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Bitcoin The Almighty Buck United States Technology

Why Tether's Collapse Would Be Bad For Cryptocurrencies (wired.com) 161

Posted by BeauHD from the behind-the-scenes dept.
Yesterday, Bloomberg reported that the U.S. Commodity Futures Trading Commission sent subpoenas last week to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it's pegged to the dollar. Wired's Sandra Upson explains why Tether's collapse would be bad for the entire cryptocurrency market: Unlike bitcoin and its many siblings, tether is what is called a stablecoin, an entity designed to not fluctuate in value. With most cryptocurrencies prone to wild swings, tether offers people who dabble in the market the option of buying a currency that its backers say is pegged to the U.S. dollar. The root of the controversy is whether the company behind it, also called Tether, is telling the truth when it claims that every unit in circulation is matched by a U.S. dollar it holds in reserve. If the company has a dollar for every tether, that means in theory any holder can sell tethers back to the company for an equal number of dollars at any time. This belief keeps the value of a tether pegged to a dollar.

If tethers are not backed by a matching number of dollars, then Tether can print an arbitrary amount of money. (Other cryptocurrencies, by contrast, create new tokens according to strictly prescribed, predictable rules.) Other problems ensue, including suspicions that Tether is timing the release of new tethers to coincide with drops in the price of bitcoin and then using those tethers to scoop up bitcoins. Some observers fear that these purchases are artificially inflating the price of bitcoin. If traders lose faith in tether, they could end up triggering the crypto version of a bank run. Tether helps stabilize cryptocurrency exchanges in various ways, so its collapse could also cause some exchanges to topple, wiping out billions of dollars of investments overnight and potentially undoing much of the public's growing interest in new technologies like bitcoin.
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Why Tether's Collapse Would Be Bad For Cryptocurrencies More

Why Tether's Collapse Would Be Bad For Cryptocurrencies

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  • "Some observers fear that these purchases are artificially inflating the price of bitcoin."

    Any purchase inflates the value (not price) of Bitcoin. It is extremely difficult to mine new bitcoins, and this creates scarcity.
    But yes, if Tether is indeed lying about their dollar pegging methodology, it would crash its value and send earthquake waves in the cryptoworld, which is a good thing in the long run. Once all bad apples are removed, we'll end up with the good apples.
    I personally am betting on ASIC-resista

    • Re: (Score:2)

      by msauve ( 701917 )
      "I personally am betting on ASIC-resistant, mineable coins."

      I'm starting a new XRayGlassesCoin. To mine one, send 1000 bubble gum comics, or $1 and 25 comics, to PO Box...

    • Hu. No. (Score:3, Insightful)

      by aepervius ( 535155 )
      Once to fall bad apple have been removed, you get the harder to fall bad apple. There is nearly always never good apple. By now "idealist" have long been removed from the cryptocurrency ecosystem, leaving only the pure capitalist. And as human mostly base our capitalist endeaviour on pure greed and have as much as possible. That means that without rules you have only bad apple managing to stay afloat, because their advantage over good apple is too great.

      Heck you can see something similar with banks : remo

      • So as long as there is no governmental rules on cryptocurrency, it will stay a wild west where ONLY bad apple & a lot of hacking and fraud occurs, comapred to traditional money processing.

        I have absolutely no problem with that - for the time being.
        Fiat currency started like that too, then more and more rules have been added, the bad currency failed and was excluded, etc.
        2018, and perhaps 2019 will be the year(s) of cryptocurrency maturing. It was, is and will be highly inadvisable to participate to such lawless financial gamble until the market matures. It indeed is a wild west, where the ruthless would gain and everyone else would lose.
        There are methods to protect yourself, though. Nobody c

        • Lol, you want regulations on cryptocurrency? The whole reason for its existence is that it is the wild west of avoiding regulated currency.

          Perhaps I misunderstood the point of cryptocurrencies. Or is it more that people want regulations that protect them but hurt others? Sounding more like a real currency every day, actually.

      • > And as human mostly base our capitalist endeaviour on pure greed and have as much as possible. That means that without rules you have only bad apple managing to stay afloat,

        This is the stupidest thing ive ever seen on slashdot. That is the exaxt opposite of how capitalism works.

        • Wow, what an insightful and detailed response. Look at how much you’ve added to the discussion!

          Capitalism seeks to maximise profit - how is this not greed as the GP stated?
          In the absence of regulation profit maximisation has no ethical or moral constraints. Seems like the GP nailed it.

          • "In the absence of regulation profit maximisation has no ethical or moral constraints. "

            Indeed : externalities. Without rules and EPA, guess who would polute and reject all their waste in the local river ? If there is no rules, then profit maximization occurs, ethics be damned.

      • Wild West is what we want (Score:2, Insightful)

        by Anonymous Coward

        So as long as there is no governmental rules on cryptocurrency, it will stay a wild west where ONLY bad apple & a lot of hacking and fraud occurs, comapred to traditional money processing.

        I think nearly everyone who is excited about crytocurrency accepts that "hacking and fraud" will happen at the user level (i.e. people can be tricked into giving away their keys) and that this is the case for both cryptocurrencies any anything else that is accessed by computer. We're ok with things that can be compromi

        • I think the most concerning fraud is not exchanges that are hacked, but exchanges themselves that are committing fraud under the guise of "we were hacked!" With the amount of real world money being thrown around out here, it isn't just more likely, its inevitable.

          Also, are fraudlent ICOs, ones that take the money and run. But, I suspect those are mostly driven by the same idiots that invest in companies that add "blockchain" to their names for no reason.

        • Re: (Score:2)

          by mbkennel ( 97636 )
          > 100% of the "hacking and fraud" that has happened with exchanges, is already illegal and nobody has ever suggested or thought of a single regulation that might possible improve it. The oldest law of trade, "Caveat emptor" is still the best. If an exchange doesn't prove itself trustworthy (and AFAIK to-date not a insgle one has) then you know you're taking a risk. If you have an idea, let's hear it, but please first ask yourself "does this protect against something that's already illegal?"

          Riddle me this
      • Cryptocurrencies will exercise Gresham's law ("bad money drives out good") in interesting new ways. Bitcoin specifically is going to get hammered from all sides -- beaten up by both bad and good currencies that are technically more convenient and/or superior.

    • Re: (Score:3)

      by Cederic ( 9623 )

      Any purchase inflates the value (not price) of Bitcoin

      Given bitcoin's value is arbitrary and moving closer to zero all the time you've got that exactly the wrong way around.

      Yes, bitcoin is heavily overpriced right now.

      • Any purchase inflates the value (not price) of Bitcoin

        Given bitcoin's value is arbitrary and moving closer to zero all the time you've got that exactly the wrong way around.

        Yes, bitcoin is heavily overpriced right now.

        What exactly is moving to zero all the time? Bitcoin is still 10x times more valuable than one year ago. I also expect its value to drop and in time even be replaced by a few altcoins unless it manages to become a "gold standard" somehow.

        • What exactly is moving to zero all the time? Bitcoin is still 10x times more valuable than one year ago

          No, the price is 10 times what it was one year ago. The value (i.e. usefulness) hasn't changed at all. In fact, many people would argue that value has always been basically zero.

    • "I personally am betting on ASIC-resistant, mineable coins."

      Perhaps you just haven't met the right ASIC yet, dear. She'll come along, just wait. And Don't worry either because, in a few years Quantum Computers will wipe them all out.

      • And Don't worry either because, in a few years Quantum Computers will wipe them all out.

        Much like the year of the Desktop Linux, huh?

      • There is always PoC mining, like what Burst offers. It requires storage, and storage is... well storage, and can't be easily stuffed into an ASIC. PoS based currencies are also useful. Either of these are more energy efficient than PoW based currencies.

    • I personally am betting on ASIC-resistant, mineable coins.

      There is no such thing as an "ASIC-resistant" coin or algorithm.
      Coins like Ethereum are not mined on ASICs only because all mining ASIC development goes to Bitcoin, since it is by far the largest and most stable (yeah, let that sink in) coin. Ethereum's algorithm just requires a lot more memory / memory bandwidth because of the giant DAG.

      Some chicken shit outfit could easily shit out an ASIC with a ton of memory and memory bandwidth, but they'd never recoup their investment in time for it to make sense. A

  • "wiping out billions of dollars of investments overnight"

    They have a magnificent imagination... These "Billions of Dollars of Investments" are fictional. They're not backed by something real like pigs that you can breed, grow and eat. The "investments" are a total fiction. Even the stock market is more real than this and the stock market is very not real.

  • The summary makes it sound like exchanges are holding Tethers as part of their reserves.

    Why would they do so? What advantage is there to holding a cryptocurrency pegged at $1, to just holding dollars, especially since when your clients cash out, they are also asking for dollars?

    Side note, it shouldn't be that difficult to get and audit done to make sure they have sufficient backing for the currency they issued. Just a quick print out of a bunch of bank statements, or perhaps brokerage statements showing T-B

    • Comment removed based on user account deletion

    • Re: (Score:2)

      by mbkennel ( 97636 )
      > The summary makes it sound like exchanges are holding Tethers as part of their reserves.

      > Why would they do so?

      Avoiding regulation and scrutiny.

      > What advantage is there to holding a cryptocurrency pegged at $1, to just holding dollars, especially since when your clients cash out, they are also asking for dollars?

      If they held dollars in a conventional account they would need to interact with the banking system and its regulations, who would have some opinions about their business.

  • If traders lose faith in tether...

    Any system trading in hundred of billions of dollars (or even ones that don't) are at perilous risk if the depend on people's faith in a private company, that was just recently created, and operates without significant oversight.

  • So a Tether shill is worried about a cryptocurrency most of us never even heard of until 2 minutes ago, and is trying to deceive us into thinking that a crackdown on Tether which claims real cash reserves, for the reason that it claims having equal cash reserves, would have any bearing whatsoever on most cryptocurrencies which do not make such a claim.

    Laughable. No it doesn't matter what happens to Tether, your pet cryptocash can burn the ground without affecting anything else.

  • I've also started a new cryptocurrency, and it's called "Bridgecoin".

    Each coin is backed by a share of ownership in a bridge in Brooklyn.

  • I've been holding off building a computer for my son because I can't get a hold of a video card. As such, I'm all for a cryptocurrency bank run. It is all a speculation bubble anyways.

  • So ironic (Score:3)

    by SoftwareArtist ( 1472499 ) on Wednesday January 31, 2018 @03:09PM (#56042487)

    We've been told that "fiat currencies" are bad because a government can print more money whenever they want, deflating the money people already hold. You can't trust it to keep its value. The solution is cryptocurrency! The supply is strictly controlled by an algorithm, so you can trust it to hold its value.

    And what happens in practice? Cryptocurrencies are incredibly volatile. You can't rely on them at all. So instead someone creates a "stablecoin" that really does hold its value. And the way they do that is... by tying it to a fiat currency.

    The irony is just incredible.

    • Thing is, there's no limit on starting new cryptocurrencies. Therefore, the fact that there will only be so many Bitcoin is not as relevant, because I can always issue Mycoin as a cryptocurrency.

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