The somewhat ironic part is that one of the core concepts of Bitcoin is that you can't counterfeit it. You can mathematically prove how many coins you own, if somebody sends you 3 BTC then once it's been validated on the blockchain you know that the money is now yours, they can't have lied, it can't bounce like a cheque
Except this Bitfinex thing shows that while an amount of bitcoin can't be manipulated or counterfeited, their actual value is relatively easy to influence because it's mostly unregulated. I mean think about it, if Bitfinex is lying about their dollar reserves this might be one of the simplest and most efficient scams of all time. They're literally making up money as they see fit. Hundreds of millions at a time. Just like that.
Now of course maybe they're not actually crooks and they do have the money, it's kind of a schrodinger's cat scenario at the moment. Still, the fact that nobody manages to know for sure the truth of the matter shows that they could be doing it and we'd be none the wiser. People are buying and selling for million of dollars of these things, not knowing if they're trading digital dollar bills or monopoly money.
> Except this Bitfinex thing shows that while an amount of bitcoin can't be manipulated or counterfeited, their actual value is relatively easy to influence.
This is because the only usage Bitcoin has left is a lottery ticket. Bitcoin used to actually have utility value (payment) but now with that gone, it is easy to manipulate the price because its value is built on people's perception only.
If Bitcoin was still being used to send money across borders, to buy things with super low transaction cost, send money without censorship-which by the way used to be why a lot of people saw value in it in the first place--it wouldn't be so easy to manipulate the value because any fool can see that there obviously is value in there.
Bitcoin losing utility has singlehandedly created the scam market we're seeing right now. People who want to make money choose the most efficient way to make money. And if they can see that they could make more money by building productive things on top of Bitcoin instead of building their own scam coin or scam scheme to manipulate the idiots who fall for it, they would probably rather work on those instead. But that's not the case, which is why we are where we are.
>If Bitcoin was still being used to send money across borders, to buy things with super low transaction cost, send money without censorship-which by the way used to be why a lot of people saw value in it in the first place--it wouldn't be so easy to manipulate the value because any fool can see that there obviously is value in there.
Bitcoin had all those things - not that long ago. You need volume to ensure stability, not utility.
> You need volume to ensure stability, not utility
Wow you've drunk some serious kool-aid there.
You need both. A huge volume of nothing is still nothing.
The "you need volume for stability" argument is what pro-bitcoin people used to say when Bitcoin could actually be used as a currency. Many people would say "Bitcoin isn't a legit currency because it's so volatile", and we would say "No, that's only because there isn't enough Bitcoins out there yet compared to USD for example". This was a valid argument and used to be my go-to-comment for convincing people. But that's only when Bitcoin can be used for something.
Now Bitcoin is like a pet rock, it's scarce, but very risky because the value that comes from the scarcity is based on people's perception only and not based on utility.
My point was that if the value is based only on perception (speculative value), this is very susceptible to manipulation.
I can't believe people actually believe just because something is scarce it's automatically valuable.
The only type of transaction that exists on BTC chain today is people buying it for investment and HODL. Even that may dwindle in the coming weeks now that it's looking more like a crash.
I never said mere utility is enough. I clearly said "You need both", in response to parent saying it's not about utility but only about volume. So in summary I agree with your comment.
The most interesting thought to me right now is how the situation will develop if or bitfinex/tether crashes the market hard.
I am not a fan of the SEC getting involved. Taking crypto as an experiment, I think it is better for the market to take a hit and then find organic solutions. If the SEC gets involved and busts bitfinex/tether, the community loses the opportunity to become 'unbailable'. Yes , people will lose the money, but if you create the expectation that the sec will protect you as a consumer from the scams, then we will not be sophisticated to actually organically ignore scams.
What will happen next, FDIC and too big to fail institutions?
It actually did. The market was on it's way to crashing harder than the great depression, but it didn't, probably thanks in some part to government being able to intervene and control monetary policy
A very large amount of Bitcoiners absolutely insisted we were headed towards hyperinflation due to QE back then. In fact that was the very reason a lot of them were interested in Bitcoin in the first place.
Interesting how things have worked out. They were right about Bitcoin's value, but badly wrong on all of the economic related predictions.
Holder, in testimony before the Senate Judiciary Committee, after, well, not doing his job prosecuting banks: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”
Soon after he was done with his effective regulation, according to you, he returned to his job...defending large financial institutions...at Covington & Burling LLP, D.C. law firm.
You can play this argument ad infinitum without actually adding anything of value to this conversation.
Central banking is not perfect, but it has a better track record of stability and growth than any other system that’s been tried at a large scale. Try and remember that the alternatives aren’t optimal economic systems that are immune to bubbles, recessions, depressions, hyperinflation, corruption and manipulation.
If anything the Bitcoin experiment is reinforcing why we have existing regulations in place.
How do you know that it has a better track record of "stability" and "growth" than any other system at a large scale? Much of America's growth in the late 19th happened without any central banks in 1913. Most of "depressions" happened prior to that -- and there were 4 such major ones in the 19th century and many of them were directly caused by the govt policy changes -- were nowhere as severe as the Great Depression occurred after the creation of the central banking in the US.
>> You could say that humanity has repeatedly and organically come to a solution broadly known as government and regulation.
> Worked great in 2008.
Wasn't 2008 at least partially the result of having banking regulations withdrawn/weakened over the prior decades?
If so, isn't it pretty bogus and misleading judge the effectiveness of financial regulation from that event? It's like saying airbags don't help in a crashes, because yours was removed and you smacked your face against the steering wheel in a crash.
You still had a system that decided removing airbags was a good idea. Then, when getting smacked in the face, doing nothing to the people involved in removing the airbags or causing the face smacking.
That doesn't really reflect on the suitability or effectiveness of regulation to address the problem. Greedy, ignorant people who failed to study and learn from the past can be the decision-makers, too.
You know what? It did. You still have running water. Government employees like cops and firefighters and teachers are getting paid (sometimes not enough).
It did and it didn't. On one hand, we stopped a panic that would have led to a true depression. On the other hand we did so by actually increasing the power and wealth of many of the people and organizations responsible for creating the conditions that led to the panic.
Do that long enough and you get a civilization run by overconfident incompetents and shielded fraudsters. That build up of delusional bozos at the top is one of the things that eventually leads to collapse.
Bitcoin was in some ways a protest in code form. Why can't we create a software defined monetary system that is transparent and where corrupt and incompetent human orgs can be replaced by algorithms?
I like that idea, but Bitcoin itself was really just a proof of concept. We're not there yet. In the meantime we've gotten a silly bubble that's starting to look like a parody of the project's original goals.
It's like people assume the current financial system is perfect and bitcoin is not. Bitcoin never pretended to be, it's still an experiment 10 years in, but its a fun expierment.
It’s fun while it’s worth a bucketload. When people start losing their shirts and dumpster loads of ASICS are being burned for cooking fires... less fun.
I disagree vehemently to this proposition. I have never agreed or voted to get those regulations in place. They are not voluntary. But anyone falling for tether today is making an individual decision.
>> You could say that humanity has repeatedly and organically come to a solution broadly known as government and regulation.
> I disagree vehemently to this proposition. I have never agreed or voted to get those regulations in place. They are not voluntary. But anyone falling for tether today is making an individual decision.
Nevertheless, you benefit from them. It's not like you have to sign up to the regulation that makes your murder illegal. Don't you think it would be foolish to expect every generation to have to rediscover, through trial and error, the benefits of society and government?
An important distinction has to be made between law abiding and regulation.
Law against murder is: if you do it, you will be jailed.
Regulation against murder is: you cant have anything that harms another human being, and we need to check you up regularly to make sure you haven't killed anyone.
Regulation is not abiding for the law. Thats what lawsuits are about. Regulation is about preventing law to be broken with preventive measures.
> Don't you think it would be foolish to expect every generation to have to rediscover, through trial and error, the benefits of society and government?
I wish we had that, but we can't, we have to live entire generations with laws designed by previous ones. Isn't the drug war on the US a prime example of that? If you put it up for a vote, the majority would vote to make it legal or not prosecute it.
But this is not a topic about the mere existence of government, its about an ecosystem that was born and fueled about how the government and the banks crap on people, and trying to make it better with banks and government is going the other way.
I think you're confused about the differences between a law and a regulation. As I understand it, at least in the US context, regulations are rules specify the finer details of the implementation of a law. You can be jailed for the violation of a regulation [1].
> I wish we had that, but we can't, we have to live entire generations with laws designed by previous ones.
There's an expression that describes your attitude, it's "throwing the baby out with the bathwater." The thing about "the laws designed by previous [generations]" is that most of them are good, and the ones that aren't will eventually be abolished or modified, in a democratic society.
> and trying to make it better
The attempt is ignorant "disruption" that's repeating, word for word many of the long-solved mistakes of the past. If you want to make something better, you can't focus on the just problems of the current solution, but you also have to focus on all the problems the current solution already solved. To do otherwise is foolishness.
> I think you're confused about the differences between a law and a regulation. As I understand it, at least in the US context, regulations are rules specify the finer details of the implementation of a law. You can be jailed for the violation of a regulation [1].
Sure, but violating the regulation has no victim. If you sold lemonade on a stand in california, you would be breaking regulations but there is no victim that would ever sue you for damages.
Regulations, at least in general, about preventing something from happening by restricting action. Legal action is about responsibility: if something happens you are going to be accountable for that which happened.
Tether deserves a lawsuit on fraud, because they committed fraud. But we don't need the sec for that.
> There's an expression that describes your attitude, it's "throwing the baby out with the bathwater." The thing about "the laws designed by previous [generations]" is that most of them are good, and the ones that aren't will eventually be abolished or modified, in a democratic society.
Tell that to all the people doing 25+y for doing or dealing pot. They must agree with you!
I'm no expert on arms dealing but isnt the US Gov the one that gives out the most weapons to radicals? I thought the US as a successful exporter of weapons..and certainly of violence!
Don't miss the fact that regulation is excercised by people with the same incentives as anybody else, but with more power.
> Tell that to all the people doing 25+y for doing or dealing pot. They must agree with you!
> I'm no expert on arms dealing but isnt the US Gov the one that gives out the most weapons to radicals? I thought the US as a successful exporter of weapons..and certainly of violence!
I feel like you're just going for cheap points, but the thing is you don't even get those if you can't stay on topic. It's kinda pointless to talk with you if you keep running off on random tangents. Aren't we talking about financial regulation?
Actually, I'm not even sure if there's anything to your comments beyond an emotional hostility to the concept of regulation or something represented by it, so maybe we're not even communicating at all.
I didnt bring guns and arms dealing into the debate, that was you. I mentioned the war on drugs as an example of old laws that would not be voted on today, and the argument of keeping them because they must be good is destroying lives today.
The SEC is killing people today as well. Its barring most of the world on investing in the US on startups that could lift people out of poverty, increase quality of life and even help in fields like medicine, etc. And the ICO market is an example of how much demand for investment there is. The lesson is not that unregulated markets have scam artists and fraudsters, that we always knew, what is new is that the regulated market is silently opressing.
And to add insult to injury, the most egregious cases of mis-regulation have made the regulators screw over the general population instead of the institutions they failed to regulate.
On this very site ,most people can invest in the startups they read about everyday and work for everyday.
> I mentioned the war on drugs as an example of old laws that would not be voted on today, and the argument of keeping them because they must be good is destroying lives today.
You're arguing with a straw man of your own design.
> The SEC is killing people today as well. Its barring most of the world on investing in the US on startups that could lift people out of poverty
Jesus, that's the most ridiculous, hyperbolic thing I've read this month.
I haven't made a proposition. I just pointed out that historically, when societies have made decisions about this sort of thing, they've generally decided that such individuals require protection via regulations.
In general, most of the laws we are expected to follow are not ones we personally agreed to or voted on. I'm not sure that makes them less "organic." If you're arguing that you should not be expected to follow laws that you didn't personally agree to, I think that's a bigger conversation.
Actually, historically all governments started through conquest (military victory), not social contracts. Societies didn't make any decision - governments did, and societies accepted the status quo.
But governments didn't invent society from atomized individuals through conquest. All government did was add another layer in addition to the organically developed pre-existing social contracts.
Just because you personally weren't consulted on those regulations doesn't mean that they weren't come to by people who were democratically elected. And you agreed to abide by the laws of a jurisdiction by living there. Otherwise, what's to stop you from saying, "I never agreed not to kill people"?
> And you agreed to abide by the laws of a jurisdiction by living there. Otherwise, what's to stop you from saying, "I never agreed not to kill people"?
Nobody agreed to not kill people either. Thats why killing is also legal in many circumstances. Also arguing that we all agreed to the rules there in would mean that if slavery were legal it would be ok, becase we all agreed to it. But thats another topic.
The point is that if I believe in an institution without regulation the option between me and that institution is severed by an unrelated third party. I dont want to ask the SEC any permission to buy tethers.
"Also arguing that we all agreed to the rules there in would mean that if slavery were legal it would be ok, becase we all agreed to it"
No. That's a poor argument that, in this case, falsely equivocates slavery with financial regulation.
"I dont want to ask the SEC any permission to buy tethers."
That's not what's happening in the least. But if Tether is a scam, then it will be shut down, as it should be. And no amount of "freedom" will justify running a scam on other people.
> No. That's a poor argument that, in this case, falsely equivocates slavery with financial regulation.
You say its a poor argument, but you dont say why.
> That's not what's happening in the least. But if Tether is a scam, then it will be shut down, as it should be. And no amount of "freedom" will justify running a scam on other people.
Tether will crash itself if it doesnt have the money its supposed to have, we don't need the sec for that ,the same way the SEC didnt start the 2008 meltdown or Enron's demise.
Its even more egregious if you consider tether is not in the US and affects non-US citizens the most. So why has the SEC the power to intervene in other countries with people that haven't elected them?
Its purely an act on a position of power, not on agreed rules, and thats some of the spirit that sorrounds crypto. Crypo will be more mature if it deals with this problems without government intervention.
I don't understand this perspective. You have a proven, verifiable, simple solution right in front of you. Then you ignore it with some skimpy platitude to dive right into economic mythology.
I once read (here, perhaps) that Bitcoin is a long demonstration in how regulation comes to exist.
I think many in the Bitcoin community conflate "regulation" with "monetary policy". They assume if bitcoin is treated like money, with laws that protect people from fraud, that must somehow lead to restrictive monetary policy, which the community tends to abhor.
Exactly. It boggles my mind that people can't grasp the difference between the two. I hate the fed and the department of the treasury, and think QE is a horrible policy just like our permanent deficit. But I happily welcome the SEC and FINRA getting involved in cryptocurrency.
I disagree. If the state wants to offer some certification of regulation and an exchange is willing to go through that process to capture consumers, let them be.
Thats not bitfinex nor tether. Let people choose. If the SEC had its way, bitfinex would have not existed and millions of people wouldn't have been served.
> The only thing that makes him entitled is learning from history and being able to reason about pretty elementary models in his head.
That is his opinion, and even if it were factually true it doesnt give him the entitlement to prevent other people from doing it. If he believes the SEC provides value he can go to SEC regulated places, and let the ones that don't just be.
Today, the SEC regulates the startups right here, depressing wages of workers, reducing founder's returns, increasing investor returns and reducing overall market size. That is an economical fact. The steam of that oppression is coming out in crypto, where millions of people worldwide have a chance to 'invest' or speculate in something they are otherwise barred from doing. Barred by institutions like the SEC.
Crypto in spirit and technology is a way to get around those involuntary and foreign restrictions.
> Just stop. There is so much fundamentally wrong with that analogy at face value it beggars belief that you are being sincere.
I've made my case about it. You don't have to agree with it, and I dont have to agree with you. Do you want to call someone else into this to make sure neither you nor I say the wrong thing at punishment of fines and jail?
>and even if it were factually true it doesnt give him the entitlement to prevent other people from doing it.
Yes it does. In the same way I'm entitled to prevent people from drunk driving, because we know it's factually a bad idea and likely to end in a pretty nasty mess.
>I've built my case about it
In the same way you can build a ship designed to sink maybe.
For the wrong reasons. I dont think they should be mandatory at all.
Apply the same reasoning: check.
But this case is even worse. Its the sec regulating a foreign exchange that has foreign investors. You think the SEC can go and try to do that on alibaba?
Because people can make choices collectively and that affects all of us.
No man is an island. If people choose to engage in activities that end up affecting negatively the rest of us through externalities such as pollution, corruption, and the destruction of economic value, sorry, but historically people don't just stand by idly and let others destroy the societies they've built.
How is people buying tether and getting screwed related to you? What is the externality they are imposing on you?
Also even if that were true, it would show something else: the entitlement of doing something unto others to your own benefit. Isnt that always the reason to apply force?
It's related in that those phenomena can cause an economic crash and the the losses of bad investments affect families, dependents, and the long-term health of societies.
Even the most stringent and controlled economies can prevent crashes. Thats not what the SEC does as a purpose or as a result. Let alone in this space.
Bitcoin is entering another stage now where its resistance to this will be tested, hard.
This is a startup website, where thousands of software engineers get paid in lottery tickets that are not regulated, because they cannot sell the lottery tickets (THAT is regulated).
There has been nominally more money coming in to ICO's which are terrible investments than startups in the bay area. Thats how bad SEC regulations are: all that money could have gone to way more promising ventures, but it cant because it is blocked.
There is no problem if you want that level of protection, but rich people dont have it and profit from not having it. You go pay your poor mans tax and let the people that don't want to pay it roam free.
It’s an experiment that is repeated time and time again, and people refuse to learn.
Without the disincentive of prison and financial ruin, people will always find ways to use leverage and information asymmetry to defraud the public. Always.
HN is often very innocent and naive about people and their motivations. Unfortunately, there are assholes in this world, and the law is what protects us from them.
What the law does is transfer the power to defraud the public from the common grifter to a central authority. In doing so, it adds another, more sinister tool to the ones you mention: forced participation.
Your overestimating the financial intelligence of the average person. Think about the billions people waste on actual pyramid schemes. These are the same types of people who will be screwed over the most by a cryptocurrency crash. Is a slightly more efficient cryptocurrency market really worth the hardship of thousands of people?
Sure, you also have bernie madoff that made the biggest heist in history under the alledged supervision of the SEC.
Or worse, the 2008 bailouts, which were the equivalent of today the US government saying they will buy all the tethers on parity from bitfinex so their insolvency doesnt affect the market. I say let the chips fall where they may. If bitfinex is insolvent it should go down, and the lawsuits on fraud should put the people in charge in jail. Nothing else needed.
Either (most) people are stupid and they need to be protected for their own good - in which case we have the problem that the same people are nevertheless somehow capable to democratically choose their representatives. Or (most) people are fine taking more risks than you would like them to, and - because you believe you know better - you want to prevent them from doing so.
> but if you create the expectation that the sec will protect you as a consumer from the scams, then we will not be sophisticated to actually organically ignore scams.
Why have laws at all if you're unwilling to enforce them?
I wish people would find organic solutions, but history shows that people reliably fall for the same scams over and over and over again. Gambling is one of the oldest economic activities and remains as profitable as ever.
I've been shocked before at how little due diligence large investors sometimes do, especially when a mania is in effect. These are professionals whose job it is to invest wisely. What do you think the average person who is ignorant of the depth and complexity of finance is going to do? Are they even qualified to evaluate complex financial products?
I would argue the exact opposite, the ones that propose regulation are often benefited by it. For example, who could benefit from regulation of bitfinex?
Are you asking the protections for yourself or the protections for other people?
Because i never asked for the SEC to protect me. We can live in a world with both. You have coinbase with way more backing that bitfinex, and people still choose bitfinex. Let people choose, and if they mess up they mess up.
Yeah, no. Again, you're arguing for the "freedom" to scam people. Not gonna happen.
And you don't live in isolation; you are not an island. Those people that get scammed? They're not going to do so in isolation. That's going to have a ripple effect on the rest of society.
coinbase already FDIC insures USD holdings, and 3rd party insures crypto holdings.
risk variability is already organically controllable, and can be observed in the disparity of price movement between different exchanges (gdax is always lagged/dampened)
Which is totally irrelevant to the cryptocurrency.
> 3rd party insures crypto holdings.
Yes, approximately 2% of their crypto holdings, so effectively nothing from the perspective of a customer who loses funds if their cold wallets are attacked.
The problems we're seeing with cryptocurrencies are utterly unsurprising if you know what money really is and how it actually works.
I think people who are excited about cryptocurrencies assume that money is merely a tool to facilitate transactions between parties of people. The fundamental model of this is two people bartering goods, lol, in some sort of imagined "forest primeval" before money was invented. That money is just a substitute for that behavior. It's hopelessly naive.
>What is money really and how does it actually work?
On of the most interesting ideas I've read on this is from Debt The First 5000 Years, written by an anthropologist who took the approach of studying how societies actually use money rather than the economists approach of coming up with theories without much looking at real people.
Basically he says the idea that it originated from barter is pretty much never found in the historical record. 'Primitive' societies tend more to tally favours so you give someone food one day, it's remembered and they help you fix your roof another, without any formal currency measure. Formal currencies were often forced on people with threats of violence to get the natives to do stuff. Say you want to raise an army you declare a tax on everyone of so many coins which they can earn by feeding or serving in your army and people who don't come up with the tax are attacked in some manner.
Or you come up with some debt everyone owes and that kind of thing. Eg from the book
>In 1895, for example, France invaded Madagascar...
>...and declared the country a French colony. One of the first things General Gallieni did after “pacification,” as they liked to call it then, was to impose heavy taxes on the Malagasy population, in part so they could reimburse the costs of having been invaded...
leading on to in the modern day:
>But owing to IMF-imposed austerity programs, the government had to cut the [malaria] monitoring program. Ten thousand people died. I met young mothers grieving for lost children...
The taxation example you cite is key. That the way history tells the story is that money was invented by state actors to finance military power. This endeavor has the side effect of creating a market economy. So states create markets, which implies markets require states. And the military power is as much turned inward than outward: you end up with police protection over the transaction coming ultimately from state actors.
Over time cryptocurrencies will adopt all these features of government regulation and police protection over the transactions if it is to become ubiquitous. So, just another analog of any other money system we already have.
I would say that money is a measure of inefficiency. Say for example you hire a mechanic to fix your car. You pay the mechanic's shop for parts and labor. The cost of parts represents inefficiencies in how they're manufactured, the markups of middlemen, the high cost of raw materials from nonrecycled sources, etc etc. Labor represents your lack of knowledge about how to fix your own car, plus the time involved to fix things on your car like water pumps that (due to uninspired design) fail much earlier than they should.
In an ideal world where you drive a solar-powered car with a dozen moving parts built by robots from recycled materials, costs would fall to a fraction of what they are now. With the same automation applied across all industries, prices would fall to the point where the opportunity cost for humans to be in debt/servitude to rent-seeking financial institutions would exceed the benefit of using money in the first place.
This is basically what happened on Star Trek and is likely to happen in coming decades with Tesla, Amazon etc as humans can no longer compete with machine labor. Things will cost less but incomes will be so low that we won't be able to afford them anyway. Personally I would argue that that started happening sometime after the late 1960s and has gotten to the point where the status quo can only be propped up by every-growing absurdities on a global scale.
Ya I like that better too. I'd like to see us move beyond a world of artificial scarcity to one where everyone's basic needs are met and people can focus on self-actualization. If people want a mansion, great, they can work for it. But if people want to be left alone so they can explore the meaning of life, then they should be free to do so and whatever money is used at that point should go to things that are special. Kind of a Burning Man philosophy maybe?
Interesting thought experiment! One things that's missing from this is — historically — any economic endeavor that has a continual increase of efficiency ends up being highly volatile in the marketplace. So when prices have this continual downward pressure eventually the market collapses altogether.
Finally created an account to reply to this. There is a great thread on Reddit called - Where has all the world's money gone, explain it like I'm 5. It starts from a convenient barter system. As I was reflecting on the various ICOs I realised that the technology and the blockchain makes the old barter system very efficient. So I do believe that in fact it is a substitute for that behaviour. In fact Im convinced that bitcoin or something like it will become the new gold. If you also think about why we needed to elect representatives, it was so that they would represent the needs of the people. Once I can vote/discuss a topic on the blockchain, I dont need representatives anymore. The blockchain and crypto currencies are going to change the way democracies operate. We're not going to need our elected leaders. This is why you see them spreading so much FUD. Cause they know they're going to be irrelevant in the system and access to all that money is going to go. Tomorrow if I want to build a bridge - going to setup a smart contract - with escrow payments - validated by the people. You hit your milestone and the money gets released. And why not it be digital money. This new wave is being built ground up and govts cannot stop it - even if they want.
>Where has all the world's money gone, explain it like I'm 5. It starts from a convenient barter system. As I was reflecting on the various ICOs I realised that the technology and the blockchain makes the old barter system very efficient.
There was no "old barter system" the way modern people think of it. The idea that pre-commercial economies operated on a "barter system" in the sense that people are directly exchanging goods of similar value is just a simplifying metaphor early economists made to explain how commercial transactions work.
Pre-commercial economies operate more like gift economies. It's not so much about trading objects based on their valuation, it's about doing favors for people with the expectation that they will do favors back for you. It takes strong bonds of social trust and cohesion for this to work. Everyone has to have a sense of obligation to pitch in for the community.
The bartering only comes in as a form of collateral when dealing with outsiders (people you don't trust as much). This is why the earliest form of exchanges in this way were tied to marriages (e.g. dowries, bride prices) or interactions with other political groups (e.g. treaties, armistice).
Barter doesn't actually work, it's basically just a format for giving collateral to make sure people don't welch on deals. Normal currency already solves that problem way better than trust chains based exchange does because the value is obvious and exchanged up front without having to go through any clearing-house to be validated.
One of the leading theories about the invention of written numbers and arithmetic is to handle accounting for debts that would last longer than a few weeks or involve many people -- that is, as a supplement to memory for the purpose of credit/debt.
So at the dawn of agriculture, people weren't using barter -- they were using credit unions.
And it's easy to speculate how someone would come up with something like that to help adjudicate disputes after having enough he said/she said arguments.
Literally chisel some hash-marks into a rock so people don't "forget" and problem solved.
If anybody is interested by (or feels like contesting) this view of how earlier economies functioned without money and/or how money came to be, I highly recommend Debt by David Graeber (a self-declared radical activist, instigator of the Occupy Wall Street movement, and brilliant anthropologist — I had the good fortune of attending some of his letters, and he is enthralling).
That’s a long way to go to just proselytize without addressing any of the previous concerns. You seem to be reading from the same script all of the “new accounts” use to boost cryptocurrency as well. Finally you claim governments can’t stop something which creates a cryptographically secure “paper” trail.
Everyone in crypto world knows that Tether is borderline fraud. Everyone's waiting for this correction. It's important for the coin and the people who invested in tether may get shafted. It's an important learning lesson. There are a lot of coins that may just not go anywhere. Don't read the whitepapers and make the right conclusions - and you're burned. Not defending tether at all. The top commenter is absolutely right about tether. Hope it dies fast.
And that's why anyone who has any experience in the stock market isn't suprised with what's happening: they've seen it before and they've been warning about this.
EDIT: As I was typing a response, your username seemed familiar. Turns out it's not the first time I see you on HN saying sensible stuff. https://news.ycombinator.com/item?id=16268736
I think the underlying assumption that the "amazing transparency" enabled by crypto currencies will necessarily lead to a fairer more humane world is dangerously naive.
Does it not occur to people how an immutable, publicly inspectable ledger that records all your transactions might be abused by criminals and/or corrupt authoritarian governments?
Maybe HN is the wrong place to quote 90s rap songs, but these guys knew a thing or two about criminality and human nature.
"Rule Number Uno, never let no one know
How much dough you hold, cause you know
The cheddar breed jealousy, 'specially
If that man f---ed up, get yo' a-- stuck up" -Biggie Smalls (10 Crack Commandments)
Well to be fair, the reason we're having this discussion now is because people have been watching and questioning the expansion of the Tether supply via its transparent blockchain.
Someone could probably argue this is a step in the right direction from the days of Mt. Gox and its complete lack of transparency.
You mean the transparency of private individuals and organizations managing their own funds? Ok, let's assume, for the sake of argument, that you are entitled to and able to access that information and that it is somehow more available in _existing_ centralized systems. How are you going to enforce or even verify the degree of a centralized governance system's transparency? You can't. So your comment is somewhat deceptive, imo.
I'm not sure what you are saying. Obviously there is no "entitled" or enforcement. The difficulty in doing that makes it no less a problem. It does contrast with what seemed to be a big Bitcoin positive or selling point (call it what you want) transparency.
> They're literally making up money as they see fit.
I'm playing devil's advocate here (I agree that the whole Tether situation is concerning), but also genuinely curious - is this any different than what banks have been doing for forever with fractional reserve? Even if Bitfinex is overcommitted and there's more USDT in circulation than they have in USD reserves, is there a problem unless a lot of people try to convert at once?
To answer your direct question, Tether is sold as a fully-backed instrument, so there's major (potentially billions of dollars of) fraud if it's not fully backed. That's an issue because consumers aren't getting what they paid for, i.e. the underlying risk profile is different from what they thought the were buying.
The big difference with Tether is that in traditional banking, fractional reserves are legal, and regulated (i.e. banks are required to prove their reserves, and are required to hold a certain percentage of their deposits).
If there's a run on a consumer bank, and they don't have enough reserves to repay their customers, then FDIC insurance steps in to protect the customers. In this case, there's no protection, so everyone holding tether will be screwed if there's a run.
Actually yes, because FDIC backing would mean they've gone through all of the necessary steps to become a real bank. I would have some confidence that they actually have the USD to back up their holdings as they claim. If still turn out to be a scam then at least I'd have something to fall back on, and some people over at the FDIC would have some questions to answer.
Fractional reserve banking is about the availability of funds, not their existence.
In a bank with fractional reserves, the assets and the liabilities all add up. If I deposit $100, and the bank lends $80 of that out to someone else, the bank has liability to me of $100 and assets of $20 cash + $80 loan (a loan is an asset on a bank balance sheet). I can't immediately withdraw all $100, but it all exists.
The bitfinex thing is more akin to the Federal Reserve, which actually can just make up money out of thin air. The big difference between bitfinex and the Fed is that the Fed is a federal agency, created through a legislative process and operated with clear public policy goals. Whereas bitfinex is just some random people somewhere claiming they have $billions in the bank.
banks are regulated to ensure they don't over-commit and are backed by a central bank to bail them out. That system isn't perfect, but it's a lot better then no regulation.
An unregulated system that allows fractional reserve banking can only end badly.
Competition will cause private entities to take increasingly risky positions (if they don't play along, they get crowded out by those who do), and the systemic risk is unchecked. At its extreme, it becomes a ponzi scheme.
> is this any different than what banks have been doing for forever with fractional reserve
No. They are different. The bank turns liquid cash into much less liquid assets (houses, cars, boats, new businesses) by way of loaning out the money. All of the banks liabilities (the depositors) are backed by the banks assets (loans for stuff).
"Of course maybe they're not actually crooks and they do have the money."
Well then, an audit by competent third parties, inspecting where they got their funds, how much they actually have on hand, and whether it covers all potential liabilities (including calls on the supposedly dollar-backed tethers) would go a long way to clearing up the matter.
Bitfinex announced an audit with great fanfare early last year. They disclosed last weekend that their relationship with the auditor had "dissolved". Funny, that.
Or they may be crooks and also have the money. I suspect that with people selling bitcoins for tether they didn't bother changing the bitcoins into usd but thought we can hold these things while they go up and pocket the difference. But if they've been smart with bitcoin trading they may be well ahead.
Keep in mind that Bitfinex can have the money and still be crooks. The feds probably care more about money laundering than they do about whether or not the money actually exists.
Even if all the money behind Tether is real, the end result for the markets may be the same.
What if they were buying gold with their Tethers? Or anything else? There's nothing that makes Bitcoin inherently "vulnerable" to being bought with Tethers beyond being easily trade-able and being available on the same exchanges.
> if Bitfinex is lying about their dollar reserves this might be one of the simplest and most efficient scams of all time
i get what you're saying, but doesn't this mean that value of USDT is fake rather than value of BTC? in the end it's those that hold USDT will run to sell it either for USD or BTC, which would push BTC price even higher? now that would be ironic!
>> i get what you're saying, but doesn't this mean that value of USDT is fake rather than value of BTC?
If two billion tokens which people have taken to be as good as USD have entered the market, they will have inflated the price of BTC and other coins
>> in the end it's those that hold USDT will run to sell it either for USD or BTC, which would push BTC price even higher? now that would be ironic!
The price in USDT and USDT-only exchanges could indeed rocket, but the price in real actual USD would be expected to fall. I don't think that's ironic ... ?
--edit-- I seem to be rate limited at the moment so I am going to reply to the post below, here.
Why do you think, in a situation where tether fails, that the BTC/ETH price on bitfinex would change?
The price of BTC in tethers may rocket, but the price of ETH in tethers also would rocket, as nobody would want tether. The price of ETH in BTC is unlikely to move much.
> The price in USDT and USDT-only exchanges could indeed rocket, but the price in real actual USD would be expected to fall.
Wait, would it?
If you were an arb wouldn't you:
1) Buy bitcoin on a different exchange (with a temporarily lower price)
2) Transfer that bitcoin to, say, bitfinex (or another USDT exchange)
3) Sell that bitcoin for, say, ETH
4) Transfer that ETH back to the first exchange
5) Profit
Though I guess that would also flood the market and tank the ETH-BTC price as well (though I guess another arb could take advantage of that discrepancy as well).
Or are you talking about exchanges that only do USDT-BTC?
Regulation doesn't affect the ability of a currency to be influenced. It just puts that ability in the hands of a select few. The US govt prints money to pay off maturing debt. After some time, this scheme will come to a disastrous end. As long as there's trust in the central auth, both Tether and USD can survive.
You've been posting a bunch of unsubstantive comments. We actually ban accounts that do that because HN is trying for a higher quality level. Trying and failing, often, but we need to keep trying. So could you please not do that in comment threads here?
I would guess that the traders who hold millions worth of tether have a good business relationship with Bitfinex and have more information than is publicly available. And that information seems to make Tether more trustworthy. A reason why they don’t want to make their bank statements public is that their bank fears being cut off from USD clearing once it gets known that they are handling Bitfinex funds. So there are actually valid reasons to be secretive and the unsatisfactory level of public information is a side effect of the whole regulatory circus the financial sector is burdened with.
“It’s a signal to the market of what those who have
scrutinized the situation already believe: There is a
problem here,” said Jill Carlson, a former trader at Goldman
Sachs who now consults with a variety of virtual currency
companies. “The dissolution of a relationship between an
auditor and a company is very rarely a good sign that the
company is behaving in accordance with market best practices.”
When you're getting dunked on by Goldman Sachs for being unethical, you know you have a problem.
I know what you said is in jest, but did you read what you quoted? The individual in question worked at goldman sachs as an analyst/trader for maybe 3 years (AngelList), and hasn't worked there in at least two years.
This is actually very common, especially in "bulge" tier companies. My best friend interned at GS and has accepted a job there; apparently, all newly-hired analyst/traders bust their ass for the first 2 or 3 ish years before getting "hired away" by a better paying, less demanding company (typically in private equity, VC, asset management, etc). Same happens in the accounting industry.
No, you’re getting downvoted because your comment adds nothing to the conversation. You’re saying the same as your parent comment, and that one is not being downvoted, so clearly it’s not the message that people disagree with.
Not necessarily. I don't believe Tether has the backing they claim. Given that though, the subpoena wasn't public yet and it is plausible clients may have been continuing to send Tether money during that time.
This is what I thought about too. So either they just thought screw it, let's make hay while the sun shines, the feds will never get us - or they are legit
Bitcoin is a system where you can have reasonably strong trust in the ledger and absolutely no trust in any other part of the market at all. It's a demonstration in practise that pure unregulated trade in the digital equivalent of used unmarked bills leads to a broken market where literally everything is a scam, crime pays, and meaningful business cannot be transacted.
Its value is being propped up beyond this technical tinkering, by poorly informed optimism, ideological dreamers and a lot of people hoping to make hay while the sun shines, sometimes by knifing you first. It is going to bust all the way down to $0 and probably get internationally banned as an attractive nuisance.
Way to pick out a non-central point. But the answer is that cash and bitcoins are intrinsically self-authenticating but not owner-identified and do not rely upon a credit card / bank-account facility which can be shut down by authorities if it is being misused.
Your real identity isn't in the blockchain. You can only be identified if the identity of whoever you bought from is known, they know your identity, and they can be induced to share it, or if the transaction can be identified and you can be tracked from the transaction.
So if I request a payment in Bitcoin and someone fulfills my request, this is not meaningful business? How is everything a crime? What are you taking about???
My question is: what is the value of a Bitcoin? It looks to me like a great way to transfer currency and facilitate exchange of goods, but not much more than that.
So 'investing' in this digital currency itself does not make much sense to me, because intrinsically it has no 'real' value. I might be misinformed about the subject, in which case I would gladly like to be shown my error.
For example, why don't I invest in Yuan or the Pound instead of Bitcoins? From my perspective the only thing driving up the price of Bitcoin is the demand for it by 'crypto-investors', which is completely artificial and they are not chasing any tangible value.
Currency is a tool that exists to facilitate economic transactions and though it's value varies depending on the confidence people have in it, your first point is true. I would say the only difference with Bitcoin is that it's fixed and fundamentally deflationary.
There are people who invest in Yuan, Pounds and Dollars. Forex trading is a real thing and I expect it's often dabbled in by the same people that invest in Bitcoin. Though not as unstable as Bitcoin, it's still a gamble, a bigger gamble that most investment given that the only real payout is, as you say, imaginary (as opposed to the possibility of dividends that a stock might give you).
Bank wires are currently Bitcoin's closest competitor, and in aspects each has advantages. The bank wire system has had a lot of technical debt built up over the years, and has left a market opportunity by being risk averse and slow to innovate.
People used to speak about paying for a cup of coffee with Bitcoin, but that isn't really a great use case for how it is designed. It has an inherent latency of about an hour and fees don't scale with price. If you want to transfer a lot of money in less than a day to someone who may not trust you, it's great. If you don't mind it being slower, have trust, or need to transfer small amounts, other systems are likely better for your use case.
I like to compare Bitcoin to Land. When people migrated over to america, land was basically worthless: there was too much of it and too few people.
As the more fertile and better located land was taken, prices started to rise. As land supply is inelastic, the price can only tend to go up as long as the demographics expand.
Bitcoin has a limited amount and even more has a diminishing supply (as coins get lost, stolen, broken). Its use case is less valuable than land but its supply way more limited.
The only thing bitcoin needs to increase price is inelastic demand. IF there is just a single use case that uses bitcoin everyday, its price will tend to infinity.
I’m sorry but your point of view could not be further from the truth.
First and foremost, land has intrinsic value. You can grow food, build shelter and have access to water. If you’re very lucky there might even be oil below it. On the other hand, Bitcoin won’t help you survive very long.
Second, Bitcoins can be divided infinitely. Today I pay 1 BTC for a car. Tomorrow I pay 0.5 BTC. It really does not matter how many BTCs is the maximum.
Land, on the contrary, loses value proportionnaly as you divide it. 50% of the land means 50% of food, water, shelter, etc.
Finally, Bitcoin price will never reach infinity because there is a physical limit to the real value Earth and humans can produce.
> First and foremost, land has intrinsic value. You can grow food, build shelter and have access to water. If you’re very lucky there might even be oil below it. On the other hand, Bitcoin won’t help you survive very long.
Thats the inelastic demand I'm talking about: if bitcion finds a use case where it shines above all else, even if it is something like sending money overseas, the demand will be inelastic and with diminishing supply its price will tend to be infinite.
> Second, Bitcoins can be divided infinitely. Today I pay 1 BTC for a car. Tomorrow I pay 0.5 BTC. It really does not matter how many BTCs is the maximum.
So can money and so can land...this is a Zeno's paradox reasoning.
> Land, on the contrary, loses value proportionnaly as you divide it. 50% of the land means 50% of food, water, shelter, etc.
That's not true for land because the value of land is determined by the difference in fertility between lands which is something bitcoin doesnt have as each is the same as any other. But lets assume that is true for the purpose of argument: BTC does not have immediate transactional capacity, that is the limit of use. So if you want to have your operation happen you need to pay for it to happen. And moving more btc is cheaper than moving less btc. So yes, smaller amounts of btc are less useful than bigger BTC.
> Finally, Bitcoin price will never reach infinity because there is a physical limit to the real value Earth and humans can produce.
Its a theoretical concept, much like saying that if there wer eonly 1 cup of water its value would be infinite.
Sending money overseas with bitcoin doesn't exhaust the supply of bitcoin. The bitcoin isn't consumed - it's converted from useful money to bitcoin at one end, and bitcoin to useful money at the other. While a limited supply of bitcoin would limit the throughput, the ledger calculation already does that, and at a much lower rate. So it's not as if any utility immediately lends bitcoin value.
It does because transfering that money takes blocks of operations to happen, which means you cant transfer infinite amounts of bitcoin in a finite amount of time. You have a limit of how much btc you can move between addresses.
The problem with this argument is that while supply of bitcoin itself is inelastic, anyone who wants to do so can create an altcoin, meaning the supply of altcoins in general is infinite, and since they are functionally extremely similar to each other if people can't buy bitcoin at an attractive price, they can simply buy something else that works the same way.
The value of Bitcoin is in the global store of value. It is the network itself and the trust put into this network that gives it value, much the same as your trust in your local currency except on a global scale which makes it all that more valuable - this is without even going into the topic of trust and central authority.
The price is somewhat determined by the cost of mining in the same way that the cost to buy a chunk of some obscure element is determined by the cost of getting it, not the utility.
Want a gram of californium and it'll cost you even if it's not much use for anything.
What is the value of anything, really? The value of a metal brick, or a shiny stone, far exceeds any practical utility of the physical object itself. Even the value of a "real" currency is based, in broad strokes, on what you can exchange it for.
The value of bitcoin is its decentralisation. As long as there are people running nodes, the network is alive, regardless of what any government or entity in the planet thinks. Being global also means it’s used by people who do not have a stable money store (countries with unstable currencies), and for transfers between borders that would otherwise be impossible.
Crypto is learning all the hard lessons that banking has learned over the past 100 years. Ironic that a currency founded on the idea of transparency (the blockchain) is so fundamentally opaque at almost every other level.
I'm curious how big the ramifications for Bitcoin will be if the majority of Tether tokens are proven to be fraudulent and Binfinex collapses (which doesn't seem that unlikely at this point).
You just have to look at what happened after the MtGox collapse in 2014: Bitcoin goes back to sleep for 2 or 3 years, afterwards everyone forgets it ever happened and another rally takes place where cryptocurrencies "go mainstream". Lather, rinse and repeat until the amount of people willing to speculate on it is completely exhausted.
I don't personally think it will be that cyclic. There is so much more invested this time around, so many more people standing to lose so much more money, such a brighter light on the cryptocurrency world now. A devastating loss (e.g. Bitfinex shuts down and freezes all transfers, Tether worthless, that type of thing) to the BTC economy would be critical to the entire future of cryptocurrency as we know it, IMO. I don't think Bitcoin has 9 lives.
I don't know. Most finance people now have access to bitcoin exposure through trusted institutions via futures. Many of these people felt a lot of FOMO at missing the boat on Bitcoin's last big jump. I think if it drops to $5k, there will be some big players taking a long position in hopes of another order of magnitude movement. Certainly could get much uglier, but I think Tethers vanishing would not be fatal.
Also, with Bitcoin becoming 'established' I bet everyone who owns more than $1M in cash is considering Bitcoin as a method of alternate banking and transferring funds internationally.
Bitcoin certainly isn't the safest place to store your money, but there is a decent argument to be made that it can be safer to keep 90% cash and 10% btc instead of just 100% cash for some risk profiles. Criminality is one obvious use case, but people who want a plan for how they could flee their country in the case of disaster, financial meltdown, or social unrest would also see advantages: much easier to get a $100k private key through an airport and customs than the equivalent in physical cash.
Most, if not all, financial institutions aren't exposed to cryptocurrencies directly either through futures or the underlying currencies. Institutions are defined as endowments, sovereign wealth funds, pensions and asset management firms such as Goldman Sachs. Capital inflow into the cryptocurrency space in aggregate is still less than $10B. If the Norwegian sovereign wealth fund bought Bitcoin, their minimum purchase would probably be $50MM which represents .5% capital inflow and a nice uptick in "market cap" of the industry.
Bitcoin is by no means established because these institutions aren't investing. If and when the day comes that this happens then Bitcoin will be established and increase one or two magnitudes. Many of the above institutions legally can't invest because they are restricted by their mandates. Bitcoin is a terrible use case for criminals because it's transparent. Monero would be better because it's anonymous.
You are correct. No major institutions have publicly disclosed an investment in Bitcoin, and many are legally restricted from doing so.
However, I think that market speculators, particularly hedge funds, would strongly consider opening positions in Bitcoin below $5k in hopes of a many-fold return on investment. It is high risk, but in a diversified portfolio Bitcoin may be attractive in our current market climate where the market is so overbought.
Bitfinex/Tether follow the classic investment fraud story arc. The big frauds don't start with bad intentions. A self-proclaimed genius seeds an operation, gets traction, attracts money, hits a snag, fudges the numbers and keeps doubling down, intending to pay it back, and then (a) collapses, (b) gets caught or (c) rolls the scheme over until (a) or (b). The terminal phase is inevitable given the non-linear difficulty of scaling a fraud and their need to scale to maintain credibility.
The set-up: Tether was, to a layman, a decent idea. The build-up: As creation and redemption was demonstrated, Tether attracted buyers. The snag: Tether got hacked [1] and released an IOU to affected customers [2]. Wells Fargo got spooked and froze Tether/Bitfinex [3].
The fudge: Tether has a hole to plug. They also have nowhere to put incoming U.S. dollars. Someone suggests they buy Bitcoin with the incoming dollars. The stupid figure it's a temporary measure until they find a new correspondent bank, the evil smell a scam and the lazy don't think about it. Bitcoin ascends. This move becomes very profitable. (It also increases the size of their balance sheet, which makes finding a new correspondent bank more difficult.)
Doubling down: Bitcoin descends. The firm becomes, or comes close to becoming, insolvent. Tethers are issued to bring the balance sheet back into line. The stupid figure they can unwind when Bitcoin recovers; the evil and lazy agree to not think about it. The frequency and magnitude of this "support" keeps growing.
The collapse: At each development, the smart and ethical decamp. That leaves everyone on board too incompetent, distracted or lazy to properly address a journalist's investigation [4]. That, in turn, attracts regulatory attention [5].
Hmmm.. I think your first link is to the wrong hack. If everything were as you claim, the hack would need to precede the bank freeze in order for it to be in any way causal. I was originally writing this reply to refute your claim on that basis, but while investigating it I found that there was indeed another hack where bitcoin was stolen from bitfinex rather than Tether being stolen by Tether. Your article 2 cites the bitfinex hack as well. Furthermore, the IOU issued wasn't Tether, but rather some other token "worth" $1 called BFX. The rest of the story seems plausible, but it seems you have a mixup in your buildup and snag phases of the hypothesis (I'm not saying that it is outright wrong because of this though)
It looks, on the surface, to be a sort of massive fraud on the issuance of tether, which also propped up the price of Bitcoin and a lot of other coins, as a couple of billion in fake liquidity was pumped into the market.
It's too early to tell what the exact story is, but it's certainly the case that the tether company's promises that they get frequent, professional audits are an out-and-out lie. I, personally, don't believe they have billions of dollars in the bank to back up their tokens, either.
Various authorities are starting to take interest, as are more mainstream media sources (like the NY Times).
I think if Tether and Bitfinex are above board, now is the time to release a statement and some pretty compelling evidence.
If it's newly created Tether, the theory requires them to decide they don't want to hold as much cryptocurrency, then successfully convert large holdings of cryptocurrency to real USD in their own bank account, then wire that USD to Tether's Taiwanese bank account so that they could buy USDT, an asset whose sole virtue is it being slightly easier to buy cryptocurrency with (on exchanges that aren't good at or able to handle dollars).
Which doesn't make sense period, never mind over the timescales discussed.
If you buy 100 tether for 100$ and I “sell my bitcoin for tether” by trading to you, then no new tether is created. Tether should only be issued when people buy them using new $. Their claim currently is that they have $2bil in an account backing the tether. Yet they can’t get a bank collaboration and can’t manage to get an audit. It smells fishy.
Perhaps I don't understand it correctly but I assumed that wouldn't result in Tether being created. A holder of Tether would exchange his Tether for BTC. Only a transaction of Tether for cash would result in Tether being created.
One of the claims here is that Bitfinex was somehow creating new Tether without a USD deposit. In other words, out of thin air. This Tether would then be exchanged for Bitcoin or other crypto, causing an artificial increase in demand for those coins, and causing their price to rise.
> Doesn't this simply mean that when people were selling their virtual currencies, they chose to stall their money in Tether?
Correct, and that's precisely how Tether helps prop up the price. There is a limited amount of actual USD floating out there to buy up BTC. People selling BTC in exchange for USD will lower the price. However two current trends can eliminate those sell orders before they impact the price. They are:
* They may be convinced not to sell, that they should hodl (sic) instead. No sell order occurs.
* They may be convinced to accept USDT instead of USD. No USD selling pressure occurs since they are willing to accept an IOU.
So why does Tether keep printing more? It's an easy way to absorb a portion of the selling pressure that wasn't convinced to simply not sell.
I'm wondering how many people are shorting USDT on Kraken? The potential downside is having to pay interest. The upside is 100% win. With enough short position, Tether will run out of funds and the price will have to crash.
Disclosure: I'm short USDT.
I have a theory that some of the market crash in December was because of selling Bitcoin (originally gotten from USDT) for USD in order to fill their reserves of backing USD. I think that USDT could be moderately sophisticated in that they could have fulfilled their coffers via market manipulation.
If they were smart and brazen, I think they could have possibly pulled it off. One would have to study the market inflows and outflows.
This type of pump and dump would show up in their books, so a thorough audit would find it. But it may mean that they have a lot of USD now. Thus I am unsure if USDT will technically crash.
Just tried to short sell USDT on Kraken. Response: Canceled - Insufficient Margin. This means "that the exchange's margin pool for that currency is currently used up" [1].
Pretty much. Shorting usually relies on people having deposited the asset (USDT) with the broker (Kraken). When you short the broker sells some of the other person's asset in the market in the basis you'll buy it back if the other person wants their asset back. Presumably they've run out of USDT to sell in that manner.
If it becomes unprofitable to continue mining, and miners physically stop (selling gear etc...), will the change in Target just re-inflate the bubble again further down? Or have I misunderstood in difficulty/incentive structure?
From here it looks like the flood of market actors with an unsustainable price have created a crash, the flakes will get out of the game (pushing the price south), and then it might begin to get more profitable again?
Not sure what the outcome will be, but looks like a grass-burning point for those with skin in the game.
But don't the same market forces come back into play? Shortened transaction times, "brand name" for speculative buyers, more attractive price. It'll burn a lot of people, but another one born every minute...
Genuine question: whether or not Tether is fraudulent, how much can a currency with a market cap of ~$2B affect the greater ecosystem, or even just Bitcoin with a purported market cap of ~$150B? Obviously a scandal of this magnitude in a major cryptocurrency is bad for the whole environment for a host of reasons...but if Tether is really just a ~$2B fabricated cash injection, how much could it really prop up BTC?
It's hard to say because so much depends on investor psychology. But if they act to prop things up on the dips it looks like it just goes up and then other dumb speculators like me pile in.
Some academics studied manipulation at MtGox and "the paper demonstrates that the suspicious trading activity likely caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate jumped from around $150 to more than $1,000 in two months." Not sure how much actual cash was involved there but "bitcoins (BTC) valued at $188 million were fraudulently acquired."
I remember mt. gox very well. They started having withdrawal delays, and then halted withdrawals of BTC as well as USD altogether, precisely because keeping withdrawals open would have been so expensive as to be impossible. I'm saying Bitfinex has no magic way around that, either.
- An exchange could lie about the trade ticker. That's easy. I don't know what kind of ticker, if any, Bitfinex publishes or whether the market cares about the ticker.
- An exchange could lie about the market data, especially if the exchange has a separate protocol for actual users and for the public at large. It's easy for an exchange to fail to publish an order that should be on the books, and it's even possible for an exchange to show an order on the books that doesn't actually exist. After all, there is no guarantee even on a fully honest and perfectly implemented exchange that you can actually trade against an order just because you see it on the books.
- An exchange that's willing to live on the edge can act as the counterparty to trades, which is quite similar to just pretending that an order has a counterparty when it doesn't. Depending on how this were done, it could result in an exchange's BTC reserves not matching the amount of BTC on deposit. We've never seen that happen, of course :)
- As mentioned in this article an several others, Bitfinex primarily deals in BTC vs USDT. So the combination of Binfinex and Tether likely has the capability buy an arbitrarily large amount of BTC/USDT on their own account.
Here's a potential scheme that could be happening. Bitfinex, Tether, and/or related entities mint USDT that isn't backed by anything. They use it to buy BTC. This has three effects: it raises the price of BTC, it potentially lowers the price of USDT, and it causes them to own a bunch of BTC. This isn't, by itself, terribly useful -- BTC isn't a great asset to hold on to, especially if you expect the price to crash whenever the gig is up. But the bad guys could sell some fraction of the BTC elsewhere in exchange for real USD. This will depress the price of BTC, but, if the fraction sold elsewhere is small enough, the net effect on the real BTC/USD price should be upward.
The interesting bits are the effect of the fraud on USDT/USD and on the price difference between BTC on Bitfinex and the price of BTC elsewhere. The former is a major problem, but, as long as enough people are confused as to what USDT is or believe it to be save, USDT/USD will remain near 1. As for BTC spreads, it seems to me that the effect, if any, would be to push BTC up on Bitfinex. After all, if Bitfinex were engaging in such a fraud, they would probably be buying up more BTC on their own exchange than elsewhere, and BTC is notoriously awkward to arbitrage between exchanges.
If Bitfinex (hypothetically) decided to try to depress the apparent BTC price on their own exchange, I think they could do it in a few ways. One way would be to wait for someone to submit a sell limit order for, say, 1 BTC in exchange for 11k USDT. Then, in the market data, they lie and say that the user is willing to sell 1.05 BTC in exchange for 11k USDT. When someone matches the order and tries to buy that 1.05 BTC, Bitfinex uses their excess of BTC to make up the difference. (Remember, in this scenario, they're selling less BTC for USD than their buying with their freshly minted USDT.)
This is all pure speculation, of course. It's not advice, and it's not an accusation.
I admit I've kind of lost track of the argument you're making here.
We're talking about why there is no premium on BTCUSD sold on BFX. If confidence in BFX having the reserves they claim to have drops, traders will want to get out, which in this case means buying cryptocurrency other than Tether. [1]
Outright faking the ticker is, IMO, not realistic for an exchange with as many users as BFX has. The discrepancy would stick out like a sore thumb.
They could raise BTC prices on their own exchange using USDT, which they control and can create at will. That's what this whole discussion is about, in the larger context. But that would, again, lead to a premium on BFX, which isn't there.
They would therefore need to be suppressing the price, which they could do by cooking their own books, selling BTC they don't actually hold. This would be very foolish, as they'd be creating an exploitable market inefficiency. People would buy on BFX and sell elsewhere, and slowly (or very quickly) BFX's reserves would diminish until they would have to stop processing withdrawals of BTC. See mt. gox.
[1]Of course, since other exchanges use USDT trading as well, it's possible this damps price premiums somewhat. But you'd still expect a premium on BFX et al. compared to, say, Bitstamp.
I find it weird that people assume this is intentional market manipulation. If they are in fact fraudulent (I think they are), being able to print money is a business model in itself; you don't need to intentionally manipulate the market (but could end up doing so accidentally)
Not true. In order to make sure there isn't a run on their fake currency, they need to ensure that the balance tips towards buying bitcoin rather than cashing out holdings. If the price goes too low, people will start trying to convert tethers to real money, triggering a crash.
Or (assuming they're legitimate) they just buy back tether with their holdings, raising the price back to roughly $1. Which is the whole point of it supposedly being backed 1-1 in the first place.
This assumes that demand for a USD-correlated currency will grow with the price of Bitcoin, I'm not sure I buy that. Seems like when people are temporarily bearish about BTC is when they are most likely to move from BTC to USDT.
Easier to pump existing BTC holdings with $2bn of imaginary-dollar backed tokens than exchange $2bn in imaginary-dollar backed tokens directly for dollars and find a bank that'll let you cash them out...
And if your plan is to ultimately do the latter, you're going to have to cash out slowly and indirectly anyway, in which case why not pump the price of other assets you stand to benefit from in the mean time.
(1) There's more demand for swapping BTC for cash or occasionally even goods/services than USDT period, and even more so when the price of BTC goes up. Offloading $2bn USDT is hard work because it's not a speculator-friendly asset
(2) They already had BTC and a belief in its future. Making it worth more, easier to exchange for cash and having more of it looks like a win all round if you don't mind committing fraud.
(3) Leverage, provided the BTC price holds up for long enough to cash out. Even if you're printing fake money, you can only print as much of it as people believe you actually have.
(4) BTC price rise income looks like it might be a legitimate income stream when auditors ask about it. Income from selling stuff that's supposed to be backed by a dollar for a dollar is obviously the proceeds of fraud.
(5) BTC holdings can likely continue to be bought and sold even if nobody wants USDT, bank accounts connected to Bitfinex and Tether end up frozen and a rapid change of address and identity is required
Money laundering is often very convoluted and usually costs money, but it's big business.
It looks like they might have used the money that should have backed tether to buy bitcoin, and then whenever the market looked like it might be correcting they issued more to stop it from falling and buy the dip.
People aren't assuming they are engaging in fraudulent behavior - there is evidence showing that they are. All they have to do to show they aren't is provide an audit.
Yes, I'm responding more to takes like this from the article:
> “My personal biases make me inclined to believe that Bitfinex is not using Tether to manipulate the price of Bitcoin,” said Jeremy Gardner, a managing partner at the investment firm Ausum Ventures. “If they have attempted to do so, which would be deeply concerning, it’s hard to imagine that such fraudulent issuance at its current volume could single-handedly buoy the price of Bitcoin.”
My point is that being skeptical about their ability to manipulate the market in a meaningful way and make a profit doesn't mean they don't have a profitable motivation for engaging in fraud.
My hope is that there isn't a complete crash before some of the most unique and important ideas being built on blockchain technology have a chance to come to light.
It might need a 2014 reset before it happens, but there are plenty of ideas not yet able to be executed because the crypto community at large are waiting for the technology to catch up.
I have a business plan in the works on a nonprofit that would benefit the world as a whole. I don't want investors or an ICO or whatever. I just want crypto to still be exciting by the time I build it, otherwise it'll be that much harder to onboard anyone who would benefit from such a system.
This is noticeable and a trend for quite some time. ETH might actually have some inelastic demand by the developers of tokens, so its more resistance to volatility.
All crypto is taking a hit right now, but eth is gaining share.
On the other hand, the main application for those contracts is ICOs -- which are themselves primarily a speculative instrument. It's turtles all the way down.
Here a possible explanation on what Tether is doing and the economics behind why there is such an incentive behind pump and dump BTC. I think they are running a currency board pegging USDT to USD, and then using the BTC gained to push up BTC even further.
Part of the idea of a currency is a stable value, that means supply and demand need to be matched. With a fixed quantity such as all the common cryptos, when demand rises (either organic or from manipulation) there is no way to keep the value stable so the value of the currency will be constantly whipped around as demand is constantly changing.
This is the general problem with floating currencies. They are difficult to keep stable. Fiat tries to solve that by putting someone in change of money creation (in the Feds case until recently this was mostly in the form of manipulating the overnight rate banks charge each other).
Another way to do it is through pegging the price to something believed to have a stable value itself. Various precious metals have been used in the past, but commodity baskets are also thoght of (look at the chart of the CRB index vs gold and they are almost the same). Baskets of floating currencies have also been used but they arent nearly as stable and still rely on central bank decisions.
A currency peggged to an underlying doesnt mean you need to hold all the underlying. You just need to intervene in the market when your target price rises or falls too much. This could be what Bitfixex/Tether is doing. They aren't holding dollar reserves, but they are keeping the exchange rate constant with other traders by stepping in when necessary. That's why they don't have a conversion window.
If you had a crypto that was stable, pumping might not be nearly as effective since the currency you are pumping isn't going to increase in value, just more will be created to cover the demand.
So now we have a situation where BTC is easily manipulated up on artificial demand pressure, but that will also cause a rise in BTC/USDT sales as there are now just more trades. This pulls the value and price of USDT up, but to keep it at 1 USD, more USDT need to be printed and sold. And this is exactly what we see.
So they can sell either USDT for USD directly, or they can sell USDT/BTC. But now they have a bunch of BTC, so they can go sell that too pushing BTC even higher. The party stops when demand for USDT starts falling and the price needs to be defended.
I think if we ever get a good crypto currency it will be pegged to a commodity basket or gold or something. I'm working on the idea of how to control supply algorithmically and fairly though a combination of systems and bonds.
> A currency peggged to an underlying doesnt mean you need to hold all the underlying. You just need to intervene in the market when your target price rises or falls to much
Tether claims to avoid the problem by literally holding a dollar in cash for every tether it has minted, so it can't be attacked- no matter how many people try to sell Tether, it can always buy up all the outstanding Tether with dollars and maintain it at parity.
It's hard to tell the difference until the company runs out of money, and then the currency collapses all at once.
Exactly. I was updating my comment as you posted this. The party stops when usdt needs to be defended. And they need to use either their usd reserves or any btc they have from selling usdt/btc to hold the peg.
Or they can defend it by selling bonds. We mat see bitfixes tying to write loans in cryptos. Or literally just steal from people. They have a lot of customer accounts they can raid "temporarily".
I don't understand why Tether would be doing all that. They could have a very simple business model:
1. Accept USD and issue USDT in return,
2. Buy US Treasury bonds, which yield 1.5-2.5% for 3 month to 5 year bonds,
3. If people cash out their USDT later, Tether gets to keep the interest profit.
There is essentially zero risk: as they are buying USD bonds, they always keep their principal, and no exposure to currency fluctuations. And in the extremely unlikely case that the US Treasury would refuse to honor its debt, the world economy would be in such a crisis that nobody would even notice a small crypto exchange going under.
Do you think that Tether got greedy, invested its USD reserves in more risky assets (crypto or real world), lost money, and is now trying to cover up the shortfall?
Imagine you and I have a collection of paintings by an artist. We want to sell them for more than the last painting by that artist went for- but the market price is pegged around that price.
We agree to buy each other’s paintings at a much larger price- which is fine for us, because we are paying roughly the same as we are getting and we will still have a painting. But now it appears to third parties that the paintings are worth the new price.
In the case of tether, I understand the second painting might have been just a a new canvas with “I-owe-you-x-dollars, signed-bitfinex”. And also both parties are essentially the same people here.
Disclaimer: I am not a finance guy and I don’t know what I am talking about.
My understanding from the article is that the problem isn't that the price was propped but that they created fake tether to do so.
By fake, I don't mean the tether wasn't real, but that it was not tied to dollars.
So they claimed tether was tied to dollars but they produced a lot of it to buy up Bitcoin and the fear is that they didn't wait for dollars to come in but just made the tether out of... well, ether ... and used that to prop up bitcoin which they converted into actual wealth.
Market participants are relying on the exchange to give them correct information about trades and to only issue orders that are backed by real assets. If the exchange puts in orders that aren't backed by assets, they eventually will not be able to close out all accounts (because there aren't real assets to do that with).
What if an internet service provider sells Internet subscriptions that are not backed by real bandwidth. If enough customers want to stream video the ISP will not be able to provide enough bandwidth for them.
I certainly find the leeway advertisers have infuriating.
On the other hand, I would sign up for an ISP knowing full well that their advertised bandwidth is "best effort". I would not sign up with an exchange knowing that their intention to give my money back was "best effort".
This article talks about suspicions that Bitfinex has "printed" large amounts of Tether (a so-called stable token which is supposed to be backed 1-1 to a supply of real USD) to buy up Bitcoin and artificially inflate the price.
You'd think that if they really did link 1:1 to the dollar, they'd encode some kind of proof in the tokens themselves - like idk, the registration number of banknotes, or a transaction number in a publicly viewable bank account (supported by a real, trusted bank). You need some way to verify the claim that "1 tether == 1 real USD" instead of just trust.
I could see that getting rationalized as "creating tether for the contemporary USD equivalent of BTC, so it's still all as promised" (even though it is not), but that would really just be throwing tether under the bus to buy bitcoin some more time. And not terribly far from plain out minting unbacked tether.
Except this Bitfinex thing shows that while an amount of bitcoin can't be manipulated or counterfeited, their actual value is relatively easy to influence because it's mostly unregulated. I mean think about it, if Bitfinex is lying about their dollar reserves this might be one of the simplest and most efficient scams of all time. They're literally making up money as they see fit. Hundreds of millions at a time. Just like that.
Now of course maybe they're not actually crooks and they do have the money, it's kind of a schrodinger's cat scenario at the moment. Still, the fact that nobody manages to know for sure the truth of the matter shows that they could be doing it and we'd be none the wiser. People are buying and selling for million of dollars of these things, not knowing if they're trading digital dollar bills or monopoly money.