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Tether Critical Announcement (tether.to)
532 points by benpink 11 months ago | hide | past | web | favorite | 310 comments



If you haven't been following along, here's why this matters:

Tethers is a sole-source cryptocurrency, pegged to the US dollar. Bitfinex produces it, though they're cagey (some would say outright lying at times) about the level of involvement.

The primary purpose of tethers is money laundering, even more so than cryptocurrency generally. Bitfinex was cut off from the US financial system, which makes it impossible for them to clear USD-denominated wires. Their clients have ~$400M of USD on deposit with Bitfinex. Their solution: issue a cryptocurrency which is claimed to be 100% backed by USD and say that it is redeemable 1-to-1 for dollars... we just can't actually physically give you the dollars.

Incredibly, this has worked so far. Bitfinex has issued approximately $600 million in tethers, all but $10 million or so in the last 6 months. They're usable on a handful of exchanges, for the purpose of buying BTC and other cryptocurrencies.

Tether claims that someone has stolen 5% or so of their $600 million tethers -- the digital claims, not the underlying dollars sitting at their totally-exists-we-promise bank account. They've made a technological change to the Omni client to disallow transactions on the stolen tokens, but there is no guarantee that they succeed in convincing all parties to use this.

The nightmare scenario for them is 1+ exchanges say "Well, actually, we rely on your money actually being money to list it here, so pick: we delist you or we don't, but we don't have any incentive to apply that patch." [0] The thief immediately exfiltrates to Bitcoin, and suddenly 30 million hot tethers are contaminating the money stream at the exchange, and they cannot be conveniently disambiguated from clean tethers, because money is fungible.

Hilarity then ensues, for values of hilarity which probably mean "bank run" on a bank which is structurally incapable of paying out most holders of money.

[0] Why does Bitfinex care whether their cryptocurrency is listed at other exchanges? Because they need to launder money to support their exchange business. Tethers are institutionalizing a sort of crypto-hawala (or crypto-Liberty Reserve), allowing the physical transfer of real money to happen at legal remoteness to the cryptocurrency exchange.

Bitfinex has an order book filled with something people want. A way to get access to that orderbook is to say "Bitfinex, I want some tether, how do you sell them to me if you can't accept a wire?" Bitfinex might say "Are you a trustworthy US VC? Spiffy. Move $20 million from your left hand pocket to your right hand pocket. The right hand pocket is now ours; here's $20 to $21 million in Tether, which are good for BTC at your favorite exchanges. At some time in the future, a trustworthy US VC other than yourself is going to ask you to buy some tether from them at par value. You will do that, and pay them from your right pocket. If a regulator asks you about this transaction, you bat your eyes and say 'Oh, sophisticated investors doing a cryptocurrency transaction, nothing to see here.'"

Post-script: Is this good news for Bitcoin? Oh this is great news for Bitcoin. If you don't believe Bitfinex's $600 million in liabilities are worth a copper shilling, the only option for getting your value out of Bitfinex is to swap your liability for Bitcoin, which drives up the price of Bitcoin at the margin.

This is exactly what happened in the final months of Mt. Gox.


Tether announcement on their own website mentions their Taiwan banks have frozen all international wire transfer since April 18: https://tether.to/announcement/

Tether has printed $600 million worth of tokens since, so either: 1) Local Taiwanese have deposited $600 million to buy Bitcoins through domestic wires, OR 2) Tether is lying and printing tokens out of thin air.

Place your bets gentlemen.


It's perfectly reasonable to assume $600 million has flown in via Taiwan. Note that that doesn't mean that local Taiwanese have personally bought $600 million. Tether creates an arbitrage opportunity. If you have a Taiwanese bank account, whenever Tether gets out of sync, to say, 0.99, you can simply arbitrage that away and make a risk-free profit. That is what is happening. The demand isn't coming from Taiwan per se, it's coming from arbitrageurs (who either are Taiwanese, or are using someone who has a Taiwanese bank account).


No one is going to deposit 600 mill in a hacked exchange via Tether crypto-Hawala using Taiwanese shell bank accounts.

People with real money would instead wire the funds to Gemini or ItBit or even a terribly managed company like Coinbase.

KISS


You sound like you are living in the US, and everything is simple there and works as described. Which is probably true for you, as I understand those are exchanges catered towards US customers. However the mistake is that you assume that the rest of the world (majority) works the same way.


What's wrong with Coinbase? (I ask as a naive fool with a bit of money stored there).


Bugs. I have discovered two bugs personally, reported them to Coinbase, and those are still unresolved.

For context, I reported couple of bugs to MtGox back in the day, and even MtGox fixed them in under a month which is more than what I can say for Coinbase. I guess this is what happens when Coinbase speed-hired 100 people in one year with no proper team-building exercises.


Mostly that if anything goes wrong their support tends to be incredibly unresponsive. Also make sure you're not using SMS-based 2-factor authentication with them since there's a long history of people getting their phone numbers stolen and then their Coinbase accounts drained within minutes.


> tends to be incredibly unresponsive

Correction, there is no support. I have a bit of money permanently locked in a coinbase account because their support does not reply at all.

At some point I will just have to convert it all to BTC and send it elsewhere. Caveat Emptor.


I had the same experience. Got locked out of 2FA, spent two weeks waiting for a reply from support, only to be told that I should just make a new account. Unfortunately I haven't found an easier option for buying BTC.


I had the opposite experience, though this was before Coinbase created/supported recovery codes for 2fa. My phone with the 2fa app bricked and it was a painless, one-message exchange with Support to work around it, completed in < 1 business day.


I can confirm: my 2FA has been hacked on Coinbase. My Social Security number + DOB are out on the internet, and it makes it trivially easy to hack companies with poor security protocols like Coinbase, Authy, AT&T, TMobile, Comcast, Yahoo.


Noted.

On the account draining -- well, there's a latency in setting up new bank accounts there. So I'm surprised it's that easy to just yank money out.

Although I did notice there's no account verification. For example, on Vanguard or other platforms they do a small deposit of a few cents and ask you to verify the payment amounts, a process which has a latency of a day or two.


Ah, so people just yank money out by sending it to some wallet. Makes sense.

Are there any ways to make coinbase safer other than a very secure password?


Software-based 2FA, rather than SMS-based.


You mean Google Authenticator? I have this enabled in addition to SMS.


Right. See if you can disable SMS-based 2fa and only use the app.


Well, thank god their two-factor has always failed to setup for me.


Never store money on an exchange. Once you are done trading, get it out of there.


No one person would deposit 600 mil at once, sure. But they don't have to. It's many people collectively depositing 600 mil over a long time.


Sure “No one”, I don’t think the same necessarily holds for many.


I once wired $30k USD from my UK to Taiwan bank account.

It worked fine, but had to go into the bank in person with ID to get the funds approved.

Not sure what it'd be like if I moved $100ks.


* risk-free (except for counterparty risk)


Their curious verbiage makes me think it's not USD. They say they have backing "assets" my guess is they mean BTC, which conveniently gives them more "value" the more they print.


> Tether is lying and printing tokens out of thin air.

$600 million bet — literally.


They can also peg the value using BTC. Basically they just buy using their dollars/fiat some BTC, deposit it to exchanges, and then using some simple bot beg the value of the USDT to USD with bid orders. And vice versa, they can have some USDT on exchanges and have ask orders so that people can buy USDT using BTC. If there are more buys than sells, then they withdraw the BTC and sell it for dollars/fiat.

They don't need to do that on that many exchanges to have effective peg to USD. However they of course still need traditional bank accounts, and they need to trade the BTC on OTC markets or somewhere else.


...except that Tether long predates Bitfinex's wire issues. They're usable on many of the major exchanges (Bittrex, Poloniex, for example). Tether was explicitly created for the purpose of equalizing prices across exchanges. It's indeed possible that they're insolvent, but there is no real evidence of that, just lots of people speculating incessantly without much justification.

Basically everything about the parent comment is factually incorrect. I'm not sure why it's so upvoted. I guess people just like scandal in the cryptocurrency world and would prefer to believe what comports with their preconceptions.


Just because tether predates the big USD wire problems does not mean it's creation was unrelated. One of the biggest risk any exchange has is compliance, specifically with the US regulators (and banks).

Even if BFX did not know this before they build their exchange, this most likely became clear from day 1. Tether is a great hedge against this (politics aside).

Could you address anything that you think is "factually incorrect"?


The post I was responding to claimed Tether was specifically created to address Bitfinex's wire issues. That is false. It may be that they created it to address theoretical, speculative wire issues that they might someday encounter in the future, but there is no evidence to support that hypothesis. Secondly, there is plenty of reason to create something like Tether independently of any wire issues (specifically: to normalize prices between exchanges).


Come on man..

> The post I was responding to claimed Tether was specifically created to address Bitfinex's wire issues. That is false.

It does not claim that it was "specifically created for that", it claims that "Their solution" to the wire problems was "Tether". It does not state anything about why Tether was created in the first place.

> Secondly, there is plenty of reason to create something like Tether independently of any wire issues (specifically: to normalize prices between exchanges).

People will arb the effiencies away anyway, regardless of what tools the exchanges provide them. Besides tether a lot of people in Taiwan are arbing through the traditional banking system [0].

But you are right, it IS important that there are ways to flow money in and out. Which is exactly what Tether is for according to OP's argument.

[0] https://steemit.com/bitcoin/@kingscrown/living-in-thaiwan-yo...


> It does not claim that it was "specifically created for that", it claims that "Their solution" to the wire problems was "Tether". It does not state anything about why Tether was created in the first place.

Read the post, man, very first paragraph:

> Bitfinex was cut off from the US financial system, which makes it impossible for them to clear USD-denominated wires...Their solution: issue a cryptocurrency which is claimed to be 100% backed by USD and say that it is redeemable 1-to-1 for dollars... we just can't actually physically give you the dollars.

> People will arb the effiencies away anyway, regardless of what tools the exchanges provide them. Besides tether a lot of people in Taiwan are arbing through the traditional banking system [0].

That's true, except you probably have never tried to actually execute that kind of arbitrage before. I have, so let me tell you the problem tether solves: speed. If you do arbitrage through the banking system, you have to wait for wire transfers to clear. That can take days to weeks. That means you have to wait for the spreads to be large enough and stable enough to compensate you for the enormous risk of being exposed to the vicissitudes of the crypto markets during that time. And that's assuming you already have the accounts setup in the right countries. Tether makes all that instantaneous. That is an enormous benefit to arbitrageurs equalizing prices, and inter-exchange liquidity.


> Read the post, man, very first paragraph:

I've read it a few times now, still can't find where they say they specifically created tether (the system) for this exact purpose. Keep in mind that the issuance of tether is not the creation of the complete tether blockchain/system (they are issuing new tether around the clock).

> That's true, except you probably have never tried to actually execute that kind of arbitrage before. I have, so let me tell you the problem tether solves: speed.

You are right, I have never tried arbing through the banking system. I am doing small/mid scale arbing in cryptomarkets, however I stay away from anything that touches any bank / FIAT.

Though my point is that: yes arbing through banks is slow, inefficient and very dangerous. People will do it nonetheless because of the margins you can make. The exchange does not care how hard it is or how people do it, just that there is some guy somewhere (potentially flying around with suitcases of cash) who is doing it.

So yes I 100% agree with:

> That is an enormous benefit to arbitrageurs equalizing prices, and inter-exchange liquidity.

But bfx only cares about the latter, not really about the people doing it.


> I've read it a few times now, still can't find where they say they specifically created tether (the system) for this exact purpose. Keep in mind that the issuance of tether is not the creation of the complete tether blockchain/system (they are issuing new tether around the clock).

> Bitfinex was cut off from the US financial system, which makes it impossible for them to clear USD-denominated wires...Their solution: issue a cryptocurrency which is claimed to be 100% backed by USD

Right there. patios11 claims that Bitfinex's "solution" to their wire problems was issuing Tether. That is demonstrably false, because Tether predates Bitfinex's wire issues by more than a year.


If it is raining outside and I take an umbrella with me, I can say it's a solution to the rain. That doesn't say anything about whether I bought the umbrella specifically for today and if I had it longer than today I am lying...


"Their solution: issue a cryptocurrency" implies they issued Tether to solve their wire issues. This is false. They issued it long before.


Lots of people use git as a solution to their source control problem who only started writing code after it was invented.


Do you think that bitfinex didn't know they'd potentially have wire problems before being officially cut off?


I don't think they knew 1.5 years before.


I have no idea really but from the discussion I get the impression that one side assumes some amount of Tether could be issued at will, more or less, whereas the other seems to think to issue means to invent the ... whatever that even is.


I read the patio11 post as implying very strongly that Bitfinex was responsible in some way for Tether, when in fact that couldn’t be further from the truth.


http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC...

> I, J.L. van der Velde, hereby declare as follows:

> 1. I am the Chief Executive Officer for iFinex Inc. (“iFinex”), BFXNA Inc. (“BFXNA”), BFXWW Inc. (“BFXWW”), and Tether Limited (“Tether”). I have personal knowledge of the facts set forth below, and if called and sworn as a witness, I could and would testify competently thereto.

> 2. iFinex, through its subsidiaries BFXNA and BFXWW, owns and operates a leading global Virtual Currency platform called Bitfinex.

Bitfinex is responsible for Tether.



> Basically everything about the parent comment is factually incorrect. I'm not sure why it's so upvoted.

patio11 is well respected in this community, so I guess the post is upvoted just because of the author. I personally respect patio11 on quite many topics as a very knowledgeable, but when it comes to Bitcoin and cryptocurrencies he seems to have some personal issue with them, which makes his posts on the topic not that objective.


He has been a bitcoin bear for a long time. Like many people that have been anti bitcoin, they keep jumping on new reasons why it’s a scam or not going to work when their old reasons become irrelevant.


It is probably very painful following it closely and not investing from the around $10 prices or so. Makes you mentally even more tied to the non-investment, and makes you invent better arguments on why you didn't invest.


Regardless of your feelings towards patio11 and his views on Bitcoin, this is not appropriate. Speculating about his emotions like this is a misdirection that dances around de-legitimizing his views without a real rebuttal to his point. Moreover, he’s on this forum, so you don’t need to talk about him like this, as if he isn’t here.

If you have a substantive rebuttal to make, do that instead of engaging in passive aggressive character assassination. What you’re doing is probably satisfying, but it doesn’t convince anyone else that you’re correct who doesn’t already side with you, and it’s insidious in that it steers the course of the conversation away from an individual’s point and onto their identity.


I've been in Bitcoin for over 7 years. This type of back and forth is exactly what happened to Mt Gox. And you know what? My friend got the fuck out of Mt Gox before it burst.

When you have to choose between following a pre-bankrun rumour or following unsubstantiated pushback, follow the rumour. It costs you maybe 5% to get out vs 100% if you're wrong and banks / money holders compete on assuring people that there is less risk with their solution so if Tether can't provide assurance then that is their problem. Cut and run.


On a side note, the fact that bank runs are rational decisions and that no FDIC-style agency exists to change the incentives seems bad for cryptocurrency in general.

(Possible responses include both "the traditional financial system and fiat currency is actually pretty good" and "someone should run a reliable FDIC equivalent as a business for new exchanges and new coins".)


Isn't a bank run only an issue if the bank is using a fractional reserve? Cryptocurrency exchanges aren't banks; they're not supposed to keep a fractional reserve. If everyone suddenly demands all their coins at once, the exchange should have no trouble complying with that.

The only problem is that there's no way to know for sure whether an exchange is running on a fractional reserve or not.


The issue is that they do run fractional reserves, even if they aren't supposed to. Much like banks of the 1600s.


They claim that they don't. If they do, that is a serious problem. Some of the exchanges have, but there is no evidence i'm aware of that points to any of the current major exchanges running a fractional reserve.


The issue is that once there is evidence there is a bank run. Mt Gox wasn't supposed to, but they did. And there are others out there that I hear rumours about having 5 or 10% of their reserves stolen from hot wallets. Sure it's fine if there is never a run, but it's worth pointing out that this is a real threat vector.


Ya, no argument from me there. It's definitely a threat. I just don't think it should be stated as fact that they do run fractional reserves without evidence of that.


I was around during MtGox too. This is nothing like MtGox. The difference is frozen funds. MtGox froze people's money. Bitfinex hasn't. Simple as that.


Huh? This is pretty much exactly like Mt. Gox. At first Mt. Gox only suspended people's ability to withdraw USD, like Bitfinex. Then they suspended people's ability to withdraw BTC (apparently people have been experiencing delays getting crypto withdrawals to go through on BFX recently?). Even then they still allowed people to send money between accounts within the exchange, which resulted in a secondary market of people buying "Goxbux" from other people with money stuck in the exchange (at a discount, of course; basically betting that Mt. Gox was actually solvent).


I can withdraw crypto from Bitfinex just fine and have done so recently. Taiwanese fiat withdrawals process just fine. In this case, we have confirmation that their foreign wire transfers are legitimately frozen. They're not lying about that. I don't see much comparison to MtGox at all.


> without much justification.

Well, they've never proved it. Just a literal: "Hey, we promise we have the money."

So, can't really say; it's basically a Schrödinger's cat to everyone on the outside. We will only know when it booms — or busts.


In all fairness, this isn't much different from commodity ETFs promising that they have a warehouse of gold or silver somewhere that matches the market cap of the fund. There's no easy way to completely, 100% verify this, so people just trust them.


That’s what auditors are for - solving exactly that problem. Well mostly - like everything else it’s imperfect


You're absolutely right. I'm not saying they're solvent. There just isn't any evidence that they aren't.


They just got hacked for $30 mil. Pretty safe to say they are in the red at this time.


They may not be. $30 mil is a small percentage though. Bitfinex makes a few million per day in volume. It's not unreasonable to think they might still be solvent, even with a 30 million dollar loss. But they also might not. However, they definitely won't be if their fix to block the stolen Tethers goes through.


Bitfinex got hacked for 119,756 BTC last year, and Tether got hacked for $30 mil today.

Both are owned by iFinex LTD, and had the same CEO till earlier this year. Total amount they have lost comes out to $1 Billion.

How are you still claiming "They may not be"?


At the time Bitfinex was hacked, they automatically converted the "hacked" BTC balance to USD. It was around $650 I believe at the time of the hack. It would be unfair to measure the hack in today's BTC value because they converted the liability in customers' accounts in USD.


Tell that to the Mt Gox account holders... they don't seem too happy that their BTC claims have been converted to JP¥


They were plenty happy with it when BTC was crashing. People just like to whine. Converting to JPY in MtGox's case and USD in Bitfinex's case was the reasonable thing to do. Denominating massive debts in cryptocurrency is an insane thing in a market this young and volatile.


I don't think this was terribly good for them when bitcoin was crashing either, because it still ate into the amount they'd get paid out since the underlying assets were still partially in bitcoins. The bankruptcy trustee basically gave Mark Karpeles free options on bitcoin with all the customers he'd screwed over as forced counterparties.


I was a Bitfinex customer when they got hacked. I lost 30% of my funds on that day. I couldn't be happier with how they handled it. They paid me back in full and did the best they could with the situation they had. People being upset with them over it is insane to me. As far as I can tell, it's mostly people who had nothing to do with it spectating from the sidelines. If an exchange you use ever gets hacked, I certainly hope they do exactly what Bitfinex did, for your sake. And you should too.


[flagged]


They said "They paid me back in full" so I assume he did not lose the 30% in the end? Admittedly I'm not sure I understand what they mean.

I also wish that "everybody I disagree with is a shill" meme stayed in 4chan and reddit, it's incompatible with reasonable discussion.


What I mean is that when the hack occurred I lost 30% of my funds. However, I received BFX tokens equivalent to the amount I lost. Eventually, as Bitfinex continued operating and accumulating fees from operations, they paid me back 1:1 USD for BFX tokens they had given me as debt.

So, I did lose the time-value of that money (they didn't pay me interest on it), and I didn't get paid back in Bitcoin or Ethereum, which would have been more money, but i'm still very happy with how they handled it. I think it was the most reasonable and honest solution to the problem that they had available to them at the time.


Do you mind not posting comments that the guidelines clearly ask us not to?

> Don't accuse others of astroturfing or shillage. Email us and we'll look into it.

> Don't feed egregious comments by replying; flag them instead. When you flag something, please don't also comment that you did.

https://news.ycombinator.com/newsguidelines.html


Bitfinex already fully financially recovered from the 119k BTC theft by repurchasing the last of the BFX debt tokens a few months ago.


...with suspiciously issued Tethers, which is kinda the whole point here.


But it doesn't matter. From a legal aspect, customers who accepted to sell their BFX tokens are no longer creditors to Bitfinex.


and those tokens were traded at how many pennies to the dollar ?


They were redeemed by Bitfinex at full face value.


No. They blacklisted the stolen tethers, and all they now have to do is issue a new batch of $30 million worth of tethers. In no way this puts them in the red.


Stolen Tethers were transferred to a known Bitfinex Exchange deposit address. The hackers bought Bitcoins within an hour and took off with their loot.

Reversing Tether tx does nothing to recover those Bitcoins.


Source?

Edit: found this: https://www.reddit.com/r/btc/comments/7e1840/the_30000000_us...

It seems like people did in fact notice the $30m being deposited on Bitfinex and being used to buy Bitcoin, all before it was known to be stolen. Difficult to confirm a thing like this, but I wouldn't bet against it.


As as been pointed out above they can't unilaterally blacklist tethers, the other parties have to accept the modified client.


But since Tether Limited are the ones who back the tokens with real dollars, they can effectively unilaterally pressure anyone to upgrade the client. Those who don't upgrade and accept stolen tethers will be left with worthless unredeemable tokens.


Read this lawsuit: Tether only has $50 mill and their wires have been frozen by Wells Fargo since March 2017. So the remaining $600 mill tokens are backed by nothing.

http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC...


That was filed back in April when there were only $50 million Tether in existence: https://coinmarketcap.com/currencies/tether/ Also, the money that's supposedly backing Tether is in Taiwanese banks, not Wells Fargo, and their problem with Wells Fargo should only affect international wires.


And their previous CEO just 'forgot' to update his twitter status for two years of not being the CEO.

And the company officers are currently actually bitfinex people?

Total coincidence.


Who owns and operates Bittrex and Poloniex? How are the licensed? Do they keep customer funds segregated from operating funds?


Bittrex is owned and operated by US actors. You can go talk to them in their slack. They're on their with their real names, and they all have linkedin profiles with real work histories at US companies.

Poloniex is owned by a guy named Tristan D'Agosta. He's a little bit less easy to track down, but does seem to be a real, known person with a real history and life.

I don't know how they each separate customer and operating funds, but i'm sure the Bittrex guys at least would probably be happy to tell you if you ask in their Slack channel, assuming they don't consider it a security risk.


Post-script: Is this good news for Bitcoin? Oh this is great news for Bitcoin. If you don't believe Bitfinex's $600 million in liabilities are worth a copper shilling, the only option for getting your value out of Bitfinex is to swap your liability for Bitcoin, which drives up the price of Bitcoin at the margin.

Correct me if I'm wrong here, but this seems to be an argument for BTC/USD going up on Bitfinex -- but not necessarily elsewhere. Is the market failing to price in the fact that "USD on account at Bitfinex" has a value which is not identical to that of "USD in a regulated US bank account"?


Oh this is great news for Bitcoin

If the price of Bitcoin has been inflated by 600 million USD that doesn't really exist, then when this unwinds it will be bad news for Bitcoin.


Depends on the way it unwinds. If it's through selling BTC to cover Tether redemptions, sure, that'd be bad for cryptocurrency prices. I have a feeling that it'll unwind like Mt. Gox, though - people who accepted Tethers or put deposits into Bitfinex wind up holding the bag when the fake money goes "poof".


You’re talking about two different markets. A Tether-USD is not the same as a USD. If anything, the fact that the irredeemable USDT even has value is a sign of the insanity playing out in the cryptocurrency market. A token worth 1 dollar but not really worth 1 dollar makes no sense at all.


that's about 0.6% of the market cap of bitcoin


"market cap" is a very bad representation of the overall value which is impossible to actually estimate. try selling 600 million worth of btc and see how that cap changes.


Dump large amounts of ANY asset and it will crash. It's only crypto that gets accused of having a "fake" market cap though.


It's only crypto that uses the term "market cap" to mean "outstanding crypto-tokens * price". That isn't what the term means in conventional finance. It's normally applied to shares.


5 BILLION dollars worth of bitcoins are sold every day. The trading volume is higher and the orderbooks are deeper than you think...


Google "Wash Trading"


Doesn't work in crypto markets. Taker fees are typically > 0.20%, with the notable exception of BitMex.


There is plenty of evidence of wash trading occurring on Bitfinex and other exchanges - there are also many accusations that the exchanges themselves wash trade, to pump up their own volumes. They don't need to pay their own fees!


Taker fees are 0.1-0.2% on Bitfinex. Wash trading would be too expensive.

Where is the evidence the exchange itself is doing it?


Those who are downvoting the parent, please explain why? He is correct. Is the assumption here that the exchanges themselves are wash trading and not charging themselves fees? Seems possible. But otherwise wash trading is very expensive due to the maker/taker fees.


Taker fees are significantly discounted for higher volume traders, because they bring smaller traders to an exchange. I know two mid-sized whales who have almost 0% rate as long as they trade certain number of BTC a month.


Korean exchanges are 0 fee.


Koreans account only for ~7% of the 5 billion USD/day.


Where are you getting this number from?



This includes a lot of crypto-crypto volume. Just in the top ten, there's $168m Bitcoin Gold, $145m of Bitcoin Cash, $95m of something called "PowerLedger" that I'm hearing of now for the first time, and $84m of Neo.

Is this real trading activity, or is it people discovering that there's no feasible way to trade USD directly for the meme coin du jour?


You can't compare money and market cap directly. Millions of dollars can move the market cap by billions. It's because the books on exchanges are relatively thin.


Price is set by marginal transactions, not the amount of money converted over time.


And a whole lot of trust.


Yep, you'd expect to eventually see a sustained divergence to price in an elevated level of counterparty risk (like we saw back at Mt. Gox). In the short run, though, arbitrage bots gonna arbitrage.


In the short run, though, arbitrage bots gonna arbitrage.

Don't people who run arbitrage bots usually understand concepts like counterparty risk? Do they not realize that by moving money into Bitfinex they're potentially acquiring a large amount of assets which will end up being devalued?


It might be easier to commit money to an arbitrage bot than to understand the risks involved.


It depends on the experience level of people running them. Cryptocurrencies have a good deal of enthusiasts YOLO-ing on them, as far as I can tell.


Can confirm: I created an open source TA tool[1] for crypto markets that can function as a trading bot. If only I got a penny every time someone emailed me saying they are total beginners, looking for help installing it and hooking it up to their $xx,xxx account.

[0] https://gekko.wizb.it/


interesting branding :)


Poloniex trades USDT for quite a few ccs

https://poloniex.com/exchange#usdt_str


Trust in exchanges is what keeps Bitcoin prices up. This is bad for Bitcoin and all digital assets.


This is incredible. How many times have cryptocurrency evangelists railed against phony fiat currency, only to be perfectly fine with an abstracted token that is backed by either fiat currency or nothing.


To be fair a lot of us stay away from these Tethers.

I think there is a place for a 1:1 backed currency on the blockchain, but I'd rather see Governments actually print for example USD and AUD onto something like an ERC20 Ethereum token.

This would add real fiat to the blockchain which is important, as in the end all taxes are paid in fiat. (It would be nice to be able to go directly into AUD for all crypto currencies, rather than the mess I have now which is to use an intermediate crypto currency like Ethereum or Bitcoin to move in and out.)

Those extra transactional costs really screw with a lot of us.


> To be fair a lot of us stay away from these Tethers.

Especially after the Bitfinex "hack". I won't touch them with a ten-foot pole, but for large scale money laundering, nothing fits the bill better.


Most "cryptocurrency evangelists" as you say stayed as far away as they could from USDT and are rather supportive of Bitfinexed's arguments against tether.


Money is many things. Some people are against fiat currency as store of value, but okay as medium of exchange. Tether is fiat currency used as medium of exchange but not as store of value.


This is awesome, great write-up, thank you very much.

You briefly mention that crypto-currencies are used for money laundering. Do you think that's what's driving btc price to insane levels? Or is it just good old euphoria?


It might also be that the central banks are printing money like hell, and people look for places where their value stays better.

For example ECB (european central bank) is issuing 60 billion euros new money each month, and buying bonds with it. That is half of the bitcoin market cap.


The ECB QE program keeps bond yields down (especially long term [riskier] ones), thereby pushing "interest rate" down, which has an inflatory effect. Now, the CPI in the Eurozone is about 1.3% now http://ec.europa.eu/eurostat/web/hicp/publications/news-rele... .. and it was about 0.5% last year: https://pbs.twimg.com/media/C5v91Y9WQAEyM0j.jpg

Yes, this drives bank savings account rates down to nothing, thus people are looking for better "investments".


CPI is fairly useless anyway. It ignores where the huge money displacements are actually going: hint, not bread and circuses. The money the ECB is displacing is institutional investors money and causes inflation in things like housing, stock markets, VC funds, and yeah, probably cryptocurrency.


Rent is included in the CPI, and it usually co-moves with housing prices .. and yet .. it means no difference: https://www.ecb.europa.eu/pub/pdf/other/mb201008_focus06.en.... (it's much more drastic in the US CPI - probably because more people own their homes in the EU and gentrification and other effects are a lot slower too? who knows..)


> Bitfinex has an order book filled with something people want. A way to get access to that orderbook is to say "Bitfinex, I want some tether, how do you sell them to me if you can't accept a wire?" Bitfinex might say "Are you a trustworthy US VC? Spiffy. Move $20 million from your left hand pocket to your right hand pocket. The right hand pocket is now ours; here's $20 to $21 million in Tether, which are good for BTC at your favorite exchanges. At some time in the future, a trustworthy US VC other than yourself is going to ask you to buy some tether from them at par value. You will do that, and pay them from your right pocket. If a regulator asks you about this transaction, you bat your eyes and say 'Oh, sophisticated investors doing a cryptocurrency transaction, nothing to see here.'"

I feel like I'm missing something here -- doesn't the first VC end up with more in tether than the right-pocket money?


>I feel like I'm missing something here -- doesn't the first VC end up with more in tether than the right-pocket money?

Well, yeah. People don't just participate in schemes without getting "paid" for it.


This is much easier to unwind than Mt. Gox since tether is only redeemable through the tether company.

Participating exchanges have to upgrade their omni/tether clients or they run the risk of accepting the unredeemable tethers for which their customers will hold them liable. Omni's design allows tether to track all the disavowed tethers so there's no risk of payout to addresses downstream of this one.


You mean until the hacker starts sending some money to known exchange addresses and tether cold storage addresses, infecting everything?

EDIT: it appears I was wrong!


Tether patch invalidates the root transaction, so child transactions don't matter. Check it out on Github.


Not everyone has to/will update their clients, though.


Tether won’t honor the tethers anyway


That’s not the issue. The issue is rendering the USDT useless because recipients don’t know if they’ve been paid with “actual” USDT or “fake” USDT.


has anyone checked to see if this money has already spread to downstream addresses? It's possible the damage is already done and exchanges have accepted money from the poisoned address.



Unless the address in question was an Exchange deposit address. In that case hacker has purchased $30mm worth of Bitcoins in a matter of hours and moved them out immediately without needing to move Tether anywhere.


There was already a BTC price spike on Nov 19.

This change was from 14 hours ago: https://github.com/tetherto/omnicore/pull/1

Couldn't you just try to find exchanges where Tether volume spiked around that time?


Thanks for the link, very useful for those of us who don't really know what to do with addresses posted in these stories.


Back in 2012/2013 there was something called "Mt Gox codes". It was a USD transfer mechanism that was supported by Gox, btc-e, early bitfinex and others. You could magically and instantly get a USD balance transferred from one exchange to the other. It was pretty crazy to see in operation as funds would instantly flow from Japan to Hong Kong to Russia/Bulgaria/wherever-btcE-was.

It was shut down by US authorities sometime in the Spring of 2013 as I recall. Tether is playing a similar inter-exchange roll today. At least now there is some kind of public ledger, but that may not be saying much.


$600 million in fake dollars? Amazing that they've gotten away with it for that long.


They are not fake, they have all of them. People from the US just can't access them anymore. Tether is the workaround so they can.

To add to the excellent summary of patio11:

The other side of the coin is that more and more exchanges are using Tether (USDT) as the only thing pegged to the FIAT world in any way (value wise), not having to deal with actual dollars and banks makes the legal side of running an exchange a lot easier and cheaper. So a lot of exchanges are supporting USDT for a reason way bigger than simply providing a trading marketplace for them. Think about exchanges like Bittrex and Poloniex, which volume wise are huge and don't offer any real dollars or euros.


Who gave them all that USD? Where are they keeping it? They've been shunned by their US banking partners. They've basically been printing Tethers 50m at a time. The only thing they've released which attempted to show that they actually had the USD was something they called an "audit" which explicitly said "this is not an audit" [0] on the second page.

When you go to withdraw from Tethers it basically says "if you don't have more than $50k in claims, go away" [1]. Suffice it to say that most of their customers don't have that.

My guess is that Bitfinex, through a combination of wash trading and Tethers, have been pushing up the price of Bitcoin and they've basically been running a Ponzi scheme.

[0] https://tether.to/wp-content/uploads/2017/09/Final-Tether-Co... -- "This engagement does not comtemplate tests of accounting records or the performance of other procedures performed in an audit or attest engagement"

[1] https://cdn-images-1.medium.com/max/800/1*7BOwdYvUycjNFdUB2e...


I’m still wrapping my bed around the concept of Tethers, but I don’t see [1] as problematic. That’s the same way that ETFs work — they ensure value parity by guaranteeing that you can redeem blocks of them for the corresponding assets. But to ensure the ETF shares aren’t all redeemed this way, they limit it to large blocks of shares. That way, smaller investors can still sell their (smaller blocks of) ETF shares for dollars at par, since any divergence would be an arbitrage opportunity that a bigger trader can exploit.

The requirement to redeem in large blocks doesn’t change that logic, and still ensures that the smaller trades happen at par.


I agree it's not problematic by itself, but together with the other allegations (including plenty I haven't listed) and it starts to paint a picture that they do not have USD to back up every single one of their Tethers.


> When you go to withdraw from Tethers it basically says "if you don't have more than $50k in claims, go away" [1]. Suffice it to say that most of their customers don't have that.

This is not how most people redeem tether, they go to any of a wide range of exchanges (kraken, poloniex, bittrex, etc) and trade whatever amount (from a dollar or whatever the minimum trade amount is).


Do you not see that inability to redeem for Dollars (AND the fact that most people aren't doing this but rather pumping these so-called-$-backed-tokens into other cryptos) could potentially be catastrophic if they were created without organic investment? They would literally be fake money priced at $1 buying $1 of BTC.

It is the definition of inflation: increased money supply. Except it's priced in $, which hasn't actually inflated. So if the bubble pops and the money is found to be fraudulent, then it equates to money supply shrinking. Artificial demand removed..


How does that prove that Tethers has USD to back each USDT? If it's all exchange-based then there's no guarantee of a peg to USD.


I 100% agree with you how risky it is and how hard to prove this is for bfx. It's very dangerous and there is a lot of money on the line (not just the tethers themselves, USDT reaches for and beyond bfx).

However I don't think it's obvious that this thing will implode, based on the information we have we can only speculate. Pointing to screenshots about being unable to withtdraw tethers is a red herring and has nothing to do with whether tether will implode.


It's not hard at all. There's a few, very basic things that would change my tone:

1) Let users exchange USDT for USD no matter the denomination or status. If they can't do that, remove the thing that says "You always have 24/7 access to our balance" from the website marketing.

2) Release an official audit (that doesn't say "this is not an audit")

3) Explain the large amounts of Tethers being minted. If they are legitimate, who is pumping $100m into Tethers almost every 3 days? No need to be specific, but records would be nice.

4) Tell us who their banking partners are that are holding the USD.

5) Put their transparency page back up [0]. Bonus points if they actually keep the "Shareholder Equity" number negative in the interest of transparency, or explain why it might have gone negative.

[0] Compare: https://archive.is/6os3c https://wallet.tether.to/transparency

The fact that they haven't done any of these heavily imply to me that Bitfinex and Tethers are a sham operation.


> If they can't do that, remove the thing that says

This again, is related to their marketing and not actually to their solvency (red herring).

> Release an official audit (that doesn't say "this is not an audit")

Lack of proof !== proof of insolvency.

And for all the other ones:

They are not entitled to tell you everything. The fact that choose not to is in NO way proof that they are insolvent.

I 100% agree that based on your list one might choose not to trust them. Just don't go screaming "they've basically been running a Ponzi scheme" with the only proof being them not telling you what you want to know about their operations.


Well if you can take your USDT and buy BTC elsewhere, and then turn those to USD through whatever means it works well for you.

My bet is that exchanges are holding a lot of these, and they're a bit bought in to Bitfinex not falling over...


Exchanges don't hold the tether, their customers do. If/when tether falls over, the exchanges won't be the ones taking the hit.


Why are you singling out Bitcoin though? All cryptocurrencies are affected by this.


Because Bitcoin matters more than all of the other coins combined?

Insofar as market cap means anything, Bitcoin alone takes up about 56% of the sum of all cryptocurrencies listed on coinmarketcap.


That doesn't answer my question.


For the motivated amongst us, the SEC "Tips, Complaints, and Referrals" portal is here: https://denebleo.sec.gov/TCRExternal/disclaimer.xhtml

They accept anonymous reports, and pay out whistleblower penalties in some circumstances.

I can't tell if Tether is a US company or not, but regardless, it's still worth reporting if y'all care to - that USD has to get into the country somehow, and it sure is interesting how it isn't being reported properly!


US customers of Tether should be concerned that transactions repatriating dollars might trigger a SAR. Have your paperwork in order.

https://en.m.wikipedia.org/wiki/Suspicious_activity_report


Its hard to imagine they don't know about this stuff already.

Generally, they know about it, but they have to work to build a case against these people?


AFAIK they are from Hong Kong.


> If you haven't been following along, here's why this matters:

This is the only thing that matters: no matter how many faults, and bugs, and breaches, and unauthorised transactions there are, people still flock to these poorly specified, even more poorly executed soap bubbles with no real-life uses.

This like the tenth time something like this happened this year (or just last month, I lost track). And still, somehow, there are (perceived) millions upon millions of dollars in these systems.


Isn't the "having access to USD" part of their dollar-backing credible as long as they can buy or sell dollars in the global market?


How do we verify they USD exists? Trust them? In their terms they state that there's no guarantee that they're redeemable for USD. The whole debate depends on whether the USD exists or not.

Certainly you won't believe it does without some strong verification right?


Could you go into more detail on what happened to Mt. Gox during final months?


I suppose I could: https://news.ycombinator.com/item?id=7304479

The short version: Mt. Gox stopped paying out USD-denominated claims, because (as was correctly perceived by many people) they were insolvent. They continued paying out BTC-denominated claims. The only way to get value out of Mt. Gox was to either go through yen (which the vast majority of customers couldn't do [0]) or buy Bitcoin and withdraw, which caused the price of Bitcoin to gallop upwards in late 2013.

[0] I got a number of interesting business propositions that year: https://twitter.com/patio11/status/423869016776933376


Can you explain how this would be "good for Bitcoin" though?

Didn't the price crash after the extreme rise? Or was this because the BTC was stolen and unrelated to the USD insolvency? Was the "good for BTC" tongue in cheek?


Bitcoiners say that things are good for bitcoin whenever its price goes up (because they care more about price than anything else in the bitcoin ecosystem). Bitcoin skeptics like patio use that phrase in a more tongue in cheek manner


Thank you.


Mt.Gox started having issues withdrawing funds to "real" fiat currencies, people got scared, wanted to pull out their bitcoin, suddenly their account says they have a balance, but there's not bitcoin backing up the balance. (In Mt.Gox case, this was because a significant amount of bitcoins were stolen from their treasury.

Similar thing could happen with people redeeming USDT for USD if they don't have enough to cover the already issued USDT.


Patrick, I thought you are better than making these "non-proved" claims. I can make claims about Bitstamp or Gdax too. Their order book has increased 10-15 times in value since bitcoin price was in the 1000-1200 range too.

Tether certainly has a connection to Finex but they are not its biggest client. Tether is being used by crypto-only exchanges mainly Bittrex and Poloniex to give people the possibility to trade coin/usd.

A possible explanation of Tether growth is simply that: Polo and Bittrex started using them. Is that shady and tries to avoid regulation by placing a crypto sign over a real dollar? Yes.

> If you don't believe Bitfinex's $600 million in liabilities are worth a copper shilling, the only option for getting your value out of Bitfinex is to swap your liability for Bitcoin, which drives up the price of Bitcoin at the margin.

Except that the price of bitcoin in finex has been lower than other exchanges in the last few weeks and only slightly higher now.


http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC...

> I, J.L. van der Velde, hereby declare as follows:

> 1. I am the Chief Executive Officer for iFinex Inc. (“iFinex”), BFXNA Inc. (“BFXNA”), BFXWW Inc. (“BFXWW”), and Tether Limited (“Tether”). I have personal knowledge of the facts set forth below, and if called and sworn as a witness, I could and would testify competently thereto.

> 2. iFinex, through its subsidiaries BFXNA and BFXWW, owns and operates a leading global Virtual Currency platform called Bitfinex.

I don't know what else you need for a smoking gun. Tether and Bitfinex are the same thing.


> Tether certainly has a connection to Finex but they are not its biggest client.

This is false. In fact, every "USD" market on Bitfinex is actually a Tether market. It doesn't matter what the label on the ticker is, because USD cannot be deposited or withdrawn from Bitfinex, only Tether. Given that, Bitfinex is by far the biggest Tether market.


That’s also wrong. Biggest tether market is bittrex followed by polo. Finex tether holdings are really minimal and for a good reason.


Bitfinex is conflating Tether (USD₮) and USD: “Bitfinex lets you receive USD₮ from a Bitcoin blockchain address and treat them as a USD deposit. Similarly, you can withdraw funds to a Bitcoin blockchain address as USD₮.” [1]

Whether they are holding a lot of USD₮ or not, I don't know. But since they cannot receive USD, by construction their USD holdings are limited.

[1] https://support.bitfinex.com/hc/en-us/articles/213919369-Wha...


Bitfinex's Tether "holdings" are unverifiable and irrelevant anyway. What matters is what you can deposit and withdraw from their markets. It's not USD, it's Tether, and that is verifiable by anyone with a Bitfinex account.


> Tethers is a sole-source cryptocurrency, pegged to the US dollar.

There are others though not really at Tether's level. There is bitUSD on cryptocurrency called Bitshares.

> Is this good news for Bitcoin? Oh this is great news for Bitcoin.

Some more discussion on this topic here: https://news.ycombinator.com/item?id=15633852

To add to your post, there are some claims on the fact that it is not finex which has the highest volume rather Bittrex and Poloneix.

There is an interesting reason for that- there is no market for BTC/USDT on Bitfinex as far as I can tell: https://coinmarketcap.com/currencies/tether/#markets

Though I am unable to open the exchange link - https://www.bitfinex.com/t/USDT:USD

This means if I need my USDT to convert to BTC Finex is not the place. They are rather Poloneix and Bittrex which have an exchange for BTC/USDT. Hence people are going to those exchanges in droves, instead of finex.

The second interesting thing is as far as I can tell, finex seems to peg the USDT to $1 and invariably sell/buy at the same price. There is no free float. While others have a free float to BTC/USDT which means prices can be pushed higher there. So I will not be surprised if Bittrex/Poloneix had higher BTC prices.

That said, the chart of USDT is also interesting: https://coinmarketcap.com/currencies/tether/#charts

The peg was maintained for a long while before things seem to get hairy in April/May this year.


> there is no market for BTC/USDT on Bitfinex as far as I can tell

You have it backwards. There is no BTC/USD market on Bitfinex. Their "BTC/USD" market is a BTC/Tether market. They have simply labeled it wrong to mislead people. USD cannot be deposited or withdrawn from Bitfinex, only Tether, and that makes their "USD" market a Tether market no matter what the ticker says.

It's really a brilliant scam, but it's only a matter of time before Tether is shut down for enabling money laundering, and Bitfinex with it. Banning US citizens may buy them a little time but it won't last forever. Bitfinex will be the next BTC-e, only worse. Not only is their volume higher than BTC-e, they may bring down Bittrex and Poloniex with them.


There are two types of divergences for Tether, and they each mean different things.

1. USDT > USD. This is the benign version. This signifies increased demand for Tether itself. This happens when there are arbitrage opportunities between exchanges that can only be exploited quickly using Tether. This is the variety that is most common, and exactly what Tether was intended to be used for.

2. USDT < USD. This is bad. This means that people are willing to take a small haircut to not be holding Tether. This means that the market views Tether as risky in some way, possibly implying insolvency. This has happened a few times, but is less common.

Understanding this is essential to interpreting Tether, price divergences, and also the nominal divergence between prices on different exchanges.


Where's the proof on your claim?

From the looks of the chart here(if you need more clarity zoom from April to date): https://coinmarketcap.com/currencies/tether/#charts

It is you second but is less common, USDT < USD is what is happening more. Sure there are some spikes in the opposite direction.


I'd say that that chart shows that when USDT < USD it is larger, but less frequent. Look more closely and I think you'll agree.


Two things could've happened.

1. The saw all the buzz about BFX and Tether and decided to pile the negative buzz all at once.

or

2. Let's tell them we got hacked and shift the attention their; plus they might feel bad for us.

They were good when they first started but then they got full of themselves and started implementing very odd and sketchy operations. Personally, I won't use them until they become verified: https://cryptonaire.com/digital-assets


"swap your liability for Bitcoin, which drives up the price of Bitcoin at the margin"

Or any other altcoin available on Bitfinex.


Post-script: Is this good news for Bitcoin? ...

That is some backward logic there.

If there was 600 mio. USD of fake money used to trade bitcoin, it would have driven the price of bitcoin up (and the price of USD down).

Now we get that thing in reverse.


So basically Hawala?


They printed 60M tether in the last week.


This also illustrates the absurdity of so called "money laundering". Just moving money around between private parties is somehow a serious crime. Hint: It's not. Money laundering is just a cheat code for prosecutors to get easy points when they can't actually find real wrongdoing.

The funny part is that Tethers came into being after Bitfinex was hacked, right, as a way to help them out? Sometimes we say after someone or a company makes a mistake they're less likely to do so again. In this case, "oops"?


As you said, moving money isn’t money laundering. No prosecuter is getting a conviction from people moving money.


Nah they'll just use those laws to steal your money: http://news.bbc.co.uk/2/hi/africa/5292750.stm


> The funny part is that Tethers came into being after Bitfinex was hacked, right, as a way to help them out?

No, Tether is completely unrelated and existed (or was in the process of being stood up) years prior. It just became widely used in 2017 after some exchanges (bitfinex being a big one) switched to it for USD for a variety of reasons.


iFinex acquired an ICO called "Tether" that no one cared about. I can help you buy 1 year old ICO for peanuts.

There is a letter signed by iFinex CEO that he owns both Bitfinex and Tether: http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC...


moving money around without record-keeping to prove it wasn't criminally obtained is a serious crime.


We know. The point was that it's malum prohibitum (a crime because it's forbidden), not malum in se (evil by itself). [1]

[1] https://en.wikipedia.org/wiki/Malum_prohibitum


Given the way the financial world occasionally fucks everyone, I think that large scale unauditable transfers of cash around the place may well be bad in and of themselves.


I don't really see a difference between the two.

The first is what everyone can agree on is evil and the later is what we haven't agreed on (or not yet).

To quote from the page on malum in se; "The phrase is used to refer to conduct assessed as sinful or inherently wrong by nature, independent of regulations governing the conduct", which I don't think is a thing tbh.


Murdering your wife is wrong by nature.

Moving some money around without telling the government is only illegal because it's illegal.

To me, the difference is whether or not there is a victim. No victim, no wrongdoing.


I think its debatable.

If you knowingly helped a murderer dispose of a body, that’s wrong by nature right? Money laundering is the financial equivalent of that.


No, money laundering is the financial equivalent of running a taxi service and not asking any questions about the luggage.

It's not necessarily disposing of a body, and punishing people for moving luggage around without asking questions is obviously absurd.


Terrible analogy. The number of people that would even have any desire to put something illegal in taxi luggage is very low. The number of people wanting to launder money because they did something truly evil is very high.

International airlines are a better analogy; should we just let people run weapons, drugs, even children in their luggage, with no mechanism for inspection?


Murdering my wife is wrong because I believe it to be wrong. And a lot of people agree with that. I see no reason why the universe at large cares though.

If you don't tell the government you're moving resulting in taxes not being paid properly then you're damaging the government and by proxy, society. Atleast, that's what I think.


Right, then you're tax avoiding, and should be charged with tax avoidance.

In cases where you're not tax avoiding, why does money laundering have to be a separate crime? It comes back to "Money laundering is just a cheat code for prosecutors to get easy points when they can't actually find real wrongdoing."


Your logic is questionable.

> The primary purpose of tethers is money laundering.

you don't back up this statement. The primary purpose of cryptocurrency isn't money laundering. CME is not a money launderer. the us vc aren't in the business of money laundering. What do they gain from buying tether ? How do they move their real usd to bitfinex ? Why does bitfinex even want US dollars ? How is bitfinex able to maitain the usdt/ btc rate appropriately ?


There are a lot of claims here. Can you please provide proof of:

1) Bitfinex being the producer of tether? 2) Bitfinex being cut off from the US financial system? (According to their knowledge base, USD withdrawal is an option: https://support.bitfinex.com/hc/en-us/articles/213919309-How...)


See http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC... - or https://archive.is/ggehl

1) Declaration 1&2 show that Bitfinex (through iFinex) share the same CEO (and they're the plaintiffs in this case)

2) The whole point of the case was Bitfinex fighting against being cut off by Wells Fargo.



The abstractions and tech which cryptocurrency works on is fragile in most of the same ways as the layers that came before it (credit cards/banks/etc).

Try to look at all this holistically.

How many people and resources do we dedicate on this planet to keep track of money, economy, mine the coins, cash the checks, swipe the cards, keep the lines working?

All of these abstractions make trade faster and more liquid but honestly it really feels like dimished returns in the grand scheme of things.

So many people make money by keeping track of money. So much resources. I can't even fathom it.

Bankers, store clerks, amazon servers, politicians, Dunbar, Stock markets, its crazy.

How much do we allocate to this cause, the cause of keeping track of "who owns what"?

This is not rhetorical, If I had to guess, I would guess that 70% of our resources and jobs are dedicated to this nonsense.

Just think we are mining coal out of the real ground just to mine these "valuable" ones and zeros. What the actual fuck?

It all just seems like a waste.

Use my empty clock cycles to mine and keep track of everyone's virtual coins?

I was behind folding proteins and SETI, and all the other distributed computing ideas. It felt meaningful, like I could help change the world and help raise up the human condition...

Thanks to this post, I just learned what "Tethers" are, and I have to say, I'm so fucking disappointed with this part of the industry.

One of the early promises of cryptocurrency was to "sick it to the man and governments". Now its powered largely by greed and consuming our most important resources in breakneck speeds.

I wish you all luck this this "investment", hopefully the planet will survive this next abstraction of "money".


Countries like the UK are dominated by the business of deciding "who owns what". Of course the people running the system are "earning" a whole lot of money for themselves.

But money is a strange thing. Almost everyone you speak to doesn't understand it. People think the money itself---the bank notes and numbers in an app---are "worth" something. The system itself does have value because it enables asynchronous trade, which seems to be a good thing. But when you tell people that the numbers in their bank account were just created from thin air by some bank who lent someone money at one time, their eyes glaze over.

When you look around it is obvious that there really are people who are "good with money", and people who are not. Who knows if the poor understanding is intrinsic or has been nurtured by the finance sector. But if we accept that money is a good thing and that some people are bad with it, then that does mean the finance sector has some value.

Bitcoin has long been about greed, unfortunately. In the beginning it seemed like a majority were in it because they saw the value of trustless electronic cash. A system much like gold but completely electronic and completely accurate. But it hasn't been about that for a while. Today you can't even move BTC around due to high transaction fees. I can't believe that the current market cap reprents the value in the current system.


Without making a comment on the crypto/tether aspect, I just want to express that it seems to me that the "cause of keeping track of 'who owns what'", as you put it, is precisely the singular technological achievement which has enabled the "human condition" to evolve to its current state. Money is literally the decentralized, asynchronous, dynamic, and continuous computation that has evolved to process the combinatorial coordination of signals/information on resources between 7+ billion unfathomably complex and independent agents. To me, the staggering thing wouldn't be that "70% of our resources and jobs are dedicated to this nonsense", but rather that the technology known as money is so incredibly efficient that it leaves 30% surplus (in this example) for society to further grow.


Really?

You really think that having only 30% of output go into actual, productive endeavour would be a good thing?

It just screams of a completely broken system to me, and inefficiency.

I could understand if your attitude was that, well, it seems it had to be this way, it's the best we can do. But to actually celebrate a ~2:1 ratio of fund-shuffling busywork over production seems crazy.

Don't get me wrong, I work in the sector right now, I'm happy to get paid for it, and I can see a use for what I'm doing (exposing data for use in new services) but really not so much when it comes to using distributed supercomputers and thousands of coders to try to predict tiny market movements. And really not "burning energy as fast as possible to (adversarially) compute transactions on a shared ledger".


Just what exactly is your definition of an "actual, productive endeavour"?

Is it really that ridiculous that we dedicate a lot of resources to keeping track of who owns what? We're a mostly capitalist society, right? In a system where private ownership reigns supreme, you absolutely need to keep track of who owns what or we'd have even greater wealth inequality than we have now. Personally, I'd like to see some kind of anarcho-syndicalist structure but let's be honest our greatx10 grandchildren will probably still be capitalists.

This article is a little over-the-top in some spots, but the main point is correct. Cryptocurrency is an innovation in accounting: https://hackernoon.com/why-everyone-missed-the-most-importan...

Cryptocurrencies are trying to make trustless transactions a reality so we don't need a human workforce to keep it all mostly accurate. Don't get too disappointed yet, this stuff is just getting started.


A "lot" of resources would be 1% IMHO.

If society is burning up not just a lot, but a majority of its effort in servicing its model (resource tracking), it seems to me something has gone very very wrong.

You need to keep track of who owns what. You don't need to make that such a complicated thing that it takes vast portions of available human effort to track, and sucks in vast portions of the fruits of said effort.

You don't have to be an anarchist to think that that's ridiculous.

We can do that with trust and the vast majority of people don't care.


I don't disagree that it's a depressing waste of existence to spend one's life keeping track of stuff. Especially if it's not even your stuff. But we've only had the computing power to take a load off us humans for a decade or two. And plus everyone needs a job (pointless or not) or the unemployment statistics start to freak people out. It's sort of the hand we've been dealt, the whole "let's work hard now for a better future we'll never see" thing.

I think the situation will improve dramatically when some of these crypto projects begin to mature. From what I can tell, blockchains are the opposite of lightweight, and personally I'm not holding my breath for one to become useful for anything besides profit anytime soon. I think something like IOTA is a better candidate to be useful (a fee-less directed acyclic graph, not a blockchain). It's more like a new communications protocol that will allow machines to conduct their own transactions with each other. The team's goal is to make it useful first, and if it's profitable too well that's great. Maybe I'm just not that creative anymore, but I can't see a production-quality future for blockchains, and would agree that giant PNW datacenters doing nothing but proof-of-work is a massive waste of resources.

That said, these are mostly just research projects hoping they have one of the big ideas that will win.


> Money is literally the decentralized, asynchronous, dynamic, and continuous computation that has evolved to process the combinatorial coordination of signals/information on resources between 7+ billion unfathomably complex and independent agents.

I liked that thought, however, I don't agree with the sentence that followed it. We can do way better than that, if we're designing the "next gen" currency, it better give us way more productivity.


I disagree with the approach to just say "this all sucks". It sucks in particular ways, but I do agree with the other comment that this system has gotten humanity this far, so there are certain benefits to it. I hope in the future we'll have better systems than money to be able to allocate resources.

So we need to understand why part of it sucks, why part of it is great, and develop better alternatives that are also great but suck less. For example, it is important to keep track of who owes what to whom, otherwise people can't trust each other to make promises on a large scale with strangers. It's less good that people can gain a lot of profit simply by manipulating numbers and moving financial instruments around. Part of this stems from all value judgements being collapsed down into a single number which of course can never be self-consistent [1], part of it stems from informational differences between actors and other real-world deviations away from what a "perfectly-liquid" market should look like. If financial activity was truly a "market optimisation" mechanism, we ought to be able to replace the entire thing with a neutral algorithm and get rid of bankers and personal profits here completely.

[1] you cannot totally-order a 2-vector (and in general a n-vector) so that the ordering obeys the neighbourhood principle


Proof of work is not the only scheme to ensure consensus. There are multiple projects based on some kind of proof of stake. One of the most promising such projects is EOS in my opinion. I suggest you not to gain knowledge about cryptocurrencies on HN. Yes, cryptocurrency forums may be an echo chamber, but HN seems to be the other way around. Lot of HN-ers are extremely cynical about cryptocurrencies, so you will mostly hear the bad news here. Reality is not as black and white as most commenters here suggest.


New coins using proof-of-stake should look to Peercoin for guidance. It's the oldest PoS coin, had no premine/developer fee. (note that it does use PoW for distribution).

> Lot of HN-ers are extremely cynical about cryptocurrencies

I think cryptocoins are great but we can all see folks dumping their money into assets that they have no hope of understanding, guided by FOMO. As a whole it seems like there's not enough cynicism.


I understand your sentiment.

However, I think about it slightly differently -- crypto currencies (and their likes) are just an attempt to replace man-power with computer-power. We need someone to enforce the rules without human intervention, hence, freeing up more people to do stuff that doesn't involve managing the abstraction of money.

edit: When we imagine "mining" in this realm, it'd help to think in terms of mining abstract resources like cost for verification of a transaction, rather than tangible resources like coal.


Most of the other layers of abstractions and tech are still present.

We literally are mining coal to burn it in powerplants to energize servers and GPUS to waste clock cycles to find "coins".

The world is the realm and how we use its people and resources matters, especially when its to just create more entropy faster then natural systems.


The purpose of bitcoin mining is not to "find coins," although the mining reward might make it seem like that. The purpose is to provide enough hashing power to the network to cryptographically verify transactions using a consensus algorithm, which prevents any single actor from double-spending. Without enormous hashing power, the network would be vulnerable to a 51% attack by a sophisticated attacker.

This is not to say that proof of work is the best consensus algorithm, but given it's age, the fact that Bitcoin has stood up so well to the test of time is a testament to it's viability as a consensus protocol.


> We literally are mining coal to burn it in powerplants to energize servers and GPUS to waste clock cycles to find "coins".

I'm curious to know what the carbon footprint of a human is, that way we can compare it to the GPUs doing an equivalent amount of work (which I think will be tricky to determine in the first place).

> The world is the realm and how we use its people and resources matters, especially when its to just create more entropy faster then natural systems

if anything, we're pushing entropy away, we're tending towards order not away.


According to rensmart.com, 1KWh is approx. 0.5 kg of CO2 saved/used.

A RX480 uses 160W on average according to TomsHardware, mining might pull more but lets use that as a conservative example.

A Mining Rig, decent one, might have 4 cards and pull 100Watts for itself (conservative estimate).

That puts the total power of the rig at 750Watts (approximately)

This will yield a hashrate of about 20MH/s for each card or 80MH/s for the entire thing (atleast from what I can tell)

So the right has about 0.7KWh per hour for 80MH/s, which yields about 0.35kg of CO2 every hour.

Ethereum has a total of 120TH/s or about 1'500'000 of these mining rigs. Which means the total carbon footprint estimate of Ethereum is about 525'000 kg or 525 Tons each HOUR. And that is using my conservative estimates.

The entire year (ass. 365 days incorrectly) is 191'625'000, or about 191 kilotons of CO2.

To comparison, a single person uses about 6 to 8 tons o CO2 per year so Ethereum alone produces as much CO2 per year as 191'000 people combined.

>if anything, we're pushing entropy away, we're tending towards order not away.

What order? Burning any fuel is literally increasing entropy. If you break a wineglass you increase entropy. If you repair the broken wineglass you still increased entropy. Entropy inevitably goes up and you can maybe delay it by putting in massive amounts of energy compared to the entropy saved.


Thank you for the numbers!

Assuming those estimates are correct (I haven't verified it), I think it's hard for me to believe that there are fewer than 191K people working to manage an equivalent number of financial transactions in USD.

I tried this wolfram query: http://www.wolframalpha.com/input/?i=number+of+people+workin...

Yes, we are increasing entropy outside of ourselves but not within, if the population of humans is increasing, humans have acquired more negentropy from the environment and are "winning" against entropy as they get better at extracting energy from the environment, we'll run out of energy in the form of fossil fuels soon, so we'll have to find another source of energy, because we need more energy to decrease entropy.

Let me be clear(er) in saying that I don't support burning fossil fuels, I think OP linked mining bitcoins directly to burning coal -- we're mixing two very separate arguments here. Burning fossil fuels for generation of electricity is a topic on its own.


>I think it's hard for me to believe that there are fewer than 191K people working to manage an equivalent number of financial transactions in USD.

The problem is, this estimate is just for Ethereum. It does not account for Bitcoin which must arguably have a much larger energy usage.

The thing about these 191K people is that Ethereum uses them just for transactions while people working in the banking industry will most likely not spend most of their carbon footprint just on managing transactions.

Most modern banks also don't manage transactions with employees anymore, they use computers to transact. They use the power invested into transactions more efficiently, the energy used being directly proportional to the amount of transactions moved around, the human meat sacks are only there for the smiles and managing things the computers can't do. yet.

> if the population of humans is increasing,

> are "winning" against entropy as they get better at extracting energy from the environment

Making a human is a net increase in entropy. Burning fuel is a net increase in entropy.

>so we'll have to find another source of energy, because we need more energy to decrease entropy.

This is not a fight you can win as the amount of energy you need to expend is magnitudes larger than the amount of entropy you decreased, actually, by the law of thermodynamics, any energy you expend to reduce entropy will produce an equal or larger amount of energy as a result.

Entropy may decrease temporarily in a locality but overall it will always increase inevitably.


I ran out of HN time yesterday, so here's my delayed response.

> Most modern banks also don't manage transactions with employees anymore, they use computers to transact.

so, there's some of that carbon expenditure going into computers and networks to manage these transactions? Banks also use your money to make more money for themselves, does that bother you at all? considering that this thread started out by looking at things "holistically".

In any case, my point here isn't that crypto currencies are the best thing ever, but they're definitely a step in the right direction. I hope you can see the potential in these ideas and what they're trying to achieve. Basically, we need a system that can't be defeated with fraud, if everyone was honest we could just pass around a piece of paper and ask everyone to write down how much money they have and we'd be good, unfortunately that's not the case, as I see it, most of it is a just the cost of preventing cheating, we can certainly observe the current networks and come up with better ones in the future.

> Making a human is a net increase in entropy. Burning fuel is a net increase in entropy.

> This is not a fight you can win as the amount of energy you need to expend is magnitudes larger than the amount of entropy you decreased, actually, by the law of thermodynamics, any energy you expend to reduce entropy will produce an equal or larger amount of energy as a result. > Entropy may decrease temporarily in a locality but overall it will always increase inevitably.

so, are you suggesting that we stop reproduction and burning fossil fuels and slow down the "advance of entropy"? (or is it just bitcoin you want stopped?)

Also, "net increase" in what system?


>so, there's some of that carbon expenditure going into computers and networks to manage these transactions?

Yes, but a bit less, with high confidence.

>Banks also use your money to make more money for themselves, does that bother you at all?

Not really, miners in bitcoin also make money, don't they?

Additionally, European Banks announced they're starting SCT Inst, SEPA transactions which are confirmed in 15 seconds instead of overnight. My bank doesn't charge me fees for it.

Why bother with bitcoin's immense carbon footprint when it can't beat the lower effective carbon footprint of banks if they are faster and cheaper?

>but they're definitely a step in the right direction.

I can agree with that, but they need to fix things to be applicable for a wider audience.

> we can certainly observe the current networks and come up with better ones in the future.

I'm currently somewhat invested in Ethereum since they plan to go into PoS which would be immensely more efficient.

>so, are you suggesting that we stop reproduction and burning fossil fuels and slow down the "advance of entropy"? (or is it just bitcoin you want stopped?)

No at all, just refuting that you can decreaser net entropy.

>Also, "net increase" in what system?

In the closed system that is the reachable universe. In any closed system, net entropy increases over time. That's nothing inherently bad, just a property of closed systems.

You can somewhat "cheat" and decrease entropy in some parts of the system but the entire system will increase or not decrease it's entropy.


In the banking sector only a small fraction of employees are required to run the payments infrastructure (in one example, 2% of employees ran the business part of payments, and another 2% of employees could be the IT infrastructure part required for that); payments are highly automated and almost everyone is handling the other parts of the banking business e.g. lending and investments.

Visa and mastercard together employ ~20k people and handle much, much, much more transactions than all the cryptocurrencies combined.

The EU SEPA customer payments system handles ~1000 times more transactions than ethereum, and the infrastructure for running that (spread across all the involved banks) likely takes thousands of people, but not 200k, and certainly not the 200 million people that would be required to do so as horribly inefficiently as cryptocurrencies do.


> Visa and mastercard together employ ~20k people and handle much, much, much more transactions than all the cryptocurrencies combined.

20K people (debatable) and a bunch of computers and networks which need to be managed by more people, and the infrastructure doesn't run on sunshine either (yet).

Without laboring the point, if your position is: * The methods applied by the crypto currencies waste more energy than our current system of currency.

I'll accept this, iff we make sure we've collected data rigorously and we notice that the difference is significant. Even then, there's no reason to give up on the idea of crypto currencies, we just have to make it more efficient.


Proof of work systems (such as bitcoin and ethereum as of now) inherently cannot be made more efficient - their security requires that approving transactions must take so much computing power that an attacker can't afford to burn as much resources as they'd need. It'd be trivial to make the processing 100 or 10000 times more efficient, but that would defeat the whole purpose - instead, the computational (and thus energy) requirements must grow as the currencies become more valuable and processors more affordable; that's why we have the scalable difficulty factor in bitcoin etc - so that the mining gets less efficient with time.


Thank you for this.


Natural systems self renew. Mining coal to mine bitcoin isn't anywhere close.

And the legacy systems from barter to bitcoin are all still around.


I agree, we should stop generating electricity using fossil fuels.

That said, I don't think it's right to just short the connection between "coal" and "bitcoin", we aren't mining coal to get bitcoins, it just so happens that majority of the electricity generated is through coal and mining uses electricity, so does our conversation on the internet.

> And the legacy systems from barter to bitcoin are all still around.

I'm not sure I get your point here. At some point, money of any form will be exchanged for goods or services.


Proof of work was the first, crude consensus algorithm for crypto-currencies. A lot of more eco-friendly consensus algorithms have been proposed. Ethereum, the second largest crypto-currency in the world, is currently moving towards a Proof-of-stake consensus algorithm, instead of the old proof-of-work one.

Don't forget that decentralized currency is a rather new technology, and is constantly seeing progress being made on all fronts. You can even mine Grid coins doing SETI and Protein folding work!


> Ethereum [...] is currently moving

* has been moving for years with no end in sight


The global financial sector is about 13-19% of the global economy, and 20-30% of the global services sector: https://www.investopedia.com/ask/answers/030515/what-percent...

Which is higher than it should be, but thankfully not 70%...

The above probably includes the accounting industry but not all employee accountants/cashiers embedded in all companies, but even if it did, it would move the needle only a bit (maybe 10% of employees?)


> I would guess that 70% of our resources and jobs are dedicated to this nonsense

I think that's a wild overstatement, even if you're including every kind of management and public service job in the world.


> One of the early promises of cryptocurrency was to "sick it to the man and governments". Now its powered largely by greed and consuming our most important resources in breakneck speeds.

There is a really critical distinction between truly trustless currencies like bitcoin and "managed" [centralized, trusted] assets like the ones Ethereum offers. Interesting that once you start to grant some amount of trust there are options that don't leverage proof-of-work at all, so the waste is not necessarily a concern.

Proof-of-work is "only" necessary if you want trustless coin w/egalitarian distribution. Some folks would argue that it's not necessary to be truly trustless (perhaps bootstrapping a new bitcoin node could suffer a DoS from a sybil false-chain attack, at which point you would trust someone authoritative's copy of the blockchain).

No matter how you slice it, you should be very, very suspicious of any new cryptocurrency and super extremely suspicious of any new "crypto-asset".


And then there is the whole "root of all evil" thing.


Here's some more context:

Tether was originally setup as RealCoin. It originally had a clear bank account relationship with a Taiwanese bank. It had about $30mm. Then the bank cut them off.

Since then they've been floating without any announced banking relationship and they also changed their terms of service. Over the same time period they made a partnership with BitFinex and their supposed AUM has gone up over 10x.

No one really knows how much of that corresponds to actual USD or if anyone can actually withdraw. A famous twitter account (https://twitter.com/Bitfinexed) points out every day the ostensible discrepancies between the supposed AUM and public amounts.

I'm generally a huge fan of the goal of Tether (a stable USD backed cryptocurrency), but the proof is in the pudding (i.e the reserves) and your access to it, and both of these are rather questionable.

Full disclosure: I know and am friends with some of the current Tether team and was recruited for RealCoin in the early stages of the project. They are working on a hard problem (asset-backed cryptocurrency on the way that gets the most traction in the market at present, not necessarily the way that inspires the most confidence.


> I'm generally a huge fan of the goal of Tether (a stable USD backed cryptocurrency), but the proof is in the pudding (i.e the reserves) and your access to it, and both of these are rather questionable.

A “USD-backed cryptocurrency” is a misnomer — it’s just credit. It’s a promissory note saying some issuer will, allegedly, pay you a given USD amount. But unless you believe this claim is 100% certain, it will trade under par, which means it’s no longer backed 1-to-1 (or, at least, the market doesn’t believe it to be in practice).


Check out bitUSD (a stable asset on the bitshares platform).

bitUSD is backed by a liquid-market peg and has generally held up fairly well since 2014.


Tell your friends they should shutdown the company immediately to avoid prison time. Using USD to back any token or digital asset 1:1 is a serious crime as demonstrated by Liberty Reserve.


What...? Liberty Reserve was a money laundering operation and had nothing to do with 1:1 or whatever. If there's something in the US Criminal Code about that, you need to cite it but I believe there isn't.


Tether does seem to suffer from exact same problems as LR though, no?

It’s structured in a manner that makes it trivial to establish third party exchangers with no KYC processes. There is no KYC for individual Tether users, who only need to generate a bitcoin address to get started.

Only time they do KYC is when you want to exchange via Tether website directly, which is no different from what LR did IIRC.


You would have to pay me lawyer's fee to give you the code along with an explanation.

In the meantime take my word for it.


I released a paper earlier this year talking about how we can reasonably lock cryptocurrency to fiat, but unfortunately the space is still rather immature. A single provider of USD tokens is extremely dangerous. Best case scenario would be if there were many companies like Tether and you could spread your token purchases between them automatically to minimize counterparty risk. Stellar and Ripple are closest to solving this since they have fiat trading pairs for each trusted exchange on their network. In the future that could mean issuance from hundreds of banks.

Here is the paper if anyone is interested: https://www.gogreenmango.com/whitepapers/Bitcoin-Volatility-...


Ripple is a scam and Jed McCaleb has been dumping thousands of Ripples a day since forever. You shouldn't encourage new users to buy Ripples.


Ripple is a scam it also predates Bitcoin entire thing was a sever to server bank basically


Could you elaborate more on this point?


Ripple the platform is closest to solving the counterparty problems with 1-1 USD tokens. I'm not encouraging people to buy Ripples I'm just stating -- the only way to limit the counterparty risk is to diversify. Banks are perfectly positioned to offer these 1-1 fiat tokens. Ripple is partnering with them.


Jed McCaleb left Ripple pretty early and started Stellar instead, which is probably why he is dumping Ripple.


The only reliable way is for central bank to issue its own crypto currency. Stellar / Ripple are not crypto currencies.


Outside of a central bank issuing cryptocurrency, you can remove counterparty risk with diversification. Stellar Lumens and Ripples are cryptocurrency based on the wikipedia definition: A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions, to control the creation of additional units, and to verify the transfer of assets.

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