That also really stuck out to me.

"We're aren't sure customer's recorded balances are accurate and it may be possible for money to simply appear or disappear in our system, but we definitely have enough money to pay out everyone's balance (which as already mentioned is inaccurate)"

My take is more like "We might technically be in debt since our system recorded exchanges of now worthless crypto for other denominations, but we're going to manually go back on those orders and claims its due to system errors."

But lets see how this turns out.

This will be a hard lesson but a good lesson for a lot of people.

To be honest, crypto doesn't even need exchanges. Some even have smart contract capability that can explicitly outline the terms and conditions of any single trade. An exchange is superfluous. So as soon as you see people going to an exchange en masse, to trade assets with smart contracts on them, you know something is out of place.

We’ve already stolen your money, but hopefully as a community we can work through these troubling times together.

We're sorry for your loss

Some of you will lose all your money that's a risk I am willing to take (CEO of random crypto company)

And..... It's gone.

It actually makes sense if they were “dropshipping” lol, which an exchange might do to increase liquidity. In other words, when you deposited to their exchange they actually held your money and executed your trades at FTX for certain pairs. Then FTX suddenly zeroed everyone’s balances (! or at least many people’s) so their crappy scraping system overwrote your old balance with zero and they have to manually check backups to see how much money you had with them. Definitely possible as an exchange is a chicken and egg problem and they seem to be a nobody.

I think it's safer to assume they saw the implosion of FTX and figured now was a good time to take the money and run. No crypto exchange deserves the benefit of the doubt in the court of public opinion; everybody is safer if they assume all crypto exchanges are thieving snakes.

At the very least, if you really want to be in on the crypto thing, keep the funny money yourself in your own wallet, and wait a few years/decades for government regulation to catch up before you trust any crypto exchange.

Everything ends up being an Excel sheet, I guess.

This is a major indictment of blockchain technology. Supposedly, all these accounts are recorded on an immutable, verifiable chain. Manual proofreading means something is wrong with your blockchain code, or you're lying to users about where the recording happens.

Transactions on the exchange don't take place on the blockchain. The data they're "proofreading" is probably in a traditional db.

I mean this as a genuine question (not an indictment), and as a complete blockchain/crypto noob who has just been a spectator:

Why is this the case? Isn't this like one of the best use cases of the blockchain in crypto? Why would they not utilize the technology to prevent this exact thing from happening? Are there tradeoffs I'm not aware of?

The practical tradeoff for not using the actual currency blockchain is instant settling time and 0 cost for transactions. If every transaction was on the chain, they may take hours or longer to settle (not unlike trading shares on a "real" stock exchange), and there'd be a fee for each one.

As for why they don't keep them on an internal blockchain, there's really no advantage in doing this vs a proper setup with a database. The part that makes crypto work isn't necessarily the blockchain, it's the public record part.

Blockchain and crypto go together because the blockchain acts as a public ledger between parties who don't (or don't need to) trust each other. On an exchange, there's no trust issues- you and the person you're trading with have both agreed to trust the exchange and their records.

Edit: I'm not super up-to-date on the crypto world, but I'm reasonably sure that there are on-chain/decentralized exchanges. I also think that there's been a lot of development towards making pseudo-on-chain exchanges through projects like the Lightning network in regards to BTC.

Don't most of the exchanges pool the coins and keep their own ledgers for who owns what? Once the coins go into the exchange it's kind of just a black box and you lose the blockchain audit trail, right?

Sounds like it was written by GPT3.

If they are going to make stuff up at least make it half-believable.