
Tether: The Story So Far - Doubleguitars
https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/
======
lawn
> I have looked, quite a bit. I have not found a good use case yet

I'm always surprised that intelligent and knowledgeable people claim this. You
haven't even found a _single_ use case?

You don't think buying a VPN anonymously is a good use case? Or see the need
for uncensorable donations? (Remember how the U.S. shut down Wikileak's PayPal
donations when they exposed their war crimes?) Or that cryptocurrencies allow
businesses to accept payments digitally, without the risk of their payment
processor or bank completely ruining them? (PayPal horror stories swarm the
internet.) Or how people in collapsing economies, like Venezuela with
ridiculous inflation, can use them to cross the borders with their wealth
somewhat intact?

And it's always dismissed with the same lazy arguments like "volatility" or
"nobody uses it". Those are real issues for sure, but they don't invalidate
the use cases.

~~~
falcolas
All of your use cases involve anonymity. Crypto currencies don’t provide
anonymity. Sure it’s not directly tied to your name and address, but it’s
quite possible to make that tie. Such cases are on the news fairly frequently.

~~~
rolltiide
the other open secret is that you just create a new identity in an isolated
sub namespace

you ring fence all the addresses in that space with Monero over VPN or TOR:
Monero swapped to Bitcoin, Monero swapped to Ether, Monero swapped to Tether
(ERC20/OMNI/TRC20), a general balance in Monero since merchants accept that
too, and transact there. Swap back out to Monero if you need a withdrawal.

Pencil pushers can track addresses on one transparent blockchain all fuckin
day till your grandma gets tainted coins after Thanksgiving and all her
accounts closed by some paranoid compliance officer and overzealous dumbass
public servant, while the rest of us get every good and service we expected
_anonymously_.

~~~
vosper
> Monero swapped to Bitcoin, Monero swapped to Ether, Monero swapped to Tether

Is there a way to do this without going through some central exchange? I
thought I'd read that (eg) Shapeshift was now doing KYC/AML checks, so would
you still get identified there?

~~~
rolltiide
Morphtoken

Bisq

XMR.to because your clearnet identity already owns Monero

------
rsync
"Bitfinex claims to have believed, per their court filings, that CCC
subsidized their services through net interest.

...

"This would make sense for a financial institution, but it doesn’t make sense
for a money launderer, because risk-free assets generate very little interest
(1% of a billion dollars doesn’t pay for the minimum viable financial
institution) ..."

I find that interesting ... 1% of $1B is $10M ... and I appreciate that there
is a tremendous complication and expense involved in creating a bank but I
have to think it must be possible to bootstrap something like Everbank[1] with
$10M or less ...

Can anyone confirm or deny ?

[1] Everbank (not owned by TIAA) is an online-only, no-branches honest-to-god
US bank.

~~~
YawningAngel
Monzo and Starling are startup UK banks and I think both spent under $10M to
get to the "minimum viable bank" state.

With that said, money is not the problem here. If Bitfinex had wanted to start
a 'narrow bank' just to hold Tether, they would have failed: 1\. Because they
would not have been given a license 2\. Because existing financial
institutions would have refused to deal with them, as happened to Noble. 3\.
Because you cannot actually just park billions of dollars in the national
reserve bank and collect interest on it.

So although such a business is probably viable in theory, it isn't possible in
practice.

~~~
H8crilA
_> 3\. Because you cannot actually just park billions of dollars in the
national reserve bank and collect interest on it._

Actually you can, it's called Interest On Excess Reserves (IOER) in the US,
which has been the only short term rate enforcement mechanism of the FED since
the crisis days. Till that whole repo thing happened, just recently.

[https://en.wikipedia.org/wiki/Excess_reserves](https://en.wikipedia.org/wiki/Excess_reserves)

The rest is true though.

~~~
YawningAngel
The Fed is not obligated to allow you to open an account, and in such a case
it very likely would not allow such a thing:
[https://www.bloomberg.com/opinion/articles/2019-03-08/the-
fe...](https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-
the-narrow-bank)

~~~
H8crilA
I meant it does allow banks to do it. And from what I've read banks can
arrange a FED deposit for a non-bank, charging a few bps of profit for the
service.

Also you can always just buy short term treasuries. There's even an ETF for
that ($BIL) which charges 14 bps.

But yeah no chance that a big "fuck compliance" scheme like Tether could
easily pull it off.

------
api
Three things make the bubbly/scammy nature of current generation
cryptocurrency very obvious to me:

(1) The fact that nearly all cryptocurrencies move in unison even though they
differ widely in adoption and real-world use cases. Many totally useless
cryptocurrencies move perfectly in unison with the supposedly useful ones.

(2) The fact that complete jokes that barely work like IOTA still have large
market caps. (This post will get tons of IOTA shill replies like any other
IOTA-related post on the Internet... they have an army of bots and shills.)

(3) Adoption has actually _declined_ with numerous early adopters from small
shops to companies like Stripe and Steam abandoning cryptocurrency payments.
If this is a tech climbing the adoption curve adoption should be increasing.

There are a few real world use cases of course, but they are nowhere near
sufficient to support the current collective market cap of cryptocurrencies in
the current ecosystem... that is assuming a significant fraction of that
market cap actually exists and the whole thing isn't completely insolvent.

I think the furious religious defense of (current generation) cryptocurrency
you find in tech circles comes from the underlying economic ideology
programmed into it (what I call pop-Austrianism) and the fact that lots of
tech types are bag holders who are hoping to cash out before the whole thing
implodes but may currently be underwater. Without those motives the whole
thing is just transparently insane.

~~~
ric2b
Number 1 is quite simple, nearly all of them are priced in Bitcoin, so they
move with it.

Usually only the most popular cryptocurrencies are directly priced in dollars.

------
arzt
"Players in the crypto ecosystem will be shocked, shocked to know it got this
bad, this quickly, but this has been an open secret for over a year."

\----

I'm not entirely in agreement the crypto world will be shocked tether is
insolvent. As long the the fiat gateways exist to exit the system with gains
intact, most could care less about tether. It's musical chairs.

~~~
nostrademons
Yeah, people have been saying that the Tether stuff is super shady and just
waiting for the bubble to pop for the better part of 3 years. It's very much
been an open secret.

~~~
Analemma_
This is pretty revisionist. My own experience lurking in crypto communities
(and reading the replies to @Bitfinixed), was to insist that everything was
fine and furiously deny that Tether was a scam, and accuse me of being a dirty
fiat shill for pointing out that Tether was a scam, right up until Tether
starting admitting under oath in court that they were never backed by
reserves, at which point the conversation switched to "we knew it was shady
all along".

This sort of thing is pretty common in Bitcoin land. Mt. Gox was also totally
fine, nothing wrong, how dare you accuse them of wrongdoing, right up until
they declared bankruptcy and then suddenly everyone had known all along they
were insolvent and only a fool would've put their money there.

~~~
nullc
> admitting under oath in court that they _were never backed by reserves_

Huh. Did I miss something? If they were never backed by reserves how could
$800 million of their funds ended up seized?

~~~
wmf
Never 100% backed. Clearly there was some money.

~~~
nullc
Still missing the context on that, because AFAICT the reports seem to show
that it was at one point 100% backed.

It's very possible that I'm missing something, since this isn't something I've
paid a lot of attention to (as it always seemed obvious that it would
eventually end up in this state).

~~~
vkou
Suppose that you became a bank. I create an account, and deposit $100 into
you.

You take that $100, keep $20, and then lend the other $80 to a heroin-addled
homeless person. He swears he'll give it back next year, plus interest. And
gives you a receipt and everything.

Now, suppose that you are dragged up into a courtroom, over your mishandling
of customer funds. You point out that no funds were mishandled - you have $20
in cash... and an $80 IOU from a junkie. You are fully capitalized! Solid as
houses!

Reality: You're not. Any independent auditor with two brain cells to rub
together will not value that $80 IOU at face value (The chap is highly
unlikely to pay you back.) Your bank is actually insolvent.

Tether Reality: Bitfinex/The Tether Corporation played a shell game, such that
they are '100% capitalized' if you add up their cash reserves + IOUs. The IOUs
aren't worth the paper they are printed on.

It's possible that at some point in the distant past, they were 100%
capitalized, but given their resistance to external audits, it's highly
unlikely that it has been the case.

The most amazing thing about this entire adventure is that USDT/USD still
trades at par. It seems like BitFinex could host a press conference, with the
entire leadership team wearing T-Shirts that say "WE STOLE ALL YOUR MONEY",
and it wouldn't move the market (The 'bitcoin enthusiasts' would obviously
interpret it to be a sarcastic dig at all the bad publicity surrounding them.)

~~~
nullc
I agree they weren't fully capitalized after they lent funds out, but the
poster I was responding to was claiming that their filings prove they never
were fully capitalized as they had long claimed.

It appears to me that instead, their filings are strong evidence against the
poster prior claims-- suggesting instead that they were at one point fully
capitalized (and are not any longer, of course).

~~~
vkou
The thing with a Schrodinger's scam is that it really doesn't matter whether
or not the scam was fully capitalized.

When you issue a full reserve currency, without any of the necessary oversight
required to run one (Like... An independent auditor...) you're committed to
operating in a manner indistinguishable from a scammer.

It's possible that they were fully capitalized for the first twenty minutes of
Tether's launch. It is possible they were fully capitalized for the first
twenty days. Or the first twenty months. Without any kind of proper
bookkeeping - which was a deliberate decision on their part[1], we have no
idea. And it doesn't matter. [3]

[1] The most charitable interpretation of why they made that decision was that
their long-term plan for keeping Tether running would be under-the-table money
laundering through Crypto Capital, or its ilk.[2]

[2] [3] Mind you, this means that the entire implementation of Tether is
unsustainable! It doesn't matter that they are sitting on a multi-billion-
dollar, 100% capitalized reserve if their customers can't ever redeem Tether
for USD! Such a situation is indistinguishable from having a 0% capitalized
'reserve'.

------
9nGQluzmnq3M
Incredible reporting, more so for being written by patio11 in his copious
spare time as opposed to a crack team of journos at the WSJ or something.

There's one thing I don't understand though: if Tether is off-the-charts risky
& illiquid if/when push comes to shove, you'd expect there to be a divergence
in the price between BTC priced in Tether (on exchanges like Bitfinex, where
you're screwed if Tether implodes) and BTC prices in USD (on comparatively
reputable exchanges like Coinbase). Yet there isn't:
[http://www.untether.space/](http://www.untether.space/)

Are arbitrageurs picking up pennies in front of the steam roller? Or is there
something else happening here?

~~~
matthewbauer
Perhaps Bitfinex is padding reported tether trades to make it look less risky?

------
djinnandtonic
I am rapidly developing the opinion that there is no such thing as fintech,
just corporate and criminal entities using the slow pace and poor
understanding of regulators to skirt laws.

~~~
api
Throw in creative ways to extract fees without them looking like fees and I
think you've accounted for most of it.

One of the things I've learned by watching the cryptocurrency saga is that
money and finance belong to the class of things you want to be unbelievably
boring. Other members of this class include governments, infrastructure, and
the legal system. Interesting finance is probably a scam. Interesting
infrastructure includes things like ISPs that spy on you or selectively
throttle traffic or Pacific Gas and Electric if you happen to live in Northern
California right now. Interesting government was a leading cause of death
among adults in the early 20th century.

An analogy on a personal scale to interesting finance or interesting
government would be an interesting heartbeat. You really don't want to have an
interesting heartbeat. It probably means you are dying or having a seizure.
You want your pulse to be incredibly boring. Thump, thump, thump...

~~~
nostrademons
"May you live in interesting times" \-- likely apocryphal Chinese curse

------
venantius
I'm not sure the Hawala comparison is accurate; Hawala relies on essentially
net neutral flows between nodes [exchanges] and trust-based credits and debits
(not credit in the sense of literal credit, but credit in the strict ledger
sense). This is in place of an actual _transfer_ , which is what happens with
crypto assets (unless Patrick is referring here to some specific decentralized
exchange mechanism) - a transfer is made from one digital wallet (the original
owners) to an exchange's, and from there presumably traded to someone else who
is coming in with a fiat asset.

------
tptacek
The story, summarized, as I understand it from this article:

1\. It's difficult to bank cryptocurrency because traditional finance has
KYC/AML procedures and cryptocurrency exchanges (generally) don't.

2\. For awhile, the largest exchange was Bitfinex.

3\. Bitfinex suffered a breakin and lost $70MM worth of Bitcoin, and became
insolvent.

4\. Bitfinex took 36% of all clients deposits/balances to make up for the
loss, and repaid them in "BFX" tokens, redeemable for equity in Bitfinex, and
eventually for $1/BFX.

5\. Bitfinex banked through a series of small regional banks, but these were
all backstopped by Wells Fargo, which ultimately cut Bitfinex off.

6\. So Bitfinex switched to Tether, a stablecoin meant to trade 1:1 with USD;
if you can trust Tether, you don't so much urgently need bank support, because
even if Bitcoin (or Monero or whatever) plunges in value, your Tethers will
still be worth $1; you can "offramp" your cryptocurrency into Tethers instead
of USD.

7\. Ostensibly, Tether works by being backed by reserves of dollars or dollar-
equivalent commodities.

8\. This, as kind of an aside, is a huge win for criminals, who accept fraud
detection risk every time they deal with a real bank, but can't accept the
currency risk of keeping holdings in cryptocurrency. Bitfinex/Tether even
advertises Tether as a way of avoiding KYC.

8\. Tether isn't and probably never was backed by dollars or dollar-equivalent
commodities; rather, Tether was "backed" by some admixture of Bitfinex
receivables and cryptocurrencies.

9\. Tether got kicked out of all the Asian banks, happened on a tiny Puerto
Rican "bank" called Noble, which was backed by the large BNY Mellon bank;
Noble balked at banking Tether, Tether invested $2MM in Noble to get over that
objection, BNY Mellon noticed, and killed Noble.

10\. Tether switched to Deltec Bank.

11\. Tether started using a money laundering firm called Crypto Capital, which
set up shell companies to fraudulently route deposits to banks with poor
KYC/AML compliance; Bitfinex gave customers wire instructions sourced from
Crypto Capital, which were all in some sense I guess a form of wire fraud?
Super-amusingly, the wire instructions Bitfinex sent customers included a
warning not to reveal any of the details of the instructions, to avoid
systemic risk to the greater cryptocurrency economy.

12\. Crypto Capital's founder stole a bunch of money from his firm, over a
long period.

13\. Crypto Capital got caught, a bunch of their accounts got frozen, Tether
became insolvent, there was a run on Tether.

14\. But Tether is still worth $1, possibly because Bitfinex resorts to
shenanigans to satisfy withdrawals, like offering a premium for withdrawals
denominated in Bitcoin (which you can sell at a reputable, banked exchange for
dollars), or using mules to deliver dollars on a bespoke basis, or satisfying
withdrawals using customer deposits directly and papering over that fraud with
loan documentation.

15\. A bunch of people got indicted recently.

16\. The plates are still spinning in this plate-spinning act.

Am I missing anything here?

~~~
jcranmer
You're missing this little bit: Tether is not asking questions (of a KYC/AML
nature) at a scale where they are required to be asking those questions, and
the only people who would agree to work with them turned out to be criminals
(for not asking those questions), who skimmed off money from Tether in the
process. But don't worry, because the government will totally make them whole
because there is no way that innocent little Tether could have known of all
the illegal shenanigans going on… _breaks down in riotous laughter_

------
mettamage
> The dominant use case for cryptocurrency is speculation. Speculators want to
> put value into the system, somehow have it become greater, and then take
> more value out of the system than they put in.

Don't forget that another relevant use case is anonimized payments. Let's say
you deal with weapons. A good crypto could help. Let's say you sell porn
videos: in some cases, one wants to pay with crypto because they don't want
their SO to find out.

Just like speculation: it's not always an ethical thing. I'm just saying it's
a usecase (quite matter of factly / detached from emotion).

For me though, there's only cryptokitties <3

~~~
zaphar
That use case is currently comparatively vanishingly small and no where near
large enough to explain Bitcoin and other cryptocurrencies current values.
Speculation isn't just the dominant use case. It's the overwhelmingly dominant
use case.

~~~
mettamage
Sure, but I do think it's worth pointing out as I feel it is more of a
tangible value and it's easier to see why this value will stay. With
speculation, it's hard to see if people will speculate later on (probably, but
I wouldn't be able to tell why). I will be able to tell why people who need
privacy will be resorting to a crypto in 2 years from now.

Another use case: there have been a couple of cases where I'd use a fast
cryptocurrency over banking. This case is: fast international transfer.

Have you seen the speed that Ripple has, for example? (Yes, yes, I know Ripple
not decentralized, I don't care, I care about _speed_ )

What takes me days to with a bank, I can do in seconds with Ripple. Though,
this only works if: converting back to fiat is quicker on the other side than
the bank transfer or the whole transaction is possible with crypto.

------
xrd
Can you make this into a movie please? I will fund the kickstarter campaign.

~~~
spurdoman77
Would be quite a boring movie I think.

~~~
wp381640
Thought the same when a film about Facebook was announced

> “I think there will be a Bitcoin Billionaires movie,” Mezrich said to close
> the panel after hinting at it multiple times. “Hopefully Armie [Hammer] will
> come back and play these guys.” (the Winklevii)

[https://www.forbes.com/sites/hanktucker/2019/07/10/author-
wh...](https://www.forbes.com/sites/hanktucker/2019/07/10/author-who-inspired-
the-social-network-changes-mind-on-winklevoss-twins-expects-movie-sequel)

------
dnprock
Tether problems are known. It's surprising that crypto sphere continues using
it. I guess it's a good way to connect digital native Bitcoin to the rest of
the world, aka, fiat.

I've been advocating for Bitflate. It's a cryptocurrency with constant
inflation. The idea is to create a digital native and decentralized
stablecoin. We won't get perfectly stable price. But it will not be controlled
by a single entity. I think it is a better alternative than centralized
stablecoins.

~~~
magnamerc
Why re-invent the wheel when MakerDAO DAI exists, which is a much better
solution to the problem of a decentralized stablecoin.

------
SlowRobotAhead
> _My intense skepticism of cryptocurrencies is probably the issue on which I
> am most in disagreement with many close friends, professional acquaintances,
> and some of the smartest people I know. That is part of the reason why the
> hobby of peeling back onion layers here is so engrossing: people really,
> passionately believe that there is something here. I’m intellectually
> curious. The thing people have told me exists should smash my interest
> buttons: programmable money! How could I not look!?_

Excellent way to summarize how I've felt about Bitcoin since the first
mention. Thought I was the only one!

~~~
magnamerc
Bitcoin isn't programmable money. That's Ethereum

------
Havoc
Tether continues to amaze me. How on earth does it remain stable despite such
obvious questionable aspects?

Are there that many true believers keeping this stable?

------
CryptoPunk
The article takes it is a priori that laws that institute warrantless mass
surveillance of financial transactions, aka AML/KYC, are good.

This is an opinion held mostly by those in the elite: people living in
wealthy/politically-powerful countries, and or those with lucrative jobs in
government or government-protected industries like banking.

The President of Mastercard South East Asia sums it up:

[https://youtu.be/bO4jHXjCXw8#t=4m12s](https://youtu.be/bO4jHXjCXw8#t=4m12s)

"If it's an anonymous transaction, that sounds like a suspicious transaction.
Why does somebody need to be anonymous?"

AML/KYC laws create global second class citizens and massively centralize
power in the hands of whichever state has the critical mass of financial
power, which right now is the US and which one day could be another state that
authors like this wouldn't be so enthusiastic about.

A great write-up on what KYC/AML laws, which are euphemisms for laws
criminalizing financial privacy, mean for those outside of the elite circles:

[https://np.reddit.com/r/MakerDAO/comments/de0sys/kyc_is_abso...](https://np.reddit.com/r/MakerDAO/comments/de0sys/kyc_is_absolutely_not_acceptable_for_makerdao/)

Another relevant article: the War on Cash

[https://thelongandshort.org/society/war-on-
cash](https://thelongandshort.org/society/war-on-cash)

>>The proclaimed Death of Cash is thus an episode in the broader drama that is
the Death of Privacy, the death of breathing room, and the death of informal,
non-measured, unaccounted-for behaviour.

------
colinhb
> I have looked, quite a bit. I have not found a good use case yet

Agree with a lot of the analysis. But not quite the broader thesis. Analogy I
would make is this: the fact that some banks are bad does not imply that fiat
currency is bad. The fact that Tether is bad does not imply that Bitcoin is
bad.

Bitcoin enables payments / transfers without intermediaries. In the existing
financial system, intermediaries take a cut of these transactions. (Aside:
patio11's employer, Stripe, has built a business on this.) Figuring out
whether by eliminating those intermediaries you can lower transaction costs
(no interchange / wire fees controlled by card networks / banks) and
effectively eliminate a tax on all economic activity seems like something
worth exploring.

Just because it's a bubbly space does not mean there's no there-there.
Pets.com didn't make me think the Internet was a dead end.

~~~
lern_too_spel
In Bitcoin, miners are the intermediaries, and they take an even larger cut.
You cannot magic away the need to keep a ledger, and keeping a distributed
ledger is going to be more costly than keeping a centralized ledger.

~~~
colinhb
Think interchange in US is around 2% and wire fees can be in tens of dollars.

Right now a reasonable Bitcoin fee would be around 30 sats / byte or 6000 sats
/ transaction, which is around 50 cents USD. Average transaction fee is less
than this right now.

But this is well-trodden ground.

I agree with you in principle, you need to pay for trust somewhere, but a
loosely regulated banking sector and cartel of card networks isn’t giving us
an ideal outcome, and a decentralized system may be better.

A point in your favor, I’ve been much happier with payments since moving out
of the US and into the Eurozone.

------
mike00632
This article cites bitfinexed
[https://medium.com/@bitfinexed](https://medium.com/@bitfinexed)

This blog is extremely entertaining and I recommend reading it.

------
teknopurge
Begin by assuming it is a fraud.. then gather information and start to imagine
it is not a fraud. What then is the conclusion?

------
kaffeemitsahne
Why does the commentariat here always gets so triggered over anything
cryptocurrency-related?

~~~
cycrutchfield
Because anything critical of cryptocurrency threatens them where it hurts
most: their wallet. So they are incentivized to jump in and cast specious
assertions and muddy the waters where they can.

------
xwowsersx
What's with the intertial scrolling on these fancy pages? It's so frustrating
lol

------
kitten_smuggler
Well, at least the author showcases their bias in the first sentences.

~~~
patio11
I'd be interested if you think there's anywhere I make a strong claim without
appropriately strong evidence. There are a lot of strong claims, but I'm
_justifiably confident_ of them. Many of them are cited inline.

~~~
repomies691
It is more about the general "conspiracy" tone of the article. It is like "OMG
banks can create money, what a conspiracy" by some people who are surprised by
the facts on how financial system works when they finally learn some basics.

There is strong demand for any kind of vehicle which allows transferring value
digitally outside of the traditional banking system. I don't think tether
users trust tether because they advertise on their website that it is
"backed", but more because they have strong need for something like it and
there are no alternatives.

Of course the huge demand has been spotted by many others and now there are
loads of these "stablecoins". Some are more regulated and might take quickly
over if feds decide to stop tether.

~~~
gamblor956
_There is strong demand for any kind of vehicle which allows transferring
value digitally outside of the traditional banking system._

Crypto supporters have been saying this for a decade, but outside of money
laundering, drug sales, and hodle profiteering, no such demand has been shown
to exist.

 _Of course the huge demand has been spotted by many others and now there are
loads of these "stablecoins". Some are more regulated and might take quickly
over if feds decide to stop tether. _

If the "feds" go after tether, they will also go after the alternative
stablecoins.

~~~
jkiopire
> _no such demand has been shown to exist._

The success of companies like Square or Venmo show there is huge demand for an
easy way to send money around.

You will say that they are inside the traditional banking system, and that is
true. But when using them it feels like they are not.

~~~
cycrutchfield
Ok, but if we have Square and Venmo, why do we need Bitcoin and Tether?

------
SlowRobotAhead
>Similar to Bitcoin, with the promise of less price swings due to the
capability for redemptions and the promised reserve.

If you read the article, got to this point and didn't already know what the
rest of the article was going to say... well, good luck in future financial
endeavors! :)

------
xtat
While the tether story is very interesting and the article does indeed tell it
I cant shake the attempt at throwing shade on cryptocurrency broadly. I like
patio11 but his takes on this space look to me like a guy who made a bad call
years ago throwing shade on bitcoin and has to continue to justify it as the
revolution happens around him.

------
Geee
Isn't it curious that he writes a lengthy post about frauds made possible with
the current banking system (trust-based reserve) and then doesn't find any use
for cryptocurrency?

This is exactly the reason why Bitcoin was invented; its supply is
mathematical and can't be over-inflated. Satoshi even included the criticism
in the Bitcoin's Genesis block: "The Times 03/Jan/2009 Chancellor on brink of
second bailout for banks".

Obviously Tether (or any private stablecoin like Libra) is even worse than a
regulated fiat currency, and should be strictly illegal.

~~~
tptacek
He was writing descriptively, not normatively. You think there _should_ be
other uses for cryptocurrency besides speculation; he's saying it is
overwhelmingly used for speculation.

~~~
simonebrunozzi
Agreed - also IMHO it's mostly used for speculation, and hopefully shouldn't
be the case. Speculation can't last forever, but a few good use cases might.

~~~
nostrademons
Interestingly a lot of the speculation - at least today - is actually a bet on
disaster. Many wealthy individuals and institutions are buying Bitcoin as a
hedge against currency collapse. It's not so much that they think Bitcoin will
be worth more in the future: it's that they believe the U.S. dollar and all
other financial assets will be worth _less_. (Or in some cases, it's just part
of a hedge: the rest of the hedge fund's portfolio will increase in value
under any situation other than collapse of the economy, while Bitcoin will
_massively_ increase in value if there's a collapse. There's value in
uncorrelated returns.)

Fear is often a lot stickier than greed as an emotion. If you believe you're
going to get rich quick and it doesn't happen, you reevaluate your choices. If
you believe you're insuring against becoming poor and it doesn't happen, well
clearly your insurance worked.

~~~
simonebrunozzi
I'm not sure I agree with you. What we constantly hear is exactly that,
hedging against global economic collapse. But I see no strong evidence that in
the face of such an event, Bitcoin's price should rise.

What I see, instead, is a bet on this big speculation bubble to continue for
another few years, hoping to cash out before it happens.

~~~
nostrademons
Like the original thread, I'm speaking descriptively, not normatively. People
_believe_ that in the event of a collapse, Bitcoin's value will rise. The
evidence for that is a.) people say exactly that b.) people frequently compare
Bitcoin to "digital gold", and gold has similar hedging properties c.) wealthy
Bitcoin holders pay large sums of money for custodial services that store
their private keys in nuclear-blast-resistant underground bunkers and d.) if
they were hoping to cash out in the speculative bubble, they would've given up
by now, with the current bear market lasting for nearly 2 years now.

Whether they're correct or not is a different matter, but correctness doesn't
bear on their motivation for hodling. Nobody's going to know until the
collapse comes or everybody gives up waiting, in which case either they're
rich or dead.

Personally I think there's a certain sweet spot magnitude of a collapse where
Bitcoin or some other cryptocurrency will be useful, and it's where the
political and financial system has broken down yet infrastructure remains
intact. In other words, you still have power and Internet, but no effective
central government. Something like Hong Kong or the Soviet Union but not as
serious as Venezuela or Syria. Less than that and people will just use $USD;
more than that and guns & food will be more useful than Bitcoin. (I suspect
that the same people who are buying lots of Bitcoin are also stocking up on
guns & food, too, though.)

------
ur-whale
I read very little in that article that's operationally in any way different
from what happens daily in bank to bank back-office plumbing.

The only difference here is that it's a lot more visible to the general public
because it's A) crypto B) new rather established means of transferring value
between financial institutions.

~~~
cycrutchfield
You’re being downvoted because, no, that’s not at all how it works.

------
kemonocode
While I do believe Tether is pretty sketchy and I don't trust _any_ so-called
"stablecoin", it's also pretty clear the author has an ax to grind and has had
for a while.

Funny how every time people say it's so easy to prove Tether's frailty, they
say there's way too much counterparty risk in shorting Tether. Shorting a scam
should be a sure bet, but it has yet to happen.

So, buyer beware.

~~~
cwyers
Why are you dismissing counterparty risk so quickly? The failure rate of
Bitcoin exchanges is _high_.

~~~
wglb
As evidenced by
[http://dayssinceacryptocurrencyexchangehaslostmorethan100mil...](http://dayssinceacryptocurrencyexchangehaslostmorethan100million.com/)

------
malloreon
my recent experiences with cryptocurrencies have been the large number (10+)
of tinder matches I've gotten from women in Hong Kong or Shenzhen who within
2-3 conversations try to convince me to buy into the latest "digital currency
their uncle told them would go to $5 in a week."

Each time I ask them for more information in understanding the underlying
value of the digital asset they're trying to charm me with and then all I get
are screenshots of the values going up mixed with invitations to visit them in
China.

it was frustrating the first 2-3 times before becoming comical.

~~~
repomies691
The good side of being ugly guy like me is that I always can spot these scams
and never even respond to them - I just instantly block them. Because I know
that no such a beautiful lady would actually approach me.

However I guess the scammers will soon figure this out and start using normal
looking ladies in these contacts. Similar to those "bang ugly chicks near you"
advertisements on porn sites.

------
darawk
Your daily reminder that you can short Tether if you want. All these people
writing these articles, and the freely moving market price hovers right around
1:1. Funny how when people are asked to bet, despite the fact that there's
almost no risk of loss for shorting it, their convictions disappear.

~~~
pavlov
Where can you sell Tether short in a market that's not controlled by these
same unscrupulous manipulators?

Shorting makes sense in regulated public markets with plenty of liquidity.
Cryptocurrencies aren't like that.

~~~
nostrademons
Kraken trades USD/USDT directly and will let you short.

~~~
gamblor956
Kraken's owners have ties with/overlap with Tether's owners.

There is no wholly or even just meaningfully independent platform on which you
can actually short Tether.

~~~
spurdoman77
Can you provide source for the claim? AFAIK kraken is run by Jesse Powell in
the US and it is totallt separate company from finex/tether.

------
pg_bot
Cryptocurrencies are a religion. I find the idea that anyone would want to
hold a large amount of any currency idle for a long period of time baffling.
Yet this is the premise that so many people who are speculating in
cryptocurrency "investments" have bought into. Then you add on top of that
terrible user experience, slow transaction times, and lack of any theft
protection and I don't understand why any sane person doesn't just bail on the
idea entirely.

~~~
semiotagonal
I don't see how there is ever going to be wide adoption of a currency that is
currently held in its entirety by something like 0.2% of the population, and
claims to be impossible to expropriate.

When people see that kind of concentration of wealth, expropriation is a
_plus_. Expropriation is how it gets redistributed. Nobody is going to want to
make a bunch of early-adopting HODLers rich without knowing how to take most
of their money as part of the bargain.

------
lacker
I agree that the people behind Tether are fundamentally pretty sketchy, and it
has a significant risk of collapse. However, Tether can't be totally ignored
because as of right now, it's still the best tool for some things.

The main value of Tether is that the BTC-Tether market is the most liquid
cryptocurrency market. So if you want to exchange Bitcoin into dollars in an
all-cryptocurrency transaction, you will probably get the best rates into
Tether, and be able to perform your transaction the fastest. If you plan on
swapping out of Tether soon, then the systemic risk of Tether collapsing might
only be a small problem for your application.

It's a shame that the most popular stablecoin is such junk behind the scenes.
I think we would be better off if a different stablecoin with a more solid
grounding was the most popular one. But for now, since Tether is the most
popular stablecoin and popularity itself provides value for some applications,
Tether is a useful part of the crypto ecosystem.

~~~
cperciva
_if you want to exchange Bitcoin into dollars in an all-cryptocurrency
transaction_

What does that even mean? Dollars aren't cryptocurrency. If you're converting
to Tethers, you're not converting to Dollars.

~~~
lacker
I think of it as “one dollar minus some fees”. I would usually rather have one
tether than one dollar minus credit card fees. Yeah if you want to use it in
the fiat economy you have to exchange it out, but that isn’t too hard.

~~~
akerl_
The whole premise of this article is that Tether is not “one dollar minus some
fees”, it’s a mountain made of lies, built on a tectonic plate system made of
fraud.

------
ur-whale
> Tether has, in the words of Bitfinex CFO Giancarlo Devasini, “banked like
> criminals.”

And no wonder.

When the entire incumbent financial system is designed to treat innovation and
disruption like a virus, the only way to make it through is to bend the rules.

The financial industry is, by virtue of being the richest, the most entrenched
money skimming operation ever devised by man.

No way ever will they let newcomers, however nimble and innovative (and good
for the end customer) grab a slice of the pie.

And of course, the usual "think of the children" (aka KYC and AML) argument
will be used, along with every other propaganda tool available to smash the
irritating newcomer into oblivion.

~~~
jandrese
The narrative of the big bad banks keeping the little guys down kinda falls
apart when the little guys are _lying through their teeth_.

------
ur-whale
The one thing this very biased article does for me is highlight that there is
a very strong market need/demand for an instrument like tether and that the
incumbent financial system, much like the music industry discovering the
internet, is trying to prevent that to happen by any mean necessary.

And they do have way deeper pocket as well as many, many more arms up
political puppets to reach that goal.

~~~
arkitaip
In what way is the article biased? Why do you think that patio11 is part of
the "incumbent financial system"? Do you refute any of the evidence?

~~~
colinhb
I suspect it's because patio11 is employed by a payment processor, Stripe.
Stripe's business is taking a percentage of payments / transfers. One of
Bitcoin's usecases is making payments / transfers with lower interchange /
wire fees than existing financial system. The argument is the same as saying
that someone employed by gun manufactures is biased when writing about
proposed gun laws.

(I don't have a view on whether patio11's employment has influenced his
thinking. I just wanted to suggest what the grandparent's thesis may have
been.)

~~~
cycrutchfield
Yeah, how dare Stripe skim money off of transactions! That’s Bitfinex’s job!

------
aazaa
> The dominant use case for cryptocurrency is speculation. Speculators want to
> put value into the system, somehow have it become greater, and then take
> more value out of the system than they put in.

This chestnut gets trotted out pretty regularly. What it ignores is the
economic activity, largely untraceable, relating to payments outside of the US
regulated financial system.

Remember the ongoing problem in the US with blatant civil asset forfeiture
abuses?

[https://www.aclu.org/issues/criminal-law-reform/reforming-
po...](https://www.aclu.org/issues/criminal-law-reform/reforming-police-
practices/asset-forfeiture-abuse)

Remember how the Department of Justice has deputized every financial
institution in the US (and many outside of the US) as agents in the
ridiculously ineffective wars on terror and drugs through AML/KYC regulations?
Remember how that turns us all into subjects of an ongoing constitutional
crisis, relegating 4th Amendment to historical footnote status? All for the
sake of security theater.

These are the things that the article (and countless others) seem to ignore
when discussing Bitcoin use cases.

~~~
cowpig
> This chestnut gets trotted out pretty regularly. What it ignores is the
> economic activity, largely untraceable, relating to payments outside of the
> US regulated financial system.

You follow this up with some political points that I generally agree with, but
I don't believe have anything to do whatsoever with any significant portion of
cryprocurrency's use.

Beyond speculation, cryptocurrency is used for:

\- Money laundering (to evade taxes, regulations, sanctions etc)

\- Various forms of financial fraud

\- Payments for illegal transactions (usually drugs or ransom)

And to a much, much smaller extent:

\- for the legal things cash is used for

The unbanked haven't been banked, and a new, programmable money hasn't yet
emerged with much value.

I love the ideas behind crypto, but have been sadly disillusioned by the
reality so far

~~~
mopsi
> Beyond speculation, cryptocurrency is used for:

According to whom? The studies I've seen [1] say that a quarter of users are
engaged in illegal activities and their share of all transactions is 44%.
Their share is in decline as more applications are developed and userbase
expands.

It should also be noted that there are many activities that are illegal, but
not really harmful to anyone. For example, marijuana prohibition laws are
obviously unjustified and are being overturned across the world these days.

[1] Eg [https://www.law.ox.ac.uk/business-law-
blog/blog/2018/02/sex-...](https://www.law.ox.ac.uk/business-law-
blog/blog/2018/02/sex-drugs-and-bitcoin-how-much-illegal-activity-financed-
through)

------
repomies691
Tether supply is 4.2 billion, Madoff defrauded 60+ billion, so tether is
nothing compared to Madoffs scheme. Also, tether is stablecoin - people don't
buy it for investment purposes. Patio11 is still sour that he was against
bitcoin when it was $1 and it seems to be difficult to get over it, therefore
the strongly negative bias towards everything crypto.

However if you take into account where the writer is coming for, the article
is quite good at explaining the situation.

~~~
BubRoss
Tether has gigantic red flags including not being able to actually exchange it
for dollars even though it is pegged to dollars. It's so brazen it's hard to
even believe it.

~~~
teknopurge
Fractional reserve banking has the same problem, yet provides a real,
functional purpose for finance.

Tether has a purpose - to be a savings account is not that purpose.

~~~
gamblor956
You can exchange your bank savings account for dollars (or Euro, or whatever).

Hundreds of millions of people do this every day around the world without
issue, because this is a solved problem.

~~~
teknopurge
Everyone cannot actually withdraw their balance to fiat all at once - this
would be a bank run and wouldn't actually be allowed to occur.

~~~
gamblor956
True, but you can actually withdraw your balance.

You cannot withdraw your Tether balance. They literally do not allow that. The
best you can do is get an intermediary coin that some places might let you
change into cash or another crypto.

~~~
spurdoman77
As I understand tether allows direct conversions to fiat, you just need big
enough amount. Also it is very easy to convert to bitcoin, which is very easy
to convert to fiat.

~~~
jki275
You should read the article -- this is addressed in it.

