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The little-known story behind cryptocurrency billionaire Sam Bankman-Fried.
Written by: Brendan Doherty, working for Forbes Magazine Compilation: Golden Finance
There are many reports on Sam Bankman-Fried in the media. He is a 29-year-old vegan and cryptocurrency billionaire who quickly gained a reputation by making huge profits by using the BTC price difference between South Korea and the United States. Subsequently, he created the world’s largest and fastest-growing digital asset exchange FTX. However, when I read more and more reports about him, I began to realize that the mainstream media had missed a basic point, which is the Bankman-Fried worldview. Bankman-Fried is like Bentham in the cryptocurrency field. He bases his business philosophy on the effective altruism and utilitarianism advocated by Jeremy Bentham. He doesn’t just want to be the richest cryptocurrency billionaire. He wants to have the greatest positive impact on the world. As long as money can do this, he will continue to make money.
Brendan Doherty: Welcome to Icons of Impact. For those outside the cryptocurrency circle, they may not know that you have two fast-growing companies. Can you tell us about Alameda and FTX?
Sam Bankman-Fried: After graduating from MIT, I went to Jane Street Capital to work for three and a half years. This is a great work experience. After I left Jane Street Capital, I started my entrepreneurial road and chose to enter the cryptocurrency field.
The first company is Alameda, an encrypted quantum trading company. We have found that all signs indicate that there will be a large amount of liquidity demand in the cryptocurrency field, but there is very little liquidity available. Everyone was talking about cryptocurrency during that time. We have seen huge price fluctuations and large inflows of funds, which clearly shows that people in many different countries are trying to buy different kinds of cryptocurrencies through various methods. No matter how big the crypto market has become, this phenomenon has only just begun for a few months. This means that most buyers around the world have no time to join the crypto ecosystem.
Doherty: So you found a business opportunity in the encryption infrastructure?
Sam Bankman-Fried: Yes, we once doubted whether the amount of infrastructure to provide services to the crypto market is sufficient. This means that demand may exceed liquidity and may lead to huge market spreads, forming arbitrage transactions. So I entered the field of encryption and wanted to see if my ideas were in line with reality, and the results proved this.
Doherty: Then you created FTX based on this idea?
Sam Bankman-Fried: One year later, we started to create FTX. When I started trading in cryptocurrency, if I bought shares of Apple, retail investors would buy it from platforms like Robinhood and then change hands through clearing companies and other institutions. At the end of 2018, the platform was a complete mess. Without any measures to retain customers, they lose an average of $1 million in customer assets every day. To me, this is just a symptom of the problem, not the core problem. So this seems to be a huge market gap, but also a considerable market space. I think TFX can do better. I want to combine buyers, sellers and exchanges. Therefore, we launched FTX in the spring of 2019 and developed it from nothing to its current status, becoming the fourth largest cryptocurrency exchange outside of China.
Doherty: FTX has achieved amazing growth. On this basis, I want to focus the next topic on one of your work areas, which has little media attention. You often have some major cryptocurrency transactions, and FTX has also achieved rapid growth, and these have attracted much media attention. But I am interested in other deeper things, and that is that all of the above are based on your worldview. You said that you hope to maximize the positive impact of FTX on the world. Let’s start from here, where do you think this should start?
Sam Bankman-Fried: It depends on the specific behavior. For many of my friends, their answer is to contribute to the world through work, such as choosing an organization to cooperate with, and have a direct and significant impact. When it comes to effective altruism, I think this is often overlooked. For FTX, we attach great importance to the entire budget expenditure. I think it is easy to ignore the donation target and the purpose of the donation money. But for me, the most important thing is to find the most effective donation target.
Doherty: You said before that effective altruism is to make the most money and then use that money to have the most positive impact. I think there will be contradictions. Some critics will say that part of the cause of economic inequality is our ability to think. What do you think of this view?
Sam Bankman-Fried: Certain behaviors just look like altruism, and all behaviors that achieve effective altruism have direct and indirect effects. You must quantify the impact based on these two factors. There are many professions that are harmful to the world. Even if you can make a lot of money in these occupations, this may not be the right behavior. Therefore, if you have a negative impact, even if the proceeds are effectively donated to charity, you should not get too much praise for it. I think you need to quantify the whole thing, for me this is the core of effective altruism. You can never quantify the world perfectly, but you can set a specific goal for everything.
Doherty: You made a good distinction before. If people like Elon Musk and others make billions of dollars through Tesla, this is not the same as ExxonMobil making billions of dollars from fossil fuels. Both have received billions of dollars in gains, but their external influences are very different.
Sam Bankman-Fried: Yes, it’s hard to say that Tesla’s business is hurting the world. You can say that Elon Musk has made a lot of positive contributions by creating green technology. Or, if you don’t recognize Tesla, you can argue that this is just a waste of resources and Tesla will fail. But in any case, Tesla is not the culprit in destroying the world.
Doherty: I agree with you. Now let’s talk about philanthropy. I see that you have different views on philanthropy, especially the concept of crowdsourcing. What does it mean to involve your consumers, audiences, and communities in the decision-making process of the FTX Foundation?
Sam Bankman-Fried: So initially we wanted to donate 1% of the money earned by FTX to charity, but this is not the biggest factor in determining how much money I can donate in the end. We wonder whether specific public measures can be taken immediately? Let people participate in charitable activities. For example, users can vote to determine the destination of foundation funds. Users can also donate to the foundation. We are really shocked by such a positive way. Some users have already pledged USD 5.6 million. There are many people in the crypto field who have made a lot of money in the past ten years, and they naturally think about the global impact it will have. Therefore, I think that encryption technology has great potential, and people can make a lot of contributions to noble causes. So donation is an easy way to get people to participate in charity.
Doherty: Let’s talk about utilitarianism. You often mention this concept and think it is the basis of your thinking. Can you talk about your views on utilitarianism and how it can change your behavior?
Sam Bankman-Fried: For me, utilitarianism means making the most money and becoming the happiest person. This sounds a bit morbid or stupid, of course if you want to achieve a similar goal, but this is actually a very powerful concept, which has a strong impact in many cases. Utilitarianism is to maximize everything. Some people say that as long as you don’t do bad things, you will live well. I think finding ways to help humans is as important as avoiding bad things. You should consider what you want to do in life and what actions you can take to make the world a better place to the maximum.
Doherty: I heard that your parents are law professors at Stanford University. Did they influence your utilitarian tendencies? Or did you discover it yourself?
Sam Bankman-Fried: Yes, they are all utilitarians, or at least they are all utilitarian concepts. I first came into contact with this concept when I was very young.
Doherty: That was quite early! I found a few interesting quotes from you, and would like to hear your interpretation. You said: “Money is a measure of caring for others.” Can you explain it in detail?
Sam Bankman-Fried: There are many ways to do good in this world. One is to donate money to charity. This is not always a perfect way of thinking. Although money is powerful, it is not irreplaceable. One advantage of money is that when trying to compare the quality of two different interventions, if we can measure many things with the same unit, it will be a huge advantage. Once you have money, how much good can you do with it? You will think of doing good deeds from money. When you are making various trade-offs, you can consider the maximum benefits that can be brought about by doing so.
Doherty: Yes, and money can be more targeted to meet demand. You have also said before that you are “notorious for accepting a new, larger project at will.” What is the next project you want to build?
Sam Bankman-Fried: There are some projects that are not very public. FTX wants to give employees a salary increase, and I have spent a lot of time in this area. But many people are thinking about the future of the company? What will be the best future? How can I achieve such a future? You can easily be misled into thinking that everything you do is within your own ability, but you don’t consider everything you can do from a broader perspective. As far as FTX is concerned, we can focus on acquiring more core users, but this will have limitations. I also want to think about how we can reach other people who have never been in contact. What we need to do to build a global brand while maintaining today’s culture, reputation, and goodwill among users. All these require more coordination and be completed through time and effort. These people are indeed new to us, but they are very important for realizing FTX’s most ambitious future.
Doherty: I very much agree with you that we all need to think about how to achieve the most fulfilling life, not just being complacent. Thank you Sam Bankman-Fried, this is a great interview.
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