Correction: Correlation is evidence for causation. It's weak evidence, and generally speaking, stronger correlation isn't more evidence.
There's a gradual process to go from hypothesis to theory to fact, and to get there, you need several types of independent evidence. Correlational evidence is okay as one of those.
A correct statement is that correlation is not proof of causation (no matter how strong).
* Large-scale less controlled experiments (real-world setting)
* Anecdotes
* ... and so on
You want several of those before you start to believe anything, and some are stronger than others. Correlation isn't fundamentally weaker than most of those, though; all of those carry their own methodological issues. The number of times you can have a large-scale perfectly-controlled preregistered randomized control trial with no confounding effects is exceptionally rare (some medical trials, and a few other settings).
Correlation is definitely not evidence for causation. Also, if you reverse the cause and effect, what analysis do you get? When BTC prices are in the rise, it’s because people are putting money into crypto currencies. When people are putting money into crypto, some of that money is probably going into tether, so there’s more demand for tether, so Bitfinex increases the supply. With this reasoning, we get exactly the same graph with a totally different meaning.
Just like "Jacob Oracle" did on Twitter, you're gonna have to provide at least some proof of your accusation. Now this is not conclusive in any way, but the user has "Investing in #Bitcoin" listed in their Twitter biography, hinting that they have more to lose if Bitcoin loses it's price, rather than gain, so seems they don't have anything but fairness to win with this. But wouldn't be the first time someone lied on the internet.
Where is the proof of whether or not Tether was actually injecting unbacked tokens?
The tweet author just assumed bitcoin spikes were being pumped by Tether, basically they got the graph and put lines on it. Do you call that proof?
I don't have any inclination towards the tweets author being right or wrong, I simply know too little about it. But at least they are providing something to try to back up their claim. If it's true or not will ultimately be up to law enforcement, if it comes to that.
My point was that the tweets author is trying to back up their claim while DJBunnies did absolutely nothing to try to back up theirs.
I agree that a Tether reckoning is coming, but point #10 of that thread is the most important: it could be weeks, months or _years_ before it's fully corrected, so be super super super careful about using Tether as a reason to short Bitcoin...
"The market can remain irrational longer than you can remain solvent"
It's even worse than that. Shorting TSLA is dangerous because of the above. But it's mitigated by people purchasing shares with real fiat. They have a natural incentive to not be absurd: whether or not $800/share is absurd is a matter of opinion...but everyone would agree that $1m/share is absurd.
Tether has no such limitation. All the exchanges are complicit in this, wash trading is rampant, and there's an de facto central bank run by actual criminals. There is absolutely zero reason why iFinex can't take bitcoin to $100k or $1m or whatever they like. They only have opportunity costs.
The only thing keeping them in check right now is the appearance of legitimacy. If they were to overdo it, people might actually sell, which is not what they want. So until their legitimacy is tested (Jan 15) they will probably responsibly grind this higher. But on the last day, I expect billions and billions of USDT issuance so that they can run stops on every short in the market, collecting their last few shekels before the music stops and they vanish to an island somewhere.
Do you know if the public will actually find out any info on Jan 15th, or will that all be private, sealed documents? (I'm a bit lost at how that process is going to work)
Bitfinex and Tether have till the 15th of January to submit documents to the New York state attorney general about their financial relationship. The shortfall of $850m was allegedly printed by Tether and given to Bitfinex to cover up the losses Crypto Capital created. It is speculated Bitfinex and Tether can't submit any documents without revealing their cover-up. This will result in the conclusion that Tether isn't backed 1:1 by USD by a lot of investors and will results in more investigation by the attorney general. Tether is unaudited at the moment, meaning no one checked the bankroll of Tether if there really is $23b USD there.
The thing is $850m isn't actually that much money. The big exchanges made on the order of several billion dollars profit during the last bubble; presumably they are also making that much in this one.
Tether has printed almost double of its amount just BEFORE Bitcoin price jump. It's the biggest pump and dump scheme ever, made by organized crypto-mafia. I doubt this will continue for long.
While I don’t doubt that Tether was used to manipulate the Bitcoin price upwards, at the same time I believe Bitcoin Futures were/are being used to suppress the Bitcoin price as well.
"Suppress" is not the right word because that would imply that the price is wrong. There is nothing wrong with shorting a market. If the short is wrong, she loses money. The market remains balanced and often short squeezes are responsible for large bull runs.
Tether however isn't balanced. There is no risk. There is no offsetting liability in the market for the Tether they create (unlike with a short future, which has an offsetting long side).
But banks have been in the wrong in how they used futures to suppress prices of precious metals like gold. A quote from the linked article:
> Precious metals markets have long since been subject to manipulation by large banks. Several banks have admitted wrongdoing and faced fines for manipulating gold prices. Many believe that the prices of gold and silver have been kept artificially low through the use of leveraged paper contracts.
>Dr. Paul Craig Roberts, the former economic advisor for the Reagan administration, has written extensively about this subject.
>In his view, some of the biggest banks in the world have been working to suppress the price of gold in Western markets for many years. They accomplish this through creating so-called “naked shorts” out of thin air (the term vapor contract term we’ve been using is analogous to a naked short).
>A naked short is simply a contract that allows an institution to place a sell order for a particular asset without having any ownership of the asset.
>In other words, it allows a bank to flood the market with fake sell orders, creating downward market pressure. Given that banks can create these shorts to the moon without any accountability, they can keep the price down at a level more or less of their choosing for quite some time.
Especially the last alinea seems to reflect some of the things you said about Tether actually.
Can someone please explain to me how Tether is "injected" into Bitcoin? The entire argument seems to hinge on this but it is not (as far as I can see) explained.
Are people accepting Tether in trade for BTC under the assumption that Tether will always be exchanged 1:1 for USD when this is not actually the case?
EDIT: The answer seems to be yes Tether is 1-to-1 with "I O U $1" and enough people are accepting these IOUs in exchange for BTC that the market is moving because of this.
That last part ("the market is moving because of this") seems so unbelievably stupid to me that I don't actually believe it.
Yes, if the company Thether has full control of its tokens they can print them and don't back them with anything (as the author says their reserves are not public)
Yep, AFAIK Tether is used by several exchanges that have problems getting direct banking relationships, as a on-ramp for funds.
Tether originally promised that they were 1-2-1 backed with actual currency reserves, but had to abandon that statement when it became apparent they'd lost a load of money to Crypto Capital.
Tether still claim to be 1-2-1 backed with "investments" but there has never been a completed 3rd party audit of that claim, so it literally has to be taken on trust.
So far the explanation I’ve come across goes as follows: someone creates tether. They use this tether to buy bitcoin, which drives up the prices of bitcoin. The more they buy, the more value their purchased bitcoin has. The trick seems to be that generating this tether should decrease the value of tether, however since everyone thinks its a stablecoin that is backed by usd 1:1, its value remains the same. The worst is that the purchased bitcoin increases in value, so technically they could sell that bitcoin for usd, then use that usd to temporarily back their printed tether...
(This is my understanding of the situation and from the reading the explanations of other people, but please take this with a grain of salt, im not sure if everything is true)
It’s not individuals buying Tether from Bitfinex and then buying Bitcoin that causes this. It is Bitfinex as an organization ‘printing’ free money and using it to pump the market.
like I mentioned above, it is speculated that they are the ones who are printing the tether, then use that to buy bitcoin. They are then probably hoping that whoever receives tether for selling their bitcoin does not immediately want usd, but instead is happy with the tether as it is 'backed 1:1'. (Again, I have to stress that this is a theory i read somewhere on the internet, while lots of things add up, it may also be completely off.)
They 'pump the market' because buying bitcoin increases its scarcity, thus raising the price.
> But who is selling their (temporarily) valuable bitcoin for worthless tether instead of USD?
You're asking what the utility of stablecoins is:
Stablecoins are widely used as a legislatively advantageous on- and off-ramp for the whole crypto market.
Off-ramp: If people want to sell BTC or other volatile tokens because they want to realize profits, the obvious thing would be to sell for fiat (USD/EUR). But due to taxation and legislation this is often difficult. Stablecoins like Tether provide the utility of a low-volatility currency that fiat would fill. Main advantage is bypassing legislation.
This use is so common there is jargon for "Tethering up".
There also exist many debit cards that allow paying with stablecoins, increasing utility. The rise of DeFi and money markets for stablecoins also provides a good return on stablecoins while in theory being low-volatility.
On-ramp: If people want to buy a certain token they first go into Tether. This is usually for bypassing local legislation limiting the buying of a specific token or use of exchanges. This use is less common, I would wager.
Of course, for any of this to be actually useful Tether has to remain the same price. If Tether starts to deviate significantly from the 1USD peg, a liquidity crisis cuold be triggered.
Personally, I haven't trusted Tether since the first BitFinex scandals and avoid it like the plague. For my stablecoin needs, I use something that is audited and over-collateralized like DAIv2.
This sounds incredibly illegal. I can't imagine trading like this is wanted by legislators and even if Tether is currently backed 1:1 there is no way that legislators will allow this to keep happening eventually crashing the entire Tether currency into the ground.
> If people want to buy a certain token they first go into Tether. This is usually for bypassing local legislation
That alone should be a red flag.
I know there are a lot of narratives about people in repressive governments using Bitcoin to take their meager savings out of the country or carrying their net worth across borders in mind wallets, but Tether isn't targeting these people.
Tether has very high minimum purchases. They cater (supposedly) to extremely wealthy clients who, for whatever reason, would rather use a questionable intermediary instead of going straight to any one of the major financial institutions offering BTC to purchase their bitcoin. If you had told me in 2015 that it was difficult to purchase BTC as an institution, I would have believed you. In 2021, there isn't much reason to do end-runs around regulations unless you're deliberately trying to launder money and/or dodge taxes.
That's not the primary use (by dollar volume, it is also helpful to streamline participation in the entire crypto ecosphere regardless of local regulations).
But Tether's for market making. Arbitrators need a way to transfer USD denominated amounts between exchanges to operate.
On top of market making, you'll have smallish (7-8 figure USD) trading shops running strategies across multiple cryptos that just don't have fiat ramps, or they want to tap into volume across exchanges that don't have fiat ramps. If you're one of these customers, you can get in touch with Tether and make redemptions, but you probably don't need to do that anyway because you're working through a prime broker.
This activity doesn't care if the market's bull or bear, so it continues to grow over time in either trend.
I suppose this could work as long as you don't print too much. Let's say you have $10M USD in deposits. You can print $20M in USDT as long as you're reasonably sure that on average, people don't withdraw 50% of their deposits. This gets tricky though because USDT is used by multiple exchanges, so I'm not sure what exactly would happen if everyone withdraws their deposits not in USD, but in USDT to another exchange. They'd all need to be in on the conspiracy with some sort of settlement system to transfer money between them.
I'm not a finance or a crypto expert, so don't take my word on it. But many people way smarter than me have been trying to prove this hypothesis for years.
Bitfinex doesn't exactly have a reputation that deserves any trust, so I wouldn't put it past them.
I think there is a good reason Coinbase does not allow trading Tether.
Let's say you think Bitcoin is going to crash (or you're a trader and just think it's going to go down). Obviously you want to sell your bitcoin, but also postulate that you don't have a connection to a real bank (KYC and all that), so you can't actually turn your Bitcoins into dollars. So you sell your Bitcoins for Tethers. Then Bitcoin goes down, and eventually you buy them back using Tethers.
There's a lot of room for delayed fraud, same as when banks fail.
Imagine I secretly remove the contents of everyone's safe deposit boxes.
I get rich selling what I stole, but no one is any poorer until much later when they try to cash out their treasures and realize they are gone.
USDTether is an empty safe deposit box.
Yeah that sort of language annoys me and is often a sign the writer doesn't really understand what's going on. There are two possible phenomena:
Legit: US$ are sent to tether, tethers are issued in exchange 1:1 and then used to buy bitcoin. This will tend to raise the price of bitcoin but only as long as people are sending real US$
Illegit: tether insiders just issue tethers without US$ backing, use them to buy bitcoin and probably try to sell the bitcoins at a profit becoming million/billionaires in the process. Sky's the limit really - you can issue crypto tokens in any amount though it could all collapse if people want to swap their tethers back to US$ and there aren't enough there.
>They then inject this into BTC, ETH, LTC, (and others) to cause prices to pump.
Means use the tether to buy BTC etc in exchange for tethers which will tend to raise prices if there are more buyers than sellers and people seeing the price rising will cause them to buy more.
The thing I don't understand about the "Illegit" method is that it relies on people accepting USDT for BTC and then not cashing them out to real USD. Because if the company is printing USDT it wouldn't have the cash to pay the people trying to cash out USDT. So to allow this to happen you would need a people to be holding a huge amount of USDT.
You can’t redeem Tether — that’s a core part of the fraud, they have “banking issues” and had them for years. You can sell it on an exchange but the Tether organisation have prevented any redemption of USD from USDT for years. Anybody turning USDT into USD is selling their USDT.
Though when you sell your USDT for euro or whatever on Kraken say, the tether org must step in and buy to keep the price at US$1. So they effectively redem if not directly.
From your example the only thing that happened is that now you hold x euros and Kraken holds x amount of USDT.
Unless Kraken goes to Tether org and asks "hey I got these USDTs, please give me the USD" no redemption has occurred.
That some people can in effect transact USDT for fiat via other mechanisms (like your example above) says nothing about Tether org backing or reserves.
Until you go to Tether org with your USDT's and ask them for USD you won't know if they have the reserves.
The reason tether stays at $1 is because the tether org or their delegates buy or sell to keep it there. They have to or the whole thing would become untethered as it were.
Plenty of companies redeem USDT for USD. I myself worked at a company that redeemed billions of dollars. The FUD on HN is approaching delusional levels.
> Unfortunately, Tether has decided to stop serving U.S. individual and corporate customers altogether. As of January 1, 2018, no issuance or redeeming services will be available to these users.
Exceptions to these provisions may be made by Tether, in its sole discretion, for entities that are:
Established or organized outside of the United States or its territorial or insular possessions; and,
Eligible Contract Participants pursuant to U.S. law.
> An Eligible Contract Participant includes a corporation that has total assets exceeding $10,000,000 and is incorporated in a jurisdiction outside of the United States or its territories or insular possessions. This will be the principal basis upon which we will continue to do business with selected U.S. persons.
Basically, it looks like they only provide on and off ramps for large clients outside the US. Given their history, I am betting they might not want to reveal where they store their assets, and don't want to deal with US regulators (but not sure this is working).
When did I say I was providing a source for not being able to redeem tether? I'm just linking to information that I found useful when forming an opinion on the matter.
Tell you what: you give me $100, I'll give you back a cooldude coupon. I have sole discretion as to whether I'll redeem this coupon when you hand it back to me.
Question: Would you say you can redeem this coupon? It's possible I might decide to give you back your money, after all.
And what does the company do with those USDT? If the money printing theory is correct, companies like yours would be the ones counteracting any sell-pressure on USDT.
If the theory is not correct, companies like yours would see an at least equal buy-side demand for USDT, bringing real USD into the system.
I mean, does the company hold (increasingly?) large USDT positions on their balance sheet (and would therefore be the ones in the hole if Tether loses the peg), or is the company able to get actual dollars out of Tether inc. in exchange for those tokens?
So you can't trade USDT for USD at all (eg. third party exchange trades, or withdrawing from an USDT exchange directly), or is it only that you can't trade USDT for USD by going through Tether Limited?
People do hold USDT. I hold some myself. If you are going to buy crypto again it saves the hassle and expense of converting into fiat money and back again.
The majority of exchanges can't actually hold fiat money due to regulatory issues.
Also I imagine some people are hoping to avoid the taxman by keeping it in crypto though that's legally not kosher.
Why USDT and not USDC or DAI? Don't you feel like holding USDT makes you complicit in whatever shit is going on?
Also, I would be very, very weary of using an centralized exchange that "can not hold fiat". With the layer-2 projects that are coming now (take a look at loopring or Stakenet), you can transact as much as you want, no gas fees and exchange fees are about the same as any CEX.
I somewhat agree, but it's also a chicken and the egg problem - everyone uses USDT as the primary pair because everyone wants it, and everyone wants it because that's what every other exchange offers. Exchanges can offer another stablecoin, but it's likely to have very little volume.
But why should you care about these fringe exchanges when (a) you know they are not trustworthy and (b) there are decentralized alternatives where you can trade pretty much any token you'd like to hold?
If the problem that these exchanges only offer $LOCAL_CURRENCY <-> USDT as on-ramp, what's stopping you to:
1. make the on-ramp via USDT
2. buy ETH
3. withdraw to your own wallet
4. Trade on Uniswap/Curve/1inch/Loopring/Stakenet to anything you want; (Wrapped) BTC, USDC, DAI, any ERC20...
It's not that complicated, it eliminates your risk of holding USDT, these shady exchanges can still operate (at their own risk, not the users), it makes it super easy to identify exchanges with liquidity problems (the ones that get any excuse to not let you withdraw or make the fee way to high will surely indicate an issue with their liquidity) and - most importantly - reduces the amount of USDT in circulation.
Ironically Tether, whose quantity appears to be determined by however much the small private entity that runs it decides to create, appears to be a much purer example of 'fiat' currency than most national currencies have been for most of the last half century (quantity determined in a decentralised manner by the balance of supply and demand for credit at a base interest rate a centralised body periodically updates to hit a [decentralised market-driven] fixed target rate of inflation)
It is meaningful, because a large part of crypto culture seems to be based around hand-waving and selling you an underdog no-big-government empower-the-people story
The not government issued bit would become pretty meaningful if they get shut down or collapse. They are more like IOU notes for fiat currency - Tether owes you one US$.
The entire point of Tether seems to be that it is always valued to be exactly 1:1 with USD. And that seems to somehow convince people that entities who cannot obtain a loan of USD can obtain a loan of Tether?
Some exchanges have no traditional banking ties at all, so you have to send them some for of crypto in order to use them. It's also easier and quicker to move tether from one exchange to another than it is to receive a USD transfer and resend it to another, and that's ignoring regulatory issues.
This does nothing to explain the purpose of Tether.
If Exchange A has no "traditional banking ties" but is where I want to trade so I need to buy crypto through Exchange B first in order to trade that crypto on Exchange A why would I buy Tether instead of BTC through Exchange B?
Then you transfer to Exchange A and sell, and what do you get when you sell? Tether.
The point of Tether initially is regulatory arbitrage for Tether based exchanges. It gives them a fiat substitute without having regulatory baggage that trading in actual money would require.
Tether then turned into a lifeline for a Bitfinex bailout and now acts as a (almost assuredly illicit) liquidity provider to Tether based markets.
The only reason Tether is worth a dollar at this point is because the Tether denominated Exchanges say it is worth a dollar. They are really what backstop Tether now and are fully complicit.
seems like a constant long term rise in BTC valuation is what keeps them backstopped in turn, then. well that and conveniently reliable outages in the middle of every major BTC sell-off.
It really comes down to what kind of loans Tether has accepted. They haven't disclosed this information.
If Tether gave out a significant amount of USDT for Bitcoin without backing it in some other way, it means Tether isn't actually backed by the USD. Even if they lent out Tether for USD, they might have used BTC as collateral/risk assessment.
The fear is that Thether is held up by a loan of BTC and BTC is held up by in some part by the stability of Tether.
The problem is that in the early days of @Bitfinex'ed this was all a bit of a sideshow because there was genuinely large interest from retail and the outcome of crypto was far less certain.
However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation. Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
But in the depths of the March panic, Tether jumped the shark in order to backstop the entire crypto ecosystem, and they can never put that genie back in the bottle. Much like the Fed who cannot stop monetizing US deficits for fear of letting yields explode, the Tetheral Reserve must continue to print USDT in order to support prices. Exchanges cannot let this fail since the vast majority do not have access to the bonafide banking system and thus scrappy users must devise "fiat onramps".
There are many theories about why, the predominant one being that iFinex know they are screwed, and are making one last cash grab before presumably disappearing. This sounds fairly reasonable if the entire operation is indeed a sham, but it means there is effectively no upper bound to BTC prices because the denominator in 90% of the market (USDT) is effectively zero.
Tether has become too big to fail. Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.
>Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
This narrative was an intentional morphing by various actors within the space (Blockstream) who believed raising the blocksize to allow higher throughput would cause 'centralisation'. Instead they want people to use layer 2 solutions such as blockstreams own federated product Liquid.
As explained by blockstream co-founder Greg Maxwell in [1], the blocksize is constrained in order to ensure a steady backlog of fee paying transactions, that allow bitcoin to remain secure in the long term when block subsidy becomes insignificant.
>that allow bitcoin to remain secure in the long term when block subsidy becomes insignificant.
this line of reasoning is silly. To match the current block subsidy with the current block size limit when miner subsidy runs out the average transaction fee will need to be >$127.
$45mil daily revenue / 350,000 txs per day
OR, you could increase the block size limit to 10mb, allowing 3.5mil txs per day, or 100mb allowing 35mil txs per day. Then the average fee paid per tx is significant lower.
The reason this was argued against by blockstream was because a bigger blocksize means more storage is needed by the miner and more txs means better hardware and bandwidth to process them, effectively pricing out normal people from running full nodes.
Essentially, the ability for normal people to send a transaction cheaply is being sacrificed so that normal people can setup a full node. Counter intuitive imo.
Not going to happen. It's a mindshare thing. If there are 10 million people who think I may as well have a bit of my portfolio in bitcoin that gives it value and that's probably not going away in a hurry.
If anything it'll get worse as it goes from 1 million to 10 million to 100 million. Back when 1 bitcoin = 1 pizza there were perhaps 1000 people into it?
"Nobody" is an exaggeration. There is a big community of enthusiasts who enjoy cryptocurrencies for what they are and enable, not for their USD value in the markets.
I won't make the case for cryptocurrencies here, have a look at ethereum.org for instance.
> Is what they enable worth $40.000 to the enthusiasts?
I'm not denying that the current price hike and media attention has little to do with any other aspect than "decentralized ponzi"/dollar escape. Was just correcting a false statement.
This is true. It's also the tremendous irony of bitcoin evangelists narrative that fiat is worthless yet constantly touting every ATH (which is priced in that supposedly worthless fiat). Who cares what BTCUSD is if USD worthless?
And then you realize that this is pure speculation and the most ardent supporters are just praying for the greater fool theory to rain good fortune on them.
You need look no further than Coinbase, supposed beacon of our crypto future, IPO'ing and raising money in...that worthless green piece of paper known as the US Dollar.
> You need look no further than Coinbase, supposed beacon of our crypto future, IPO'ing and raising money in...that worthless green piece of paper known as the US Dollar.
The vast, vast majority of "bitcoin evangelists" couldn't care less about the actual mechanics of Bitcoin. They don't care that it was created as a digital F-You to fiat currency, and they don't care that it enables you to be your own bank. Just look at /r/bitcoin. It's 99% price/hodl memes, and 1% posts about the protocol & enhancements to the protocol itself.
No it does not - that's an invalid inductive conclusion.
There are clear deadlines that may change everything (apparently Jan 15th might be one of them, from the twitter thread). Justice takes time, but trials do eventually come to a conclusion. If that conclusion is to kill the mechanism that pumps BTC, then all bets are off.
That may be true but there is definitely a difference between the way people talked about it earlier ("later we will all be paying with bitcoin") to how it is now ("it's a store of value and maybe there is potential for bitcoin-backed currencies").
I think the scaling limitations were well known at the beginning. If Bitcoin were to get as large as visa/mastercard the blockchain would be growing at a rate of a few gigabytes per day, which would kill decentralization.
As far as I was aware, this problem was mostly ignored.
It was expected (again, as stated in the whitepaper) that truncating transactions (in order to shrink blocks that are "old enough") would be able to manage block size well enough to stay reasonable.
In my experience (circa ~2011,) this expectation seemed to be generally accepted without much question by anyone talking about bitcoin. If it was acknowledged as a flaw it was usually hand-waved as only likely to be a problem 10+ in the the future.
edit: Or that a new network would learn from the bitcoin experiment and implement a protocol that works better at large scale.
the limitations have been researched extensively outside of the echo chamber of bitcoin development. It is possible to scale a utxo system like bitcoins to hundreds of millions of txs per day. Xthinner[1] can compress blocksizes by 99%, but bitcoin devs have ignored this with handywavy arguments.
>but bitcoin devs have ignored this with handywavy arguments.
Can you provide links to these discussions? I searched around on google and all the results are relating to bitcoin cash. I also searched the usual places that bitcoin (non cash) people congregate and turned up nothing.
That page claims it can compress a single transaction down to 12-16 bits. Unless the vast majority of btc transactions are between the same few wallet addresses, this seems impossible? Even if you assume that the transaction is an instance of a common known script, you still need from-address, to-address, and amount, all of which are >16 bit quantities and in general are cryptographically random.
The only explanation I can think of is that they are relying on a sidechannel to communicate the actual transactions, which makes sense in the miner case (the utxo pool) but not in the general node case.
Beyond that, I run a BTC node occasionally and the bottleneck is validating blocks, not downloading them. Transactions are complicated enough right now that I'm only able to catch up at about 350x real-time (that is, it takes around a full cpu-day to validate a year of blocks/transactions).
A bitcoiner pinged me and asked for my comment here. It really sucks that people are so easily bamboozled by dishonest scammers.
In the original bitcoin software a node would receive every transaction made while it was online twice: once when the transaction was first relayed, once when it was placed into blocks. This was obviously wasteful, so we created and deployed a reconciliation scheme that exploits the fact that normally all, or almost all the included transactions are already known. https://github.com/bitcoin/bips/blob/master/bip-0152.mediawi...
But because Bitcoin developers are not dishonest scammers they didn't run around putting out (no kidding) press releases claiming "98.6% compression"-- though that's what you get if you compare the size of the BIP152 message to the size of the block. In reality, since it depends on the transaction being known in advance the unachievable limit for this class of approaches is a 50% bandwidth reduction for a node compared to the original behaviour. BIP152 achieves 49.3% out of that 50%, as measured on the latest block.
Even before compact blocks was created back in December 2015, we knew even smaller could be achieved. E.g. we published a scheme that requires asymptotically 0 bytes per transaction, only requiring data proportional to size of the difference between the block and the recipients guess at the next block. But what we found is that the simpler scheme actually propagated blocks much faster because once the block is down to just a few thousand bytes other factors (like CPU time) dominate. Expending a lot of additional code and cpu time to take 49.3% closer to 50% isn't a win in actual usage.
[And for considerations other than block propagation, saving a few extra bytes per block is extremely irrelevant.]
It's also the case that some of these dishonestly hyped supposed improvements beyond what Bitcoin has done for years are actually totally brain-damaged and wouldn't work in practice because they're not robust against attack-- but there isn't much reason to dive into technical minutia because what they _claim to achieve_, once you strip off the dishonest marketing, isn't all that interesting.
Not this again. The entire bitcoin blockchain fits in $6 of hard drive space. The average transaction right now is more than $11.50. The AVERAGE transaction costs almost double what it costs to store the ENTIRE blockchain.
Stop with the storage space nonsense. The only people even storing the entire chain are enthusiasts, servers and miners. Saying "what if it gets a thousand times as many transactions" is ridiculous, but it still wouldn't be a problem. A few gigabytes a day? A $300 dollar hard drive would still take a decade to fill up. I think the few that sync the entire chain handle that.
It doesn't google anymore and might be gone now, but back in the day there was an article on a bitcoin website which went through some math, arguing that Bitcoin could achieve 4000 transactions per second. People used to link to it on a regular basis.
Aside from that, people figured Moore's Law would continue at its historical pace, and Bitcoin could grow indefinitely at the same pace.
People were discussing bitcoin being used as a digital currency. There was talk of bitcoin being accepted on Overstock.com, TigerDirect, and using bitcoin apps on phones as a digital wallet. I would argue the majority of people in the bitcoin community at the time were genuinely interested in the technology and its use as an everyday currency.
Now let's look at some Reddit /r/bitcoin posts in January 2020. I picked this date because there weren't any recent significant price fluctuations.
There was practically zero discussion on using bitcoin as a currency. People were only interested in the price and treated it as a commodity, just like a digital gold.
> EDIT: downvote me if you want but you are flat wrong
Do people treat bitcoin as a currency or a commodity today?
*The narrative around bitcoin has always been "It is digital currency. It works like gold".*
I don't think we need to get into whether or not gold is a currency or a commodity but you are fooling yourself if you think that the price of gold is driven by jewelers and PCB fabs.
People were overly enthusiastic about it intially, but soon realized almost no one wants to use a slower, riskier, and now more expensive payment option. Bitcoin is good for merchants but terrible for buyers.
Bitcoin lightning could change this, instant transactions with almost no fees, but it's still in early days.
The Phoenix wallet[0] is actually quite a nice LN solution. When I tried it out it gave me similar feelings of excitement as when I first got into Bitcoin.
Reading about the Lightning Network gives me a headache in general, but Phoenix manages to hide all the tech stuff. I think my old parents would be able to use it.
And it solves one LN problem of having to have bitcoin for opening a payment channel, you can simply install the wallet and start receiving bitcoin.
> Now let's look at some Reddit /r/bitcoin posts in January 2020.
This is a very amateurish attempt at analyzing what "Bitcoin community" (which you haven't even really defined properly either) are thinking or are interested in. Bitcoin reddit is a bunch of kids who like memes and hating on the FED. I know a lot of serious investors who would never be seen posting or commenting there. It is just not a place for a lot of people.
I think people are using "gold" in 2 different ways.
In the olden days, gold was actually a currency. The supply of coins you could produce was limited by the precious metals you had. The amount of paper money you could issue was limited by the amount of gold bars you had. In this system, gold is still acting like a currency; but a currency with very real limitations on the ability of any institution to manage it. [0]. This was the original meaning of digital gold.
In contrast, modern gold is not used as a currency. It is used as a commodity and store of value; and a hedge against inflation.
[0] Unlike gold though; bitcoin actually has a predictable issuance schedule. There is no sudden spike in Bitcoin supplies because prospective suddenly discovered a rich vein.
It is not a coincidence that gold mining was chosen as the analogy for new coins.
The emission of new bit coins following the "mining" of new blocks is like the minting of new gold coins following the mining of raw gold.
Because bitcoins are like gold coins.
I agree that neither gold nor bitcoin are suitable for commerce. But the narrative around and apparent intent behind bitcoin from in the beginning was "It is digital currency. It works like gold".
>does not have a "killer app" and is 99.99% used for speculation
You could argue speculation is the killer app. I'm not a fan but it's hard to deny it's a huge business and some people seem to like it. Kind of like Las Vegas in a way.
It definitely has a killer app. Probably not a big enough app to justify these prices, but one nonetheless.
As Stripe, PayPal, Visa, Gofundme, Patreon, et. al. shut down avenues of payments for legal, but unpopular purchases, BTC is the obvious workaround.
Vendors of firearms, pornography, legal funds for unpopular causes, dissident content creators, etc have become increasingly estranged from the "normal" payments market in the last few years. BTC is the killer app for this.
If avoiding reporting a transaction is the goal does committing the transaction to a public blockchain really bypass this? All activity is pseudonymous and in the clear.
> Vendors of firearms, pornography, legal funds for unpopular causes, dissident content creators
Neither pornography, nor legal funds for unpopular cause (think WikiLeaks), or dissident creators are criminal. At least not in the US or Europe. But they are still blocked by the main payment processing companies.
Drugs are likely the number one things bought using crypto as currency.
Firearms and pornography can be bought with dollars if you’re using crypto to buy them or other unpopular goods or services, you are veering dangerously close to black markets, which invite regulation.
I'd say to qualify something as a business, there should be value creation somewhere along the line. With BTC, I see mainly redistribution of value, along with destruction of resources.
I’ve been wondering if Tether is really a scam for a long time.
In all these analyses, one key point is missing: arbitrage traders have to make up for the sell pressure on USDT when Tethers are being printed and sold for BTC. Can anyone show me how there is a plausible mechanism/scheme/conspiracy that keeps the USD/USDT exchange rate stable while a crazy amount of illegitimate Tethers are being printed?
Exactly, I don't say OP is wrong but I need to see how I can
1. buy X for USD
2. buy BTC for X
Shouldn't the price for X then stay the same? (Bought X once, sold X once)
Assuming X drops to 0, wouldn't people that have BTC just use another coin X' to get back to USD?
Assuming company Y creates X out of thin air and buys BTC with it, why doesn't X drop in value? Because arbitrageurs buy it? So arbitrageurs have lots of X? Should I care if they go broke in the process?
Since they can print X and they peg it to USD, it won't change in price itself, but nothing can assure the driving force of BTC price is actual demand.
When central banks peg their currencies to others, that means they buy the foreign currency if their own currency is overvalued in comparison, or sell foreign currency to buy local curerncy in the case of undervaluation.
You say that a peg breaks if the Central Bank doesn't have the exchange reserves anymore to uphold a peg.
Where does Bitfinex take the money from to buy tether to prevent it from devaluing? Alternatively, who else buys tether, arbitrageurs?
Because the mechanism to transmit USDT to USD doesn't exist. Tether has never demonstrated a single USDT redemption. All of the trading on an exchange doesn't matter because on USDT exchanges, you never actually have USD. If you trade USDT/USD on Binance, your profits are still actually USDT denominated! There is no proven way to convert USDT to USD except via another crypto (i.e. Binance USDT -> BTC and then Coinbase BTC -> USD) hence this entire topic...
The peg would break down if there was any real convergence mechanism. But there isn't. This isn't a problem until people actually try to exchange these supposedly fungible assets.
This is moving the goalposts. I don't think anyone thinks tether has full reserves. They literally admitted that they don't[1]. However your original claim of "you can't redeem USDT" is misleading at best.
[1] wikipedia: "On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents"
That was after how many years of Tether insisting that they had 1:1 reserves, talking about audits thereof, threatening lawsuits against people who said they didn't?
... and many many crypto-fans naysaying anyone who didn't believe them.
I feel like most people think of what you're referring to as trading Tether, and "redeeming USDT" as actually exchanging the USDT for the fiat that is supposedly backing it.
Everybody realizes that for the individual turning tether into fiat both of these amount to the same thing, but they are not the same thing for the system as a whole at all. Ultimately the only way that tether as a company can maintain the peg is by buying their own token with the reserve funds if market won't (there are obviously different mechanisms they could use to do this, either via the exchanges or with the seller directly trading with them). If they don't have access to enough reserve funds then the peg will eventually fail.
He said 74% are cash reserves. Meaning, Tether is 1:1 backed by its reserves, of which 74% is cash. The rest could be bonds/loans etc, as long as they're deemed liquid and fair value. I don't know about the latter, just stating facts.
In any case, if indeed (still) true, having their lawyer say that USDTs are backed 74% by cash, makes it arguably safer and more liquid than any US bank, where cash backing your account balance represents a single digit percentage (I would estimate, happy to learn the factual number). Not saying that it shouldn't strive for 100% cash backeding (I think it should be), but noting that if you're concerned about Tether's cash liquidity, you probably should be even more concerned about your bank's chequing account.
I think it's a waste of time trying to argue with the USDT conspiracy theory crowd. I'm not really sure what's their problem; they clearly never traded the market or used it. Maybe it's a butt-hurt feeling from missing out on this decade best performing assets?
I'll give you a more sensible counter-argument: If you held USDT in the last 4 years (only) and actively generated yield (requires 1 hours work max per week), and periodically withdrew it (1-3 months) my reports show a 120% gain. This means if you bought $100k of USDT 4 years ago, you'd have withdrawn $120k into real dollars and still have $100k of USDT. In this situation, it's impossible to lose even if Tether is worth 0 tomorrow.
Yield have gone considerably down. This means traders now trust USDT more than they did a few years ago. This would also mean that traders who are into risk would not hold USDT, they would rather hold something else to get better yield. If USDT was risky, its total market cap will decrease, as it doesn't make sense to hold into it with low yield. That or the market will quickly collapse.
This can give you an idea (better than a stamped report from any AAA auditing firm) about how strong the USDT position in the market is.
I'm not sure what arbitrage you're referring to. But more importantly, nobody is selling these freshly printed USDT for USD...that's the whole point. They are selling USDT for BTC.
99% of the USD/USDT trading is fake/wash trading to give the illusion of volume.
As long as tether can provide a small percentage of liquidity on USDT/USD then they (arbitrageurs) can maintain the peg. This can obviously break down, and has in the past. It's all about liquidity...
It's speculation, but then without audits and accounts of the exchanges that use Tether, and Tether itself, speculation seems to be about as good an option as there is.
It's just that conspiracy theories and doom stories are nice to write about. USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin.
Most people writing about USDT don't understand how arbitrage markets work, and don't understand that liquid markets are quick to resolve themselves (unlike ponzi schemes where you can hide the missing assets for a long time). Liquid markets will put quick pressure which is why these structures collapse faster (see MtGox)
>USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin.
Technically it is possible. You don't need an equal or larger market cap to inflate something else 90%. You just need enough to dominate the trading volume.
As an extreme example, if bid/ask volume is exactly 1 (ie the ONLY trade volume consists of you and 1 other person trading a quantity of 1), then at the minimum, all you need is a bank roll of 1.9x the current unit price, with both you agreeing to the trade it for 1.9x, for the going price per unit to inflate 90%. And since market cap = price per unit × units outstanding, then the market cap also inflated 90%. If the units outstanding was 5000, and the unit price was $1, then the market cap increased $4,500 using only $1.90.
The killer app for Bitcoin is escaping government fiat money that is backed by literally nothing at all and is being printed at increasingly alarming rates. 40% of all USD ever created were “made” in 2020. That will have repercussions for decades and isn’t a currency I want to stay in.
During the gold standard, did people take payment in gold?
I don't think so...
They used paper that symbolized "withdrawal rights to gold". USD (or any other piece of paper that people agree has a value) is a perfect currency for exchange, it's just not a great store of value.
The point I was responding to was saying that they wanted to get away from USD and that this was BTC's killer app.
My point is that you can't "get away" from USD, while the BTC market is effectively tied to USD.
so if the USD supply is massively inflated, and people can use those USD to buy BTC, the tie is still there.
If and when people denominate their goods and services in BTC without any reference to a fiat amount, then they are decoupled and BTC loses the tie to USD.
> USD [...] is a perfect currency for exchange, it's just not a great store of value.
USD is a fantastic store of value. Since 1982 (arguably the beginning of the modern inflation-targeting era), the USD has lost no more than 6.3% of its value year-over-year, nor gained more than 2% (CPI measured, source https://fred.stlouisfed.org/series/CPIAUCSL#0).
In contrast since 2016, Bitcoin has 60% of its value year-over-year (2018) and gained 1700% (also 2018).
A store of value is not a story of appreciation and hoping for a gain, it's a story about holding a stable and most importantly predictable value into the future. The USD more than satisfies this condition. Bitcoin does not, no matter its speculative merits.
Most importantly, society does not owe people a fictional store of value guaranteed to never lose purchasing power. People don't eat quarters, nor do they live under dollar bills. It strains credulity that a nominal token (however minted) should hold a guaranteed value, without taking capital-like risks required of any productive investment.
I have a question, isn't the problem with the gold standard that the amount of dollars is fixed and in order to have enough currency to drive a rapidly growing economy you would in essence be buying a gallon of milk for .25 cents?
It seems to me that either you the amount of currency in circulation needs to increase or the value of the existing currency needs to increase.
Taking into account the gold standard was used for possibly centuries (not sure) was this problem encountered before and how was it solved?
Yes. That is called deflation. It also has to do with fractional reserve banking. The fraction of your outstanding dollars that you could actually cover with gold. If no one ever wants to make a run on your bank, you can keep the fraction very low.
I understand the deflation part, but my question really was is it an economy the size of the united states even possible if we stayed on the gold standard.
Not having enough money to transact would definitely have suppressed our economic growth, but then again maybe we would have gotten really good at mining for gold to make up for it
"Really good at mining." This might be good point to compare with BTC. Where huge amounts of electricity is spend on doing essentially useless calculations, outside keeping the system safe and running.
Good at mining would have meant spending good part of our economic output to mine gold and then just storing it somewhere or moving it around...
This was posted to HN and it was quite eye-opening. For those that don’t know, 1971 was when the gold standard was abandoned by Nixon. I don’t know if the graphs are cherry-picked and I hope they were honestly since the US is never going back to the gold standard and it seems to have far-reaching negative effects in every aspect of human life.
To answer your .25 cent milk question it seems to have not been a problem in history and health of the country before 1971. The profits and benefits of the rapidly growing economy have pretty much all gone to the ultra wealthy that are nearest to and in control of the money printer.
I think this is a gigantic leap. They show a whole bunch of graphs without even advancing a theory as to how abandoning the gold standard caused a decline in, for example, employee compensation growth. Or divorce rates. Or ... obesity rates, really? There's so many graphs on here that it would take forever to dispute all of them, but here's some general points.
1. A lot of these graphs start at 1940 or 1950, showing a change in the trend in the early 1970s. But that was the end of WW2, where Europe was in ruins and rebuilding and America saw a massive increase in prosperity and economic output. That was a pretty unique period, it's only natural for that trend to diminish or change over time.
2. A hell of a lot happened in the late 60s and early 70s, not just abandoning the gold standard. One of these graphs is of the incarceration rate. Do you think we started seeing mass incarceration at that time because we abandoned the gold standard, or do you think it was because of the war on drugs?
3. Some of these graphs are deliberately misleading. One is of the cumulative inflation rate, and seems to show the inflation accelerate in the early 1970s. Except a healthy economy should have a steady inflation rate each year (of around 2% I believe), so this graph is supposed to be exponential! They just picked the right window so that 1971 is the inflection point.
The change from the gold standard is almost certainly a coincidence. Whether the dollar is backed by gold or government promises doesn't make businesses decide to give less money to their workers and more to their CEOs.
A much more relevant development in the 70s was the switch in economic policy priorities from demand-side to supply-side. Nixon was the first president who prioritized tax cuts, union busting, subsidies, and legalizing outsourcing to cheaper labor markets in China and SEA. Every government since has given corporations a blank check to cut labor costs by any means necessary to prioritize profit.
Those graphs paint a fair picture of the nature of the crisis, but I am not so keen on their explanation.
Nixon ended gold convertability, but the USD was not on a true gold standard and was in danger of not being able to fulfill this obligation. The standard was Bretton Woods, it was an international framework for finance, and it was the failure of the framework together with the OPEC oil crisis that caused the mess documented in those graphs.
adjustable, with a benign regulator > fixed > adjustable, with a corrupt regulator
So, the aim shouldn't be a return to the gold standard or a switch to BTC, but to make sure that central banks can do their job without interference from politicians.
To the left of that list I'd put "self-adjusting, without needing a regulator."
Hayek argued that a system of competitive privately-issued currencies would achieve that. I'm not qualified to say whether he was correct, but an economy built on cryptocurrencies would be exactly that.
A shortage of bullion in Europe during the 15th century caused problems everywhere. That was followed by a huge influx of gold from the Americas in the 16th century, which also caused massive problems across the continent!
Both under- and over-supply had negative effects on the economies of Europe.
The gold standard really was a primitive fiat currency anyway, governments would debase coins so they contained less gold in order to expand the money supply for instance. And only a small fraction of coins would be gold anyway, silver was far more common - the Pound Sterling takes it's name from a pound of silver from the easterlings (Germans). Paper money just made it obvious that physical currency was only a representation of wealth and not a fixed unit of wealth itself.
The gold standard is basically a political myth about a system that never really existed. Money is a very abstract concept, and reducing it to physical tokens and easily intuitive rules is appealing to many.
USD is backed by being valid for the redemption of outstanding USD denominated invoices, loan repayments and tax bills, all of which ensures demand to possess the currency and are likely to continue to exist in increasing quantities in future.
"Escaping" that for something which literally is backed by nothing at all is a strange move.
People who repeat this don't understand that fiat money is based on trust...and that is not a bad thing.
This is why blockchain is fundamentally stunted: the global society is based on trust and cooperation. Trustless systems will never be able to compete in these arenas.
speaking of jumping the shark, have you seen what governments have been up to lately ?
interest rates at a 5,000 year low, moral hazard abound & global fiat collapse imminent in the best case and in the worst case we have banks/elites/governments who are going to be looking to further enslave those in debt and forced out of business/work with some dystopian debt forgiveness scheme involving a 'vaccine' schedule and travel restrictions or whatever else (use your imagination).
the truth is that everything mentioned in these comments was an argument that had already been had years ago - the markets reflect that - but i did enjoy reading the last sentence of your original comment and thinking to myself "am I reading Time Magazine ?"
1) trying to distract the above problems by pointing out other issues doesn't make them go away
2) you talk about fiat collapse being imminent...USDT is worth far less than any fiat (see: nothing) I don't get how these ardent fiat haters don't see their entire ecosystem has been coopted by something that has infinitely less value than the thing they so despise
Seems to me like you're tacitly agreeing with GP here - you're just making a claim about which currency system you trust more! (And attempting to convince others of the same position.)
It is the only thing the government accepts for tax payments. Given that you can be arrested for not paying your taxes it is "backed" by the barrel of a gun, a threat to your very being. In one sense this is the only real thing there is.
Indeed. A thought experiment: say the US government created a USD-prime currency that floated freely from USD. You could still use the USD in private transactions, but the US government would only transact and tax in USD-prime. What would be the fate of the original USD?
My belief that it would go to zero. I’m curious whether “fiat is backed by nothing” proponents would disagree.
Yep, but my point is that one is mass belief that the US government will continue wanting USD, the other is a mass belief that other people will continue wanting BTC. Both could be right, both could be wrong, but they are not the same proposition.
Don't forget that the US gov itself is also propped up by mass belief. Its authority rests in the people.
Now you might say "actually its authority rests on people with guns", but that's only to the extent that the people with the guns believe in the governments's authority to tell them who to point them at.
Gold and silver became money for similar reasons (probably). Kings and Emperors found that supplying their armies was much easier (especially in peace time) if they used the method of taxing the population in gold and/or silver and then using that to pay their soldiers who would supply themselves on the open market. That way you did not have the standard problems of a planned economy. The peasants have now need for gold, so they would not need/want to trade stuff for it unless they were forced to have some to give to the tax man. It's much more complicated than that, of course, but like fiat money, gold and silver do not have much intrinsic value besides using it to show off your wealth.
Maybe they didn't have any intrinsic value in the past besides looking pretty but in the modern era both gold and silver have industrial uses. They are not just stores of value. One could also argue that both metals also had intrinsic value in the past since both metals were used in jewelry and various items to make them look good.
The industrial usefulness is an irrelevant byproduct when considering gold and silver as an investment.
Put another way, if people lost faith in gold as an investment tomorrow, and the value fell to the economic value of the industrial use cases, investors in gold would be ruined.
I’ve never thought of it this way. I wonder what the price of gold and silver would be if they were strictly used for manufacturing and jewelry instead of speculation and store of value?
>It is the only thing the government accepts for tax payments. Given that you can be arrested for not paying your taxes it is "backed" by the barrel of a gun, a threat to your very being. In one sense this is the only real thing there is.
That's more than enough reason why we should try something else. It doesn't inspire a lot of confidence. By that reasoning, the USD has the same sort of backing as the Venezuelan Bolivar. So what's to stop the prior from becoming like the latter?
Ok are you saying that is a good reason to invest in it? I always hear this and it seems like if force or military force is your only bastion of reason left to invest in a currency you should have left it long ago.
Money is not property. Money is an entry on a ledger, which tracks credits and debits. So yes, fiat currency is not redeemable for a physical asset. But if it was redeemable, what ensures that say gold or a chicken will suffice to settle a debt or serve as credit for a future transaction. Chickens die and gold is only as valuable as your skills as a trader. The ledger and all of the social norms and institutional structures that accompany it is what maintains financial wealth.
Preventing debasement of currency via inflation via printing money, which a lot of people use as their go to argument against fiat money, is simply adding economy wide debt to the ledger. This is necessary from time to time especially during crises and especially in a services/financial services/ intellectual property heavy economy.
If no money existed, at all, how would you receive compensation for providing work of an IP nature to your neighbor. You would need either a perfect trade (you really want their chicken it’s just the right amount of chicken for you) or you take an iou. Which is a debt. Now have them write that iou down on a piece of paper and hand it to you. Your neighbor just printed money. Not so crazy.
> government fiat money that is backed by literally nothing at all
It would be really nice for people to spend even a few minutes thinking about how money works, or open a textbook even just to learn what you disagree with.
It's tiresome to explain over and over and over again to people how the "full faith and credit of the United States" is not "nothing at all" but in fact a guarantee of great value, at least as good as any on any other security, and one that is quite measurable (by for example comparing the prices of full faith and credit securities with other almost identical securities without this guarantee).
On the contrary, I'd say that it's the cryptocurrencies that _by design_ are based on nothing at all.
Too late to edit my original comment but a lot of people pointing to the "peg" as proof that Tether is legitimate.
The only peg that exists is the one whereby you should be able to go to Tether Inc and redeem USDT for USD 1:1. That peg has never ever been demonstrated (publicly).
All the other "pegs" are just cash trading. If I trade USDT/USD on Binance...I don't actually have USD. Even on that pair, my USD profit/loss are denominated in USDT.
For anyone who disagrees with the above - please show me market where I can go sell my USDT directly for USD.
Yes, you can trade them there. However, there is no mechanism imposed by Kraken to keep the price close to 1. It is purely supply and demand. Nothing prevents the price of USDT from collapsing (apart from arbitrage predicated on exchanging USDT back into USD).
> For anyone who disagrees with the above - please show me market where I can go sell my USDT directly for USD.
Genuinely curious, as someone who has never used Binance nor USDT:
Why is the "directly" part here significant? If I can USDT (Binance) -> USD (Binance) -> BTC (Binance) -> BTC (Coinbase) -> USD (Coinbase) -> USD (My Bank), then whats the difference other than a few extra steps?
Apart from the fact that there are transaction costs and time delays (it'll take about half an hour after you bought BTC on Binance that you can sell them on Coinbase), what guarantees that the BTC price is the same on Coinbase and Binance?
Well, arbitrage! But suppose BTC it is much higher on Binance. You'd then take USD and transfer them to Coinbase:
It's basically the difference between a fiat currency and one backed by something.
For example, something vaguely analogous would be:
[Setting: The Olden Days]
GP: "I'm concerned because nobody has ever tried to take USD to the government and directly get silver/gold for it."
You: "Why is the "directly" part here significant? If I can USD (My Pocket) -> USD (My Brokerage) -> Gold (My Brokerage) -> Gold (My Pocket), then whats the difference other than a few extra steps?"
The difference is that we never tested to see if the USD is actually backed by real gold.
nice in theory but practically if you try to withdraw from kraken you often get a plethora of errors, including "this function is currently disabled". this happened during the last run and this happened this week.
How do you square this with the observation that other fiat-backed stablecoins like USDC, which are obviously legitimate, are also printing massively?
It would seem to me that if transparent stablecoins with utility are going up, the simplest explanation for tether going up is that it serves the same role for people who have either become accustomed to it from its earlier availability, or have it as their only option due to jurisdiction. Not anything nefarious.
There seems to be little actual evidence to support conspiracy theories that Bitcoin's price movements are due to mismanagement of tether.
The price of an asset goes up when money is being poured into the asset. For many exchanges "money" means USDT, so it makes perfect sense that USDT would be printed before a rally, regardless of malfeasance on tether's part.
Thanks, I will have to read it carefully, but from the abstract it doesn't seem as simple as "increased Tether printing makes BTC rally." But if there is in fact a statistically significant correlation, I would personally wager there's causation and hedge my bets accordingly.
I think the abstract does effectively say that: "these patterns are most consistent with the supply‐based hypothesis of unbacked digital money inflating cryptocurrency prices." And this point is made more forcefully in the paper.
FWIW, I don't have a strong opinion on the evidence presented in the paper -- the analyses seem sensible, but this isn't my field of expertise, so I'd be hard pressed to point out, for example, what alternative analyses they could / should have done.
Also, it's not even obvious to me that unbacked Tether causing the BTC price rallies is necessarily a reason to pull out; markets are weird.
The argument isnt that there are no legitimate inflows of other stablecoins (or traditional fiat currency) into bitcoin prices. The problem is that Tether is ~80% of inflows [1], and is dubiously backed at best. If 80% of the price support disappears, prices will fall, and legitimate buy side interest from other stablecoins or fiat will almost certainly shrink as well.
Most global payments are transactions, not cash transfers, and the transacting parties have banking relationships that make those transfers low cost and strictly superior to Bitcoin.
As a freelancer based in EU working on some US projects, I'm forced to pay 5.5% fee to PayPal or some fix fee to the banks (SWIFT payment).
Plus conversion fee from USD to EUR (or my local currency).
That's too high for just a simple thing as receiving money from different country.
Really looking forward for that Strike Global.
> However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation
With all due respect, this is completely wrong - crypto has the same killer app it has for years, and that app is _crime_.
Whether you're buying drugs, paying anonymous extortioners, accepting bribes, money laundering, or tax evasion, cryptocurrency is the go-to choice for electronic funds transfer for your modern criminal.
The crypto killer app is evading China's currency controls. Pay for mining hardware and electricity in renminbi, transfer cryptocurrency to foreign countries, exchange for convertible fiat hard currency (dollars, euros, etc.).
However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation.
The killer app is decentralized, permissionless, open source, and censorship resistant network.
Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
Gold morphed from worthless rocks in the the ground, to coins traded by traveling merchants, to stores of value that were eventually centralized and monopolized by governments.
RE: Tether
I don't trust them either, but we need more evidence of this alleged printing. We saw that they did remove the 1:1 peg briefly when Crypto Capital in Panama (?) froze a few hundred million of their USD.
Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.
Bitcoin is sound. The centralized exchange layer built on top of it is dirty.
Yes, it can. The U.S. government has in fact seized Bitcoin directly and sold it at auction several times. It is arguably the single largest non-exchange seller of Bitcoin in Bitcoin's history.
Nobody here seems interested in actually understanding how BTC works. It looks like a circle jerk of pseudo intellectuals coping with not buying early.
Money can only be seized if the safe is found. And the combination is handed over by a willing party.
The difference is that money is actually more secure because you don't have a public ledger telling you that it exists and who owns it and how much of it they own as you do with the public cryptos like Bitcoin and Ethereum.
Crypto is magnitudes more accessible. I can travel to any country in the world with an encrypted usb drive of my seed words, and no one is wiser. OR even upload a file to the internet and forego carrying anything at all. A government can try to censor transactions belonging to an address, but we don't have good precedent to see how the network will behave. Miners in other jurisdictions have no reason to follow someone else's censorship.
A government could seize miners, and given that ~50% of the world's Bitcoin mining capacity appears to be located in one country, that might give them considerable leeway to rewrite the blockchain to their liking.
Did you mean "soft fork", or are you thinking of a different concept I'm not familiar with?
Forks can and have been used to deal with isolated malicious incidents, but do you think they can be successful against an actor in extended control of a substantial part of the hash rate?
> With Bitcoin you own property that can never be confiscated or debased by any government.
Private keys can be confiscated like anything else. They won't do you much good if you're thrown in prison for not turning them over if legally compelled. Sure you can try to hide your ownership, but my point is that actual cryptocurrencies are only one layer of very deep opsec you need to resist state actors. For the common illegal goods consumer it's unlikely to do much more than provide a false sense of security due to other opsec failures (use of phones, use of cookies, use of mailing addresses, use of non-e2e chat, using a hosted wallet, lack of anonymous vpn, etc etc etc).
> The biggest applications on Ethereum right now is decentralized finance, with billions of dollars locked in.
Interesting use of "dollars." How much is actually Tether? How much is manipulated market cap (through wash trading or more convoluted defi mechanisms)? How much is actually liquid USD?
A wrench attack will always be the easiest vector. That said, there is no other asset in history that gives you this level of security for such marginal cost. The cost of securing $100 is essentially the same as the cost of securing $100m.
The chances of loosing $100 is essentially the same as the chances of loosing $100m. If you loose your private key nobody can help you recover your money.
Why would I pay for Porn? But on that note, the PH website still accepts several types of credit cards.
Whatever Wikileaks originally was, it is now a Russian propaganda tool. Go ahead and try to post leaks critical of Russia on Wikileaks, or for that matter, of Donald Trump. Why would I want to donate to a website that is openly seeking the destruction of my country?
It may have been less hoarded and used only for ornaments because there was less trade and people were busy enough to find, hunt or cultivate enough to survive. As trade took off, gold became more useful because it already was universally valued everywhere.
> to coins traded by traveling merchants, to stores of value
Why would I accept gold coin in exchange for anything if I don't already consider it store of value? It must had been considered as store of value before merchants started using it as money.
> RE: Tether I don't trust them either, but we need more evidence of this alleged printing. We saw that they did remove the 1:1 peg briefly when Crypto Capital in Panama (?) froze a few hundred million of their USD.
Tether's page (https://wallet.tether.to/transparency) claims $23.6 billion in total assets. Despite their claims to transparency, I see no report of what those assets are, how risky those assets are, or any audit that assets they even own those assets. Their front page has a big link saying "Proof of funds", which leads to an audit published 2½ years ago, claiming only $2.5 billion in cash in two bank accounts with unnamed banks.
For a company that claims to be "always fully transparent," that is shockingly opaque.
Bitcoin is bits of data on a network. It does exactly what its supposed to do; a dictionary for strings to integers.
Securing external value to people is not a goal or responsibility of Bitcoin. That's simply a consequence to how we as humans choose to use scarce assets.
The hurdle for bitcoin is finding a way for people to turn it into a currency they can use. This is where you end up with a centralized exchange layer built on top of it.
I can make a $12,000,000 transaction for $.35 but if I actually want to get the money, I have to pay 2.5% to a legit exchange or take my chances on some janky ass exchange. Why not just transfer the money via ACH and pay the small fee and save myself the headache?
The barriers to entry, usage, and understanding are just too high for average Joe. That and how the value of their money fluctuates compared to fiat makes it more difficult to use as a daily currency.
Also, when things go wrong there's nobody to turn to in most cases.
In a long enough time frame, people transact with cryptoassets directly and don't need to exchange into fiat. We are early in this development, money as we know it is changing.
Over a long enough time frame the chances that you get hacked, scammed or make a fatal mistake and lose all your cryptos is high. Putting anything more than pocket money in this is idiotic.
I find this a little bit too biased. The Bitcoin universe is waving between a lot of reason why to love bitcoin and it shifts often.
I stopped following the money side of it (atm and sites accepting btc) but a vast majority of btc and cryptos attention right now.. is simply better yearly returns than other kinds of possessions.
> The killer app is decentralized, permissionless, open source, and censorship resistant network.
That’s like saying the killer app of the internet is the internet.
The web gives me access to information quicker and easier than going to a library or bookshop. Email and IM means I can communicate with people in other countries quicker and easier than I could by post. Crypto doesn’t change anything.
A few drug dealers and some people living in countries with hyperinflation may care about “permissionlessness” and “censorship* resistance”, but for most people, actual money is far, far more convenient.
* That’s some Orwellian newspeak, btw. If someone defrauds me and a court of law ensures that I am restituted, the reversal of that fraudulent transaction isn’t “censorship” because stealing money isn’t “speech” or “expression”.
Digital gold is the kill app. That is enough to justify its market cap.
For example, Chinese can use bit coin to exchange large amount of funds to other currency, although this can only be done in private because the official ban.
Not the Tether price, but that's not what the article is about; the article is that they print USDT and use it to buy BTC, increasing demand and causing the BTC price to go up. No dollars involved, not directly.
>The price of a USDT is 1 dollar. They give out new USDT for $1 a piece.
If this were the case, Tether would be back by cash. But it isn't: they claim it's backed by cash, cash-equivalents and receivables from loans, including loans to affiliated entities (or some similar language).
So, for example: they could create 1M USDT and immediately loan it to their associated crypto-hedge-fund (for zero interest). The hedge-fund promises to repay that loan in USD (creating 'reserves' for USDT), and immediately places buy orders for Bitcoin; generating demand for Bitcoin that will raise the price.
Scams always work on the way up. Madoff operated a Ponzi scheme for 17 years before running out of money. He simply used his bank account to pay off anyone who wanted to withdraw. As long as more total money flows in than flows out of the system, it doesn't fall apart.
The entire narrative around BTC is "HODL", and the only thing people really do with it is buy and hold. Money is flowing into the system, so there's room for scams to operate undetected within those margins.
Surely the only way to keep the valuer of tether stable is to "print" more of it whenever its value starts to increase? Otherwise it wouldn't be always worth $1.
Which they cannot do because 1) they don't have any banking and 2) they cannot allow redemptions which would risk a run on their reserves (to the degree those exist at all).
Nobody in the history of crypto has ever attempted it or no one has ever demonstrated it? It seems improbable no one has ever attempted it. And there's no reason to demonstrate if it is successful. So I'd argue the lack of failed demonstrations is evidence that it works.
Tethers only value is as a proxy for the dollar, as such it can only ever be worth a dollar. The exceptions are when a market is crashing people would rather have dollars, and we will see prices above a dollar due to high demand - though the intrinsic value should never change.
Wait I don't get it, it's not fully backed but it's still backed somewhat right? I thought it was only a chunk of USD that was missing? Or did they completely abandon the usd backing?
If it's still somewhat backed and just that chunk of usd that remains unaccounted for, printing tether isn't exactly a scam? People trade their usd for printed tethers and use that to buy bitcoin, so it's still essentially people exchanging usd for bitcoin
What a ridiculous Twitter thread showing absolutely no causality between Tether and Bitcoin. You might as well show that SpaceX rocket launches coincide with a rise in Bitcoin prices.
There was a successful SpaceX launch yesterday, and Bitcoin went over $40,000 for the first time. In 2020, SpaceX had its best year ever for successful launches and returns of the first stage, perfectly coinciding with Bitcoin's meteoric rise in value. So Bitcoin must be tied to successful SpaceX launches.
I agree, and it does surprise me, but I think it's a mix of 1. tether has been around a lot longer and is on a lot more exchanges 2. tether is.. less well controlled by US regulators and hence better for.. questionable exchanges to list.
Challenge there is that it doesn't fit the narrative that Tether give about the demand being from "institutional investors". That kind of customer tends (IMO) to be very risk averse.
Of course it is possible that Tether are getting custom, but not the kind that wants to leave a bank trail. But if that's the case they're going to fall foul of the regulators sooner or later...
Have you considered the fact that "better regulated" might not be an advantage for someone using it as a capital flight tool? A big value proposition of Tether as an on-ramp is its discretion.
Don't put too much hope on that. The only country that would realistically single Tether out to "outlaw" it would be the US.
They may do so, but even then they won't be able to stop the redeeming process from taking place abroad. That may mark the beginning of a slow decent, but no threat to current holders of the token IMO.
Could be a first-mover advantage for Tether and the fact that there haven't really been alternatives for a long time. Even if there are now, people are slow to catch on...
The net effect is the same though; the company behind Tether is printing money from nothing and selling it for USD or BTC (which can be sold for USD more reliably).
I'm kinda glad BTC is up, this means I can do an exit with break even or a little profit. I just sold half my crypto assets on the two exchanges I have an account on, I just hope I can have the money transferred out before they become insolvent when the next great crash happens.
Because Tether's utility is as a legislatively advantageous on- and off-ramp for the whole crypto market.
Off-ramp: If people want to sell BTC or other volatile tokens because they want to realize profits, the obvious thing would be to sell for fiat (USD/EUR). But due to taxation and legislation this is often difficult. Stablecoins like Tether provide the utility of a low-volatility currency that fiat would fill. Main advantage is bypassing legislation.
This use is so common there is jargon for "Tethering up".
There also exist many debit cards that allow paying with stablecoins, increasing utility. The rise of DeFi and money markets for stablecoins also provides a good return on stablecoins while in theory being low-volatility.
On-ramp: If people want to buy a certain token they first go into Tether. This is usually for bypassing local legislation limiting the buying of a specific token or use of exchanges. This use is less common, I would wager.
Because of this wide-spread use of Tether, it's collapse would cause a liquidity crisis: people want to but cannot sell their Tethers for other tokens/fiat. Tether goes down from it's 1USD peg, triggering a run on Tether as people try to swap it as much as they can for anything else, driving down the price further. Meanwhile noone is willing to buy Tether. The theory proposed by OP, is that panic in the already volatile crypto market ensues, people exit for fiat where they can driving down prices everywhere. Trust in the whole market will be obliterated.
Personally, I haven't trusted Tether since the first BitFinex scandals and avoided like the plague. For my stablecoin needs, I use something that is audited and over-collateralized like DAIv2.
I would trust Tether more if it ever had meaningful outflows in dollar terms, had $1bn or so in the last crash (https://coinmarketcap.com/currencies/tether/) but has been generally on an upward march, not what you would expect from a stable coin
I agree that USDT is fishy and it may be behind a large percentage of the gains in BTC and the other coins.
However, there is also another possible explanation. When investors want to buy BTC they first to go Binance and ask for USDT in exchange for USD. Binance creates new USDT for them. Then they use the USDT to buy BTC (reverse causality). Just saying it's possible, but I believe Jacob Oracle to be right.
> When investors want to buy BTC they first to go Binance and ask for USDT in exchange for USD. Binance creates new USDT for them. Then they use the USDT to buy BTC (reverse causality).
But why sell them USDT first and then sell them BTC in exchange for the USDT?
Why not just sell them BTC directly? That's the issue.
The liquidity in BTCUSDT on binance is much higher so you're less likely to encounter slippage. You have to also remeber non US customers that use exchanges, for them it makes a lot of sense to exchange their native currency to USDT.
Would we not expect this same pattern if Tether was printed in response to money coming in?
Meaning yes, they don't have USDT 100 % fully backed, but they aren't printing it out of thin air either.
What surprises me are the incredible volumes in USDT -- why would anyone ever use USDT instead of USDC, DAI or BUSD? All of them are much more transparent and less risky.
Permabears’ final hope is that tether is a scam, because if that fails they have nothing to grasp onto to explain bitcoin’s rise other than legitimate demand.
Let's say you believe that Tether is a complete fraud and will crash the market at some point. How do you take advantage of this? I'm not myself trading, but I would be interested to know how that kind of short works in practice. From what I understand, that's what bitcoin futures can be used for?
>Tether can print infinite amounts of (worthless) $USDT.
>They then inject this into BTC, ETH, LTC, (and others) to cause prices to pump.
>Notice how during the months they stopped printing Tether, the market moves sideways or drops significantly.
>This graph also shows the extent to which USDT plays a role in Bitcoin's price action over the years.
I don't get it. This doesn't really prove anything either way. Sure it could be the case that they're printing USDT backed by nothing and using it to by cryptos, but it could very well be the case that they're printing the USDT in response to real deposits from people who want to get into crypto. Since USDT accounts for a significant portion of the crypto market, it'd be more suspicious for price to go up without a corresponding large amount of USDT being printed, because that would mean prices are going up without more money being poured into the market.
If BTC price rises, trade volume grows, increasing demand for stablecoins due to their utility as a low-volatile alternative to fiat to bypass legislation. You would EXPECT this pattern to arise. Note also how OP does not show a graph of trade volume/buy-sell volume which would potentially show that it is used as claimed.
I still think Tether is extremely shady for refusing audits and dubious backing. I avoid it like the plague and hope others are as smart.
Yes, and every exchange has 'money market' which means the cash reserves that hold user's deposits. Most exchanges use a simple database to hold these balances and there's no way to audit them. Every exchange can 'print' money in their database if they want. Tether is better because it offers some transparency into this side of the market.
I dont understand how the OP knows/can prove that they are printing tether during the times that btc went up. Is there any more info on that part? It looks to me like they just drew lines under a graph and said tether is printing.
There is one question to ask here: "Why is so much of the volume in BTC driven by USDT trades?", i.e. what exactly is so great about Tether that we're supposed to believe everyone is actually buying it?
It is supposed to be a stablecoin. That's meant to be exceedingly boring. Tether is anything but boring, with all kinds of intrigue, lack of transparency about its reserves, law suits and so on.
There are a bunch of other stablecoins out there that just seem like better propositions, so why does crypto price action continue to be primarily driven by inflows from Tether?
490 comments
[ 6.8 ms ] story [ 349 ms ] threadThere's a gradual process to go from hypothesis to theory to fact, and to get there, you need several types of independent evidence. Correlational evidence is okay as one of those.
A correct statement is that correlation is not proof of causation (no matter how strong).
Types of evidence:
* Correlation
* Theoretical basis / strong hypothesis
* Extrapolation
* Interpolation
* Small-scale well-controlled experiments (lab setting)
* Large-scale less controlled experiments (real-world setting)
* Anecdotes
* ... and so on
You want several of those before you start to believe anything, and some are stronger than others. Correlation isn't fundamentally weaker than most of those, though; all of those carry their own methodological issues. The number of times you can have a large-scale perfectly-controlled preregistered randomized control trial with no confounding effects is exceptionally rare (some medical trials, and a few other settings).
There are several algorithms that calculate the causal structure from correlations: PC, GES, FGS, FCI
They are proven to be asymptotically correct
Yeah...that's not how it works.
Try telling this to climate change activists
Point still stands, proof or GTFO.
My point was that the tweets author is trying to back up their claim while DJBunnies did absolutely nothing to try to back up theirs.
"The market can remain irrational longer than you can remain solvent"
Tether has no such limitation. All the exchanges are complicit in this, wash trading is rampant, and there's an de facto central bank run by actual criminals. There is absolutely zero reason why iFinex can't take bitcoin to $100k or $1m or whatever they like. They only have opportunity costs.
The only thing keeping them in check right now is the appearance of legitimacy. If they were to overdo it, people might actually sell, which is not what they want. So until their legitimacy is tested (Jan 15) they will probably responsibly grind this higher. But on the last day, I expect billions and billions of USDT issuance so that they can run stops on every short in the market, collecting their last few shekels before the music stops and they vanish to an island somewhere.
If the NYAG doesn't like what's in there I guess it may go badly.
The courts document list is https://iapps.courts.state.ny.us/nyscef/DocumentList?docketI...
If you look at the latest one, it mentions the 15th.
https://www.reddit.com/r/CryptoCurrency/comments/ksdfne/why_...
———
[0]: https://www.equities.com/news/how-do-bitcoin-futures-affect-...
Tether however isn't balanced. There is no risk. There is no offsetting liability in the market for the Tether they create (unlike with a short future, which has an offsetting long side).
> Precious metals markets have long since been subject to manipulation by large banks. Several banks have admitted wrongdoing and faced fines for manipulating gold prices. Many believe that the prices of gold and silver have been kept artificially low through the use of leveraged paper contracts.
>Dr. Paul Craig Roberts, the former economic advisor for the Reagan administration, has written extensively about this subject.
>In his view, some of the biggest banks in the world have been working to suppress the price of gold in Western markets for many years. They accomplish this through creating so-called “naked shorts” out of thin air (the term vapor contract term we’ve been using is analogous to a naked short).
>A naked short is simply a contract that allows an institution to place a sell order for a particular asset without having any ownership of the asset.
>In other words, it allows a bank to flood the market with fake sell orders, creating downward market pressure. Given that banks can create these shorts to the moon without any accountability, they can keep the price down at a level more or less of their choosing for quite some time.
Especially the last alinea seems to reflect some of the things you said about Tether actually.
Are people accepting Tether in trade for BTC under the assumption that Tether will always be exchanged 1:1 for USD when this is not actually the case?
EDIT: The answer seems to be yes Tether is 1-to-1 with "I O U $1" and enough people are accepting these IOUs in exchange for BTC that the market is moving because of this.
That last part ("the market is moving because of this") seems so unbelievably stupid to me that I don't actually believe it.
Tether originally promised that they were 1-2-1 backed with actual currency reserves, but had to abandon that statement when it became apparent they'd lost a load of money to Crypto Capital.
Tether still claim to be 1-2-1 backed with "investments" but there has never been a completed 3rd party audit of that claim, so it literally has to be taken on trust.
No bank, no problem! Tether on Wayne,Tether on Garth.
But seriously, this old news. All of these stable coins and alt coins are just big pools of liquidity to swim in.
(This is my understanding of the situation and from the reading the explanations of other people, but please take this with a grain of salt, im not sure if everything is true)
Are people trading BTC for "Land for sale on the moon" too?
This sounds like exchanges handing out IOUs instead of money when their patrons try to cash out.
How?
They 'pump the market' because buying bitcoin increases its scarcity, thus raising the price.
You're asking what the utility of stablecoins is: Stablecoins are widely used as a legislatively advantageous on- and off-ramp for the whole crypto market.
Off-ramp: If people want to sell BTC or other volatile tokens because they want to realize profits, the obvious thing would be to sell for fiat (USD/EUR). But due to taxation and legislation this is often difficult. Stablecoins like Tether provide the utility of a low-volatility currency that fiat would fill. Main advantage is bypassing legislation.
This use is so common there is jargon for "Tethering up".
There also exist many debit cards that allow paying with stablecoins, increasing utility. The rise of DeFi and money markets for stablecoins also provides a good return on stablecoins while in theory being low-volatility.
On-ramp: If people want to buy a certain token they first go into Tether. This is usually for bypassing local legislation limiting the buying of a specific token or use of exchanges. This use is less common, I would wager.
Of course, for any of this to be actually useful Tether has to remain the same price. If Tether starts to deviate significantly from the 1USD peg, a liquidity crisis cuold be triggered.
Personally, I haven't trusted Tether since the first BitFinex scandals and avoid it like the plague. For my stablecoin needs, I use something that is audited and over-collateralized like DAIv2.
That alone should be a red flag.
I know there are a lot of narratives about people in repressive governments using Bitcoin to take their meager savings out of the country or carrying their net worth across borders in mind wallets, but Tether isn't targeting these people.
Tether has very high minimum purchases. They cater (supposedly) to extremely wealthy clients who, for whatever reason, would rather use a questionable intermediary instead of going straight to any one of the major financial institutions offering BTC to purchase their bitcoin. If you had told me in 2015 that it was difficult to purchase BTC as an institution, I would have believed you. In 2021, there isn't much reason to do end-runs around regulations unless you're deliberately trying to launder money and/or dodge taxes.
That's not the primary use (by dollar volume, it is also helpful to streamline participation in the entire crypto ecosphere regardless of local regulations).
But Tether's for market making. Arbitrators need a way to transfer USD denominated amounts between exchanges to operate.
On top of market making, you'll have smallish (7-8 figure USD) trading shops running strategies across multiple cryptos that just don't have fiat ramps, or they want to tap into volume across exchanges that don't have fiat ramps. If you're one of these customers, you can get in touch with Tether and make redemptions, but you probably don't need to do that anyway because you're working through a prime broker.
This activity doesn't care if the market's bull or bear, so it continues to grow over time in either trend.
Bitfinex doesn't exactly have a reputation that deserves any trust, so I wouldn't put it past them.
I think there is a good reason Coinbase does not allow trading Tether.
If people didn't believe it, they would sell (either for BTC or real dollars), and if enough people did that then tether would collapse.
My suspicion is there are enough dormant tether holders that the above will never occur, even if there have been some substantial fraud losses.
Imagine I secretly remove the contents of everyone's safe deposit boxes.
I get rich selling what I stole, but no one is any poorer until much later when they try to cash out their treasures and realize they are gone. USDTether is an empty safe deposit box.
Legit: US$ are sent to tether, tethers are issued in exchange 1:1 and then used to buy bitcoin. This will tend to raise the price of bitcoin but only as long as people are sending real US$
Illegit: tether insiders just issue tethers without US$ backing, use them to buy bitcoin and probably try to sell the bitcoins at a profit becoming million/billionaires in the process. Sky's the limit really - you can issue crypto tokens in any amount though it could all collapse if people want to swap their tethers back to US$ and there aren't enough there.
>They then inject this into BTC, ETH, LTC, (and others) to cause prices to pump.
Means use the tether to buy BTC etc in exchange for tethers which will tend to raise prices if there are more buyers than sellers and people seeing the price rising will cause them to buy more.
From your example the only thing that happened is that now you hold x euros and Kraken holds x amount of USDT.
Unless Kraken goes to Tether org and asks "hey I got these USDTs, please give me the USD" no redemption has occurred.
That some people can in effect transact USDT for fiat via other mechanisms (like your example above) says nothing about Tether org backing or reserves.
Until you go to Tether org with your USDT's and ask them for USD you won't know if they have the reserves.
> Unfortunately, Tether has decided to stop serving U.S. individual and corporate customers altogether. As of January 1, 2018, no issuance or redeeming services will be available to these users. Exceptions to these provisions may be made by Tether, in its sole discretion, for entities that are: Established or organized outside of the United States or its territorial or insular possessions; and, Eligible Contract Participants pursuant to U.S. law.
> An Eligible Contract Participant includes a corporation that has total assets exceeding $10,000,000 and is incorporated in a jurisdiction outside of the United States or its territories or insular possessions. This will be the principal basis upon which we will continue to do business with selected U.S. persons.
Basically, it looks like they only provide on and off ramps for large clients outside the US. Given their history, I am betting they might not want to reveal where they store their assets, and don't want to deal with US regulators (but not sure this is working).
Tether, in its sole discretion, may choose to redeem tether, as long as you're a corporation with over 10m USDT incorporated outside the US.
I'd say that's not an ironclad guarantee that you can redeem tether.
Question: Would you say you can redeem this coupon? It's possible I might decide to give you back your money, after all.
I mean, does the company hold (increasingly?) large USDT positions on their balance sheet (and would therefore be the ones in the hole if Tether loses the peg), or is the company able to get actual dollars out of Tether inc. in exchange for those tokens?
Are you sure that the $20B of Tether issued since then have an identical origin story?
The majority of exchanges can't actually hold fiat money due to regulatory issues.
Also I imagine some people are hoping to avoid the taxman by keeping it in crypto though that's legally not kosher.
Also, I would be very, very weary of using an centralized exchange that "can not hold fiat". With the layer-2 projects that are coming now (take a look at loopring or Stakenet), you can transact as much as you want, no gas fees and exchange fees are about the same as any CEX.
If the problem that these exchanges only offer $LOCAL_CURRENCY <-> USDT as on-ramp, what's stopping you to:
It's not that complicated, it eliminates your risk of holding USDT, these shady exchanges can still operate (at their own risk, not the users), it makes it super easy to identify exchanges with liquidity problems (the ones that get any excuse to not let you withdraw or make the fee way to high will surely indicate an issue with their liquidity) and - most importantly - reduces the amount of USDT in circulation.What I am missing?
>Fiat money is a government-issued currency that isn't backed by a commodity such as gold.
Tether fails the government-issued bit.
The entire point of Tether seems to be that it is always valued to be exactly 1:1 with USD. And that seems to somehow convince people that entities who cannot obtain a loan of USD can obtain a loan of Tether?
If Exchange A has no "traditional banking ties" but is where I want to trade so I need to buy crypto through Exchange B first in order to trade that crypto on Exchange A why would I buy Tether instead of BTC through Exchange B?
Then you transfer to Exchange A and sell, and what do you get when you sell? Tether.
The point of Tether initially is regulatory arbitrage for Tether based exchanges. It gives them a fiat substitute without having regulatory baggage that trading in actual money would require.
Tether then turned into a lifeline for a Bitfinex bailout and now acts as a (almost assuredly illicit) liquidity provider to Tether based markets.
The only reason Tether is worth a dollar at this point is because the Tether denominated Exchanges say it is worth a dollar. They are really what backstop Tether now and are fully complicit.
If Tether gave out a significant amount of USDT for Bitcoin without backing it in some other way, it means Tether isn't actually backed by the USD. Even if they lent out Tether for USD, they might have used BTC as collateral/risk assessment.
The fear is that Thether is held up by a loan of BTC and BTC is held up by in some part by the stability of Tether.
However three years on, crypto still does not have a "killer app" and is 99.99% used for speculation. Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
But in the depths of the March panic, Tether jumped the shark in order to backstop the entire crypto ecosystem, and they can never put that genie back in the bottle. Much like the Fed who cannot stop monetizing US deficits for fear of letting yields explode, the Tetheral Reserve must continue to print USDT in order to support prices. Exchanges cannot let this fail since the vast majority do not have access to the bonafide banking system and thus scrappy users must devise "fiat onramps".
There are many theories about why, the predominant one being that iFinex know they are screwed, and are making one last cash grab before presumably disappearing. This sounds fairly reasonable if the entire operation is indeed a sham, but it means there is effectively no upper bound to BTC prices because the denominator in 90% of the market (USDT) is effectively zero.
Tether has become too big to fail. Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.
This narrative was an intentional morphing by various actors within the space (Blockstream) who believed raising the blocksize to allow higher throughput would cause 'centralisation'. Instead they want people to use layer 2 solutions such as blockstreams own federated product Liquid.
[1] https://bitcointalk.org/index.php?topic=5306354.0
this line of reasoning is silly. To match the current block subsidy with the current block size limit when miner subsidy runs out the average transaction fee will need to be >$127.
$45mil daily revenue / 350,000 txs per day
OR, you could increase the block size limit to 10mb, allowing 3.5mil txs per day, or 100mb allowing 35mil txs per day. Then the average fee paid per tx is significant lower.
The reason this was argued against by blockstream was because a bigger blocksize means more storage is needed by the miner and more txs means better hardware and bandwidth to process them, effectively pricing out normal people from running full nodes.
Essentially, the ability for normal people to send a transaction cheaply is being sacrificed so that normal people can setup a full node. Counter intuitive imo.
Stein's Law:
"If something cannot go on forever, it will stop."
https://en.wikipedia.org/wiki/Herbert_Stein#Stein's_Law
This argument was really silly too because people can afford higher capacity drives, and better internet connection according to Moore's Law
If anything it'll get worse as it goes from 1 million to 10 million to 100 million. Back when 1 bitcoin = 1 pizza there were perhaps 1000 people into it?
It's called hyperdeflation.
Crypto is not a currency but an investment product; can we please just accept that and talk about it for what it is?
Is what they enable worth $40.000 to the enthusiasts?
I won't make the case for cryptocurrencies here, have a look at ethereum.org for instance.
> Is what they enable worth $40.000 to the enthusiasts?
I'm not denying that the current price hike and media attention has little to do with any other aspect than "decentralized ponzi"/dollar escape. Was just correcting a false statement.
And then you realize that this is pure speculation and the most ardent supporters are just praying for the greater fool theory to rain good fortune on them.
You need look no further than Coinbase, supposed beacon of our crypto future, IPO'ing and raising money in...that worthless green piece of paper known as the US Dollar.
is it possible to do an ipo in crypto?
An ICO is just an IPO by a different name. There are also crypto stock exchanges.
But more importantly, even if it weren't possible, why would they ever sell their shares for worthless legacy money? Unless...
Some general cryptocurrency technical discussion can be found on r/CryptoTechnology [2]
[1] https://bitcointalk.org/index.php?board=6.0
[2] https://www.reddit.com/r/CryptoTechnology
https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-d...
There are clear deadlines that may change everything (apparently Jan 15th might be one of them, from the twitter thread). Justice takes time, but trials do eventually come to a conclusion. If that conclusion is to kill the mechanism that pumps BTC, then all bets are off.
The narrative around bitcoin has always been "It is digital currency. It works like gold". Hence the notion of "mining".
EDIT: downvote me if you want but you are flat wrong
Section 6 in the bitcoin whitepaper explicitly likens bitcoin to gold [0]
>The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation
[0]: https://bitcoin.org/bitcoin.pdf
It was expected (again, as stated in the whitepaper) that truncating transactions (in order to shrink blocks that are "old enough") would be able to manage block size well enough to stay reasonable.
In my experience (circa ~2011,) this expectation seemed to be generally accepted without much question by anyone talking about bitcoin. If it was acknowledged as a flaw it was usually hand-waved as only likely to be a problem 10+ in the the future.
edit: Or that a new network would learn from the bitcoin experiment and implement a protocol that works better at large scale.
It's also more secure than Bitcoin due to a higher decentralization coefficient.
[1]https://github.com/jtoomim/xthinner-spec
Can you provide links to these discussions? I searched around on google and all the results are relating to bitcoin cash. I also searched the usual places that bitcoin (non cash) people congregate and turned up nothing.
The only explanation I can think of is that they are relying on a sidechannel to communicate the actual transactions, which makes sense in the miner case (the utxo pool) but not in the general node case.
Beyond that, I run a BTC node occasionally and the bottleneck is validating blocks, not downloading them. Transactions are complicated enough right now that I'm only able to catch up at about 350x real-time (that is, it takes around a full cpu-day to validate a year of blocks/transactions).
In the original bitcoin software a node would receive every transaction made while it was online twice: once when the transaction was first relayed, once when it was placed into blocks. This was obviously wasteful, so we created and deployed a reconciliation scheme that exploits the fact that normally all, or almost all the included transactions are already known. https://github.com/bitcoin/bips/blob/master/bip-0152.mediawi...
But because Bitcoin developers are not dishonest scammers they didn't run around putting out (no kidding) press releases claiming "98.6% compression"-- though that's what you get if you compare the size of the BIP152 message to the size of the block. In reality, since it depends on the transaction being known in advance the unachievable limit for this class of approaches is a 50% bandwidth reduction for a node compared to the original behaviour. BIP152 achieves 49.3% out of that 50%, as measured on the latest block.
Even before compact blocks was created back in December 2015, we knew even smaller could be achieved. E.g. we published a scheme that requires asymptotically 0 bytes per transaction, only requiring data proportional to size of the difference between the block and the recipients guess at the next block. But what we found is that the simpler scheme actually propagated blocks much faster because once the block is down to just a few thousand bytes other factors (like CPU time) dominate. Expending a lot of additional code and cpu time to take 49.3% closer to 50% isn't a win in actual usage.
[And for considerations other than block propagation, saving a few extra bytes per block is extremely irrelevant.]
It's also the case that some of these dishonestly hyped supposed improvements beyond what Bitcoin has done for years are actually totally brain-damaged and wouldn't work in practice because they're not robust against attack-- but there isn't much reason to dive into technical minutia because what they _claim to achieve_, once you strip off the dishonest marketing, isn't all that interesting.
Thanks for this.
Stop with the storage space nonsense. The only people even storing the entire chain are enthusiasts, servers and miners. Saying "what if it gets a thousand times as many transactions" is ridiculous, but it still wouldn't be a problem. A few gigabytes a day? A $300 dollar hard drive would still take a decade to fill up. I think the few that sync the entire chain handle that.
Aside from that, people figured Moore's Law would continue at its historical pace, and Bitcoin could grow indefinitely at the same pace.
I wholeheartedly agree with this. Let's look at some Reddit /r/bitcoin posts in January 2014:
https://redditsearch.io/?term=&dataviz=false&aggs=false&subr...
People were discussing bitcoin being used as a digital currency. There was talk of bitcoin being accepted on Overstock.com, TigerDirect, and using bitcoin apps on phones as a digital wallet. I would argue the majority of people in the bitcoin community at the time were genuinely interested in the technology and its use as an everyday currency.
Now let's look at some Reddit /r/bitcoin posts in January 2020. I picked this date because there weren't any recent significant price fluctuations.
https://redditsearch.io/?term=&dataviz=false&aggs=false&subr...
There was practically zero discussion on using bitcoin as a currency. People were only interested in the price and treated it as a commodity, just like a digital gold.
> EDIT: downvote me if you want but you are flat wrong
Do people treat bitcoin as a currency or a commodity today?
I don't think we need to get into whether or not gold is a currency or a commodity but you are fooling yourself if you think that the price of gold is driven by jewelers and PCB fabs.
Long term the price is driven by the mining cost.
Bitcoin lightning could change this, instant transactions with almost no fees, but it's still in early days.
Reading about the Lightning Network gives me a headache in general, but Phoenix manages to hide all the tech stuff. I think my old parents would be able to use it.
And it solves one LN problem of having to have bitcoin for opening a payment channel, you can simply install the wallet and start receiving bitcoin.
[0] https://phoenix.acinq.co/
All the original Bitcoin adopters from the beginning moved discussion there.
This is a very amateurish attempt at analyzing what "Bitcoin community" (which you haven't even really defined properly either) are thinking or are interested in. Bitcoin reddit is a bunch of kids who like memes and hating on the FED. I know a lot of serious investors who would never be seen posting or commenting there. It is just not a place for a lot of people.
The same issue would arise if the USA started printing dollars and buying physical gold with it. Is that right?
In the olden days, gold was actually a currency. The supply of coins you could produce was limited by the precious metals you had. The amount of paper money you could issue was limited by the amount of gold bars you had. In this system, gold is still acting like a currency; but a currency with very real limitations on the ability of any institution to manage it. [0]. This was the original meaning of digital gold.
In contrast, modern gold is not used as a currency. It is used as a commodity and store of value; and a hedge against inflation.
[0] Unlike gold though; bitcoin actually has a predictable issuance schedule. There is no sudden spike in Bitcoin supplies because prospective suddenly discovered a rich vein.
In fact the whitepaper even opens with describing Bitcoin's usage for commerce. The very first paragraph in the introduction!
The narrative has indeed changed to "digital gold" after it's made abundantly clear that Bitcoin is no longer suitable for commerce.
The emission of new bit coins following the "mining" of new blocks is like the minting of new gold coins following the mining of raw gold.
Because bitcoins are like gold coins.
I agree that neither gold nor bitcoin are suitable for commerce. But the narrative around and apparent intent behind bitcoin from in the beginning was "It is digital currency. It works like gold".
It has not been that for years. It failed miserably as a currency, and the current narrative is that it is a "store of value".
You could argue speculation is the killer app. I'm not a fan but it's hard to deny it's a huge business and some people seem to like it. Kind of like Las Vegas in a way.
As Stripe, PayPal, Visa, Gofundme, Patreon, et. al. shut down avenues of payments for legal, but unpopular purchases, BTC is the obvious workaround.
Vendors of firearms, pornography, legal funds for unpopular causes, dissident content creators, etc have become increasingly estranged from the "normal" payments market in the last few years. BTC is the killer app for this.
A parent gives his child 5 USD to buy some sweets in the local shop.
A couple gives another couple 150 USD as a wedding gift.
A painter gets 200 USD for painting a house.
Neither pornography, nor legal funds for unpopular cause (think WikiLeaks), or dissident creators are criminal. At least not in the US or Europe. But they are still blocked by the main payment processing companies.
Drugs are likely the number one things bought using crypto as currency.
Firearms and pornography can be bought with dollars if you’re using crypto to buy them or other unpopular goods or services, you are veering dangerously close to black markets, which invite regulation.
Some people make lots of money of it, no doubt.
I'd say to qualify something as a business, there should be value creation somewhere along the line. With BTC, I see mainly redistribution of value, along with destruction of resources.
In all these analyses, one key point is missing: arbitrage traders have to make up for the sell pressure on USDT when Tethers are being printed and sold for BTC. Can anyone show me how there is a plausible mechanism/scheme/conspiracy that keeps the USD/USDT exchange rate stable while a crazy amount of illegitimate Tethers are being printed?
Edit: typo and removed link.
1. buy X for USD
2. buy BTC for X
Shouldn't the price for X then stay the same? (Bought X once, sold X once)
Assuming X drops to 0, wouldn't people that have BTC just use another coin X' to get back to USD?
Assuming company Y creates X out of thin air and buys BTC with it, why doesn't X drop in value? Because arbitrageurs buy it? So arbitrageurs have lots of X? Should I care if they go broke in the process?
You say that a peg breaks if the Central Bank doesn't have the exchange reserves anymore to uphold a peg.
Where does Bitfinex take the money from to buy tether to prevent it from devaluing? Alternatively, who else buys tether, arbitrageurs?
Unlike your example where this an existing market that a peg has to be supported, there simply isn't a fungible USDT/USD market.
https://trade.kraken.com/charts/KRAKEN:USDT-USD
The peg would break down if there was any real convergence mechanism. But there isn't. This isn't a problem until people actually try to exchange these supposedly fungible assets.
Does that matter when you can withdraw from a USDT exchange and get USD in a bank account, or trade USDT for USD at kraken?
It just proves that someone else believes they do...which we already know.
[1] wikipedia: "On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents"
... and many many crypto-fans naysaying anyone who didn't believe them.
Everybody realizes that for the individual turning tether into fiat both of these amount to the same thing, but they are not the same thing for the system as a whole at all. Ultimately the only way that tether as a company can maintain the peg is by buying their own token with the reserve funds if market won't (there are obviously different mechanisms they could use to do this, either via the exchanges or with the seller directly trading with them). If they don't have access to enough reserve funds then the peg will eventually fail.
In any case, if indeed (still) true, having their lawyer say that USDTs are backed 74% by cash, makes it arguably safer and more liquid than any US bank, where cash backing your account balance represents a single digit percentage (I would estimate, happy to learn the factual number). Not saying that it shouldn't strive for 100% cash backeding (I think it should be), but noting that if you're concerned about Tether's cash liquidity, you probably should be even more concerned about your bank's chequing account.
I'll give you a more sensible counter-argument: If you held USDT in the last 4 years (only) and actively generated yield (requires 1 hours work max per week), and periodically withdrew it (1-3 months) my reports show a 120% gain. This means if you bought $100k of USDT 4 years ago, you'd have withdrawn $120k into real dollars and still have $100k of USDT. In this situation, it's impossible to lose even if Tether is worth 0 tomorrow.
Yield have gone considerably down. This means traders now trust USDT more than they did a few years ago. This would also mean that traders who are into risk would not hold USDT, they would rather hold something else to get better yield. If USDT was risky, its total market cap will decrease, as it doesn't make sense to hold into it with low yield. That or the market will quickly collapse.
This can give you an idea (better than a stamped report from any AAA auditing firm) about how strong the USDT position in the market is.
99% of the USD/USDT trading is fake/wash trading to give the illusion of volume.
https://www.kraken.com/prices/usdt-tether-usd-price-chart/us...
It's speculation, but then without audits and accounts of the exchanges that use Tether, and Tether itself, speculation seems to be about as good an option as there is.
Most people writing about USDT don't understand how arbitrage markets work, and don't understand that liquid markets are quick to resolve themselves (unlike ponzi schemes where you can hide the missing assets for a long time). Liquid markets will put quick pressure which is why these structures collapse faster (see MtGox)
Look at trade volumes. Tether is massively bigger than bitcoin and ethereum combined.
Technically it is possible. You don't need an equal or larger market cap to inflate something else 90%. You just need enough to dominate the trading volume.
As an extreme example, if bid/ask volume is exactly 1 (ie the ONLY trade volume consists of you and 1 other person trading a quantity of 1), then at the minimum, all you need is a bank roll of 1.9x the current unit price, with both you agreeing to the trade it for 1.9x, for the going price per unit to inflate 90%. And since market cap = price per unit × units outstanding, then the market cap also inflated 90%. If the units outstanding was 5000, and the unit price was $1, then the market cap increased $4,500 using only $1.90.
https://fred.stlouisfed.org/series/M1
Ironically (or not) Bitcoin was created in 2009 right when that graph gets really crazy.
Until that time, expansion of the USD (or other Fiat) supply impacts the "value" that BTC has.
I don't think so...
They used paper that symbolized "withdrawal rights to gold". USD (or any other piece of paper that people agree has a value) is a perfect currency for exchange, it's just not a great store of value.
My point is that you can't "get away" from USD, while the BTC market is effectively tied to USD.
so if the USD supply is massively inflated, and people can use those USD to buy BTC, the tie is still there.
If and when people denominate their goods and services in BTC without any reference to a fiat amount, then they are decoupled and BTC loses the tie to USD.
No, but prices were denominated in gold, effectively, as the price of gold was fixed. That was the whole point.
USD is a fantastic store of value. Since 1982 (arguably the beginning of the modern inflation-targeting era), the USD has lost no more than 6.3% of its value year-over-year, nor gained more than 2% (CPI measured, source https://fred.stlouisfed.org/series/CPIAUCSL#0).
In contrast since 2016, Bitcoin has 60% of its value year-over-year (2018) and gained 1700% (also 2018).
A store of value is not a story of appreciation and hoping for a gain, it's a story about holding a stable and most importantly predictable value into the future. The USD more than satisfies this condition. Bitcoin does not, no matter its speculative merits.
Most importantly, society does not owe people a fictional store of value guaranteed to never lose purchasing power. People don't eat quarters, nor do they live under dollar bills. It strains credulity that a nominal token (however minted) should hold a guaranteed value, without taking capital-like risks required of any productive investment.
It seems to me that either you the amount of currency in circulation needs to increase or the value of the existing currency needs to increase.
Taking into account the gold standard was used for possibly centuries (not sure) was this problem encountered before and how was it solved?
Good at mining would have meant spending good part of our economic output to mine gold and then just storing it somewhere or moving it around...
This was posted to HN and it was quite eye-opening. For those that don’t know, 1971 was when the gold standard was abandoned by Nixon. I don’t know if the graphs are cherry-picked and I hope they were honestly since the US is never going back to the gold standard and it seems to have far-reaching negative effects in every aspect of human life.
To answer your .25 cent milk question it seems to have not been a problem in history and health of the country before 1971. The profits and benefits of the rapidly growing economy have pretty much all gone to the ultra wealthy that are nearest to and in control of the money printer.
1. A lot of these graphs start at 1940 or 1950, showing a change in the trend in the early 1970s. But that was the end of WW2, where Europe was in ruins and rebuilding and America saw a massive increase in prosperity and economic output. That was a pretty unique period, it's only natural for that trend to diminish or change over time.
2. A hell of a lot happened in the late 60s and early 70s, not just abandoning the gold standard. One of these graphs is of the incarceration rate. Do you think we started seeing mass incarceration at that time because we abandoned the gold standard, or do you think it was because of the war on drugs?
3. Some of these graphs are deliberately misleading. One is of the cumulative inflation rate, and seems to show the inflation accelerate in the early 1970s. Except a healthy economy should have a steady inflation rate each year (of around 2% I believe), so this graph is supposed to be exponential! They just picked the right window so that 1971 is the inflection point.
A much more relevant development in the 70s was the switch in economic policy priorities from demand-side to supply-side. Nixon was the first president who prioritized tax cuts, union busting, subsidies, and legalizing outsourcing to cheaper labor markets in China and SEA. Every government since has given corporations a blank check to cut labor costs by any means necessary to prioritize profit.
Nixon ended gold convertability, but the USD was not on a true gold standard and was in danger of not being able to fulfill this obligation. The standard was Bretton Woods, it was an international framework for finance, and it was the failure of the framework together with the OPEC oil crisis that caused the mess documented in those graphs.
adjustable, with a benign regulator > fixed > adjustable, with a corrupt regulator
So, the aim shouldn't be a return to the gold standard or a switch to BTC, but to make sure that central banks can do their job without interference from politicians.
Hayek argued that a system of competitive privately-issued currencies would achieve that. I'm not qualified to say whether he was correct, but an economy built on cryptocurrencies would be exactly that.
https://en.wikipedia.org/wiki/Great_Bullion_Famine
https://en.wikipedia.org/wiki/Price_revolution
Both under- and over-supply had negative effects on the economies of Europe.
The gold standard really was a primitive fiat currency anyway, governments would debase coins so they contained less gold in order to expand the money supply for instance. And only a small fraction of coins would be gold anyway, silver was far more common - the Pound Sterling takes it's name from a pound of silver from the easterlings (Germans). Paper money just made it obvious that physical currency was only a representation of wealth and not a fixed unit of wealth itself.
The gold standard is basically a political myth about a system that never really existed. Money is a very abstract concept, and reducing it to physical tokens and easily intuitive rules is appealing to many.
"Escaping" that for something which literally is backed by nothing at all is a strange move.
Backed by $750B in annual military spending
People who repeat this don't understand that fiat money is based on trust...and that is not a bad thing.
This is why blockchain is fundamentally stunted: the global society is based on trust and cooperation. Trustless systems will never be able to compete in these arenas.
speaking of jumping the shark, have you seen what governments have been up to lately ?
interest rates at a 5,000 year low, moral hazard abound & global fiat collapse imminent in the best case and in the worst case we have banks/elites/governments who are going to be looking to further enslave those in debt and forced out of business/work with some dystopian debt forgiveness scheme involving a 'vaccine' schedule and travel restrictions or whatever else (use your imagination).
the truth is that everything mentioned in these comments was an argument that had already been had years ago - the markets reflect that - but i did enjoy reading the last sentence of your original comment and thinking to myself "am I reading Time Magazine ?"
2) you talk about fiat collapse being imminent...USDT is worth far less than any fiat (see: nothing) I don't get how these ardent fiat haters don't see their entire ecosystem has been coopted by something that has infinitely less value than the thing they so despise
It is the only thing the government accepts for tax payments. Given that you can be arrested for not paying your taxes it is "backed" by the barrel of a gun, a threat to your very being. In one sense this is the only real thing there is.
My belief that it would go to zero. I’m curious whether “fiat is backed by nothing” proponents would disagree.
Now you might say "actually its authority rests on people with guns", but that's only to the extent that the people with the guns believe in the governments's authority to tell them who to point them at.
Underneath all is belief and sentiment.
Bitcoin has no floor. You can only exchange bitcoin for taxes if someone wants the bitcoin.
Put another way, if people lost faith in gold as an investment tomorrow, and the value fell to the economic value of the industrial use cases, investors in gold would be ruined.
That's more than enough reason why we should try something else. It doesn't inspire a lot of confidence. By that reasoning, the USD has the same sort of backing as the Venezuelan Bolivar. So what's to stop the prior from becoming like the latter?
See https://en.m.wikipedia.org/wiki/Money_supply
Preventing debasement of currency via inflation via printing money, which a lot of people use as their go to argument against fiat money, is simply adding economy wide debt to the ledger. This is necessary from time to time especially during crises and especially in a services/financial services/ intellectual property heavy economy.
If no money existed, at all, how would you receive compensation for providing work of an IP nature to your neighbor. You would need either a perfect trade (you really want their chicken it’s just the right amount of chicken for you) or you take an iou. Which is a debt. Now have them write that iou down on a piece of paper and hand it to you. Your neighbor just printed money. Not so crazy.
It would be really nice for people to spend even a few minutes thinking about how money works, or open a textbook even just to learn what you disagree with.
It's tiresome to explain over and over and over again to people how the "full faith and credit of the United States" is not "nothing at all" but in fact a guarantee of great value, at least as good as any on any other security, and one that is quite measurable (by for example comparing the prices of full faith and credit securities with other almost identical securities without this guarantee).
On the contrary, I'd say that it's the cryptocurrencies that _by design_ are based on nothing at all.
Please do share your limited US centric view!
The only peg that exists is the one whereby you should be able to go to Tether Inc and redeem USDT for USD 1:1. That peg has never ever been demonstrated (publicly).
All the other "pegs" are just cash trading. If I trade USDT/USD on Binance...I don't actually have USD. Even on that pair, my USD profit/loss are denominated in USDT.
For anyone who disagrees with the above - please show me market where I can go sell my USDT directly for USD.
Kraken, Bitstamp, did so for 3 years+
Genuinely curious, as someone who has never used Binance nor USDT:
Why is the "directly" part here significant? If I can USDT (Binance) -> USD (Binance) -> BTC (Binance) -> BTC (Coinbase) -> USD (Coinbase) -> USD (My Bank), then whats the difference other than a few extra steps?
Well, arbitrage! But suppose BTC it is much higher on Binance. You'd then take USD and transfer them to Coinbase:
USD (Coinbase) -> BTC (Coinbase) -> BTC (Binance) -> USDT (Binance) -> ??
Now you need to take these USDT and turn them into USD, to keep the arb running. But that is precisely what doesn't work.
So: the chain you outline is NOT a way to "directly sell USDT for USD", as links can break down.
For example, something vaguely analogous would be:
[Setting: The Olden Days] GP: "I'm concerned because nobody has ever tried to take USD to the government and directly get silver/gold for it." You: "Why is the "directly" part here significant? If I can USD (My Pocket) -> USD (My Brokerage) -> Gold (My Brokerage) -> Gold (My Pocket), then whats the difference other than a few extra steps?"
The difference is that we never tested to see if the USD is actually backed by real gold.
USDT -> kraken[1] -> USD -> your bank
or even
USDT -> bitfinex[2] -> your bank
[1] https://trade.kraken.com/charts/KRAKEN:USDT-USD
[2] yes they do allow fiat withdraws https://support.bitfinex.com/hc/en-us/articles/213919309-Fia...
It would seem to me that if transparent stablecoins with utility are going up, the simplest explanation for tether going up is that it serves the same role for people who have either become accustomed to it from its earlier availability, or have it as their only option due to jurisdiction. Not anything nefarious.
There seems to be little actual evidence to support conspiracy theories that Bitcoin's price movements are due to mismanagement of tether.
I personally dislike Tether and avoid it, but strong claims require strong evidence.
FWIW, I don't have a strong opinion on the evidence presented in the paper -- the analyses seem sensible, but this isn't my field of expertise, so I'd be hard pressed to point out, for example, what alternative analyses they could / should have done.
Also, it's not even obvious to me that unbacked Tether causing the BTC price rallies is necessarily a reason to pull out; markets are weird.
[1] https://twitter.com/JacobOracle/status/1346133087877537792/p...
That's too high for just a simple thing as receiving money from different country. Really looking forward for that Strike Global.
Moving money between currencies has never been easier, or cheaper. I would humbly suggest you're doing it wrong.
With all due respect, this is completely wrong - crypto has the same killer app it has for years, and that app is _crime_.
Whether you're buying drugs, paying anonymous extortioners, accepting bribes, money laundering, or tax evasion, cryptocurrency is the go-to choice for electronic funds transfer for your modern criminal.
And there is no obvious place for further money to come from once they want to cash back out.
The killer app is decentralized, permissionless, open source, and censorship resistant network.
Bitcoin's narrative has had to morph from "digital currency" to "digital gold".
Gold morphed from worthless rocks in the the ground, to coins traded by traveling merchants, to stores of value that were eventually centralized and monopolized by governments.
RE: Tether I don't trust them either, but we need more evidence of this alleged printing. We saw that they did remove the 1:1 peg briefly when Crypto Capital in Panama (?) froze a few hundred million of their USD.
Bitcoin now finds itself a high tech manifestation of the very thing that Satoshi sought to address.
Bitcoin is sound. The centralized exchange layer built on top of it is dirty.
Yes, but what can I do with that other than toot/tweet/twit at other people and buy LSD tabs?
With IPFS you can host and access files that can't be censored. (same level of censorship resistance as torrents)
With Monero you can transact free from surveillance.
The biggest applications on Ethereum right now is decentralized finance, with billions of dollars locked in.
Can the government seize Bitcoin directly? No.
Can the government seize your bank account directly? Yes.
Can they threaten you with jail if you don't hand over your Bitcoin? Yes
Yes, it can. The U.S. government has in fact seized Bitcoin directly and sold it at auction several times. It is arguably the single largest non-exchange seller of Bitcoin in Bitcoin's history.
1) Seed phrases are discovered (ie. plaintext document or physical artifact).
2) Seed phrases are handed over by willing party.
If #1 doesn't exist, then #2 is the only option.
Money can only be seized if the safe is found. And the combination is handed over by a willing party.
The difference is that money is actually more secure because you don't have a public ledger telling you that it exists and who owns it and how much of it they own as you do with the public cryptos like Bitcoin and Ethereum.
Crypto is magnitudes more accessible. I can travel to any country in the world with an encrypted usb drive of my seed words, and no one is wiser. OR even upload a file to the internet and forego carrying anything at all. A government can try to censor transactions belonging to an address, but we don't have good precedent to see how the network will behave. Miners in other jurisdictions have no reason to follow someone else's censorship.
A government could seize miners, and given that ~50% of the world's Bitcoin mining capacity appears to be located in one country, that might give them considerable leeway to rewrite the blockchain to their liking.
Forks can and have been used to deal with isolated malicious incidents, but do you think they can be successful against an actor in extended control of a substantial part of the hash rate?
Private keys can be confiscated like anything else. They won't do you much good if you're thrown in prison for not turning them over if legally compelled. Sure you can try to hide your ownership, but my point is that actual cryptocurrencies are only one layer of very deep opsec you need to resist state actors. For the common illegal goods consumer it's unlikely to do much more than provide a false sense of security due to other opsec failures (use of phones, use of cookies, use of mailing addresses, use of non-e2e chat, using a hosted wallet, lack of anonymous vpn, etc etc etc).
> The biggest applications on Ethereum right now is decentralized finance, with billions of dollars locked in.
Interesting use of "dollars." How much is actually Tether? How much is manipulated market cap (through wash trading or more convoluted defi mechanisms)? How much is actually liquid USD?
Your exactly correct that nobody can help you recover your money if you lose your keys.
So the killer app for bitcoin is owning bitcoin?
https://www.nucypher.com https://filecoin.io https://alice.si https://www.augur.net
Whatever Wikileaks originally was, it is now a Russian propaganda tool. Go ahead and try to post leaks critical of Russia on Wikileaks, or for that matter, of Donald Trump. Why would I want to donate to a website that is openly seeking the destruction of my country?
It may have been less hoarded and used only for ornaments because there was less trade and people were busy enough to find, hunt or cultivate enough to survive. As trade took off, gold became more useful because it already was universally valued everywhere.
> to coins traded by traveling merchants, to stores of value
Why would I accept gold coin in exchange for anything if I don't already consider it store of value? It must had been considered as store of value before merchants started using it as money.
Tether's page (https://wallet.tether.to/transparency) claims $23.6 billion in total assets. Despite their claims to transparency, I see no report of what those assets are, how risky those assets are, or any audit that assets they even own those assets. Their front page has a big link saying "Proof of funds", which leads to an audit published 2½ years ago, claiming only $2.5 billion in cash in two bank accounts with unnamed banks.
For a company that claims to be "always fully transparent," that is shockingly opaque.
That's the "how" part, not the "what". What's the killer app implemented using that network? What do we do with it?
A replacement for gold is one.
Gold is relatively stable and has physical backing. BTC does not.
Up to 4% of China's gold reserves could be fake. Gold fraud article: https://economictimes.indiatimes.com/news/international/worl...
Bitcoin is open source and completely auditable in an instant.
As the price of gold goes up, the quantity supplied goes up. Bitcoin's issuance protocol is fixed and unchangeable unless the network agrees.
The cost of securing or transporting $1b of gold bars is magnitudes higher than the cost of securing $1b of Bitcoin.
In all seriousness, securing the value of Bitcoin is the problem that is not easily solved.
Securing external value to people is not a goal or responsibility of Bitcoin. That's simply a consequence to how we as humans choose to use scarce assets.
Fair enough, but then your comparison to physical gold is meaningless. Physical gold is generally used to store value, not to transfer it.
For that purpose, you have paper money (or paper gold such as futures) which is cheap to transfer.
Bitcoin is about 12 years old.
Tell someone from the past to imagine having godlike computing power in your pocket, and they'd say "why would anyone want that?"
Computers that are decades old, which were "disruptive technology" at the time, are scrapped today - for their gold.
Millions of people that are trying to secure value from totalitarian goverments? Is it me or people here are being trolls on purpose?
I can make a $12,000,000 transaction for $.35 but if I actually want to get the money, I have to pay 2.5% to a legit exchange or take my chances on some janky ass exchange. Why not just transfer the money via ACH and pay the small fee and save myself the headache?
Mentioned in another thread[0], the Phoenix wallet more or less solves this on the Lightning Network.
[0] https://news.ycombinator.com/item?id=25706312
I pay 0.15% and the exchange has been around for a decade without ever losing funds. It's even now licensed as a bank in the U.S.
I stopped following the money side of it (atm and sites accepting btc) but a vast majority of btc and cryptos attention right now.. is simply better yearly returns than other kinds of possessions.
That’s like saying the killer app of the internet is the internet.
The web gives me access to information quicker and easier than going to a library or bookshop. Email and IM means I can communicate with people in other countries quicker and easier than I could by post. Crypto doesn’t change anything.
A few drug dealers and some people living in countries with hyperinflation may care about “permissionlessness” and “censorship* resistance”, but for most people, actual money is far, far more convenient.
* That’s some Orwellian newspeak, btw. If someone defrauds me and a court of law ensures that I am restituted, the reversal of that fraudulent transaction isn’t “censorship” because stealing money isn’t “speech” or “expression”.
For example, Chinese can use bit coin to exchange large amount of funds to other currency, although this can only be done in private because the official ban.
Maybe I should be more clear in the OP.
That's not an app. That's meaningless advertising lingo.
"Gold's narrative has had to morph from currency to store of wealth" Circa 1971
M. Saylor is preaching this it seems. It's just a better asset (less supply, no mass~)
The price of a USDT is 1 dollar. They give out new USDT for $1 a piece.
Sure, they may be spending these dollars elsewhere, thus holding a fractional reserve. Sure this may illegal and get them in trouble.
But this doesn't effect the dollar value for which these USDT's and thus Bitcoins are traded.
As long as a USDT is $1, nobody is manipulating the price.
If this were the case, Tether would be back by cash. But it isn't: they claim it's backed by cash, cash-equivalents and receivables from loans, including loans to affiliated entities (or some similar language).
So, for example: they could create 1M USDT and immediately loan it to their associated crypto-hedge-fund (for zero interest). The hedge-fund promises to repay that loan in USD (creating 'reserves' for USDT), and immediately places buy orders for Bitcoin; generating demand for Bitcoin that will raise the price.
That's circular logic isn't it? USDT is $1 USD and $1 USD is 1 USDT, therefore it is "stable".
That sentence in and of itself is meaningless.
They largely can't (especially that a good fraction of Bitcoin is now held by institutional investors). But it makes up for a good story.
The entire narrative around BTC is "HODL", and the only thing people really do with it is buy and hold. Money is flowing into the system, so there's room for scams to operate undetected within those margins.
If it's still somewhat backed and just that chunk of usd that remains unaccounted for, printing tether isn't exactly a scam? People trade their usd for printed tethers and use that to buy bitcoin, so it's still essentially people exchanging usd for bitcoin
The question is do you believe that billions of dollars are flowing into an unaudited stablecoin when other, audited, stablecoins exist...
Edit: I forgot to add the link, here it is https://www.bloomberg.com/news/articles/2019-04-30/tether-sa...
There was a successful SpaceX launch yesterday, and Bitcoin went over $40,000 for the first time. In 2020, SpaceX had its best year ever for successful launches and returns of the first stage, perfectly coinciding with Bitcoin's meteoric rise in value. So Bitcoin must be tied to successful SpaceX launches.
Interestingly, USDC seems to follow similar minting patterns, and they post quarterly audits of their books / are much better regulated.
Of course it is possible that Tether are getting custom, but not the kind that wants to leave a bank trail. But if that's the case they're going to fall foul of the regulators sooner or later...
Market makers and trading shops with 7-8 figure funds playing with riskier cryptos or trying to tap worldwide volume.
It's not MicroStrategy and Mass Mutual Insurance using Tethers
The most likely threat to Tether as a currency (IMO), is that one or more large countries outlaws its use, and/or decides to prosecute its owners...
You just answered your own question.
When Tether falls, it's going to make a very big noise.
Say the SEC takes on Tether and it falls. Why then does BTC and the crypto markets crash?
Off-ramp: If people want to sell BTC or other volatile tokens because they want to realize profits, the obvious thing would be to sell for fiat (USD/EUR). But due to taxation and legislation this is often difficult. Stablecoins like Tether provide the utility of a low-volatility currency that fiat would fill. Main advantage is bypassing legislation.
This use is so common there is jargon for "Tethering up".
There also exist many debit cards that allow paying with stablecoins, increasing utility. The rise of DeFi and money markets for stablecoins also provides a good return on stablecoins while in theory being low-volatility.
On-ramp: If people want to buy a certain token they first go into Tether. This is usually for bypassing local legislation limiting the buying of a specific token or use of exchanges. This use is less common, I would wager.
Because of this wide-spread use of Tether, it's collapse would cause a liquidity crisis: people want to but cannot sell their Tethers for other tokens/fiat. Tether goes down from it's 1USD peg, triggering a run on Tether as people try to swap it as much as they can for anything else, driving down the price further. Meanwhile noone is willing to buy Tether. The theory proposed by OP, is that panic in the already volatile crypto market ensues, people exit for fiat where they can driving down prices everywhere. Trust in the whole market will be obliterated.
Personally, I haven't trusted Tether since the first BitFinex scandals and avoided like the plague. For my stablecoin needs, I use something that is audited and over-collateralized like DAIv2.
However, there is also another possible explanation. When investors want to buy BTC they first to go Binance and ask for USDT in exchange for USD. Binance creates new USDT for them. Then they use the USDT to buy BTC (reverse causality). Just saying it's possible, but I believe Jacob Oracle to be right.
But why sell them USDT first and then sell them BTC in exchange for the USDT?
Why not just sell them BTC directly? That's the issue.
Meaning yes, they don't have USDT 100 % fully backed, but they aren't printing it out of thin air either.
What surprises me are the incredible volumes in USDT -- why would anyone ever use USDT instead of USDC, DAI or BUSD? All of them are much more transparent and less risky.
The exchange I use only has instruments with USDT pairs (BTC/USDT, ETH/USDT), not with USDC.
Shorts (if they exist) would be extremely risky, as you owe more if bitcoin rises.
https://www.theblockcrypto.com/data/crypto-markets/futures/a...
Bitmex, Huobi, etc.
Relay looks interesting too: https://relayfi.com/business-banking
>Tether can print infinite amounts of (worthless) $USDT.
>They then inject this into BTC, ETH, LTC, (and others) to cause prices to pump.
>Notice how during the months they stopped printing Tether, the market moves sideways or drops significantly.
>This graph also shows the extent to which USDT plays a role in Bitcoin's price action over the years.
I don't get it. This doesn't really prove anything either way. Sure it could be the case that they're printing USDT backed by nothing and using it to by cryptos, but it could very well be the case that they're printing the USDT in response to real deposits from people who want to get into crypto. Since USDT accounts for a significant portion of the crypto market, it'd be more suspicious for price to go up without a corresponding large amount of USDT being printed, because that would mean prices are going up without more money being poured into the market.
If BTC price rises, trade volume grows, increasing demand for stablecoins due to their utility as a low-volatile alternative to fiat to bypass legislation. You would EXPECT this pattern to arise. Note also how OP does not show a graph of trade volume/buy-sell volume which would potentially show that it is used as claimed.
I still think Tether is extremely shady for refusing audits and dubious backing. I avoid it like the plague and hope others are as smart.
"It could be" that if you send me $1 million, I'll make you live forever. You should try it and see.
It is supposed to be a stablecoin. That's meant to be exceedingly boring. Tether is anything but boring, with all kinds of intrigue, lack of transparency about its reserves, law suits and so on.
There are a bunch of other stablecoins out there that just seem like better propositions, so why does crypto price action continue to be primarily driven by inflows from Tether?