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Tether price manipulation (twitter.com/jacoboracle)
306 points by temp 59 days ago | hide | past | favorite | 475 comments



The problem is that in the early days of @Bitfinex'ed this was all a bit of a sideshow because there was genuinely large interest from retail and the outcome of crypto was far less certain.

However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation. Bitcoin's narrative has had to morph from "digital currency" to "digital gold".

But in the depths of the March panic, Tether jumped the shark in order to backstop the entire crypto ecosystem, and they can never put that genie back in the bottle. Much like the Fed who cannot stop monetizing US deficits for fear of letting yields explode, the Tetheral Reserve must continue to print USDT in order to support prices. Exchanges cannot let this fail since the vast majority do not have access to the bonafide banking system and thus scrappy users must devise "fiat onramps".

There are many theories about why, the predominant one being that iFinex know they are screwed, and are making one last cash grab before presumably disappearing. This sounds fairly reasonable if the entire operation is indeed a sham, but it means there is effectively no upper bound to BTC prices because the denominator in 90% of the market (USDT) is effectively zero.

Tether has become too big to fail. Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.


>Bitcoin's narrative has had to morph from "digital currency" to "digital gold"

The narrative around bitcoin has always been "It is digital currency. It works like gold". Hence the notion of "mining".

EDIT: downvote me if you want but you are flat wrong

Section 6 in the bitcoin whitepaper explicitly likens bitcoin to gold [0]

>The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation

[0]: https://bitcoin.org/bitcoin.pdf


>>Bitcoin's narrative has had to morph from "digital currency" to "digital gold"

I wholeheartedly agree with this. Let's look at some Reddit /r/bitcoin posts in January 2014:

https://redditsearch.io/?term=&dataviz=false&aggs=false&subr...

People were discussing bitcoin being used as a digital currency. There was talk of bitcoin being accepted on Overstock.com, TigerDirect, and using bitcoin apps on phones as a digital wallet. I would argue the majority of people in the bitcoin community at the time were genuinely interested in the technology and its use as an everyday currency.

Now let's look at some Reddit /r/bitcoin posts in January 2020. I picked this date because there weren't any recent significant price fluctuations.

https://redditsearch.io/?term=&dataviz=false&aggs=false&subr...

There was practically zero discussion on using bitcoin as a currency. People were only interested in the price and treated it as a commodity, just like a digital gold.

> EDIT: downvote me if you want but you are flat wrong

Do people treat bitcoin as a currency or a commodity today?


*The narrative around bitcoin has always been "It is digital currency. It works like gold".*

I don't think we need to get into whether or not gold is a currency or a commodity but you are fooling yourself if you think that the price of gold is driven by jewelers and PCB fabs.


You'd be surprised how much does go to jewelry https://www.statista.com/statistics/274684/global-demand-for...

Long term the price is driven by the mining cost.


People were overly enthusiastic about it intially, but soon realized almost no one wants to use a slower, riskier, and now more expensive payment option. Bitcoin is good for merchants but terrible for buyers.

Bitcoin lightning could change this, instant transactions with almost no fees, but it's still in early days.


The Phoenix wallet[0] is actually quite a nice LN solution. When I tried it out it gave me similar feelings of excitement as when I first got into Bitcoin.

Reading about the Lightning Network gives me a headache in general, but Phoenix manages to hide all the tech stuff. I think my old parents would be able to use it.

And it solves one LN problem of having to have bitcoin for opening a payment channel, you can simply install the wallet and start receiving bitcoin.

[0] https://phoenix.acinq.co/


> Now let's look at some Reddit /r/bitcoin posts in January 2020.

This is a very amateurish attempt at analyzing what "Bitcoin community" (which you haven't even really defined properly either) are thinking or are interested in. Bitcoin reddit is a bunch of kids who like memes and hating on the FED. I know a lot of serious investors who would never be seen posting or commenting there. It is just not a place for a lot of people.


r/bitcoin is heavily censored, it's the reason for Bitcoin Cash fork and why the uncensored r/btc was made.

All the original Bitcoin adopters from the beginning moved discussion there.


I would say it’s now more promoted as an uncorrelated asset class.


That may be true but there is definitely a difference between the way people talked about it earlier ("later we will all be paying with bitcoin") to how it is now ("it's a store of value and maybe there is potential for bitcoin-backed currencies").


I think the scaling limitations were well known at the beginning. If Bitcoin were to get as large as visa/mastercard the blockchain would be growing at a rate of a few gigabytes per day, which would kill decentralization.


As far as I was aware, this problem was mostly ignored.

It was expected (again, as stated in the whitepaper) that truncating transactions (in order to shrink blocks that are "old enough") would be able to manage block size well enough to stay reasonable.

In my experience (circa ~2011,) this expectation seemed to be generally accepted without much question by anyone talking about bitcoin. If it was acknowledged as a flaw it was usually hand-waved as only likely to be a problem 10+ in the the future.

edit: Or that a new network would learn from the bitcoin experiment and implement a protocol that works better at large scale.


As far as new networks go, that appears to be happening.


Has already happened, Nano is feeless, currently supports 250tx/s on main net and requires the energy of one windmill for the entire network.

It's also more secure than Bitcoin due to a higher decentralization coefficient.


the limitations have been researched extensively outside of the echo chamber of bitcoin development. It is possible to scale a utxo system like bitcoins to hundreds of millions of txs per day. Xthinner[1] can compress blocksizes by 99%, but bitcoin devs have ignored this with handywavy arguments.

[1]https://github.com/jtoomim/xthinner-spec


A bitcoiner pinged me and asked for my comment here. It really sucks that people are so easily bamboozled by dishonest scammers.

In the original bitcoin software a node would receive every transaction made while it was online twice: once when the transaction was first relayed, once when it was placed into blocks. This was obviously wasteful, so we created and deployed a reconciliation scheme that exploits the fact that normally all, or almost all the included transactions are already known. https://github.com/bitcoin/bips/blob/master/bip-0152.mediawi...

But because Bitcoin developers are not dishonest scammers they didn't run around putting out (no kidding) press releases claiming "98.6% compression"-- though that's what you get if you compare the size of the BIP152 message to the size of the block. In reality, since it depends on the transaction being known in advance the unachievable limit for this class of approaches is a 50% bandwidth reduction for a node compared to the original behaviour. BIP152 achieves 49.3% out of that 50%, as measured on the latest block.

Even before compact blocks was created back in December 2015, we knew even smaller could be achieved. E.g. we published a scheme that requires asymptotically 0 bytes per transaction, only requiring data proportional to size of the difference between the block and the recipients guess at the next block. But what we found is that the simpler scheme actually propagated blocks much faster because once the block is down to just a few thousand bytes other factors (like CPU time) dominate. Expending a lot of additional code and cpu time to take 49.3% closer to 50% isn't a win in actual usage.

[And for considerations other than block propagation, saving a few extra bytes per block is extremely irrelevant.]

It's also the case that some of these dishonestly hyped supposed improvements beyond what Bitcoin has done for years are actually totally brain-damaged and wouldn't work in practice because they're not robust against attack-- but there isn't much reason to dive into technical minutia because what they _claim to achieve_, once you strip off the dishonest marketing, isn't all that interesting.


This place is not a place to learn about bitcoin Greg, it’s all changed :(

Thanks for this.


That page claims it can compress a single transaction down to 12-16 bits. Unless the vast majority of btc transactions are between the same few wallet addresses, this seems impossible? Even if you assume that the transaction is an instance of a common known script, you still need from-address, to-address, and amount, all of which are >16 bit quantities and in general are cryptographically random.

The only explanation I can think of is that they are relying on a sidechannel to communicate the actual transactions, which makes sense in the miner case (the utxo pool) but not in the general node case.

Beyond that, I run a BTC node occasionally and the bottleneck is validating blocks, not downloading them. Transactions are complicated enough right now that I'm only able to catch up at about 350x real-time (that is, it takes around a full cpu-day to validate a year of blocks/transactions).


>but bitcoin devs have ignored this with handywavy arguments.

Can you provide links to these discussions? I searched around on google and all the results are relating to bitcoin cash. I also searched the usual places that bitcoin (non cash) people congregate and turned up nothing.


Sad that you're going to get no reply here, but not surprising.


Not this again. The entire bitcoin blockchain fits in $6 of hard drive space. The average transaction right now is more than $11.50. The AVERAGE transaction costs almost double what it costs to store the ENTIRE blockchain.

Stop with the storage space nonsense. The only people even storing the entire chain are enthusiasts, servers and miners. Saying "what if it gets a thousand times as many transactions" is ridiculous, but it still wouldn't be a problem. A few gigabytes a day? A $300 dollar hard drive would still take a decade to fill up. I think the few that sync the entire chain handle that.


It doesn't google anymore and might be gone now, but back in the day there was an article on a bitcoin website which went through some math, arguing that Bitcoin could achieve 4000 transactions per second. People used to link to it on a regular basis.

Aside from that, people figured Moore's Law would continue at its historical pace, and Bitcoin could grow indefinitely at the same pace.


The whitepaper only likens Bitcoin to gold in regards to the emission rate, not to it's supposed usage as "digital gold".

In fact the whitepaper even opens with describing Bitcoin's usage for commerce. The very first paragraph in the introduction!

The narrative has indeed changed to "digital gold" after it's made abundantly clear that Bitcoin is no longer suitable for commerce.


It is not a coincidence that gold mining was chosen as the analogy for new coins.

The emission of new bit coins following the "mining" of new blocks is like the minting of new gold coins following the mining of raw gold.

Because bitcoins are like gold coins.

I agree that neither gold nor bitcoin are suitable for commerce. But the narrative around and apparent intent behind bitcoin from in the beginning was "It is digital currency. It works like gold".


I think people are using "gold" in 2 different ways.

In the olden days, gold was actually a currency. The supply of coins you could produce was limited by the precious metals you had. The amount of paper money you could issue was limited by the amount of gold bars you had. In this system, gold is still acting like a currency; but a currency with very real limitations on the ability of any institution to manage it. [0]. This was the original meaning of digital gold.

In contrast, modern gold is not used as a currency. It is used as a commodity and store of value; and a hedge against inflation.

[0] Unlike gold though; bitcoin actually has a predictable issuance schedule. There is no sudden spike in Bitcoin supplies because prospective suddenly discovered a rich vein.


It’s digital gold you can use to magically transport any drug to your doorstep. That’s an amazing killer app.


Meh, USD is much better for that. Lots more drug dealers accept it.


Not near you, and not safely.


My understanding is that the problem is not with Bitcoin, but with people buying Bitcoin with "money printed," (or unconfirmed-peg) Tether.

The same issue would arise if the USA started printing dollars and buying physical gold with it. Is that right?


> The narrative around bitcoin has always been "It is digital currency. It works like gold".

It has not been that for years. It failed miserably as a currency, and the current narrative is that it is a "store of value".


How do you square this with the observation that other fiat-backed stablecoins like USDC, which are obviously legitimate, are also printing massively?

It would seem to me that if transparent stablecoins with utility are going up, the simplest explanation for tether going up is that it serves the same role for people who have either become accustomed to it from its earlier availability, or have it as their only option due to jurisdiction. Not anything nefarious.

There seems to be little actual evidence to support conspiracy theories that Bitcoin's price movements are due to mismanagement of tether.


The argument isnt that there are no legitimate inflows of other stablecoins (or traditional fiat currency) into bitcoin prices. The problem is that Tether is ~80% of inflows [1], and is dubiously backed at best. If 80% of the price support disappears, prices will fall, and legitimate buy side interest from other stablecoins or fiat will almost certainly shrink as well.

[1] https://twitter.com/JacobOracle/status/1346133087877537792/p...


I think the author might be confusing volume for inflow, but they're 2 different things.


Except for timing time after time. Most rallies have a corresponding Tether print right prior to them.


The price of an asset goes up when money is being poured into the asset. For many exchanges "money" means USDT, so it makes perfect sense that USDT would be printed before a rally, regardless of malfeasance on tether's part.


Is there any proof or data on Tether issuance preceding rallies? Because I have seen this claim often made on Twitter, but never with any sources.

I personally dislike Tether and avoid it, but strong claims require strong evidence.


Here's an econ paper that studies that question: https://www.researchgate.net/publication/342185292_Is_Bitcoi...


Thanks, I will have to read it carefully, but from the abstract it doesn't seem as simple as "increased Tether printing makes BTC rally." But if there is in fact a statistically significant correlation, I would personally wager there's causation and hedge my bets accordingly.


I think the abstract does effectively say that: "these patterns are most consistent with the supply‐based hypothesis of unbacked digital money inflating cryptocurrency prices." And this point is made more forcefully in the paper.

FWIW, I don't have a strong opinion on the evidence presented in the paper -- the analyses seem sensible, but this isn't my field of expertise, so I'd be hard pressed to point out, for example, what alternative analyses they could / should have done.

Also, it's not even obvious to me that unbacked Tether causing the BTC price rallies is necessarily a reason to pull out; markets are weird.


Sounds like a winning trading strategy to me then.


However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation.

The killer app is decentralized, permissionless, open source, and censorship resistant network.

Bitcoin's narrative has had to morph from "digital currency" to "digital gold".

Gold morphed from worthless rocks in the the ground, to coins traded by traveling merchants, to stores of value that were eventually centralized and monopolized by governments.

RE: Tether I don't trust them either, but we need more evidence of this alleged printing. We saw that they did remove the 1:1 peg briefly when Crypto Capital in Panama (?) froze a few hundred million of their USD.

Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.

Bitcoin is sound. The centralized exchange layer built on top of it is dirty.


> The killer app is decentralized, permissionless, open source, and censorship resistant network.

That’s like saying the killer app of the internet is the internet.

The web gives me access to information quicker and easier than going to a library or bookshop. Email and IM means I can communicate with people in other countries quicker and easier than I could by post. Crypto doesn’t change anything.

A few drug dealers and some people living in countries with hyperinflation may care about “permissionlessness” and “censorship* resistance”, but for most people, actual money is far, far more convenient.

* That’s some Orwellian newspeak, btw. If someone defrauds me and a court of law ensures that I am restituted, the reversal of that fraudulent transaction isn’t “censorship” because stealing money isn’t “speech” or “expression”.


Digital gold is the kill app. That is enough to justify its market cap.

For example, Chinese can use bit coin to exchange large amount of funds to other currency, although this can only be done in private because the official ban.


You cannot. There is no exchange from CNY to Bitcoin.


CNY buys mining rigs and electricity which makes bitcoins.


Come on, it was banned, but there is plenty of underground channel... Why is that even needed to be mentioned...

Maybe I should be more clear in the OP.


There are underground channels for USD - CNY as well haha


> The killer app is decentralized, permissionless, open source, and censorship resistant network.

That's the "how" part, not the "what". What's the killer app implemented using that network? What do we do with it?


Lots of examples in this thread.

A replacement for gold is one.


> A replacement for gold is one.

Gold is relatively stable and has physical backing. BTC does not.


Gold is relatively stable and has physical backing.

Up to 4% of China's gold reserves could be fake. Gold fraud article: https://economictimes.indiatimes.com/news/international/worl...

Bitcoin is open source and completely auditable in an instant.

As the price of gold goes up, the quantity supplied goes up. Bitcoin's issuance protocol is fixed and unchangeable unless the network agrees.

The cost of securing or transporting $1b of gold bars is magnitudes higher than the cost of securing $1b of Bitcoin.


Securing $1 billion of bitcoin? Who needs to secure $827 million of Bitcoin? Securing $937 million of Bitcoin is not a killer app.

In all seriousness, securing the value of Bitcoin is the problem that is not easily solved.


Bitcoin is bits of data on a network. It does exactly what its supposed to do; a dictionary for strings to integers.

Securing external value to people is not a goal or responsibility of Bitcoin. That's simply a consequence to how we as humans choose to use scarce assets.


> Securing external value to people is not a goal or responsibility of Bitcoin.

Fair enough, but then your comparison to physical gold is meaningless. Physical gold is generally used to store value, not to transfer it.

For that purpose, you have paper money (or paper gold such as futures) which is cheap to transfer.


Gold has had thousands of years to equalize in value.

Bitcoin is about 12 years old.


Alright, then maybe in a hundred years your gold comparison will be meaningful, but not today.


Disruptive technology is disruptive.

Tell someone from the past to imagine having godlike computing power in your pocket, and they'd say "why would anyone want that?"


I'm not sure what your point is right now. Sure, it's "disruptive technology", that doesn't mean it can be used to store value into the future.

Computers that are decades old, which were "disruptive technology" at the time, are scrapped today - for their gold.


Bitcoin is relatively stable and has a mathematical backing. Gold does not.


The hurdle for bitcoin is finding a way for people to turn it into a currency they can use. This is where you end up with a centralized exchange layer built on top of it.

I can make a $12,000,000 transaction for $.35 but if I actually want to get the money, I have to pay 2.5% to a legit exchange or take my chances on some janky ass exchange. Why not just transfer the money via ACH and pay the small fee and save myself the headache?


2.5% is way too much.

I pay 0.15% and the exchange has been around for a decade without ever losing funds. It's even now licensed as a bank in the U.S.


You can start by asking people to take bitcoin for various transactions. For example, my friends and I all use it settle debts between each other.


The barriers to entry, usage, and understanding are just too high for average Joe. That and how the value of their money fluctuates compared to fiat makes it more difficult to use as a daily currency. Also, when things go wrong there's nobody to turn to in most cases.


> The barriers to entry, usage, and understanding are just too high for average Joe.

Mentioned in another thread[0], the Phoenix wallet more or less solves this on the Lightning Network.

[0] https://news.ycombinator.com/item?id=25706312


Bet you don't lend one another bitcoin though


In a long enough time frame, people transact with cryptoassets directly and don't need to exchange into fiat. We are early in this development, money as we know it is changing.


Over a long enough time frame the chances that you get hacked, scammed or make a fatal mistake and lose all your cryptos is high. Putting anything more than pocket money in this is idiotic.


What kind of an exchange charges 2.5%?


> The killer app is decentralized, permissionless, open source, and censorship resistant network.

Yes, but what can I do with that other than toot/tweet/twit at other people and buy LSD tabs?


Here are a few projects that use Ethereum to do things that have nothing to do with acquiring chemicals or crypto asset speculation.

https://www.nucypher.com https://filecoin.io https://alice.si https://www.augur.net


I can do all that right now without inserting a power-wasting cryptocoin layer.


Go ahead subscribe to Pornhub with your credit card. Or donate to Wikileaks with your paypal.


Why would I pay for Porn? But on that note, the PH website still accepts several types of credit cards.

Whatever Wikileaks originally was, it is now a Russian propaganda tool. Go ahead and try to post leaks critical of Russia on Wikileaks, or for that matter, of Donald Trump. Why would I want to donate to a website that is openly seeking the destruction of my country?


With Bitcoin you own property that can never be confiscated or debased by any government.

With IPFS you can host and access files that can't be censored. (same level of censorship resistance as torrents)

With Monero you can transact free from surveillance.

The biggest applications on Ethereum right now is decentralized finance, with billions of dollars locked in.


> With Bitcoin you own property that can never be confiscated or debased by any government.

Private keys can be confiscated like anything else. They won't do you much good if you're thrown in prison for not turning them over if legally compelled. Sure you can try to hide your ownership, but my point is that actual cryptocurrencies are only one layer of very deep opsec you need to resist state actors. For the common illegal goods consumer it's unlikely to do much more than provide a false sense of security due to other opsec failures (use of phones, use of cookies, use of mailing addresses, use of non-e2e chat, using a hosted wallet, lack of anonymous vpn, etc etc etc).

> The biggest applications on Ethereum right now is decentralized finance, with billions of dollars locked in.

Interesting use of "dollars." How much is actually Tether? How much is manipulated market cap (through wash trading or more convoluted defi mechanisms)? How much is actually liquid USD?


A wrench attack will always be the easiest vector. That said, there is no other asset in history that gives you this level of security for such marginal cost. The cost of securing $100 is essentially the same as the cost of securing $100m.


The chances of loosing $100 is essentially the same as the chances of loosing $100m. If you loose your private key nobody can help you recover your money.


I would hope that someone with $100m in crypto is smart enough to not leave their seed words on a piece of paper on their coffee table.

Your exactly correct that nobody can help you recover your money if you lose your keys.


Bitcoins have been confiscated by many governments. A quick Google search reveals many instances of that.


Lets clarify semantics.

Can the government seize Bitcoin directly? No.

Can the government seize your bank account directly? Yes.

Can they threaten you with jail if you don't hand over your Bitcoin? Yes


Can the government seize Bitcoin directly? No.

Yes, it can. The U.S. government has in fact seized Bitcoin directly and sold it at auction several times. It is arguably the single largest non-exchange seller of Bitcoin in Bitcoin's history.


It can only be taken in these events:

1) Seed phrases are discovered (ie. plaintext document or physical artifact).

2) Seed phrases are handed over by willing party.

If #1 doesn't exist, then #2 is the only option.


This is the same as with cash money.

Money can only be seized if the safe is found. And the combination is handed over by a willing party.

The difference is that money is actually more secure because you don't have a public ledger telling you that it exists and who owns it and how much of it they own as you do with the public cryptos like Bitcoin and Ethereum.


Cash needs to be accessible to be useful.

Crypto is magnitudes more accessible. I can travel to any country in the world with an encrypted usb drive of my seed words, and no one is wiser. OR even upload a file to the internet and forego carrying anything at all. A government can try to censor transactions belonging to an address, but we don't have good precedent to see how the network will behave. Miners in other jurisdictions have no reason to follow someone else's censorship.


> Can the government seize Bitcoin directly? No.

A government could seize miners, and given that ~50% of the world's Bitcoin mining capacity appears to be located in one country, that might give them considerable leeway to rewrite the blockchain to their liking.


Yes. The solution to this is a software fork.


Did you mean "soft fork", or are you thinking of a different concept I'm not familiar with?

Forks can and have been used to deal with isolated malicious incidents, but do you think they can be successful against an actor in extended control of a substantial part of the hash rate?


You can alter the hashing algorithm to one that is more ASIC resistant. Monero did this.


> With Bitcoin you own property that can never be confiscated or debased by any government.

So the killer app for bitcoin is owning bitcoin?


> RE: Tether I don't trust them either, but we need more evidence of this alleged printing. We saw that they did remove the 1:1 peg briefly when Crypto Capital in Panama (?) froze a few hundred million of their USD.

Tether's page (https://wallet.tether.to/transparency) claims $23.6 billion in total assets. Despite their claims to transparency, I see no report of what those assets are, how risky those assets are, or any audit that assets they even own those assets. Their front page has a big link saying "Proof of funds", which leads to an audit published 2½ years ago, claiming only $2.5 billion in cash in two bank accounts with unnamed banks.

For a company that claims to be "always fully transparent," that is shockingly opaque.


Especially considering their last auditor walked away from the situation, I'd say the whole project reeks.


I find this a little bit too biased. The Bitcoin universe is waving between a lot of reason why to love bitcoin and it shifts often.

I stopped following the money side of it (atm and sites accepting btc) but a vast majority of btc and cryptos attention right now.. is simply better yearly returns than other kinds of possessions.


> The killer app is decentralized, permissionless, open source, and censorship resistant network.

That's not an app. That's meaningless advertising lingo.


The killer app for Bitcoin is escaping government fiat money that is backed by literally nothing at all and is being printed at increasingly alarming rates. 40% of all USD ever created were “made” in 2020. That will have repercussions for decades and isn’t a currency I want to stay in.

https://fred.stlouisfed.org/series/M1

Ironically (or not) Bitcoin was created in 2009 right when that graph gets really crazy.


> backed by literally nothing

It is the only thing the government accepts for tax payments. Given that you can be arrested for not paying your taxes it is "backed" by the barrel of a gun, a threat to your very being. In one sense this is the only real thing there is.


Gold and silver became money for similar reasons (probably). Kings and Emperors found that supplying their armies was much easier (especially in peace time) if they used the method of taxing the population in gold and/or silver and then using that to pay their soldiers who would supply themselves on the open market. That way you did not have the standard problems of a planned economy. The peasants have now need for gold, so they would not need/want to trade stuff for it unless they were forced to have some to give to the tax man. It's much more complicated than that, of course, but like fiat money, gold and silver do not have much intrinsic value besides using it to show off your wealth.


Maybe they didn't have any intrinsic value in the past besides looking pretty but in the modern era both gold and silver have industrial uses. They are not just stores of value. One could also argue that both metals also had intrinsic value in the past since both metals were used in jewelry and various items to make them look good.


The industrial usefulness is an irrelevant byproduct when considering gold and silver as an investment.

Put another way, if people lost faith in gold as an investment tomorrow, and the value fell to the economic value of the industrial use cases, investors in gold would be ruined.


I’ve never thought of it this way. I wonder what the price of gold and silver would be if they were strictly used for manufacturing and jewelry instead of speculation and store of value?


It is not irrelevant if the price is based on anything else besides raw speculation. Gold and silver have always had utility outside of trading.


Indeed. A thought experiment: say the US government created a USD-prime currency that floated freely from USD. You could still use the USD in private transactions, but the US government would only transact and tax in USD-prime. What would be the fate of the original USD?

My belief that it would go to zero. I’m curious whether “fiat is backed by nothing” proponents would disagree.


Both fiat currency and Bitcoin are backed by the same thing: mass belief. An incredibly powerful thing.


Yep, but my point is that one is mass belief that the US government will continue wanting USD, the other is a mass belief that other people will continue wanting BTC. Both could be right, both could be wrong, but they are not the same proposition.


Don't forget that the US gov itself is also propped up by mass belief. Its authority rests in the people.

Now you might say "actually its authority rests on people with guns", but that's only to the extent that the people with the guns believe in the governments's authority to tell them who to point them at.

Underneath all is belief and sentiment.


>It is the only thing the government accepts for tax payments. Given that you can be arrested for not paying your taxes it is "backed" by the barrel of a gun, a threat to your very being. In one sense this is the only real thing there is.

That's more than enough reason why we should try something else. It doesn't inspire a lot of confidence. By that reasoning, the USD has the same sort of backing as the Venezuelan Bolivar. So what's to stop the prior from becoming like the latter?


One has more guns(planes, tanks, etc) than the other.


Ok are you saying that is a good reason to invest in it? I always hear this and it seems like if force or military force is your only bastion of reason left to invest in a currency you should have left it long ago.


This argument doesn't really refute the argument for bitcoin as digital gold. It's not as though you can't exchange bitcoin to pay your taxes.


Gold has an intrinsic use value. Maybe not as high as its current monetary value, but it isn’t zero.

Bitcoin has no floor. You can only exchange bitcoin for taxes if someone wants the bitcoin.


Gold is intrinsically scarce. You can't fork gold and have Gold 2.0 which has the exact same properties of the original Gold.


Backed by nothing...as opposed to bitcoin?

People who repeat this don't understand that fiat money is based on trust...and that is not a bad thing.

This is why blockchain is fundamentally stunted: the global society is based on trust and cooperation. Trustless systems will never be able to compete in these arenas.


yawn

speaking of jumping the shark, have you seen what governments have been up to lately ?

interest rates at a 5,000 year low, moral hazard abound & global fiat collapse imminent in the best case and in the worst case we have banks/elites/governments who are going to be looking to further enslave those in debt and forced out of business/work with some dystopian debt forgiveness scheme involving a 'vaccine' schedule and travel restrictions or whatever else (use your imagination).

the truth is that everything mentioned in these comments was an argument that had already been had years ago - the markets reflect that - but i did enjoy reading the last sentence of your original comment and thinking to myself "am I reading Time Magazine ?"


1) trying to distract the above problems by pointing out other issues doesn't make them go away

2) you talk about fiat collapse being imminent...USDT is worth far less than any fiat (see: nothing) I don't get how these ardent fiat haters don't see their entire ecosystem has been coopted by something that has infinitely less value than the thing they so despise


Seems to me like you're tacitly agreeing with GP here - you're just making a claim about which currency system you trust more! (And attempting to convince others of the same position.)


And yet people still buy T-bills.


The 40% relates essentially to cash-like assets, which is a tiny part of the total USD money supply. The total has not grown drastically.

See https://en.m.wikipedia.org/wiki/Money_supply


USD is backed by being valid for the redemption of outstanding USD denominated invoices, loan repayments and tax bills, all of which ensures demand to possess the currency and are likely to continue to exist in increasing quantities in future.

"Escaping" that for something which literally is backed by nothing at all is a strange move.


That only works when people take payment in BTC without translating the value provided back to a Fiat currency.

Until that time, expansion of the USD (or other Fiat) supply impacts the "value" that BTC has.


During the gold standard, did people take payment in gold?

I don't think so...

They used paper that symbolized "withdrawal rights to gold". USD (or any other piece of paper that people agree has a value) is a perfect currency for exchange, it's just not a great store of value.


> USD [...] is a perfect currency for exchange, it's just not a great store of value.

USD is a fantastic store of value. Since 1982 (arguably the beginning of the modern inflation-targeting era), the USD has lost no more than 6.3% of its value year-over-year, nor gained more than 2% (CPI measured, source https://fred.stlouisfed.org/series/CPIAUCSL#0).

In contrast since 2016, Bitcoin has 60% of its value year-over-year (2018) and gained 1700% (also 2018).

A store of value is not a story of appreciation and hoping for a gain, it's a story about holding a stable and most importantly predictable value into the future. The USD more than satisfies this condition. Bitcoin does not, no matter its speculative merits.

Most importantly, society does not owe people a fictional store of value guaranteed to never lose purchasing power. People don't eat quarters, nor do they live under dollar bills. It strains credulity that a nominal token (however minted) should hold a guaranteed value, without taking capital-like risks required of any productive investment.


The point I was responding to was saying that they wanted to get away from USD and that this was BTC's killer app.

My point is that you can't "get away" from USD, while the BTC market is effectively tied to USD.

so if the USD supply is massively inflated, and people can use those USD to buy BTC, the tie is still there.

If and when people denominate their goods and services in BTC without any reference to a fiat amount, then they are decoupled and BTC loses the tie to USD.


> did people take payment in gold?

No, but prices were denominated in gold, effectively, as the price of gold was fixed. That was the whole point.


Money is not property. Money is an entry on a ledger, which tracks credits and debits. So yes, fiat currency is not redeemable for a physical asset. But if it was redeemable, what ensures that say gold or a chicken will suffice to settle a debt or serve as credit for a future transaction. Chickens die and gold is only as valuable as your skills as a trader. The ledger and all of the social norms and institutional structures that accompany it is what maintains financial wealth.

Preventing debasement of currency via inflation via printing money, which a lot of people use as their go to argument against fiat money, is simply adding economy wide debt to the ledger. This is necessary from time to time especially during crises and especially in a services/financial services/ intellectual property heavy economy.

If no money existed, at all, how would you receive compensation for providing work of an IP nature to your neighbor. You would need either a perfect trade (you really want their chicken it’s just the right amount of chicken for you) or you take an iou. Which is a debt. Now have them write that iou down on a piece of paper and hand it to you. Your neighbor just printed money. Not so crazy.


I have a question, isn't the problem with the gold standard that the amount of dollars is fixed and in order to have enough currency to drive a rapidly growing economy you would in essence be buying a gallon of milk for .25 cents?

It seems to me that either you the amount of currency in circulation needs to increase or the value of the existing currency needs to increase.

Taking into account the gold standard was used for possibly centuries (not sure) was this problem encountered before and how was it solved?


A shortage of bullion in Europe during the 15th century caused problems everywhere. That was followed by a huge influx of gold from the Americas in the 16th century, which also caused massive problems across the continent!

https://en.wikipedia.org/wiki/Great_Bullion_Famine

https://en.wikipedia.org/wiki/Price_revolution

Both under- and over-supply had negative effects on the economies of Europe.

The gold standard really was a primitive fiat currency anyway, governments would debase coins so they contained less gold in order to expand the money supply for instance. And only a small fraction of coins would be gold anyway, silver was far more common - the Pound Sterling takes it's name from a pound of silver from the easterlings (Germans). Paper money just made it obvious that physical currency was only a representation of wealth and not a fixed unit of wealth itself.

The gold standard is basically a political myth about a system that never really existed. Money is a very abstract concept, and reducing it to physical tokens and easily intuitive rules is appealing to many.


https://wtfhappenedin1971.com/

This was posted to HN and it was quite eye-opening. For those that don’t know, 1971 was when the gold standard was abandoned by Nixon. I don’t know if the graphs are cherry-picked and I hope they were honestly since the US is never going back to the gold standard and it seems to have far-reaching negative effects in every aspect of human life.

To answer your .25 cent milk question it seems to have not been a problem in history and health of the country before 1971. The profits and benefits of the rapidly growing economy have pretty much all gone to the ultra wealthy that are nearest to and in control of the money printer.


I think this is a gigantic leap. They show a whole bunch of graphs without even advancing a theory as to how abandoning the gold standard caused a decline in, for example, employee compensation growth. Or divorce rates. Or ... obesity rates, really? There's so many graphs on here that it would take forever to dispute all of them, but here's some general points.

1. A lot of these graphs start at 1940 or 1950, showing a change in the trend in the early 1970s. But that was the end of WW2, where Europe was in ruins and rebuilding and America saw a massive increase in prosperity and economic output. That was a pretty unique period, it's only natural for that trend to diminish or change over time.

2. A hell of a lot happened in the late 60s and early 70s, not just abandoning the gold standard. One of these graphs is of the incarceration rate. Do you think we started seeing mass incarceration at that time because we abandoned the gold standard, or do you think it was because of the war on drugs?

3. Some of these graphs are deliberately misleading. One is of the cumulative inflation rate, and seems to show the inflation accelerate in the early 1970s. Except a healthy economy should have a steady inflation rate each year (of around 2% I believe), so this graph is supposed to be exponential! They just picked the right window so that 1971 is the inflection point.


The change from the gold standard is almost certainly a coincidence. Whether the dollar is backed by gold or government promises doesn't make businesses decide to give less money to their workers and more to their CEOs.

A much more relevant development in the 70s was the switch in economic policy priorities from demand-side to supply-side. Nixon was the first president who prioritized tax cuts, union busting, subsidies, and legalizing outsourcing to cheaper labor markets in China and SEA. Every government since has given corporations a blank check to cut labor costs by any means necessary to prioritize profit.


Those graphs paint a fair picture of the nature of the crisis, but I am not so keen on their explanation.

Nixon ended gold convertability, but the USD was not on a true gold standard and was in danger of not being able to fulfill this obligation. The standard was Bretton Woods, it was an international framework for finance, and it was the failure of the framework together with the OPEC oil crisis that caused the mess documented in those graphs.


My rule of thumb for money supply:

adjustable, with a benign regulator > fixed > adjustable, with a corrupt regulator

So, the aim shouldn't be a return to the gold standard or a switch to BTC, but to make sure that central banks can do their job without interference from politicians.


To the left of that list I'd put "self-adjusting, without needing a regulator."

Hayek argued that a system of competitive privately-issued currencies would achieve that. I'm not qualified to say whether he was correct, but an economy built on cryptocurrencies would be exactly that.


Yes. That is called deflation. It also has to do with fractional reserve banking. The fraction of your outstanding dollars that you could actually cover with gold. If no one ever wants to make a run on your bank, you can keep the fraction very low.


I understand the deflation part, but my question really was is it an economy the size of the united states even possible if we stayed on the gold standard.


Not having enough money to transact would definitely have suppressed our economic growth, but then again maybe we would have gotten really good at mining for gold to make up for it


"Really good at mining." This might be good point to compare with BTC. Where huge amounts of electricity is spend on doing essentially useless calculations, outside keeping the system safe and running.

Good at mining would have meant spending good part of our economic output to mine gold and then just storing it somewhere or moving it around...


> literally backed by nothing

Backed by $750B in annual military spending


> government fiat money that is backed by literally nothing at all

It would be really nice for people to spend even a few minutes thinking about how money works, or open a textbook even just to learn what you disagree with.

It's tiresome to explain over and over and over again to people how the "full faith and credit of the United States" is not "nothing at all" but in fact a guarantee of great value, at least as good as any on any other security, and one that is quite measurable (by for example comparing the prices of full faith and credit securities with other almost identical securities without this guarantee).

On the contrary, I'd say that it's the cryptocurrencies that _by design_ are based on nothing at all.


I’ve been wondering if Tether is really a scam for a long time.

In all these analyses, one key point is missing: arbitrage traders have to make up for the sell pressure on USDT when Tethers are being printed and sold for BTC. Can anyone show me how there is a plausible mechanism/scheme/conspiracy that keeps the USD/USDT exchange rate stable while a crazy amount of illegitimate Tethers are being printed?

Edit: typo and removed link.


It's just that conspiracy theories and doom stories are nice to write about. USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin.

Most people writing about USDT don't understand how arbitrage markets work, and don't understand that liquid markets are quick to resolve themselves (unlike ponzi schemes where you can hide the missing assets for a long time). Liquid markets will put quick pressure which is why these structures collapse faster (see MtGox)


>USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin.

Technically it is possible. You don't need an equal or larger market cap to inflate something else 90%. You just need enough to dominate the trading volume.

As an extreme example, if bid/ask volume is exactly 1 (ie the ONLY trade volume consists of you and 1 other person trading a quantity of 1), then at the minimum, all you need is a bank roll of 1.9x the current unit price, with both you agreeing to the trade it for 1.9x, for the going price per unit to inflate 90%. And since market cap = price per unit × units outstanding, then the market cap also inflated 90%. If the units outstanding was 5000, and the unit price was $1, then the market cap increased $4,500 using only $1.90.


Market caps in cryptocurrencies are an entirely nonsensical fiction. They have no real effect on anything.

Look at trade volumes. Tether is massively bigger than bitcoin and ethereum combined.


As long as tether can provide a small percentage of liquidity on USDT/USD then they (arbitrageurs) can maintain the peg. This can obviously break down, and has in the past. It's all about liquidity...


I'm not sure what arbitrage you're referring to. But more importantly, nobody is selling these freshly printed USDT for USD...that's the whole point. They are selling USDT for BTC.

99% of the USD/USDT trading is fake/wash trading to give the illusion of volume.


Kraken has USDT/USD markets. I'm sure there are plenty of other places to trade USDT for USD.

https://www.kraken.com/prices/usdt-tether-usd-price-chart/us...


If tether is functionally doing a fractional reserve scheme, then we should expect a run on the tether bank sooner or later.


If you ignore the URL and read the content of this http://www.tr0lly.com/bitcoin/the-tether-press-and-bitcoins-... it's actually a good theory for what may be happening.

It's speculation, but then without audits and accounts of the exchanges that use Tether, and Tether itself, speculation seems to be about as good an option as there is.


Exactly, I don't say OP is wrong but I need to see how I can

1. buy X for USD

2. buy BTC for X

Shouldn't the price for X then stay the same? (Bought X once, sold X once)

Assuming X drops to 0, wouldn't people that have BTC just use another coin X' to get back to USD?

Assuming company Y creates X out of thin air and buys BTC with it, why doesn't X drop in value? Because arbitrageurs buy it? So arbitrageurs have lots of X? Should I care if they go broke in the process?


Because the mechanism to transmit USDT to USD doesn't exist. Tether has never demonstrated a single USDT redemption. All of the trading on an exchange doesn't matter because on USDT exchanges, you never actually have USD. If you trade USDT/USD on Binance, your profits are still actually USDT denominated! There is no proven way to convert USDT to USD except via another crypto (i.e. Binance USDT -> BTC and then Coinbase BTC -> USD) hence this entire topic...

The peg would break down if there was any real convergence mechanism. But there isn't. This isn't a problem until people actually try to exchange these supposedly fungible assets.


>Tether has never demonstrated a single USDT redemption

Does that matter when you can withdraw from a USDT exchange and get USD in a bank account, or trade USDT for USD at kraken?


I think it's a waste of time trying to argue with the USDT conspiracy theory crowd. I'm not really sure what's their problem; they clearly never traded the market or used it. Maybe it's a butt-hurt feeling from missing out on this decade best performing assets?

I'll give you a more sensible counter-argument: If you held USDT in the last 4 years (only) and actively generated yield (requires 1 hours work max per week), and periodically withdrew it (1-3 months) my reports show a 120% gain. This means if you bought $100k of USDT 4 years ago, you'd have withdrawn $120k into real dollars and still have $100k of USDT. In this situation, it's impossible to lose even if Tether is worth 0 tomorrow.

Yield have gone considerably down. This means traders now trust USDT more than they did a few years ago. This would also mean that traders who are into risk would not hold USDT, they would rather hold something else to get better yield. If USDT was risky, its total market cap will decrease, as it doesn't make sense to hold into it with low yield. That or the market will quickly collapse.

This can give you an idea (better than a stamped report from any AAA auditing firm) about how strong the USDT position in the market is.


Yes - none of this proves that Tether has any reserves.

It just proves that someone else believes they do...which we already know.


This is moving the goalposts. I don't think anyone thinks tether has full reserves. They literally admitted that they don't[1]. However your original claim of "you can't redeem USDT" is misleading at best.

[1] wikipedia: "On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents"


He said 74% are cash reserves. Meaning, Tether is 1:1 backed by its reserves, of which 74% is cash. The rest could be bonds/loans etc, as long as they're deemed liquid and fair value. I don't know about the latter, just stating facts.

In any case, if indeed (still) true, having their lawyer say that USDTs are backed 74% by cash, makes it arguably safer and more liquid than any US bank, where cash backing your account balance represents a single digit percentage (I would estimate, happy to learn the factual number). Not saying that it shouldn't strive for 100% cash backeding (I think it should be), but noting that if you're concerned about Tether's cash liquidity, you probably should be even more concerned about your bank's chequing account.


I feel like most people think of what you're referring to as trading Tether, and "redeeming USDT" as actually exchanging the USDT for the fiat that is supposedly backing it.

Everybody realizes that for the individual turning tether into fiat both of these amount to the same thing, but they are not the same thing for the system as a whole at all. Ultimately the only way that tether as a company can maintain the peg is by buying their own token with the reserve funds if market won't (there are obviously different mechanisms they could use to do this, either via the exchanges or with the seller directly trading with them). If they don't have access to enough reserve funds then the peg will eventually fail.


That was after how many years of Tether insisting that they had 1:1 reserves, talking about audits thereof, threatening lawsuits against people who said they didn't?

... and many many crypto-fans naysaying anyone who didn't believe them.


Since they can print X and they peg it to USD, it won't change in price itself, but nothing can assure the driving force of BTC price is actual demand.


When central banks peg their currencies to others, that means they buy the foreign currency if their own currency is overvalued in comparison, or sell foreign currency to buy local curerncy in the case of undervaluation.

You say that a peg breaks if the Central Bank doesn't have the exchange reserves anymore to uphold a peg.

Where does Bitfinex take the money from to buy tether to prevent it from devaluing? Alternatively, who else buys tether, arbitrageurs?


You're missing the entire premise: where can I go sell my USDT directly for USD? Show me where.

Unlike your example where this an existing market that a peg has to be supported, there simply isn't a fungible USDT/USD market.


> You're missing the entire premise: where can I go sell my USDT directly for USD? Show me where.

https://trade.kraken.com/charts/KRAKEN:USDT-USD


>does not have a "killer app" and is 99.99% used for speculation

You could argue speculation is the killer app. I'm not a fan but it's hard to deny it's a huge business and some people seem to like it. Kind of like Las Vegas in a way.


It definitely has a killer app. Probably not a big enough app to justify these prices, but one nonetheless.

As Stripe, PayPal, Visa, Gofundme, Patreon, et. al. shut down avenues of payments for legal, but unpopular purchases, BTC is the obvious workaround.

Vendors of firearms, pornography, legal funds for unpopular causes, dissident content creators, etc have become increasingly estranged from the "normal" payments market in the last few years. BTC is the killer app for this.


Privacy coins are far more suited for skirting regulations. If that's the killer app, you would see mass adoption of Monero, not BTC


If BTCs killer app is criminal transactions, then regulation is guaranteed.


> Vendors of firearms, pornography, legal funds for unpopular causes, dissident content creators

Neither pornography, nor legal funds for unpopular cause (think WikiLeaks), or dissident creators are criminal. At least not in the US or Europe. But they are still blocked by the main payment processing companies.


The theory and reality don’t match.

Drugs are likely the number one things bought using crypto as currency.

Firearms and pornography can be bought with dollars if you’re using crypto to buy them or other unpopular goods or services, you are veering dangerously close to black markets, which invite regulation.


Right, but I'm specifically referring to legal, but repressed transactions.


Is it illegal to transfer value from person A to person B without the middleman?


In many cases, yes. It's not the "middleman" that is required, but reporting the transaction to the government is.


If avoiding reporting a transaction is the goal does committing the transaction to a public blockchain really bypass this? All activity is pseudonymous and in the clear.


Consider these cash examples:

A parent gives his child 5 USD to buy some sweets in the local shop.

A couple gives another couple 150 USD as a wedding gift.

A painter gets 200 USD for painting a house.


And we seem to be creating more and more dissidents everyday


Regulation just shifts to exchanges. Bitstamp already ask for a ridiculous amount of information regarding source of funds.


> it's a huge business

Some people make lots of money of it, no doubt.

I'd say to qualify something as a business, there should be value creation somewhere along the line. With BTC, I see mainly redistribution of value, along with destruction of resources.


Too late to edit my original comment but a lot of people pointing to the "peg" as proof that Tether is legitimate.

The only peg that exists is the one whereby you should be able to go to Tether Inc and redeem USDT for USD 1:1. That peg has never ever been demonstrated (publicly).

All the other "pegs" are just cash trading. If I trade USDT/USD on Binance...I don't actually have USD. Even on that pair, my USD profit/loss are denominated in USDT.

For anyone who disagrees with the above - please show me market where I can go sell my USDT directly for USD.


> For anyone who disagrees with the above - please show me market where I can go sell my USDT directly for USD.

Genuinely curious, as someone who has never used Binance nor USDT:

Why is the "directly" part here significant? If I can USDT (Binance) -> USD (Binance) -> BTC (Binance) -> BTC (Coinbase) -> USD (Coinbase) -> USD (My Bank), then whats the difference other than a few extra steps?


There are easier paths, such as:

USDT -> kraken[1] -> USD -> your bank

or even

USDT -> bitfinex[2] -> your bank

[1] https://trade.kraken.com/charts/KRAKEN:USDT-USD

[2] yes they do allow fiat withdraws https://support.bitfinex.com/hc/en-us/articles/213919309-Fia...


nice in theory but practically if you try to withdraw from kraken you often get a plethora of errors, including "this function is currently disabled". this happened during the last run and this happened this week.


Apart from the fact that there are transaction costs and time delays (it'll take about half an hour after you bought BTC on Binance that you can sell them on Coinbase), what guarantees that the BTC price is the same on Coinbase and Binance?

Well, arbitrage! But suppose BTC it is much higher on Binance. You'd then take USD and transfer them to Coinbase:

USD (Coinbase) -> BTC (Coinbase) -> BTC (Binance) -> USDT (Binance) -> ??

Now you need to take these USDT and turn them into USD, to keep the arb running. But that is precisely what doesn't work.

So: the chain you outline is NOT a way to "directly sell USDT for USD", as links can break down.


It's basically the difference between a fiat currency and one backed by something.

For example, something vaguely analogous would be:

[Setting: The Olden Days] GP: "I'm concerned because nobody has ever tried to take USD to the government and directly get silver/gold for it." You: "Why is the "directly" part here significant? If I can USD (My Pocket) -> USD (My Brokerage) -> Gold (My Brokerage) -> Gold (My Pocket), then whats the difference other than a few extra steps?"

The difference is that we never tested to see if the USD is actually backed by real gold.


You can't USD Binance. That's my point.


Kraken.com has an actual USDT/USD pair you can trade and use actual hard currency.


Yes, you can trade them there. However, there is no mechanism imposed by Kraken to keep the price close to 1. It is purely supply and demand. Nothing prevents the price of USDT from collapsing (apart from arbitrage predicated on exchanging USDT back into USD).


> For anyone who disagrees with the above - please show me market where I can go sell my USDT directly for USD.

Kraken, Bitstamp, did so for 3 years+


And I wonder why Bitstamp, a fairly legitimate shop, stopped using Tether...


> However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation

With all due respect, this is completely wrong - crypto has the same killer app it has for years, and that app is _crime_.

Whether you're buying drugs, paying anonymous extortioners, accepting bribes, money laundering, or tax evasion, cryptocurrency is the go-to choice for electronic funds transfer for your modern criminal.


The crypto killer app is evading China's currency controls. Pay for mining hardware and electricity in renminbi, transfer cryptocurrency to foreign countries, exchange for convertible fiat hard currency (dollars, euros, etc.).


Worth noting that those dollars and euros come from the people buying bitcoins.

And there is no obvious place for further money to come from once they want to cash back out.


>Bitcoin's narrative has had to morph from "digital currency" to "digital gold".

This narrative was an intentional morphing by various actors within the space (Blockstream) who believed raising the blocksize to allow higher throughput would cause 'centralisation'. Instead they want people to use layer 2 solutions such as blockstreams own federated product Liquid.


As explained by blockstream co-founder Greg Maxwell in [1], the blocksize is constrained in order to ensure a steady backlog of fee paying transactions, that allow bitcoin to remain secure in the long term when block subsidy becomes insignificant.

[1] https://bitcointalk.org/index.php?topic=5306354.0


>that allow bitcoin to remain secure in the long term when block subsidy becomes insignificant.

this line of reasoning is silly. To match the current block subsidy with the current block size limit when miner subsidy runs out the average transaction fee will need to be >$127.

$45mil daily revenue / 350,000 txs per day

OR, you could increase the block size limit to 10mb, allowing 3.5mil txs per day, or 100mb allowing 35mil txs per day. Then the average fee paid per tx is significant lower.

The reason this was argued against by blockstream was because a bigger blocksize means more storage is needed by the miner and more txs means better hardware and bandwidth to process them, effectively pricing out normal people from running full nodes.

Essentially, the ability for normal people to send a transaction cheaply is being sacrificed so that normal people can setup a full node. Counter intuitive imo.


> normal people can setup a full node

This argument was really silly too because people can afford higher capacity drives, and better internet connection according to Moore's Law


> when miner subsidy runs out the average transaction fee will need to be >$127.

Stein's Law:

"If something cannot go on forever, it will stop."

https://en.wikipedia.org/wiki/Herbert_Stein#Stein's_Law


I don't understand why you're being downvoted. Anybody who was here before 2017 know what happened.


Did you copy/paste this from 2017? :D


The fact that the above still remains true 3 years later is pretty damning.


It also suggests things will go on and we'll be in much the same situation in years going forward.


No it does not - that's an invalid inductive conclusion.

There are clear deadlines that may change everything (apparently Jan 15th might be one of them, from the twitter thread). Justice takes time, but trials do eventually come to a conclusion. If that conclusion is to kill the mechanism that pumps BTC, then all bets are off.


As Keynes famously said, "Past performance is a guarantee of future results"


That's gonna be the killer app, low-cost global payments, finally we can accept international payments from non-crypto customers without ridiculous SWIFT or PayPal fees... https://jimmymow.medium.com/announcing-strike-global-2392b90...


Most global payments are transactions, not cash transfers, and the transacting parties have banking relationships that make those transfers low cost and strictly superior to Bitcoin.


As a freelancer based in EU working on some US projects, I'm forced to pay 5.5% fee to PayPal or some fix fee to the banks (SWIFT payment). Plus conversion fee from USD to EUR (or my local currency).

That's too high for just a simple thing as receiving money from different country. Really looking forward for that Strike Global.


> I'm forced to pay 5.5% fee [..] > Plus conversion fee from USD to EUR [...] > a simple thing as receiving money from different country

Moving money between currencies has never been easier, or cheaper. I would humbly suggest you're doing it wrong.


TransferWise?


Use Revolut


kraken significantly increased their transaction fees so there goes that dream


1 BTC will still be 1 BTC after the Tether scam and scammers are all history.


This is true. It's also the tremendous irony of bitcoin evangelists narrative that fiat is worthless yet constantly touting every ATH (which is priced in that supposedly worthless fiat). Who cares what BTCUSD is if USD worthless?

And then you realize that this is pure speculation and the most ardent supporters are just praying for the greater fool theory to rain good fortune on them.

You need look no further than Coinbase, supposed beacon of our crypto future, IPO'ing and raising money in...that worthless green piece of paper known as the US Dollar.


The vast, vast majority of "bitcoin evangelists" couldn't care less about the actual mechanics of Bitcoin. They don't care that it was created as a digital F-You to fiat currency, and they don't care that it enables you to be your own bank. Just look at /r/bitcoin. It's 99% price/hodl memes, and 1% posts about the protocol & enhancements to the protocol itself.


For bitcoin protocol discussion there is the Development & Technical Discussion [1] on bitcointalk.

Some general cryptocurrency technical discussion can be found on r/CryptoTechnology [2]

[1] https://bitcointalk.org/index.php?board=6.0

[2] https://www.reddit.com/r/CryptoTechnology


In the decades-old tradition of foss collaboration, there is also bitcoin-dev@lists.linuxfoundation.org, which is quite good.

https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-d...


> You need look no further than Coinbase, supposed beacon of our crypto future, IPO'ing and raising money in...that worthless green piece of paper known as the US Dollar.

is it possible to do an ipo in crypto?


...you mean like on one of the many many crypto exchanges?

An ICO is just an IPO by a different name. There are also crypto stock exchanges.

But more importantly, even if it weren't possible, why would they ever sell their shares for worthless legacy money? Unless...


You're not wrong, it's just that nobody cares about BTC itself, but only about its value relative to USD.

Crypto is not a currency but an investment product; can we please just accept that and talk about it for what it is?


"Nobody" is an exaggeration. There is a big community of enthusiasts who enjoy cryptocurrencies for what they are and enable, not for their USD value in the markets.


What do they enable?

Is what they enable worth $40.000 to the enthusiasts?


> What do they enable?

I won't make the case for cryptocurrencies here, have a look at ethereum.org for instance.

> Is what they enable worth $40.000 to the enthusiasts?

I'm not denying that the current price hike and media attention has little to do with any other aspect than "decentralized ponzi"/dollar escape. Was just correcting a false statement.


And twenty-five years on, 1 Beanie Baby = 1 Beanie Baby.


Can't you literally make more beanie babies?


No, only counterfeits.


Did they pledge not to make any more, or did they just stop making them with no commitment either way?


Perhaps we can go back to buying a pizza for 1 BTC when this is all over.


It was 10,000 BTC for 2 pizzas: https://bitcointalk.org/index.php?topic=137.msg1195#msg1195. One bitcoin used to buy you 0.0002 pizzas. Now it buys 1600.0000 pizzas.

It's called hyperdeflation.


Not going to happen. It's a mindshare thing. If there are 10 million people who think I may as well have a bit of my portfolio in bitcoin that gives it value and that's probably not going away in a hurry.

If anything it'll get worse as it goes from 1 million to 10 million to 100 million. Back when 1 bitcoin = 1 pizza there were perhaps 1000 people into it?


I'll happily sell you a pizza for 1 BTC today if you want.


>Bitcoin's narrative has had to morph from "digital currency" to "digital gold

"Gold's narrative has had to morph from currency to store of wealth" Circa 1971


> Bitcoin's narrative has had to morph from "digital currency" to "digital gold".

M. Saylor is preaching this it seems. It's just a better asset (less supply, no mass~)


The killer app of Bitcoin is Ransomware.


I agree that a Tether reckoning is coming, but point #10 of that thread is the most important: it could be weeks, months or _years_ before it's fully corrected, so be super super super careful about using Tether as a reason to short Bitcoin...

"The market can remain irrational longer than you can remain solvent"


It's even worse than that. Shorting TSLA is dangerous because of the above. But it's mitigated by people purchasing shares with real fiat. They have a natural incentive to not be absurd: whether or not $800/share is absurd is a matter of opinion...but everyone would agree that $1m/share is absurd.

Tether has no such limitation. All the exchanges are complicit in this, wash trading is rampant, and there's an de facto central bank run by actual criminals. There is absolutely zero reason why iFinex can't take bitcoin to $100k or $1m or whatever they like. They only have opportunity costs.

The only thing keeping them in check right now is the appearance of legitimacy. If they were to overdo it, people might actually sell, which is not what they want. So until their legitimacy is tested (Jan 15) they will probably responsibly grind this higher. But on the last day, I expect billions and billions of USDT issuance so that they can run stops on every short in the market, collecting their last few shekels before the music stops and they vanish to an island somewhere.


Do you know if the public will actually find out any info on Jan 15th, or will that all be private, sealed documents? (I'm a bit lost at how that process is going to work)


IANAL and don't have any real understanding of this process.


Wait what’s the January 15th date?


Bitfinex and Tether have till the 15th of January to submit documents to the New York state attorney general about their financial relationship. The shortfall of $850m was allegedly printed by Tether and given to Bitfinex to cover up the losses Crypto Capital created. It is speculated Bitfinex and Tether can't submit any documents without revealing their cover-up. This will result in the conclusion that Tether isn't backed 1:1 by USD by a lot of investors and will results in more investigation by the attorney general. Tether is unaudited at the moment, meaning no one checked the bankroll of Tether if there really is $23b USD there.

https://www.reddit.com/r/CryptoCurrency/comments/ksdfne/why_...


The thing is $850m isn't actually that much money. The big exchanges made on the order of several billion dollars profit during the last bubble; presumably they are also making that much in this one.


It's not about the $850m per se, it's about the deep suspicion that Tether does not have anywhere near the $23 billion in reserves they claim to.


Sounds like Wirecard and they went down 90% in a week and 99% in total within two weeks. Popcorn time.


Jan 15 is the next court date where apparently iFinex will have provided all the required documents to the NYAG.

If the NYAG doesn't like what's in there I guess it may go badly.

The courts document list is https://iapps.courts.state.ny.us/nyscef/DocumentList?docketI...

If you look at the latest one, it mentions the 15th.


If they provide documents January 15th, I would expect at least a few weeks before we get some information. That will be interesting to follow.


Tether has printed almost double of its amount just BEFORE Bitcoin price jump. It's the biggest pump and dump scheme ever, made by organized crypto-mafia. I doubt this will continue for long.


OP gives no proof that Tether is not holding 1:1 reserves. There is, however, a good proof that they do: Tether has held the 1:1 beg pretty well recently. Bitcoin price dropped to $4.000 last year and Tether exchange rate has held pretty well. It is important to mention that USDT is still liquid despite the lack of USD on/off-ramps. People regularly sell USDT on the offline market, and can exchange to USDC on many exchanges.

> But Tether is printing so much money.

So is USDC, and the price of Bitcoin is going higher. This means Bitcoiners have lots of value in Bitcoin and some of them are going to convert that value to USD. They are mainly using USDT for that, for whatever reason.

> Tether printing press is driving Bitcoin price.

Wrong. My proof for that is "where is the premium to buy Bitcoin". In a very liquid market (which for the most part, crypto is), prices should be the same up to the costs (transaction and banking fees). Prices have been higher in Coinbase during this run. As I am typing right now, Coinbase prices are 50-80 dollars higher for Bitcoin. GBTC is even more ridiculous with 10-15% premium on price (but also GBTC is less liquid/arb-able). This signifies that demand is coming from US retail and institutional investors.

> Tether is holding USD as securities/derivatives/whatever.

All of them are. See: https://omarabid.com/usd-stable-coins


> It is important to mention that USDT is still liquid despite the lack of USD on/off-ramps.

USDT is only liquid BECAUSE there is no redemption mechanism (or at least not one that has ever been demonstrated). If Tether came and said "sure we'll redeem these fully backed Tethers for USD 24/7/365" you would quickly find yourself with a liquidity crisis.


>USDT is only liquid BECAUSE there is no redemption mechanism (or at least not one that has ever been demonstrated).

For the bystanders here, I've made a reply to a comment similar to this in sibling thread: https://news.ycombinator.com/item?id=25686965


If there is a USD to USDT match, where are the audits?


Is that relevant? I'm not arguing against the claims that tether is shady, I'm only arguing against the outrageous claims that you can't convert USDT back to USD that some tether opponents claim.


Well ofcause you can. A pyramid scheme keeps paying out profits to the chumps right up to the point when it doesn't.

The argument here isn't that Tether has no cash on hand, it's that if enough people pull out, they hit the the bottom of the non 1:1 reserve and everyone else left holding will zero out. If you have 1 kg of gold and start selling papers giving people claim to that 1kg of gold, nothing will prevent you from seeling 1000 claims, making it seem like you're holding a ton of gold for people when looking at the market cap, but if 2 people come and ask you for their 1kg of gold and you don't have enough of the cash you got seeling claims on hand and an oppotunity to buy gold quickly, then from one day to the next 999 claims are worthless.

This is of cause not a big risk in the industry normally because markets are regulated and those who hold gold or other assets backing claims go through audits.

Naturally Tether can't go through an honest audit because even though they might be holding enough cash to cover a decent amount of the market, it would expose them for lying over time, which would still hurt their business tremendously.


You seem to be spending 3 paragraphs re-arguing that tether is shady, when I already said that wasn't the point I was arguing. A argument in favor of tether shouldn't be taken as a sign that I support them wholeheartedly.


> Is that relevant?

Of course it's relevant. If there are no actual reserves, the whole thing is a scam and certain to collapse sooner or later.


>I'm only arguing against the outrageous claims that you can't convert USDT back to USD


> USDT is only liquid BECAUSE there is no redemption mechanism

This isn't necessarily true, as in that event, although possible, wouldn't necessarily have happened. Much like banks with limited liquidity can survive for a long time. To your point, it's confusing how they managed to thrive after admitting that they were lying about being backed 1:1.

Edit: I haven't been paying too much attention to tether in ages. It looks like they're now offering redemption of $100k+ at a minimum of $1000 a pop?


People can sell USDT for crypto, USDC or offline. If Tether didn't have good reserves, the price will diverge from 1:1.


No, instead of just stating it, explain to me.

Tether's reserves only matter when people try to redeem Tethers. This is currently not possible.

So it is purely a trust game right now, and everyone has an incentive to trust (or turn a blind eye) that Tether is playing by the rules.


> Tether's reserves only matter when people try to redeem Tethers. This is currently not possible.

This is why being liquid and freely trade-able matters. Tether is fully redeemable if you can trade it against other crypto/stable coins. Want to redeem USDT? exchange it to USDC and then withdraw to your bank account.


No, trading is not redeeming. The fact that you will buy it from me or swap me USDC does not prove that they have any reserves.

So again I ask - how do we have any proof that Tether has the reserves they claim they do?


Somebody will need to take the counter-trade (the arbitrage dude) and unless he can redeem to close the circle, he is going to stop.

USDT are redeemable to your bank account if you have a good sizable balance (talking 7-8 figures). You'll get it deposited from some of their offshore shell companies. But you didn't hear it from me :)


No, they don't. There doesn't need to be an arbitrage. If you have 10 USDT and I give you 9.90 USD for that...nothing else needs to happen.

But the degree that this is happening pales massively in comparison to the billions that are sat on exchanges and recycled.

Tether would be the first legitimate billion dollar operation where people have to say things like "but you didn't hear it from me".


> No, they don't. There doesn't need to be an arbitrage. If you have 10 USDT and I give you 9.90 USD for that...nothing else needs to happen.

I'm not an expert, so I might be wrong (seriously, not sarcastically). I _think_ this is technically arbitrage even though you never complete the loop.


I’m a hedge fund trader. It’s not an arbitrage. It’s the furthest thing from an arbitrage.


It's arbitrage if you can close the loop with little or no risk. Preferably immediately if you already have a buyer lined up. Otherwise, you incur more risk -- you might be caught holding the bag when the music stops.


If Tether Ltd. had at any point in time made any significant USDT -> USD redemptions that outweighed the new USDT given out to new buyers, we should have seen that by a significant number of Tethers being destroyed. Looking at the historic Tether market cap on CoinMarketCap - which is practically equal to all non-destroyed tethers due to USDT being pegged to the USD - however does not reveal any significant drop in Tether market cap ever that could be an indication of actual redemptions. And I refuse to believe that in all of Tethers' history, with all of Bitcoins' ups and downs, there has never been a period in which people weren't pulling more money out of the crypto ecosystem than other people were putting fresh money in. I would expect that to be the case in most of the Bitcoin deflation phases.


Posting this again: https://coinmarketcap.com/currencies/tether/

They did redeem from 2.8bn to 1.7bn. Which is like 40% of their total value at the time. Is that significant enough?


Ah yeah, you got me. Though I don't really count that as good evidence for an actual "redemption" since it apparently was burning Tethers that came from Bitfinex: https://www.coindesk.com/tether-just-burned-500-million-usdt...

And since Bitfinex is the owner of Tether Ltd., there is unfortunately no outsider that could credibly confirm to have actually received any USD in exchange for those burned Tethers. Bitfinex might just as well have sold Bitcoins from its own stash (or from customer wallets) to others for USDT and then burned those USDT in order to stabilize the USDT/USD price which wasn’t exactly holding up well at that time. If they had actually printed more USDT than they have USD in the past, this would be a smart move in order to distribute the "missing" funds more evenly across multiple crypto coins in their custody, which makes it less likely for them to run out of one of them and thus makes it less likely for the alleged scam to come to light.


I mostly agree with your skepticism on USDT driving BTC price, but I disagree with this:

> There is, however, a good proof that they do: Tether has held the 1:1 beg pretty well recently.

All this proves is that they have something in reserve, not that it is 1:1 backed. Most modern banking operates on a fractional reserve system, but when I take cash out of my bank account I get a cash dollar 1:1 with what they debit my account; they don’t prorate it for the amount of reserve they have.


> but when I take cash out of my bank account I get a cash dollar 1:1 with what they debit my account; they don’t prorate it for the amount of reserve they have.

Now try taking out 50 million or more, you'll face same difficulties.

This tether nonsense comes up every few months, still adamantly holding the 1:1.

Not mentioning that it's not the single dollar peg option in crypto space anymore, plenty of other options USDC, Dai.


> Now try taking out 50 million or more, you'll face same difficulties.

Sure but that’s my point. The fact that my small volume transactions go through without friction is not proof that the system is not fractional reserve. In the case of a (properly run) bank the value still exists but isn’t liquid; in the case of USDT we don’t know without an audit.


That's good for 97% of the time, but not for the 3% where prices either crashes or goes way-up (volatility blackswan). These stressful situations tests the 1:1 peg. (which is why I mentioned the $4000 price crash). They probably have 1. good reserves ratios and 2. very liquid assets as reserve.


Lets pretend Tether has no backing what so ever. They could still defend the peg 1:1 completely. How? Well if someone wants to sell a bunch of tether, they simply print even more tether, use that to buy crypto on exchanges, and sell that crypto to anyone willing to buy it that generates dollars to pay of the person selling their tether. But that also leves them with the tether that was sold back to dollars, which they can then buy more crypto with an either just hold or also sell to generate dollars. The visuals of this from an outside ends up looking effectively like there was just ton more new money coming into the system when in fact the exchanges and new money took a hit, and the money printing people just raised their perceived holding without backing. That is to say, that in this case the event of someone wanting out looks like the market is rising. You can keep this going as long as your un-backed coin can be exchanged for other liquid crypto.

As long as they have a blindly trusted money money printing machine, they can use it to defend the illusion that it's printing real money. This is thes standard playbook for a pyramid scheme. You use new money to keep the illusion of a big holding and you can keep that going as long as the illusion holds.


The difference between having 1:1 backing and “pretty good” reserves is that if they claim (as they do) to be 1:1 backed and it were to come out that they were not, it could spark a “run on the bank” type scenario for everyone to get their money out while they can.


It's not like it didn't happen before (it happened twice), and their rate diverged from the 1:1. Actually, their rate wasn't that super stable until very recently. The reason why I think they are fully backed is that the crypto-market yield for USD in the last few years have been crazy. So unless you are planning an exit scam, you can't go broke. Even if they are losing money to move the money, or they screw up here or there (get accounts blocked), they can still come on top.


> OP gives no proof that Tether is not holding 1:1 reserves.

Other than, you know, they themselves admitting under oath that they did not.


> OP gives no proof that Tether is not holding 1:1 reserves.

I'm fairly certain that _Tether's_ lawyer said, in court, that their reserves were closer to 0.74.


There's a lot of bots doing arbitrage between exchanges though. If one diverges significantly from the other, the bots will eat up the difference, I don't think you can make any claims about where the demand is coming from based on this?


Bots will arbitrage up to the transaction costs. (the price is not worth arbing if it is a small difference). Some exchanges, sometimes, lead the price and this can be visible if you are actively trading (you'll notice that the arb bots are selling in one exchange and buying in the other, aka: bearish exchange trailing the market).


The proof is that Tether almost never deleted any of its tokens, even when Bitcoin dropped significantly, e.g. from $10k to $5k in 2020. Does it mean that no one wanted their USD back from Tether organization? I highly doubt it.



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