for sure is that access to our data can no longer depend on secrets that only we should know, like a string of characters, 10 strings of characters, or the answers to 50 questions. You can't keep a secret on the Internet. Everyone can find out everything with just a few clicks."

Honan goes on to say that in the future, passwords will be multifaceted systems that cross-reference personal identity information with geolocation and biometric data. For more secure passwords, you'll have to give up some convenience or privacy, and the whole thing might feel a little bit creepy, even though it's all to stop creepy scammers. So far, a lot of that has been shown to be true. Many of us rely on two-factor authentication (2FA) and unlock our phones with our faces or fingerprints. If a charge is made halfway around the world, our banks call us right away.

We still use passwords, though. We store these meaningless strings of characters in another app that has its own password. Lily Hay Newman of WIRED said last year that passwords are still "deeply familiar and ridiculously common." And schemes that don't require a password often require people to buy new devices or have at least a smartphone and at least one other device. Honan's predictions have been mostly right. But our next idea of the future should probably include fewer devices, not more.

Just one thing

This week I don't have a reader question because I haven't figured out how to get into Steven's email yet. But someone asked me a question last week that always comes up this time of year. Liz, one of my best friends, told me she was ready for a smartwatch and asked me which one she should get. Liz is one of those high-energy people who likes to bike 100 miles just for fun. And her bike already has a Garmin. So my first thought was to suggest the Garmin Fenix watch I've worn for years. But then she said that she wants a watch that will make her less likely to use her phone.

Since she has an iPhone, it's pretty clear that the answer is an Apple Watch. Is it also a good watch for sports? Yes, especially if someone wants to pay a lot of money for the big Apple Watch Ultra. But it's interesting to think about how the Apple Watch has changed over the past seven years, from an iPhone on your wrist to a pretty good health tracker to, okay, it's not a phone replacement, but it might make you look at your phone screen less. Tech as a way to solve a problem with tech. It will still keep you wirelessly and figuratively connected to your iPhone.

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