> I have looked, quite a bit. I have not found a good use case yet
I'm always surprised that intelligent and knowledgeable people claim this. You haven't even found a single use case?
You don't think buying a VPN anonymously is a good use case? Or see the need for uncensorable donations? (Remember how the U.S. shut down Wikileak's PayPal donations when they exposed their war crimes?) Or that cryptocurrencies allow businesses to accept payments digitally, without the risk of their payment processor or bank completely ruining them? (PayPal horror stories swarm the internet.) Or how people in collapsing economies, like Venezuela with ridiculous inflation, can use them to cross the borders with their wealth somewhat intact?
And it's always dismissed with the same lazy arguments like "volatility" or "nobody uses it". Those are real issues for sure, but they don't invalidate the use cases.
Cryptocurrencies aren't anonymous. They also don't eliminate payment processor risk: fraudulent exchanges, hackers, and your own mistakes can all lose or lock you out of your money. And generally there's far less legal recourse when that happens with crypto.
I'm skeptical how many people in Venezuela saved their fortunes via Bitcoin et al, but if you have some data on that, I'd be curious to hear about it. In particular I'm curious why cryptocurrencies were a better means of rescuing your bolívar-denominated wealth than any other currency or investment vehicle such as real estate, gold, dollars, etc.
> They also don't eliminate payment processor risk
Of course they don't magically solve all problems, but that doesn't make them useless.
> I'm skeptical how many people in Venezuela saved their fortunes via Bitcoin et al
I've read some article from people who did it, but I don't think it's common.
The problem with leaving the country is, how do you take your assets with you? You cannot easily move a house, and you will get searched at the border and your gold, dollars, jewelry etc will get confiscated if found. With cryptocurrencies you can theoretically move any amount, by just memorizing 12 or 24 words, by hiding a piece of paper or by encrypting it and placing it online somewhere.
Monero is unfortunately not really anonymous either in many common scenario's, like repeatedly sending payments to or from the same address. [0] It's definitely better than Bitcoin though, but far from anonymous.
Overall I think that cryptocurrencies (and the internet overall) could use some better privacy strategies. Tor-like routing, no possibility of finger printing, etc.
> Many, including Satoshi, believed cryptocurrencies provided privacy for payments.
(emphasis mine)
Satoshi's writings indicated that he understood the public ledger he was creating was not anonymous. He even talked about ring signatures as a possible method to add obfuscation.
(Ring signatures is one aspect combined with others that Monero uses to achieve financial privacy. Anonymity requires extra steps taken by the user. Financial privacy ≠ anonymity.)
You don't, as a best practice, repeatedly send payments to or from the same address in Bitcoin. So if you continue not doing so in Monero, you end up with much more anonymity.
This is of course anecdata, but I've personally used BTC to send remittances in Venezuela.
I'm not sure how many people here use BTC as a means of preserving the value of their money since most people would rather hold USD, but for sending remittances, it cannot be beat.
As another interesting anecdote, my sister is in Argentina and a bunch of friends started asking her how to buy BTC before the election yesterday. Seems that those that managed to move their Argentine pesos to BTC did so just in time:
https://www.aljazeera.com/ajimpact/argentina-central-bank-cu...
Yes there is, sometimes they don't even remit but rather use btc. I send $10 a month to ~5 people in Venezuela and it's one of the only ways now to help out and/or live there
Can you provide more detail on how they actually use the bitcoin? Genuinely curious as in most countries the use cases are very limited, and there is a large cut when converting into/out of bitcoin that doesn't make it worth it.
There are also a few shops (even one very large shop) accepting some cryptos now, like BTC and Dash. I'm not sure what volume they are seeing in sales though.
A more common case for preserving wealth on emigration is actually South Africa. Many reasonably prosperous South Africans that emigrated used Bitcoin to bypass SA's strict capital flight restrictions.
I deal with SARS pretty regularly and I'd like to know where you heard that since you're describing tax evasion. The kind of tax evasion that is covered by extradition treaties in most countries....
Yes, they are, zcash, bitcoin/ethereum mixers etc. and intense research around zero-knowledge proofs will yield first-class, easy to use anonymity relatively quickly.
> there's far less legal recourse when that happens with crypto
cryptocurrencies are cash, not credit cards or banks. It's a category that is completely missing from the internet. hence all the drawbacks, but they have their also many uses, most of them hitherto unimplemented (because we never had cash on the net)
> why cryptocurrencies were a better means of rescuing your bolívar
I presume because bitcoin was available where all other currencies weren't
IMHO there is one killer feature for decentralised payment systems: it allows people who can not get a bank account with reasonable terms to make monetary transfers. People who are born into rich first world countries don't realise how difficult it can be. In many places in the world you can not get a bank account unless you have an address. You can not rent a place unless you can transfer money. You are stuck. Even when I first moved to the UK, there were many flats I couldn't get because 1) my bank account in Japan refused to let me transfer money internationally (because I'm wasn't a permanent resident of Japan) 2) I couldn't get a bank account in the UK without a permanent UK address 3) Most letting agencies wouldn't take cash. I eventually had to make a 5 month deposit (think London prices!!!) to get someone to take cash so I could get a bank account.
There are lots of these kinds of catch 22s in the world and they are much, much, much worse in developing countries that have a large disparity between haves and have-nots. There are places where you are basically locked out of commerce of anything larger than pocket money -- because that's the way the large institutions want it. If they allow you to do business as all, it comes with a really hefty price tag.
The potential Bitcoin for me has always been one of 2 things: 1) a potentially convenient way to do online shopping 2) a way to enable commerce for the poor or disadvantaged. For years and years, I was unable to to get a credit card in Japan because they were unavailable to people without permanent residence status. Even now, the only bank that agreed to give me a business account for my consulting company refuses to allow the business to have a credit card. I can not buy any business related supplies on credit. I can not make online purchases for my business in most cases. This is insanity, but there are no banks who care where I live and they have a monopoly.
This is the advantage of something like Bitcoin. It breaks the monopoly of the banks. Of course, that comes with a whole raft of problems, but it really is frustrating when people in privileged positions just refuse to put the effort into seeing that their privilege doesn't extend to everyone in the world.
Edit: I should actually add that patio11 does actually understand the banking difficulties in Japan, and has written a bit about it before ;-)
it allows people who can not get a bank account with reasonable terms to make monetary transfers.
This is really pretty much a solved issue since 2007, at least in big parts of Africa. And with none of the bad whiff and dodginess, which inevitable comes with just about any crypto currency scheme.
I don't know if there's something similar in the UK, but in the US you can buy a money order with cash from any Walmart for a couple bucks in fees and solve the "they don't take cash" issue that way.
All of your use cases involve anonymity. Crypto currencies don’t provide anonymity. Sure it’s not directly tied to your name and address, but it’s quite possible to make that tie. Such cases are on the news fairly frequently.
It doesn't matter whether most people's use cases are "truly" anonymous or not, because not everyone who makes an anonymous payment is the kingpin of a human trafficking ring who will actually have large amounts of resources brought to bear on them.
People use burner phones to get drugs for nights out. Theoretically none of this is really anonymous, you're pinging cell towers, you're probably on CCTV, etc etc. But realistically that doesn't matter and it works as a system.
Even something like Monero which might have claim to be truly untraceable really isn't because you're on like, an Intel ME machine and the NSA likely has backdoors in the Linux kernel and ... blah blah blah ...
But it's good enough.
Imagine if Hacker News required ID-verified real name front and center on every post. Throwaway accounts are impossible. They were never perfect anyway, but now they don't exist.
The discourse would change. Perhaps an individual might see it as being better, or worse, but it'd definitely be different.
The traditional banking system is that ID-verified world. Cryptocurrencies are the release valve.
Most wallets nowadays don’t let you reuse addresses; even with plain vanilla Bitcoin transactions, this makes it much more difficult to link an identity with a Bitcoin transaction.
You're right that Bitcoin is only pseudo-anonymous. But there are cryptocurrencies like Monero which provides much better anonymity.
Also, anonymity isn't black and white. It would be very difficult for the Venezuelan government to prevent you from buying Bitcoin in-person and then walking out of the country, with your Bitcoin keys written on a small piece of paper or even memorized.
All Venezuela has to do is to make it illegal for anyone to sell you Bitcoin.
Effectively, the current situation is rather close to that: the financial system is predicated on Know Your Customer and Anti-Money Laundering regulations that make moving large amounts of money for anonymous purposes dangerous for financial institutions. Given that cryptocurrency has struggled to provide any rationale for its existence other than the anonymous money flows that government regulation is trying to root out, dealing with it as a financial institution raises regulatory compliance red flags. As the article demonstrates, this means that your only real option is to rely on criminals and hope that money moves through the system fast enough that the government doesn't notice and the criminals handling your wealth don't skim too much off.
I'm pointing out that anonymous money flows are already effectively illegal, given the KYC/AML laws. At some point, any Funny Money system you create has to interact with the fiat system so that people can actually do stuff like pay their utility bills, and if Funny Money is triggering compliance alarm bells, and at that point, well, read the article.
Something else to point out is that just because a system is unsustainable doesn't mean it will collapse immediately.
Oh alright. I don't see how this invalidates the use cases? The businesses that have payment processor problems aren't illegal, and can easily prove their revenue.
And I do agree that unsustainable systems don't collapse immediately. I've been waiting for Tether to collapse for years. But I don't think cryptocurrencies as a whole are unsustainable (the larger proper exchanges that don't use Tether as their "fiat option" should survive).
Anonymous money flows aren't illegal. There are those that would like to make them illegal, but all they've managed to institute so far is KYC/AML laws relating to third party payment processors. These laws don't apply to cash or its electronic corollary, cryptocurrency.
Until a law is created that makes unmonitored use of physical and electronic cash illegal, anonymous money flows aren't across-the-board illegal.
One obstacle elitists have in instituting such laws is that enforcement would be costly, involving heavy-handed treatment of large numbers of end-users. Trusted third parties like banks are comparatively easy targets, being much less politically costly to repress.
> And all the U.S. had to do is make drugs illegal, and it would disappear. (Or not.)
Well, yeah. Making drugs illegal makes them disappear. From legal sources. The illegal sources share a similar set of problems as noted. Am I going to get what I paid for? Will I get all of what I paid for? Will there be repercussions? How safe is this?
The drug market being illegal means that for the vast majority of people it's only worth using for fairly inconsequential things. Recreational drugs for the weekend or the equivalent. You might not want to source your cancer drugs there for the same reasons you might not want to source your car or house loan from some random internet entity. Trust. And dealing in an illegal market makes the higher levels of trust very hard, if not impossible, to achieve.
I think the point is that cryptocurrencies will be relegated to second class currencies for as long as they can't or aren't treated with the same trust a fiat currency is.
> > And all the U.S. had to do is make drugs illegal, and it would disappear. (Or not.)
> Well, yeah. Making drugs illegal makes them disappear. From legal sources. The illegal sources share a similar set of problems as noted. Am I going to get what I paid for? Will I get all of what I paid for? Will there be repercussions? How safe is this?
It has been fascinating to me to see how important brand and reputation are in the underground, otherwise struggling-to-be-anynomous markets. But then, even in the chans there were tripcodes.
For example, lets take donating to WikiLeaks as an example. Anonymity is not needed for that, since they have never been charged with any crimes.
The only thing needed was a way to get around the banking cartel, that blocked payments to them, even though WikiLeaks was not charged with any crimes.
If it was 2011, being able to donate to WikiLeaks, was something that many people needed crypto for, regardless of anonymity.
the other open secret is that you just create a new identity in an isolated sub namespace
you ring fence all the addresses in that space with Monero over VPN or TOR: Monero swapped to Bitcoin, Monero swapped to Ether, Monero swapped to Tether (ERC20/OMNI/TRC20), a general balance in Monero since merchants accept that too, and transact there. Swap back out to Monero if you need a withdrawal.
Pencil pushers can track addresses on one transparent blockchain all fuckin day till your grandma gets tainted coins after Thanksgiving and all her accounts closed by some paranoid compliance officer and overzealous dumbass public servant, while the rest of us get every good and service we expected anonymously.
> Monero swapped to Bitcoin, Monero swapped to Ether, Monero swapped to Tether
Is there a way to do this without going through some central exchange? I thought I'd read that (eg) Shapeshift was now doing KYC/AML checks, so would you still get identified there?
You respond twice downthread that while Bitcoin may not be anonymous, Monero is. Do you then concede that anonymous payments are not a major use case for the non-anonymous Bitcoin protocol? Why then is Bitcoin so valuable?
Well, Bitcoin is good enough for these use cases even if it's only pseudo-anonymous.
But I do agree that the current valuation of Bitcoin is to a very large part driven by speculation, and from the network effect. As some comments here point to, Monero isn't even widely known despite being technically superior in many ways.
There's a spectrum of anonymity. Bitcoin isn't automatically anonymous to law enforcement, but not everything is about being anonymous to law enforcement specifically. It's nice to have the ability to make a purchase or a donation without my name and phone number being put on aggregated marketing lists, etc.
Bitcoin is valuable because people value it. If you need anonimity you mix your coins - almost every darknet market (likely bitcoin's largest transactional use case) explains how to do this
Complete sets of 1991's X-Men #1 1A/1B/1C/1D/1E gatefold covers were also valuable because people valued them, until people did not value them anymore.
I'm not familiar with the intersection of these two groups: unbanked and bitcoiners. Can you tell us more about them? Why are they unbanked? How did they get into Bitcoin? How do they acquire and spend Bitcoin? What do they buy with it?
"Bitfinex claims to have believed, per their court filings, that CCC subsidized their services through net interest.
...
"This would make sense for a financial institution, but it doesn’t make sense for a money launderer, because risk-free assets generate very little interest (1% of a billion dollars doesn’t pay for the minimum viable financial institution) ..."
I find that interesting ... 1% of $1B is $10M ... and I appreciate that there is a tremendous complication and expense involved in creating a bank but I have to think it must be possible to bootstrap something like Everbank[1] with $10M or less ...
Can anyone confirm or deny ?
[1] Everbank (not owned by TIAA) is an online-only, no-branches honest-to-god US bank.
Monzo and Starling are startup UK banks and I think both spent under $10M to get to the "minimum viable bank" state.
With that said, money is not the problem here. If Bitfinex had wanted to start a 'narrow bank' just to hold Tether, they would have failed:
1. Because they would not have been given a license
2. Because existing financial institutions would have refused to deal with them, as happened to Noble.
3. Because you cannot actually just park billions of dollars in the national reserve bank and collect interest on it.
So although such a business is probably viable in theory, it isn't possible in practice.
No bank on the planet (even Deutsche Bank) will have any direct/legitimate ties with BitFinex. No legitimate corporation will hold $4Bn in cash (if BitFinex even had it -- which they don't). Any illegitimate person you hand $4Bn to would just run off with it (which is what BitFinex did by now with any "real" cash given to them).
The founders of BitFinex have a long and lengthy history of fraud, posting online about how they plan to use their exchange illegally (for wash-trading), ripping off their customers, and also just being general scumbags.
People can take whatever opinion they want on Bitcoin. But Tether is 100% certifiably bullshit.
It's worth noting that shorting Crypto is pretty dangerous, so long as Tether is around. BitFinex can in theory (and almost certainly has in reality) minted billions of Tethers to inflate the value of Crypto assets. Ironically, the founder of BitFinex posted about the need for some reserve-bank (which Nakomoto famously harped about in the Bitcoin Genesis block).
> 3. Because you cannot actually just park billions of dollars in the national reserve bank and collect interest on it.
Actually you can, it's called Interest On Excess Reserves (IOER) in the US, which has been the only short term rate enforcement mechanism of the FED since the crisis days. Till that whole repo thing happened, just recently.
I meant it does allow banks to do it. And from what I've read banks can arrange a FED deposit for a non-bank, charging a few bps of profit for the service.
Also you can always just buy short term treasuries. There's even an ETF for that ($BIL) which charges 14 bps.
But yeah no chance that a big "fuck compliance" scheme like Tether could easily pull it off.
> Everbank (not owned by TIAA) is an online-only, no-branches honest-to-god US bank.
Sorry, I don't understand, are you saying Everbank was not bought by TIAA? (It seems that it was.) Or is there another "Everbank" other than the one that was now bought by TIAA? Or are you simply referring to Everbank as it existed before TIAA bought it?
Three things make the bubbly/scammy nature of current generation cryptocurrency very obvious to me:
(1) The fact that nearly all cryptocurrencies move in unison even though they differ widely in adoption and real-world use cases. Many totally useless cryptocurrencies move perfectly in unison with the supposedly useful ones.
(2) The fact that complete jokes that barely work like IOTA still have large market caps. (This post will get tons of IOTA shill replies like any other IOTA-related post on the Internet... they have an army of bots and shills.)
(3) Adoption has actually declined with numerous early adopters from small shops to companies like Stripe and Steam abandoning cryptocurrency payments. If this is a tech climbing the adoption curve adoption should be increasing.
There are a few real world use cases of course, but they are nowhere near sufficient to support the current collective market cap of cryptocurrencies in the current ecosystem... that is assuming a significant fraction of that market cap actually exists and the whole thing isn't completely insolvent.
I think the furious religious defense of (current generation) cryptocurrency you find in tech circles comes from the underlying economic ideology programmed into it (what I call pop-Austrianism) and the fact that lots of tech types are bag holders who are hoping to cash out before the whole thing implodes but may currently be underwater. Without those motives the whole thing is just transparently insane.
"Players in the crypto ecosystem will be shocked, shocked to know it got this bad, this quickly, but this has been an open secret for over a year."
----
I'm not entirely in agreement the crypto world will be shocked tether is insolvent. As long the the fiat gateways exist to exit the system with gains intact, most could care less about tether. It's musical chairs.
See Redoubt's comment. The use of "shocked, shocked" is meant ironically, in reference to a scene from Casablanca. In general when you see the word "shocked" doubled like that it basically always means this.
Yeah, people have been saying that the Tether stuff is super shady and just waiting for the bubble to pop for the better part of 3 years. It's very much been an open secret.
This is pretty revisionist. My own experience lurking in crypto communities (and reading the replies to @Bitfinixed), was to insist that everything was fine and furiously deny that Tether was a scam, and accuse me of being a dirty fiat shill for pointing out that Tether was a scam, right up until Tether starting admitting under oath in court that they were never backed by reserves, at which point the conversation switched to "we knew it was shady all along".
This sort of thing is pretty common in Bitcoin land. Mt. Gox was also totally fine, nothing wrong, how dare you accuse them of wrongdoing, right up until they declared bankruptcy and then suddenly everyone had known all along they were insolvent and only a fool would've put their money there.
Both viewpoints exist, loudly. You'll find plenty of people today that say that the Tether stuff is fine and completely ordinary, and if it hasn't popped by now it probably won't. (Hell, you could read my original comment in this thread that way.)
What changes is which side you look at. Think of it like a Rorschach test: there is no truth, but there's a smattering of contradictory evidence that can be interpreted both ways. Your brain can't deal with the contradiction, and then picks a side based on the preponderance of evidence it sees. It can flip sides if strong new evidence comes out, but in general the brain discounts evidence that contradicts its initial hypothesis and amplifies evidence that confirms it.
Still missing the context on that, because AFAICT the reports seem to show that it was at one point 100% backed.
It's very possible that I'm missing something, since this isn't something I've paid a lot of attention to (as it always seemed obvious that it would eventually end up in this state).
Suppose that you became a bank. I create an account, and deposit $100 into you.
You take that $100, keep $20, and then lend the other $80 to a heroin-addled homeless person. He swears he'll give it back next year, plus interest. And gives you a receipt and everything.
Now, suppose that you are dragged up into a courtroom, over your mishandling of customer funds. You point out that no funds were mishandled - you have $20 in cash... and an $80 IOU from a junkie. You are fully capitalized! Solid as houses!
Reality: You're not. Any independent auditor with two brain cells to rub together will not value that $80 IOU at face value (The chap is highly unlikely to pay you back.) Your bank is actually insolvent.
Tether Reality: Bitfinex/The Tether Corporation played a shell game, such that they are '100% capitalized' if you add up their cash reserves + IOUs. The IOUs aren't worth the paper they are printed on.
It's possible that at some point in the distant past, they were 100% capitalized, but given their resistance to external audits, it's highly unlikely that it has been the case.
The most amazing thing about this entire adventure is that USDT/USD still trades at par. It seems like BitFinex could host a press conference, with the entire leadership team wearing T-Shirts that say "WE STOLE ALL YOUR MONEY", and it wouldn't move the market (The 'bitcoin enthusiasts' would obviously interpret it to be a sarcastic dig at all the bad publicity surrounding them.)
I agree they weren't fully capitalized after they lent funds out, but the poster I was responding to was claiming that their filings prove they never were fully capitalized as they had long claimed.
It appears to me that instead, their filings are strong evidence against the poster prior claims-- suggesting instead that they were at one point fully capitalized (and are not any longer, of course).
The thing with a Schrodinger's scam is that it really doesn't matter whether or not the scam was fully capitalized.
When you issue a full reserve currency, without any of the necessary oversight required to run one (Like... An independent auditor...) you're committed to operating in a manner indistinguishable from a scammer.
It's possible that they were fully capitalized for the first twenty minutes of Tether's launch. It is possible they were fully capitalized for the first twenty days. Or the first twenty months. Without any kind of proper bookkeeping - which was a deliberate decision on their part[1], we have no idea. And it doesn't matter. [3]
[1] The most charitable interpretation of why they made that decision was that their long-term plan for keeping Tether running would be under-the-table money laundering through Crypto Capital, or its ilk.[2]
[2] [3] Mind you, this means that the entire implementation of Tether is unsustainable! It doesn't matter that they are sitting on a multi-billion-dollar, 100% capitalized reserve if their customers can't ever redeem Tether for USD! Such a situation is indistinguishable from having a 0% capitalized 'reserve'.
Crypto communities are a lot more credulous than financial communities. Every institution I ever talked to had approximately zero trust in tether. Some of them chose to do business with bitfinex anyway. I'm guessing they regret that decision enormously
You mean you've been swarmed by comments from a loud minority. Tether supporters employ large troll armies, to make it appear to be a popular opinion while it might not be.
> As long the the fiat gateways exist to exit the system with gains intact
Basically the entire article points out that this is in fact impossible, only the first ones to run will be able to do this. Much like a bank run, there is not enough cash to back a tether exodus.
It's like 2007/2008 again. Everyone savvy knew there was fraud in the mortgage market at the retail level but they didn't know how pervasive it was. To some extent the Chinese commercial real estate market is the same way: nobody trusts the numbers but no one is sure how bad it is. The author is right that there is this pressure to win the money back and that this is where things can get really out of control. Of course, there is a remote chance they can pull a rabbit out of a hat and make enough money legitimately to pay back all the people they owe, but I doubt it.
Incredible reporting, more so for being written by patio11 in his copious spare time as opposed to a crack team of journos at the WSJ or something.
There's one thing I don't understand though: if Tether is off-the-charts risky & illiquid if/when push comes to shove, you'd expect there to be a divergence in the price between BTC priced in Tether (on exchanges like Bitfinex, where you're screwed if Tether implodes) and BTC prices in USD (on comparatively reputable exchanges like Coinbase). Yet there isn't: http://www.untether.space/
Are arbitrageurs picking up pennies in front of the steam roller? Or is there something else happening here?
I am rapidly developing the opinion that there is no such thing as fintech, just corporate and criminal entities using the slow pace and poor understanding of regulators to skirt laws.
Throw in creative ways to extract fees without them looking like fees and I think you've accounted for most of it.
One of the things I've learned by watching the cryptocurrency saga is that money and finance belong to the class of things you want to be unbelievably boring. Other members of this class include governments, infrastructure, and the legal system. Interesting finance is probably a scam. Interesting infrastructure includes things like ISPs that spy on you or selectively throttle traffic or Pacific Gas and Electric if you happen to live in Northern California right now. Interesting government was a leading cause of death among adults in the early 20th century.
An analogy on a personal scale to interesting finance or interesting government would be an interesting heartbeat. You really don't want to have an interesting heartbeat. It probably means you are dying or having a seizure. You want your pulse to be incredibly boring. Thump, thump, thump...
I'm not sure the Hawala comparison is accurate; Hawala relies on essentially net neutral flows between nodes [exchanges] and trust-based credits and debits (not credit in the sense of literal credit, but credit in the strict ledger sense). This is in place of an actual transfer, which is what happens with crypto assets (unless Patrick is referring here to some specific decentralized exchange mechanism) - a transfer is made from one digital wallet (the original owners) to an exchange's, and from there presumably traded to someone else who is coming in with a fiat asset.
The story, summarized, as I understand it from this article:
1. It's difficult to bank cryptocurrency because traditional finance has KYC/AML procedures and cryptocurrency exchanges (generally) don't.
2. For awhile, the largest exchange was Bitfinex.
3. Bitfinex suffered a breakin and lost $70MM worth of Bitcoin, and became insolvent.
4. Bitfinex took 36% of all clients deposits/balances to make up for the loss, and repaid them in "BFX" tokens, redeemable for equity in Bitfinex, and eventually for $1/BFX.
5. Bitfinex banked through a series of small regional banks, but these were all backstopped by Wells Fargo, which ultimately cut Bitfinex off.
6. So Bitfinex switched to Tether, a stablecoin meant to trade 1:1 with USD; if you can trust Tether, you don't so much urgently need bank support, because even if Bitcoin (or Monero or whatever) plunges in value, your Tethers will still be worth $1; you can "offramp" your cryptocurrency into Tethers instead of USD.
7. Ostensibly, Tether works by being backed by reserves of dollars or dollar-equivalent commodities.
8. This, as kind of an aside, is a huge win for criminals, who accept fraud detection risk every time they deal with a real bank, but can't accept the currency risk of keeping holdings in cryptocurrency. Bitfinex/Tether even advertises Tether as a way of avoiding KYC.
8. Tether isn't and probably never was backed by dollars or dollar-equivalent commodities; rather, Tether was "backed" by some admixture of Bitfinex receivables and cryptocurrencies.
9. Tether got kicked out of all the Asian banks, happened on a tiny Puerto Rican "bank" called Noble, which was backed by the large BNY Mellon bank; Noble balked at banking Tether, Tether invested $2MM in Noble to get over that objection, BNY Mellon noticed, and killed Noble.
10. Tether switched to Deltec Bank.
11. Tether started using a money laundering firm called Crypto Capital, which set up shell companies to fraudulently route deposits to banks with poor KYC/AML compliance; Bitfinex gave customers wire instructions sourced from Crypto Capital, which were all in some sense I guess a form of wire fraud? Super-amusingly, the wire instructions Bitfinex sent customers included a warning not to reveal any of the details of the instructions, to avoid systemic risk to the greater cryptocurrency economy.
12. Crypto Capital's founder stole a bunch of money from his firm, over a long period.
13. Crypto Capital got caught, a bunch of their accounts got frozen, Tether became insolvent, there was a run on Tether.
14. But Tether is still worth $1, possibly because Bitfinex resorts to shenanigans to satisfy withdrawals, like offering a premium for withdrawals denominated in Bitcoin (which you can sell at a reputable, banked exchange for dollars), or using mules to deliver dollars on a bespoke basis, or satisfying withdrawals using customer deposits directly and papering over that fraud with loan documentation.
15. A bunch of people got indicted recently.
16. The plates are still spinning in this plate-spinning act.
You're missing this little bit: Tether is not asking questions (of a KYC/AML nature) at a scale where they are required to be asking those questions, and the only people who would agree to work with them turned out to be criminals (for not asking those questions), who skimmed off money from Tether in the process. But don't worry, because the government will totally make them whole because there is no way that innocent little Tether could have known of all the illegal shenanigans going on… breaks down in riotous laughter
> The dominant use case for cryptocurrency is speculation. Speculators want to put value into the system, somehow have it become greater, and then take more value out of the system than they put in.
Don't forget that another relevant use case is anonimized payments. Let's say you deal with weapons. A good crypto could help. Let's say you sell porn videos: in some cases, one wants to pay with crypto because they don't want their SO to find out.
Just like speculation: it's not always an ethical thing. I'm just saying it's a usecase (quite matter of factly / detached from emotion).
The more formal way to say that is that cryptocurrency payments are "payments without the requirement of multilateral fiat recognition."
Fiat money works and has value internationally, because governments extend treaty relationships with one-another to offer the same sorts of protections against fraud committed by citizens of treaty partner nations, that they do for fraud committed by domestic citizens.
But when this breaks down, so does the value of fiat money:
• Countries can do things like creating export controls on their fiat currency, to prevent capital flight; or declaring a particular denomination of their currency valueless.
• And, when two nations are at war, their governments lose the ability to prosecute one-another's citizens by treaty, and so fraud by citizens of an enemy nation goes unresolved.
Cryptocurrency payments aren't inherently anonymous, but cryptocurrencies do inherently allow two parties to continue to trade productively, even when domestic laws or international treaties would otherwise prevent one or both sides of a fiat-facilitated trade between those same two parties.
Thank you for putting it more formally. I think we can all see that I didn't put things as eloquently as I should have (not sure if I could have, but that's a different matter).
That use case is currently comparatively vanishingly small and no where near large enough to explain Bitcoin and other cryptocurrencies current values. Speculation isn't just the dominant use case. It's the overwhelmingly dominant use case.
Sure, but I do think it's worth pointing out as I feel it is more of a tangible value and it's easier to see why this value will stay. With speculation, it's hard to see if people will speculate later on (probably, but I wouldn't be able to tell why). I will be able to tell why people who need privacy will be resorting to a crypto in 2 years from now.
Another use case: there have been a couple of cases where I'd use a fast cryptocurrency over banking. This case is: fast international transfer.
Have you seen the speed that Ripple has, for example? (Yes, yes, I know Ripple not decentralized, I don't care, I care about speed)
What takes me days to with a bank, I can do in seconds with Ripple. Though, this only works if: converting back to fiat is quicker on the other side than the bank transfer or the whole transaction is possible with crypto.
IMO, speculation isn't the dominant use case for Bitcoin is store of value (not claiming it's small).
With a major, major recession looming, with negative interest rates, and at a time where owning govt debt instrument actually costs you, where will you park your wealth?
Well, parking your wealth in Bitcoin starts to sound like a really good idea:
- in spite of the crazy volatility: if you average out Bitcoin value over - say - a 2 years window, it's a pretty safe bet.
- it also happens to be pretty hard for governments to get their grubby little paws on your Bitcoin stash (short of torturing the password to your private keys out of you).
- it can be moved and spent quasi-instantly anywhere in the world, so no border headaches.
- no other financial instrument has the dual property of being limited in supply *and* infinitely divisible (or almost). Most people focus all their mental energy on the first and completely avoid thinking about the second.
Thought the same when a film about Facebook was announced
> “I think there will be a Bitcoin Billionaires movie,” Mezrich said to close the panel after hinting at it multiple times. “Hopefully Armie [Hammer] will come back and play these guys.” (the Winklevii)
Tether problems are known. It's surprising that crypto sphere continues using it. I guess it's a good way to connect digital native Bitcoin to the rest of the world, aka, fiat.
I've been advocating for Bitflate. It's a cryptocurrency with constant inflation. The idea is to create a digital native and decentralized stablecoin. We won't get perfectly stable price. But it will not be controlled by a single entity. I think it is a better alternative than centralized stablecoins.
>My intense skepticism of cryptocurrencies is probably the issue on which I am most in disagreement with many close friends, professional acquaintances, and some of the smartest people I know. That is part of the reason why the hobby of peeling back onion layers here is so engrossing: people really, passionately believe that there is something here. I’m intellectually curious. The thing people have told me exists should smash my interest buttons: programmable money! How could I not look!?
Excellent way to summarize how I've felt about Bitcoin since the first mention. Thought I was the only one!
The article takes it is a priori that laws that institute warrantless mass surveillance of financial transactions, aka AML/KYC, are good.
This is an opinion held mostly by those in the elite: people living in wealthy/politically-powerful countries, and or those with lucrative jobs in government or government-protected industries like banking.
The President of Mastercard South East Asia sums it up:
"If it's an anonymous transaction, that sounds like a suspicious transaction. Why does somebody need to be anonymous?"
AML/KYC laws create global second class citizens and massively centralize power in the hands of whichever state has the critical mass of financial power, which right now is the US and which one day could be another state that authors like this wouldn't be so enthusiastic about.
A great write-up on what KYC/AML laws, which are euphemisms for laws criminalizing financial privacy, mean for those outside of the elite circles:
>>The proclaimed Death of Cash is thus an episode in the broader drama that is the Death of Privacy, the death of breathing room, and the death of informal, non-measured, unaccounted-for behaviour.
> I have looked, quite a bit. I have not found a good use case yet
Agree with a lot of the analysis. But not quite the broader thesis. Analogy I would make is this: the fact that some banks are bad does not imply that fiat currency is bad. The fact that Tether is bad does not imply that Bitcoin is bad.
Bitcoin enables payments / transfers without intermediaries. In the existing financial system, intermediaries take a cut of these transactions. (Aside: patio11's employer, Stripe, has built a business on this.) Figuring out whether by eliminating those intermediaries you can lower transaction costs (no interchange / wire fees controlled by card networks / banks) and effectively eliminate a tax on all economic activity seems like something worth exploring.
Just because it's a bubbly space does not mean there's no there-there. Pets.com didn't make me think the Internet was a dead end.
In Bitcoin, miners are the intermediaries, and they take an even larger cut. You cannot magic away the need to keep a ledger, and keeping a distributed ledger is going to be more costly than keeping a centralized ledger.
Think interchange in US is around 2% and wire fees can be in tens of dollars.
Right now a reasonable Bitcoin fee would be around 30 sats / byte or 6000 sats / transaction, which is around 50 cents USD. Average transaction fee is less than this right now.
But this is well-trodden ground.
I agree with you in principle, you need to pay for trust somewhere, but a loosely regulated banking sector and cartel of card networks isn’t giving us an ideal outcome, and a decentralized system may be better.
A point in your favor, I’ve been much happier with payments since moving out of the US and into the Eurozone.
my recent experiences with cryptocurrencies have been the large number (10+) of tinder matches I've gotten from women in Hong Kong or Shenzhen who within 2-3 conversations try to convince me to buy into the latest "digital currency their uncle told them would go to $5 in a week."
Each time I ask them for more information in understanding the underlying value of the digital asset they're trying to charm me with and then all I get are screenshots of the values going up mixed with invitations to visit them in China.
it was frustrating the first 2-3 times before becoming comical.
The good side of being ugly guy like me is that I always can spot these scams and never even respond to them - I just instantly block them. Because I know that no such a beautiful lady would actually approach me.
However I guess the scammers will soon figure this out and start using normal looking ladies in these contacts. Similar to those "bang ugly chicks near you" advertisements on porn sites.
Because anything critical of cryptocurrency threatens them where it hurts most: their wallet. So they are incentivized to jump in and cast specious assertions and muddy the waters where they can.
I'd be interested if you think there's anywhere I make a strong claim without appropriately strong evidence. There are a lot of strong claims, but I'm justifiably confident of them. Many of them are cited inline.
It is more about the general "conspiracy" tone of the article. It is like "OMG banks can create money, what a conspiracy" by some people who are surprised by the facts on how financial system works when they finally learn some basics.
There is strong demand for any kind of vehicle which allows transferring value digitally outside of the traditional banking system. I don't think tether users trust tether because they advertise on their website that it is "backed", but more because they have strong need for something like it and there are no alternatives.
Of course the huge demand has been spotted by many others and now there are loads of these "stablecoins". Some are more regulated and might take quickly over if feds decide to stop tether.
There is strong demand for any kind of vehicle which allows transferring value digitally outside of the traditional banking system.
Crypto supporters have been saying this for a decade, but outside of money laundering, drug sales, and hodle profiteering, no such demand has been shown to exist.
Of course the huge demand has been spotted by many others and now there are loads of these "stablecoins". Some are more regulated and might take quickly over if feds decide to stop tether.
If the "feds" go after tether, they will also go after the alternative stablecoins.
Debatable whether the feds would go after the competing stablecoins, but depending on the logic for the prosecutions/seizures, there are outcomes where they're economically inviable.
e.g. If Tether gets shut down because of fraudulent misuse of reserves, then the government might be OK with some aboveboard execution. If on the other hand they get shut down for money laundering via tether, well, stablecoins exist to enable that, and if they can't enable that they likely don't have a use case large enough to support the engineering/operational teams required to run them.
>Similar to Bitcoin, with the promise of less price swings due to the capability for redemptions and the promised reserve.
If you read the article, got to this point and didn't already know what the rest of the article was going to say... well, good luck in future financial endeavors! :)
While the tether story is very interesting and the article does indeed tell it I cant shake the attempt at throwing shade on cryptocurrency broadly. I like patio11 but his takes on this space look to me like a guy who made a bad call years ago throwing shade on bitcoin and has to continue to justify it as the revolution happens around him.
Isn't it curious that he writes a lengthy post about frauds made possible with the current banking system (trust-based reserve) and then doesn't find any use for cryptocurrency?
This is exactly the reason why Bitcoin was invented; its supply is mathematical and can't be over-inflated. Satoshi even included the criticism in the Bitcoin's Genesis block: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks".
Obviously Tether (or any private stablecoin like Libra) is even worse than a regulated fiat currency, and should be strictly illegal.
Except limited supply isn't your silver bullet. In fact, before the Great Depression, most of the world's currencies were backed by gold [0], being very similar to Bitcoin. And then it turned out that when an economic downturn happens, limited supply leads to a deflationary spiral [1], that has much worse long-term effects than a controlled inflation. This eventually evolved into the current system where the inflation is controlled via quantitative easing by the central bank, which is more or less accountable to the political party in power, which is more or less accountable to the voters. The system isn't perfect and is prone to abuse by the banks and politicians, but IMO is more resilient than a purely algorithmic solution.
He was writing descriptively, not normatively. You think there should be other uses for cryptocurrency besides speculation; he's saying it is overwhelmingly used for speculation.
Agreed - also IMHO it's mostly used for speculation, and hopefully shouldn't be the case. Speculation can't last forever, but a few good use cases might.
Interestingly a lot of the speculation - at least today - is actually a bet on disaster. Many wealthy individuals and institutions are buying Bitcoin as a hedge against currency collapse. It's not so much that they think Bitcoin will be worth more in the future: it's that they believe the U.S. dollar and all other financial assets will be worth less. (Or in some cases, it's just part of a hedge: the rest of the hedge fund's portfolio will increase in value under any situation other than collapse of the economy, while Bitcoin will massively increase in value if there's a collapse. There's value in uncorrelated returns.)
Fear is often a lot stickier than greed as an emotion. If you believe you're going to get rich quick and it doesn't happen, you reevaluate your choices. If you believe you're insuring against becoming poor and it doesn't happen, well clearly your insurance worked.
I'm not sure I agree with you. What we constantly hear is exactly that, hedging against global economic collapse. But I see no strong evidence that in the face of such an event, Bitcoin's price should rise.
What I see, instead, is a bet on this big speculation bubble to continue for another few years, hoping to cash out before it happens.
Like the original thread, I'm speaking descriptively, not normatively. People believe that in the event of a collapse, Bitcoin's value will rise. The evidence for that is a.) people say exactly that b.) people frequently compare Bitcoin to "digital gold", and gold has similar hedging properties c.) wealthy Bitcoin holders pay large sums of money for custodial services that store their private keys in nuclear-blast-resistant underground bunkers and d.) if they were hoping to cash out in the speculative bubble, they would've given up by now, with the current bear market lasting for nearly 2 years now.
Whether they're correct or not is a different matter, but correctness doesn't bear on their motivation for hodling. Nobody's going to know until the collapse comes or everybody gives up waiting, in which case either they're rich or dead.
Personally I think there's a certain sweet spot magnitude of a collapse where Bitcoin or some other cryptocurrency will be useful, and it's where the political and financial system has broken down yet infrastructure remains intact. In other words, you still have power and Internet, but no effective central government. Something like Hong Kong or the Soviet Union but not as serious as Venezuela or Syria. Less than that and people will just use $USD; more than that and guns & food will be more useful than Bitcoin. (I suspect that the same people who are buying lots of Bitcoin are also stocking up on guns & food, too, though.)
The thinking probably goes "eventually, enough people will either want their money back or a positive ROI on their investment that they'll pull out of crypto and the price will stabilize around people who actually intend to use it". I personally don't think this is necessarily the case in the current economic environment of ridiculously low interest rates.
People who actually intend to use BTC for making transactions don't actually care whether the BTC/USD exchange rate is $0.02, or $20,000. All the goods they buy are denominated in USD.
I don't think there are as many speculators as he thinks. Most cryptocurrency users believe that it's a better form of money and want to own it. That is not speculation.
> Obviously Tether (or any private stablecoin like Libra) is even worse than a regulated fiat currency, and should be strictly illegal.
Having a system of tokens that serve as an IOU to a stable basket of goods should be illegal? That's essentially how banks work, you give them money, they give you an IOU. I imagine a stable coin could be designed with enough proofs and audits to give you certainty. I think a well administered stable coin could have a transformative role in many areas that have capital controls, similar restrictions or high inflation.
The learning rate of markets is too slow for it to work. There will be too many tethers and other scams before they can be properly proofed and audited. And after that we learn that it requires tax payers, law makers and nukes to properly secure a stablecoin.
The only reason people use tether is to avoid AML/KYC. It's why the other stable-coins from "legitimate" sellers like Coinbases' USDC aren't used by anyone for anything. If I just wanted "electronic dollars" dollars I'd just fire up my web banking portal. The only value it provides is crime. Yes, it should be illegal. In fact it probably is.
It's good that the banks can be bailed out. It's good there's some inflation. It saves capitalism from itself (the rich acummulating all or practically all the coins).
I read very little in that article that's operationally in any way different from what happens daily in bank to bank back-office plumbing.
The only difference here is that it's a lot more visible to the general public because it's A) crypto B) new rather established means of transferring value between financial institutions.
While I do believe Tether is pretty sketchy and I don't trust any so-called "stablecoin", it's also pretty clear the author has an ax to grind and has had for a while.
Funny how every time people say it's so easy to prove Tether's frailty, they say there's way too much counterparty risk in shorting Tether. Shorting a scam should be a sure bet, but it has yet to happen.
Your daily reminder that you can short Tether if you want. All these people writing these articles, and the freely moving market price hovers right around 1:1. Funny how when people are asked to bet, despite the fact that there's almost no risk of loss for shorting it, their convictions disappear.
As explained in the post, you have to bite off very high levels of counterparty risk to short. Cryptocurrency exchanges die in something like 20% of exchange-years, and your estimate of an exchange dying _contingent on me being right_ should be biased towards the high side if they are exposed to the risks of using tether.
This is a subplot of the Big Short, and cost several groups of the protagonists a lot of money: they were so right about their prediction regarding the housing market that e.g. the banks who had brokered their swaps might have gone under, which would have impeded their ability to get paid. (There are several variants of the same thing discussed; the book is marginally clearer than the movie about them.)
The big short is a very different situation from crypto exchanges. Banks are highly levered and exposed directly to the assets they are trading. Crypto exchanges do not have this same problem. Secondly, you can use leverage to make these trades, and you can make them on many different exchanges, diversifying your risk considerably. The counterparty risk argument does not imply that the current price should be 1:1 under the assumption that insolvency is obvious.
(Outside of the USA) On Poloniex you can short USDT vs. USDC (USDC is the non-sketchy version of Tether) and make your riches. If you put your money where your mouth is! https://poloniex.com/marginTrading#usdc_usdt
"Markets can remain irrational longer than you can remain solvent."
Also if Tether implodes the exchanges you're using to short are also likely to implode or exit-scam (since they'll know the gig is up), and there is no recourse.
> "Markets can remain irrational longer than you can remain solvent."
That is absolutely correct. However, an equally correct statement is: Whenever you think the market is being irrational, you just don't understand the situation well enough.
So, if you think you can read some blog posts and determine that a freely trading financial market is being irrational...well, it's not the market that is irrational.
People love to say this but it’s simply wrong. You can believe something is actually worth anything but not believe the market will realize this over a given time period.
E.g. a time traveler might see tether go to $0 in the year 2025. But if he is stuck in the year 2019... shorting it in the short term is clearly a dumb idea. Betting that you can have a chair when the music stops is similarly dumb to to betting you can guess when the music stops altogether. Both fools know the music will stop eventually. Both will likely lose.
the other posts about the ownership issues aside a good amount of people will find it ethically reprehensible to make money off a scam like this and to participate or be involved with it at all so I've always considered these "why don't you bet on it?" arguments to be in borderline bad faith.
If you told me that I could make a ton of money by betting on the blood diamond market I wouldn't do it even if I knew 100% that I'd make money. It says very little about one's confidence in predictions. I don't want to spend five minutes of my life being financially involved in the crypto circus.
> the other posts about the ownership issues aside a good amount of people will find it ethically reprehensible to make money off a scam like this and to participate or be involved with it at all so I've always considered these "why don't you bet on it?" arguments to be in borderline bad faith.
How, exactly, is it unethical to make money off of something like that? Your bet would be providing information to the rest of the market. You would be helping other people to be informed about the situation.
Cryptocurrencies are a religion. I find the idea that anyone would want to hold a large amount of any currency idle for a long period of time baffling. Yet this is the premise that so many people who are speculating in cryptocurrency "investments" have bought into. Then you add on top of that terrible user experience, slow transaction times, and lack of any theft protection and I don't understand why any sane person doesn't just bail on the idea entirely.
To some extent, every currency[0] requires collective faith. Paper money backed by our bizarre Federal Reserve / QE system isn't much less absurd than anything in the crypto world, and that's money that can't be programmed.
Still, you're not wrong about the quasi-cult like behavior in the crypto culture, which is unsurprising given the financial incentives that reward irrational exuberance and unsubstantiated hype. And the experience and performance are as abysmal as you describe; it's reasonable to hope/expect those would be improved upon, but it's somewhat surprising that we're roughly at the ten-year mark and it still hasn't happened [1]. (Aside: proof-of-work is an ecological anti-pattern that needs taxed out of existence; proof-of-stake isn't perfect, but it does the job well enough without needing an insane energy overhead.)
I think there's a strong case for replacing, or at least augmenting, faith in the state (aka, violence-backed currency) with a Schelling-focus faith in Turing-complete algorithms (aka, math-backed currency). I think there's even room for banking institutions as value-adds: if you're a nerd or a tinfoil-hat type, you own your keys, but most people outsource that service (including theft protection) to the bank. But the infrastructure simply isn't there today, and the actual value provided by the crypto ecosystem is minuscule relative to its valuation. It's better treated as slow-motion gambling than anything resembling an investment. When the belief disappears, so does the value, and there are a vast number of small gods vying for our attention, most of whom won't make it.
[0] (other than commodity-backed, like Romans with salt)
[1] I'm sure someone can point out an up-and-coming counter-example; while I'd love to hear about those, the point stands, given that a seamless experience isn't normalized, and hasn't hit an inflection point of utility for consumers.
It is quite natural to hold currency if you have no better investment ideas and dont have personal use for the funds, and I prefer to hold crypto more than fiat.
I don't see how there is ever going to be wide adoption of a currency that is currently held in its entirety by something like 0.2% of the population, and claims to be impossible to expropriate.
When people see that kind of concentration of wealth, expropriation is a plus. Expropriation is how it gets redistributed. Nobody is going to want to make a bunch of early-adopting HODLers rich without knowing how to take most of their money as part of the bargain.
I agree that the people behind Tether are fundamentally pretty sketchy, and it has a significant risk of collapse. However, Tether can't be totally ignored because as of right now, it's still the best tool for some things.
The main value of Tether is that the BTC-Tether market is the most liquid cryptocurrency market. So if you want to exchange Bitcoin into dollars in an all-cryptocurrency transaction, you will probably get the best rates into Tether, and be able to perform your transaction the fastest. If you plan on swapping out of Tether soon, then the systemic risk of Tether collapsing might only be a small problem for your application.
It's a shame that the most popular stablecoin is such junk behind the scenes. I think we would be better off if a different stablecoin with a more solid grounding was the most popular one. But for now, since Tether is the most popular stablecoin and popularity itself provides value for some applications, Tether is a useful part of the crypto ecosystem.
I think of it as “one dollar minus some fees”. I would usually rather have one tether than one dollar minus credit card fees. Yeah if you want to use it in the fiat economy you have to exchange it out, but that isn’t too hard.
The whole premise of this article is that Tether is not “one dollar minus some fees”, it’s a mountain made of lies, built on a tectonic plate system made of fraud.
> I think we would be better off if a different stablecoin with a more solid grounding was the most popular one.
I think you're missing the point of the article - the reason Tether is the most popular and cheapest is because it is junk behind the scenes.
You could start a competing one, which follows KYC laws like a real bank, but you'd have to charge higher fees (KYC is expensive) and turn away many customers (KYC is effective). But few users would use it; they would keep using the cheaper, more popular option, and they would justify it exactly the same way you did:
> But for now, since Tether is the most popular stablecoin and popularity itself provides value...
If you'd read the linked article, you'd realize its premise isn't that "it has a significant risk of collapse," but that it has indeed already collapsed.
This sounds like "...this scam works totally fine so long as you only intend to be in it for a short time, so you don't end up being the one holding the bag."
> Tether has, in the words of Bitfinex CFO Giancarlo Devasini, “banked like criminals.”
And no wonder.
When the entire incumbent financial system is designed to treat innovation and disruption like a virus, the only way to make it through is to bend the rules.
The financial industry is, by virtue of being the richest, the most entrenched money skimming operation ever devised by man.
No way ever will they let newcomers, however nimble and innovative (and good for the end customer) grab a slice of the pie.
And of course, the usual "think of the children" (aka KYC and AML) argument will be used, along with every other propaganda tool available to smash the irritating newcomer into oblivion.
The one thing this very biased article does for me is highlight that there is a very strong market need/demand for an instrument like tether and that the incumbent financial system, much like the music industry discovering the internet, is trying to prevent that to happen by any mean necessary.
And they do have way deeper pocket as well as many, many more arms up political puppets to reach that goal.
I suspect it's because patio11 is employed by a payment processor, Stripe. Stripe's business is taking a percentage of payments / transfers. One of Bitcoin's usecases is making payments / transfers with lower interchange / wire fees than existing financial system. The argument is the same as saying that someone employed by gun manufactures is biased when writing about proposed gun laws.
(I don't have a view on whether patio11's employment has influenced his thinking. I just wanted to suggest what the grandparent's thesis may have been.)
> The dominant use case for cryptocurrency is speculation. Speculators want to put value into the system, somehow have it become greater, and then take more value out of the system than they put in.
This chestnut gets trotted out pretty regularly. What it ignores is the economic activity, largely untraceable, relating to payments outside of the US regulated financial system.
Remember the ongoing problem in the US with blatant civil asset forfeiture abuses?
Remember how the Department of Justice has deputized every financial institution in the US (and many outside of the US) as agents in the ridiculously ineffective wars on terror and drugs through AML/KYC regulations? Remember how that turns us all into subjects of an ongoing constitutional crisis, relegating 4th Amendment to historical footnote status? All for the sake of security theater.
These are the things that the article (and countless others) seem to ignore when discussing Bitcoin use cases.
> This chestnut gets trotted out pretty regularly. What it ignores is the economic activity, largely untraceable, relating to payments outside of the US regulated financial system.
You follow this up with some political points that I generally agree with, but I don't believe have anything to do whatsoever with any significant portion of cryprocurrency's use.
According to whom? The studies I've seen [1] say that a quarter of users are engaged in illegal activities and their share of all transactions is 44%. Their share is in decline as more applications are developed and userbase expands.
It should also be noted that there are many activities that are illegal, but not really harmful to anyone. For example, marijuana prohibition laws are obviously unjustified and are being overturned across the world these days.
I don't think these people realize they're working against their own argument when they are disabusing people of legitimate uses of a financial instrument.
Protecting yourself from civil forfeiture abuses doesn’t make you a criminal. It does have the potential of protecting your assets from lawful theft, assuming you can hold onto your keys.
I was reading something recently, but I can't recall where, talking about one of the advantages of growing potatoes in feudal UK was that it was harder for the lord to steal them.
You never knew if the lord was a little short on money this month that he wouldn't show up with a wagon and cart off a bunch of your hay or vegetables (the fraction you were allowed to keep, not what you owed the lord) to sell.
Since you could leave root vegetables and tubers in the ground, there was a lot more friction in that process.
> remember how the Department of Justice has deputized every financial institution in the US (and many outside of the US)
Most people simply have no idea how wide, deep and far the sinister arm of the US KYC/AML process reaches in the world economy, the level of control and power it grants the USG, and how much inflamed badwill the US is collecting internationally because of that.
Russia and China and trying as hard as they can to get out of the USD system for a reason. I can't wait for them to succeed in lifting the yoke of the US currency reserve, and when they do, the world will be a much better place.
This chestnut gets trotted out pretty regularly. We have a case posted here just a week or two ago of someone finally having a good enough reason to trace a bunch of transactions, find the culprits, and arrest them.
Tether supply is 4.2 billion, Madoff defrauded 60+ billion, so tether is nothing compared to Madoffs scheme. Also, tether is stablecoin - people don't buy it for investment purposes. Patio11 is still sour that he was against bitcoin when it was $1 and it seems to be difficult to get over it, therefore the strongly negative bias towards everything crypto.
However if you take into account where the writer is coming for, the article is quite good at explaining the situation.
Tether has gigantic red flags including not being able to actually exchange it for dollars even though it is pegged to dollars. It's so brazen it's hard to even believe it.
You cannot withdraw your Tether balance. They literally do not allow that. The best you can do is get an intermediary coin that some places might let you change into cash or another crypto.
As I understand tether allows direct conversions to fiat, you just need big enough amount. Also it is very easy to convert to bitcoin, which is very easy to convert to fiat.
The minor difference is that you can withdraw your balance from banks, but you cannot redeem Tethers to what it's supposed to be backed by: U.S. dollars.
I'm not advocating for tether. But it is not a ponzi scheme. And I think that most of the users understand what tether is - they are not excepting returns, they also understand that it is unregulated vehicle where the backing can disappear any time if the issuers get into trouble. I would guess biggest use-case is moving fiat between exchanges without having compliance issues, which you would have with banks.
Correct, Tether is not a ponzi scheme, because a ponzi scheme is a specific type of scam vehicle in which earlier investors are paid their "profits" out of the investments made by later investors.
In Tether, only the original investors get profits, which they get form everyone else investing in Tether, so this is an entirely different type of scam.
It does fill a need, and no one expects returns from it, but it most likely is fractionally reserved by btc. This means that if the price of btc drops too low and too many people cash out then it's over, because each tether cashed out will mean more and more btc are required.
I think it is fractionally reserved with bitfenix's btc deposits. A while back you could see their master address, which hundreds of millions of USD worth of btc.
It's not fractionally reserved. Fractionally reserved banking implies that only a fraction of the reserve is in liquid cash (And that the remainder exists as independently audited, but not immediately liquid investments, backed by an insurance policy.)
Tether has never been independently audited, whatever non-liquid reserves/investments they have are not backed by an insurance policy. It is not a fractional reserve. It's a con artist's idea of "Hey, I can just open a bank, take 80% of the deposit money, do 'things' with it, and claim I am running a fractional reserve."
I'm always surprised that intelligent and knowledgeable people claim this. You haven't even found a single use case?
You don't think buying a VPN anonymously is a good use case? Or see the need for uncensorable donations? (Remember how the U.S. shut down Wikileak's PayPal donations when they exposed their war crimes?) Or that cryptocurrencies allow businesses to accept payments digitally, without the risk of their payment processor or bank completely ruining them? (PayPal horror stories swarm the internet.) Or how people in collapsing economies, like Venezuela with ridiculous inflation, can use them to cross the borders with their wealth somewhat intact?
And it's always dismissed with the same lazy arguments like "volatility" or "nobody uses it". Those are real issues for sure, but they don't invalidate the use cases.