Tether: The Story So Far
kalzumeus.com
kalzumeus.com
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.
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.
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.
> other than the anonymous money flows
Are you saying that anonymous money is immoral and should be made illegal, and in the process dismissing all use cases that benefit from anonymity?
And no, cryptocurrencies are perfectly legal in most of the world.
Something else to point out is that just because a system is unsustainable doesn't mean it will collapse immediately.
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).
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.
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.
> 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.
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.
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?
Bisq
XMR.to because your clearnet identity already owns Monero
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.
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.
FWIW I think Tether is bollocks.
They haven't. The developers are very upfront about its limitations.
Each address is a new account, the paranoid of the groups create new accounts quite regularly for their transactions.
It is a low bar to learning this, I suggest reading the 101 level information first.
It’s pretty easy to make bitcoin transactions anonymous.
1. Wasabi Wallet runs over Tor and has built-in support for CoinJoins: https://wasabiwallet.io
2. Samourai Wallet has Whirlpool, another mixing technology, among other security features: https://www.samouraiwallet.com/features
3. You can skip the usual exchanges and use Bisq for peer-to-peer trading over Tor, including selling BTC for fiat: https://bisq.network
4. Lightning network (a layer 2 network on top of Bitcoin) has exploded in popularity; it’s also a major privacy win for transactions: https://medium.com/breez-technology/lightning-network-routin...
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.
And this is before Taproot and Schnorr signatures are added to the Bitcoin protocol in the not too distant future: https://blog.bitmex.com/the-schnorr-signature-taproot-softfo...
There's more but the point should be clear: it’s actually fairly easy to dramatically increase the anonymity of bitcoin transactions.
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.
Monero is.
> 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.
Overall I think that cryptocurrencies (and the internet overall) could use some better privacy strategies. Tor-like routing, no possibility of finger printing, etc.
[0] https://slideslive.com/38911785/satoshi-has-no-clothes-failu...
> 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.)
But then again nothing is perfect, neither is Tor.
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...
https://www.bloomberg.com/news/articles/2019-07-29/here-s-ho...
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.
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
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.
I'm only confident in one thing: that Bitcoin shouldn't be valued 10-100x (or more) than some other coins.
Probably the easiest way is Samourai Wallet
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 ;-)
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.
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.
...
"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 $10M or less ...
Can anyone confirm or deny ?
[1] Everbank (not owned by TIAA) is an online-only, no-branches honest-to-god US bank.
With that said, money is not the problem here. If Bitfinex had wanted to start a 'narrow bank' just to hold Tether, they would have failed: 1. Because they would not have been given a license 2. Because existing financial institutions would have refused to deal with them, as happened to Noble. 3. Because you cannot actually just park billions of dollars in the national reserve bank and collect interest on it.
So although such a business is probably viable in theory, it isn't possible in practice.
Actually you can, it's called Interest On Excess Reserves (IOER) in the US, which has been the only short term rate enforcement mechanism of the FED since the crisis days. Till that whole repo thing happened, just recently.
https://en.wikipedia.org/wiki/Excess_reserves
The rest is true though.
Also you can always just buy short term treasuries. There's even an ETF for that ($BIL) which charges 14 bps.
But yeah no chance that a big "fuck compliance" scheme like Tether could easily pull it off.
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).
Not sure about that... Looking at Monzo's Wikipedia page,
> In February 2017, Monzo raised £19.5M [...]
> in April 2017 their UK banking licence restrictions were lifted, enabling them to offer a current account
So they only became a "real" bank after having raised substantial capital.
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?
(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.
Usually only the most popular cryptocurrencies are directly priced in dollars.
----
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.
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.
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.
Huh. Did I miss something? If they were never backed by reserves how could $800 million of their funds ended up seized?
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).
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.)
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).
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'.
A memorable performance by Claude Rains
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.
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?
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...
Remember people questioning if the internet was ever going to amount to anything in the dotcom bust?
1. It's difficult to bank cryptocurrency because traditional finance has KYC/AML procedures and cryptocurrency exchanges (generally) don't.
2. For awhile, the largest exchange was Bitfinex.
3. Bitfinex suffered a breakin and lost $70MM worth of Bitcoin, and became insolvent.
4. Bitfinex took 36% of all clients deposits/balances to make up for the loss, and repaid them in "BFX" tokens, redeemable for equity in Bitfinex, and eventually for $1/BFX.
5. Bitfinex banked through a series of small regional banks, but these were all backstopped by Wells Fargo, which ultimately cut Bitfinex off.
6. So Bitfinex switched to Tether, a stablecoin meant to trade 1:1 with USD; if you can trust Tether, you don't so much urgently need bank support, because even if Bitcoin (or Monero or whatever) plunges in value, your Tethers will still be worth $1; you can "offramp" your cryptocurrency into Tethers instead of USD.
7. Ostensibly, Tether works by being backed by reserves of dollars or dollar-equivalent commodities.
8. This, as kind of an aside, is a huge win for criminals, who accept fraud detection risk every time they deal with a real bank, but can't accept the currency risk of keeping holdings in cryptocurrency. Bitfinex/Tether even advertises Tether as a way of avoiding KYC.
8. Tether isn't and probably never was backed by dollars or dollar-equivalent commodities; rather, Tether was "backed" by some admixture of Bitfinex receivables and cryptocurrencies.
9. Tether got kicked out of all the Asian banks, happened on a tiny Puerto Rican "bank" called Noble, which was backed by the large BNY Mellon bank; Noble balked at banking Tether, Tether invested $2MM in Noble to get over that objection, BNY Mellon noticed, and killed Noble.
10. Tether switched to Deltec Bank.
11. Tether started using a money laundering firm called Crypto Capital, which set up shell companies to fraudulently route deposits to banks with poor KYC/AML compliance; Bitfinex gave customers wire instructions sourced from Crypto Capital, which were all in some sense I guess a form of wire fraud? Super-amusingly, the wire instructions Bitfinex sent customers included a warning not to reveal any of the details of the instructions, to avoid systemic risk to the greater cryptocurrency economy.
12. Crypto Capital's founder stole a bunch of money from his firm, over a long period.
13. Crypto Capital got caught, a bunch of their accounts got frozen, Tether became insolvent, there was a run on Tether.
14. But Tether is still worth $1, possibly because Bitfinex resorts to shenanigans to satisfy withdrawals, like offering a premium for withdrawals denominated in Bitcoin (which you can sell at a reputable, banked exchange for dollars), or using mules to deliver dollars on a bespoke basis, or satisfying withdrawals using customer deposits directly and papering over that fraud with loan documentation.
15. A bunch of people got indicted recently.
16. The plates are still spinning in this plate-spinning act.
Am I missing anything here?
Don't forget that another relevant use case is anonimized payments. Let's say you deal with weapons. A good crypto could help. Let's say you sell porn videos: in some cases, one wants to pay with crypto because they don't want their SO to find out.
Just like speculation: it's not always an ethical thing. I'm just saying it's a usecase (quite matter of factly / detached from emotion).
For me though, there's only cryptokitties <3
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.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.
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.
> “I think there will be a Bitcoin Billionaires movie,” Mezrich said to close the panel after hinting at it multiple times. “Hopefully Armie [Hammer] will come back and play these guys.” (the Winklevii)
https://www.forbes.com/sites/hanktucker/2019/07/10/author-wh...
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.
Excellent way to summarize how I've felt about Bitcoin since the first mention. Thought I was the only one!
Are there that many true believers keeping this stable?
This is an opinion held mostly by those in the elite: people living in wealthy/politically-powerful countries, and or those with lucrative jobs in government or government-protected industries like banking.
The President of Mastercard South East Asia sums it up:
https://youtu.be/bO4jHXjCXw8#t=4m12s
"If it's an anonymous transaction, that sounds like a suspicious transaction. Why does somebody need to be anonymous?"
AML/KYC laws create global second class citizens and massively centralize power in the hands of whichever state has the critical mass of financial power, which right now is the US and which one day could be another state that authors like this wouldn't be so enthusiastic about.
A great write-up on what KYC/AML laws, which are euphemisms for laws criminalizing financial privacy, mean for those outside of the elite circles:
https://np.reddit.com/r/MakerDAO/comments/de0sys/kyc_is_abso...
Another relevant article: the War on Cash
https://thelongandshort.org/society/war-on-cash
>>The proclaimed Death of Cash is thus an episode in the broader drama that is the Death of Privacy, the death of breathing room, and the death of informal, non-measured, unaccounted-for behaviour.
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.
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.
This blog is extremely entertaining and I recommend reading it.
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.
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.
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.
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.
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.
The success of companies like Square or Venmo show there is huge demand for an easy way to send money around.
You will say that they are inside the traditional banking system, and that is true. But when using them it feels like they are not.
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! :)
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.
What they want is stability in the exchange rate.
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.
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.
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.)
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.
[0] https://en.wikipedia.org/wiki/Great_Depression#The_gold_stan...
[1] https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral
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.
Funny how every time people say it's so easy to prove Tether's frailty, they say there's way too much counterparty risk in shorting Tether. Shorting a scam should be a sure bet, but it has yet to happen.
So, buyer beware.
Shorting makes sense in regulated public markets with plenty of liquidity. Cryptocurrencies aren't like that.
There is no wholly or even just meaningfully independent platform on which you can actually short 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.)
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.
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.
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.
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.
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.
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.
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.
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.
What does that even mean? Dollars aren't cryptocurrency. If you're converting to Tethers, you're not converting to Dollars.
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...
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.
And they do have way deeper pocket as well as many, many more arms up political puppets to reach that goal.
(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.)
This chestnut gets trotted out pretty regularly. What it ignores is the economic activity, largely untraceable, relating to payments outside of the US regulated financial system.
Remember the ongoing problem in the US with blatant civil asset forfeiture abuses?
https://www.aclu.org/issues/criminal-law-reform/reforming-po...
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.
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.
You follow this up with some political points that I generally agree with, but I don't believe have anything to do whatsoever with any significant portion of cryprocurrency's use.
Beyond speculation, cryptocurrency is used for:
- Money laundering (to evade taxes, regulations, sanctions etc)
- Various forms of financial fraud
- Payments for illegal transactions (usually drugs or ransom)
And to a much, much smaller extent:
- for the legal things cash is used for
The unbanked haven't been banked, and a new, programmable money hasn't yet emerged with much value.
I love the ideas behind crypto, but have been sadly disillusioned by the reality so far
According to whom? The studies I've seen [1] say that a quarter of users are engaged in illegal activities and their share of all transactions is 44%. Their share is in decline as more applications are developed and userbase expands.
It should also be noted that there are many activities that are illegal, but not really harmful to anyone. For example, marijuana prohibition laws are obviously unjustified and are being overturned across the world these days.
[1] Eg https://www.law.ox.ac.uk/business-law-blog/blog/2018/02/sex-...
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.
These are not untraceable.
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.
However if you take into account where the writer is coming for, the article is quite good at explaining the situation.
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."
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.
The scheme to create a token that is supposedly worth $1 to buy BTC and other coins off exchanges and then selling those coins for real USD.
For anyone interested in the origins of Tether, look up Bitfinex hack.
Tether has a purpose - to be a savings account is not that purpose.
Hundreds of millions of people do this every day around the world without issue, because this is a solved problem.
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.
But it's at least possible to withdraw from banks. Redeeming Tethers is impossible.