Kate Baucherel's Blog, page 2

How to bottle lightning

The world of crypto moves so fast that taking a realistic snapshot of its development is like trying to bottle lightning. But this is exactly what I was asked to do by BCS, The Chartered Institute for IT, for my new book “Getting Started with Cryptocurrency: An introduction to digital assets and blockchain“. And not only was I trying to catch blockchain and crypto at a fixed point in time, but I had just a month to deliver the manuscript!

The reasoning behind this fast turnaround is clear – because technology innovation and adoption are accelerating they usually outpace traditional publishing cycles. I was given the rare chance to write an up-to-date, peer-reviewed book for BCS that would hit the shelves just weeks after the final edits, and it was an intensive yet fun writing experience. Fortunately, there’s something of a correlation between impending deadlines and high creativity. The last time I wrote something this quickly was when I bumped into one of the team behind the Harvey Duckman anthologies in Tesco one Friday evening who asked me for a submission by the Monday. He still says it was the best short story I’d ever written. So what are my go-to strategies when I want to bottle lightning?

Structure is a bonus

One of the advantages of writing a non-fiction book is that the skeleton of the text has already been developed before you start the writing process. It isn’t set in stone, of course, and plenty changes before the final submission – I flipped whole chapters around as the work took shape. This also means that you don’t need to start on page one. I unashamedly went straight for some low-hanging fruit in Chapter 3 as my first day’s writing before diving into new research.

You can’t edit a blank page

20,000 words in 30 days while also teaching, doing client work, and herding cats and teenagers, is no mean task, and this mantra rang in my head the whole time. Write something – anything. This is true of all writing, whether that’s a blog or a novel or a manuscript on a tight deadline. When you read it back the next day, it will always make more sense than you expect.

Bolts of inspiration

Once your mind is focused on the task, the universe listens. Every idle scroll through LinkedIn or WhatsApp served up new inspiration, sources, research and news. Conversely, the day that I was struggling to finish the chapter on regulation, I put the manuscript aside in frustration – and a few hours later the ruling in United States vs Binance Holdings Ltd was announced. That helped me to rework the text and gave me a new case study into the bargain. Bottling that lightning strike was particularly gratifying.

Avoiding distractions

I started writing this book on 1st November, 2023, over a Premier Inn breakfast near Kings Cross. That’s also where I wrote large chunks of Blockchain Hurricane, when I holed up in the same Hub for two days and emerged only to conduct interviews for the book. Being away from the usual distractions focuses the mind. This also works on long train journeys and transatlantic flights!

Draw a line in the sand

When you try to bottle lightning, there’s a point at which the cap has to be firmly closed. One of the hardest things is sitting on your hands because regardless of the latest news and developments, nothing can be added. But readers know this, and what matters is the quality of the lightning in that bottle, not the storms that follow.

Pre-order “Getting Started with Cryptocurrency: An introduction to digital assets and blockchain” out on 17th April from BCS Publishing.

 

 

 

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FTX CEO Sentenced

Following his conviction for money laundering and fraud in November 2023, the former CEO of the collapsed FTX exchange, Sam Bankman-Fried, was today sentenced to 25 years in jail.

The rapid implosion of the exchange has been described as crypto’s ‘Lehman moment’, recalling the collapse that triggered the greatest damage of the 2008 financial crash. It’s worth remembering that FTX was a fraction of the scale of Lehman, with losses of 8.7bn as against Lehman’s 613bn. However, in the context of the crypto market this was substantial. It dented confidence in the assets and the infrastructure and a cold wind blew over the entire industry while the trial progressed. It is starting to recover, but the damage FTX inflicted cannot be understated.

Investors, too, suffered heavy losses. Although around 85% of the value of the lost FTX assets was recovered within a year of the crash (compared to 20% of Lehman’s over a long 12 years), there are reports of people who entrusted their life savings to a conman and have not yet received any settlement. The value of their investments has also been frozen at the market rates in November 2022, while a Bitcoin held in self-custody or in a regulated exchange would have appreciated fourfold by now.

There has been some comparison with Bernie Madoff, whose 18-year Ponzi scheme earned him a 150 year jail term. Is the sentence for the FTX CEO unduly lenient? The scale, intention and timeframe of Madoff’s fraud was extraordinary. FTX climbed to its apogee and crashed spectacularly in a much shorter period, inflicting fewer harms. However the underlying chaos and lack of governance of the whole FTX and Alameda group, and the refusal of Bankman-Fried to acknowledge the crimes committed and harms inflicted, show an utter lack of remorse.

There will be appeals and the unravelling of the final settlements will rumble on for some time. But this sentencing draws a line in the sand for the crypto industry. Now we have to pull together to build a more transparent and trusted industry that contributes fully to the rapidly changing technological landscape.

Read more about this story: FTX Bankruptcy News (2022), Live from the FTX meltdown (2022), Getting Started with Cryptocurrency: An introduction to digital assets and blockchain (2024)

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Crypto in Paradise

When something seeps into popular culture, its a good indicator of gradual acceptance and adoption. This week’s episode of Death in Paradise (season 13 episode 4) managed to skilfully weave some solid crypto knowledge into its plot without making it the villain of the piece. I enjoyed every minute of it, and the writers had done their homework. It was refreshing that crypto was an accepted element of the storyline, and the neat explanations delivered along the way used simple analogies for mining, crypto assets and private keys.

Mining cryptocurrency

As soon as puzzled detectives noticed that the murder scene, an electricity substation, was just two minutes away from the computer repair shop, my antennae started to twitch. “They’re mining crypto,” I announced to the rest of the sofa. Very few cryptocurrencies use energy to secure their blockchain these days, Bitcoin being the original and substantial exception to the rule. When Bitcoin was created, the developers behind it couldn’t find another way to get a completely distributed network of unknown users to cryptographically secure each block and agree on its addition to the chain. Since then, different methods have been developed that use a fraction of the energy of mining, or Proof of Work. The fictional cryptocurrency in Death in Paradise operated like Bitcoin, with the mine running its computers round the clock to calculate an algorithm to secure the next block in the chain. Each time this mine was the first to calculate the algorithm, it would be rewarded with some coins – a treasure trove that could lead to murder!

Keeping keys secure

Crypto assets are held in a wallet, and these wallets have keys. The first key is a public key, the address to which crypto assets can be sent. This is like your street address. Everyone knows what it is, and they can post letters into your mailbox. The second key is the private key. This is used to control the assets – the key to the mailbox. When you set up a crypto wallet you will be given a mnemonic phrase, 12 or 24 random words which, when entered in order, will regenerate the key. The private key and key phrase are your only access to the crypto assets you hold. One of the ways of keeping this secure is in a cold wallet – a USB key that can be held in a safe place offline and only used when you need to do things with your assets. To actually use it, there will very likely also be a password to unlock the USB. No spoilers… but this was beautifully done.

Side note – if your crypto is held on a custodial exchange you will only have a public key, which is why it is important to be very confident in the legitimacy of the custodian of your private key.

Learning from stories

There is plenty of research that shows we absorb facts from stories as background general knowledge. Watching this episode of Death in Paradise will have helped the audience understand crypto a little better, putting some flesh on the bones of an abstract concept and reinforcing the very important message that keys have to be kept safe. As the value of crypto rises in advance of the Bitcoin halving, it’s a timely piece of storytelling.

If you’re attending SXSW 2024 in Austin, look out for From the Fireside to the Future: Stories in a changing world with Kate Baucherel, John du pre Gauntt and Natalie Monbiot.

 

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Five ways to spot a crypto scam

Scammers are clever people, and they are after your money. They take advantage of lack of awareness of investing, feed the fear of missing out on high returns, and use social engineering to persuade their victims that what they’re asking is above board. With crypto starting to rally again after more than two years in the doldrums, they’re ready and waiting.

The FCA has found that 80% of people who contact them about a potential crypto scam have already invested their money. This is unusually high, and shows that it’s harder to smell a rat and walk away when crypto is involved. Here are five ways to spot a crypto scam before taking the plunge.

1. Where did you hear about the scheme?

Social engineering is part of the scam toolkit. If they contacted you through social media, through a friend on a WhatsApp group, or you spotted an ad with familiar celebrity endorsements, stop right there and dig deeper. Advertising crypto services is heavily regulated in the UK and anyone doing so, by any method, has to be registered with the Financial Conduct Authority (FCA).

Many scams where people have lost money involve someone in the community being manipulated by criminals to promote the scheme to their friends. Coscoin is a recent example, where 78 people on the same WhatsApp group lost over £200k to a Ponzi investment.

2. Is there a prominent warning on their website?

Crypto is deemed to be a High Risk Investment by the FCA and every UK registered crypto company (of which there are only 43) has to display the following text throughout their website:

Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong.

If there’s no warning, they’re not UK registered, and there will be no protection available if something goes wrong. (Of course, criminals know this, and I would not be surprised to see warnings popping up on scam websites in due course.)

Check them out – you can find a list of UK registered companies on the FCA website. Some legitimate crypto service providers, such as the Kraken exchange, are registered through a representative, so it is worth searching for the name of the provider who has approached you. If they’re not listed, try Google to see if and where they are registered and if there’s anything suspect being reported. Regulators in Washington State put out a warning about Coscoin several months before the FCA did the same. Failed exchange FTX was not registered in any country and there were warnings online before it crashed.

3. Who’s behind it?

Check the website for clues. I go straight for the Privacy Policy, required under UK and EU Data Protection Regulations. If there isn’t one, or it doesn’t show a real address and contact details, that is a red flag. What about the people listed on the site as owners and managers? Are they real? You’d be surprised how many AI-generated characters pop up on these pages. If they’re real, check their LinkedIn profile and see if they list the company in their experiences. Scammers have been known to add well-known people to their website while the actual individuals have no connection with it at all.

4. Are they asking you to send money? How?

There are legitimate, registered crypto custodians such as Coinbase, Gemini, Solidi and others where you can set up an account that you control, deposit money, and exchange it for crypto assets. If you’re being asked to send money directly to a third party, stop!

Scammers have been known to ask for money via PayPal or overseas crypto exchanges, reducing the chances of tracing the funds. They avoid legitimate routes because of Anti-Money Laundering and Counter-Terrorist Financing rules that now include providing the name and address of the recipient of any transfer. There are also cases of scammers providing their victim with a crypto wallet that appears genuine, but is controlled entirely by the criminals.

5. If it looks too good to be true…

… then it probably is. The stock market has risen by around 3.5% since November 2021. Interest rates are sitting at 5.25% at the time of writing. If someone is promising multiples of that, how are they managing it? Ponzi schemes are a great example, where early investors think they’re receiving high returns, but they are simply being paid out of the money later investors have put in.

Yes, people make money out of crypto investing, but they are either tech enthusiasts who got interested in Bitcoin when 10,000 coins could buy $40 worth of pizza, or experienced investors who understand the market and the assets themselves. It’s worth noting that since November 2021 while the stock market has been largely flat, Bitcoin’s value fell sharply, by almost 75%, and is only now starting to recover, currently 25% lower than the 2021 high.

What now?Learn about crypto. The more you know, the more likely you are to smell a rat if a scam is presented to you.Don’t be pressured into acting. Urgency, deadlines, fear of missing out are all used to manipulate victims.Do your research before investing.

Pre-order “Getting Started with Cryptocurrency: An introduction to digital assets and blockchain” out on 17th April from BCS Publishing.

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Binance judgement cements US crypto approach

The US Department of Justice (DoJ) handed down a record fine of $4.3bn (£3.2bn) to the Binance crypto exchange yesterday, 21st November, for “consistent and egregious” violations of US laws and financial regulations. Founder Changpeng Zhao (CZ) stepped down with immediate effect to be replaced as CEO by Richard Teng, former Head of Regional Markets at Binance. The exchange is to be monitored for five years via US Treasury’s Financial Crimes Enforcement Network (FinCEN) and has stringent reporting and compliance requirements to fulfil in order to remain active in the United States.

The violations detailed in the judgement, available from the DoJ, included transactions dealt with by the exchange that originated from criminal activity or violated US sanctions and a lack of compliance with US anti-money laundering and suspicious activity regulations.

Legislation and compliance

What is significant about this judgement is the manner in which it was delivered, with representatives of virtually every agency involved. Attorney General Merrick Garland and Deputy Attorney General Lisa Monaco were joined by Treasury Secretary Janet Yellen and the Chairman of the Commodity Futures Trading Commission (CFTC), Rostin Benham. It demonstrates a united approach focused on corporate responsibility and compliance. The group also called upon Congress to introduce long-awaited legislation fill gaps in guidance, to improve and expand tools that will help compliance. This was expected in 2022, and the delays have resulted in regulation by enforcement by the Securities and Exchange Commission (SEC) in the absence of crypto-specific federal laws.

Decentralised businesses vs centralised regulators

The rapid growth of Binance from its early days as a regulated business in Malta made the business a headache for global regulators. In 2021, the UK’s Financial Conduct Authority (FCA) warned that Binance was not capable of being supervised properly and has never granted any part of Binance registration under the UK’s regulatory regime. The US system is more complex and more costly, a heavy burden for any business seeking to operate compliantly, but this judgement confirms that Binance chose a dangerous path of pretending to comply in the US and ignoring laws and regulations that should have been followed.

There is plenty still to unpack from this judgement, but the unity of the US agencies and the clear message they are sending cannot be ignored.

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What does AI do, exactly?

What does AI really do? “Artificial Intelligence” conjures up images of a jolly plastic pal in the workplace, or, on the flip side, a controlling mind that will eventually decide the fate of humanity. But AI is an umbrella term for different tools and processes that replicate aspects of human intelligence. Many of those tools are already in common use. At last week’s AICPA & CIMA SME Conference on The Future of Technology in Finance we had some spirited discussions about the inevitable march of AI and how it has been absorbed into our normal lives.

Five AI tools you’ve probably used todayMachine Learning

The recommendations on your Netflix, Amazon or Spotify account are generated by machine learning. Your watching, buying or listening activity is processed through the machine learning model to show you what others with your exact profile have enjoyed. As your activity increases, choices loop back into the recommendation model and it learns to refine its responses. At work, your spam filters and antivirus and accounting software are learning, too. Strictly speaking all of the tools below have their roots in machine learning, whether supervised (pre-trained), unsupervised or deep learning models. However, the process is most obvious to the naked eye in marketing personalisation.

Speech to text and back again

Are you using an app to transcribe your meeting notes? Have you asked Word or Google to read back what you just wrote? Have you asked Alexa, or Siri, or Cortana, to do something for you today? Your speech is being interpreted by AI. Every word spoken is tagged and compiled and rendered as text for transcription or to prompt a verbal response. Yes, the machines make mistakes – but they learn as the data set expands. Speech recognition is not without its challenges. Because AI needs a huge volume of data to learn from, native English voices of a certain pitch are easily interpreted. As the available number of audio recordings in the data set fall (think accented voices and less common languages) the accuracy drops markedly. This is an incredibly useful tool for accessibility and speeding up business processes, but it’s a long way from perfection.

Machine Vision

After last week’s conference, I arrived back at my local station and went to pay for the car park. The machine showed me a picture of my car arriving that morning and calculated the charge. The barrier recognised my license plate and opened to let me out. This is AI in action, and we have come to accept it as the norm. Machine vision is under the hood of a swathe of industrial processes from product sorting to visual inspection for quality control, maintenance and safety, and gives eyes to autonomous vehicles of all types that need to recognise the world around them. AI vision technologies also give us widely-used image recognition. We’ve come a long way from mistaking cats for pandas on Google Image. Next time you try to identify a plant with an app, consider what technology you’re using.

Natural Language Processing (NLP)

When search engines took their first baby steps online, we learned how carefully we had to parse our requests to get any sense out of them. Those days are gone. We can throw a stream of consciousness into the search bar and come back with exactly what we were looking for. NLP can extract and classify content from text. It answers questions and generates text, images, graphics and code – think chatbots and customer service, as well as the now ubiquitous Generative Pre-trained Transformers, GPTs, that lie beneath ChatGPT, Bard, Dall-E, Midjourney and other common tools. NLP makes our interactions with AI feel human, but remember, these neural networks are only as good as their data, and they’re not thinking machines.

Expert systems

If ChatGPT is the generalist AI for every query, expert systems are the polar opposite. They focus on capturing human expertise to solve complex problems in specific domains. Healthcare is one area where expert systems have proven their worth, digging deep into vast quantities of very specific data that could not be processed by humans alone. Healthcare expert systems improve diagnosis for complex conditions, particularly at an early stage, improve clinical outcomes, and speed up drug discovery. In chemistry, complex molecular structures can be identified by DENDRAL, an expert AI system. In business, highly complex decision making around resource allocation, operational planning, and even fraud detection using expert systems is well established.

It’s very likely that some part of your life has been touched by aspects of Artificial Intelligence. How many of these examples have you encountered at home or at work in the last few days? We have a very powerful toolkit at our disposal, and the possibilities are endless.

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AI: Can we build it? Should we?

This week BCS, The Chartered Institute for IT, called on the Prime Minister to make ethics a priority at the upcoming AI safety summit. As AI explodes into the public consciousness, ethics has to be front and centre – and proactive.

We can’t snooze on the job. Around 2015 I heard DeepMind founder Demis Hassabis interviewed about AlphaGo. When asked about the dangers of unethical development, he suggested that it wasn’t an immediate problem as very few people could build an AI. In 2017 I was already writing about the risks of compromise in AI ethics. Ethics go hand in hand with development, and it’s incredible how fast the world has changed.

Asking the ethical questions

The fabulous Timnit Gebru, former co-lead of Google’s AI ethics team, spoke at Inventures Canada in June. She asks five simple questions.

1. Do you build it?

This needs to be asked whenever a new technology rears its tempting head. It’s all the more important when dealing with AI thanks to a noticeable over-estimation of its current capabilities. What are you planning to do? Are you likely to crash into issues around data use consent, cultural sensitivities, or personal privacy? And could a different or simpler solution do the job better?

2. How do you build it?

AI depends entirely on carefully tagged data, and lots of it. Providing this involves, according to Gebru, “millions of people scraping data, building neural networks, and labelling data.” There are a multitude of different skills under the hood, too. Before we bundled everything under the AI umbrella, we talked about NLP (Natural Language Processing), imaging, algorithms. Shortcuts are not an option.

3. How do you test it?

If you test your new AI on a data set adjacent to your training data, it’s going to perform beautifully. You’ve already given it all the answers. It’s time to play hard-ball. Disaggregating data enables intersectionality in processing. This delivers powerful insights, and can reveal  hidden problems within the algorithm and underlying data such as unintended bias. The term ‘intersectionality’ comes from research into a 1976 case against General Motors concerning discrimination against black women when hiring. “Black jobs were available to Black men, and female jobs were available to white women. However, Black women were not employed in a similar manner.” The intersectionality of race and gender reveals discrimination, where the original case simply concluded that there was sufficient diversity of hiring.

4. How do you deploy it?

We have an inbuilt trust of the machine. Computer says yes! Great, but why? We use critical thinking when talking to humans, but we have a tendency to believe the machine. There are stories of drivers blindly following the SatNav down pedestrian streets, across dangerous bridges, and even to the wrong country in Europe, arriving in Rom, Germany, instead of Rome, Italy. In June 2023,  a legal firm was sanctioned for submitting a ChatGPT-generated legal brief that included six fictitious case citations. Transparency of algorithms and decision making, and education on the limitations of AI, should be front and centre of deployment.

5. What are the unintended harms?

Who is being damaged by the incautious deployment of AI? The scraping and tagging of data, and the moderation of data sources to remove the extremes of abuse and toxic opinion, are human tasks. They exact a mental toll on low paid moderators who are exposed to the worst of the internet. And what about the data? We have a wealth of data in the world, the volume doubling every two years, and it reflects all of our changing attitudes over time. Not only can the decision making data reinforce old stereotypes, but as Caroline Criado Perez highlights in her book Invisible Women, unless data is  disaggregated, it discriminates.

 

We are entering a new age of hype over AI. The pace of change is accelerating, and the capabilities of AI are only going to expand. It’s up to us to apply strong ethics to development, avoid shortcuts, and harness this tool for the good of all. What do you think is the most important of these guidelines for today’s developers?

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The Artificial Intelligence genie is out of the box

Just how fast has Artificial Intelligence penetrated the public consciousness?

One of the many strands of my work is part time lecturing as an adjunct professor. In the space of just two years, the subject of AI has leapt from the pages of text books into the daily life of students. It’s changed what I teach, how I teach it, and how students are assessed. Let’s have a look at the timeline of rapidly changing perception.

In September 2021, as the world started to assume some semblance of reality post-Covid, I was asked to pass on my knowledge of emerging technologies to postgraduate students at Teesside University. I started teaching Digital Transformation and a new Blockchain and Cryptocurrency module in the School of Computing. I developed the first Contemporary Financial Technologies module for the International Business School. I supervised dissertations that ventured into the application of AI, blockchain and big data in accounting and finance. Interest in how emerging tech will change different industry sectors and professions was already gathering pace.

At that time, just two years ago, discussion of Artificial Intelligence largely addressed the distinctions between deep learning and machine learning, the importance of depth of data and training, and the places where AI was hiding in plain sight.

By April of 2022, GPT3 was making waves and DALL-E2 was launched. The questions students asked began to change. Instead of an abstract concept that explained Netflix recommendations and predictive text, there were tools that allowed them to ask complex questions and get a reasonable answer, or to parse prompts that produced half-decent generative art.

Another six months passed. The students who started their courses in September 2022 still saw AI as something of an abstract concept, but one with potential to transform business and lives in the future. However, as they came to the end of the semester, ChatGPT arrived. Within weeks everyone in teaching was working overtime to make sure that students didn’t fall into the trap of getting it to write their essays, and spotting any who did. The genie was well and truly out of the box.

A new awareness of AI

This is far from a bad thing. As a new semester begins, it’s clear that there is huge interest in AI, but also an understanding that a well-designed Large Language Model is not the be all and end all. ChatGPT has thrown an established technology under the spotlight and opened up discussion. While six months ago there was panic about ethics in study, now students are more interested in the ethics of AI itself and the collection and management of the data from which it learns.

It is already a recognised and valuable tool in business processes from accounting and fintech to marketing and HR. Different aspects of AI deliver improved customer experience, faster response to change, and deeper insights from data that support business decision making and growth. It’s an exciting time to be involved in Artificial Intelligence, and watching my cohort of 200 Masters students from across the globe come to grips with its potential is a sign of things to come.

How could your business take advantage of this newly accessible technology? Over the course of the next few blogs, we’ll take a look at what’s happening now, what’s over the horizon, and where the very real opportunities lie. AI isn’t going to do your homework, but it may change your life faster than you expect.

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Kate Baucherel joins Syndika

Meet our new syndicate Member, Kate Baucherel!

Kate is a distinguished author, global stage speaker, and expert advisor, specializing in strategic and emerging technology advisory, with a pronounced focus on the applications of blockchain and cryptocurrency.

Her remarkable career spanning over three decades encompasses senior technical and financial roles across diverse sectors such as utilities, construction, manufacturing, leisure, and software. Additionally, Kate’s entrepreneurial spirit shines through her co-founding of several tech startups.

Throughout her career, Kate has guided numerous startup and scaleup clients, leading them through the their startup and growth phases to established blue-chip multinationals.

Furthermore, Kate is an esteemed member of Endava’s Technology Advisory Committee and imparts her knowledge by teaching fintech, blockchain, cryptocurrency, digital transformation, as well as artificial intelligence and automation in finance and accounting at the University of Teesside.

We are confident that Kate’s profound blockchain expertise and unique entrepreneurial insights will significantly contribute to the dynamic growth of Syndika’s ecosystem startups.

Kate shares her perspective on joining Syndika: “As most of you know, I’m passionate about projects that use emerging technologies appropriately and effectively. With the gradual convergence of the Web 3.0 technology stack, I’m excited to join Syndika, supporting innovators to develop new business models, processes, products, and markets.

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FTX Bankruptcy News

The newly-appointed CEO of the complex FTX group of companies has made his first filing in the bankruptcy court for the district of Delaware. It makes grim reading for anyone who has run a business, from startups with a handful of customers to listed companies.

An unprecedented failure of trust and governance

The administrator, John J. Ray III, is a veteran of forty years of corporate failure including the Enron scandal of 2001. His verdict on the FTX bankruptcy is damning.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

The horrors lurking in the full 30-page filing are a lesson in how not to run a company. As an accountant with more than 20 years of corporate experience and a further decade as a business advisor and director, it’s extraordinary to learn how many aspects of basic business practice were simply ignored. Here are some of the key takeaways.

Auditing mattersSome of the companies (those related to West Realm Shires) were audited by a recognised firm. These include LedgerX, FTX Capital Markets, and others, and are the only businesses in the group that remain solvent.None of the financial statements for Alameda Research LLC and related companies were audited, and some are missing altogether.Alameda’s unaudited statements show a balance of $13.46 billion of assets – but the administrator cannot be sure this is correct, and finding the assets themselves is proving complicated, with around half a billion of cash identified to date.The amounts owed to customers who had trusted FTX with their crypto assets were not shown in any financial statements.Who controls the cash?There was no accounting department in the group.“Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories.”Alameda Research made huge loans to the founders – $1 billion to Sam Bankman-Fried,  $543 million to Nishad Singh, and $55 million to Ryan Salame.“Corporate funds of the FTX Group were used to purchase homes and other personal items.”Corporate governance, anyone?No board meetings were held.There is no list of employees or their terms of employment, and some presumed employees cannot be located.Records of communications and decision making were set to auto-delete after a short period of time.Were crypto assets ever safe?An unsecured group email account was the root user to access confidential private keys – this is the most incredibly lax security, and put everyone’s funds at risk.FTX.com’s anti-liquidation protocol was its big USP, but Alameda was secretly exempt, giving it market advantage.There are signs of “very substantial” transfers of assets out of FTX in the months leading up to its collapse.

This is just the first stage of what is going to be a complex and long-drawn-out investigation. It’s going to be fascinating to watch it unfold – and you can be sure that the new management is writing everything down, and keeping the receipts.

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