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

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.

Comments

Hu. No.

[aepervius]

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 : remove rules and they try to do incredibly unethical but legal stuff. Sometimes they do it *even* with the rules on. 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.

Re: "If tethers are not backed by a matching numbe

[reanjr]

And what do you think happens when that 90 cents is deposited into the bank? 81 cents of additional loans is created, for a total of $1.71 floating around with only $1 to back it. Then the 81 cents is deposited, and another 72 cents in loans is created. Now you have $2.43 floating around.

If you don't think banks create money out of thin air, you don't understand fractional reserve banking.

Wild West is what we want

[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 compromised by computer compromises, because we think we protect our computers better than laymen do. If you wanna call that arrogance, fine, but I have a perfect track record since I got on the Internet in 1991, so far.

Second, it is (by now) very clear that the other aspect of hacking and fraud involves exchanges. If your use of cryptocurrency requires conversion to other currencies, then exchanges are a convenient approach, but apparently nearly every exchange has suffered "hacking and fraud" such that I cannot think of any exchange that I would be willing to use. But it's important to note that "The Vision" for using this stuff, involves extremely infrequent conversion. Maybe you have to use an exchange initially to get some of the currency, but as long as you're both spending and selling, you might never need to get dollars and euros involved. Just like how a dollar user can easily get through life without ever bothering with euros (and vice versa) if a cryptocurrency gets sufficiently popular, it could theoretically be used that way as well. (And honestly, that's pretty much the only use case that I think is interesting.)

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?"

As for "hacking and fraud" on the system itself, though, AFAIK the only problem I have heard about yet, is the 51% attack. And that sucks, but you can't fix that with laws. But make no mistake: the big vision is that cryptocurrencies can be designed where we think users can win. Bitcoin just might not be it. We'll see.

Regardless, I think that additional laws cannot possibly help this stuff in any way. All they can do is interfere with non-fraudulent uses, because the laws would almost certainly be intended not to protect against fraud, but to return control to governments in order to restrict trade, and denying this power to governments is a big part of the point, to many of us. I will happliy give up any fraud-protection laws (especially since nobody has any reason to suspect they would help prevent fraud anyway) to keep government from being able to prevent cryptocurrency transfers.

I think no government can ever possibly become as trustworthy as a well-vetted design. You people are still trying to learn how to make a trustworthy government after thousands of years of trying, and you've never exceeded "laughably horrible." Cryptocurrencies are only about ten years old and they've nearly caught up. Twenty years from now, I think I know which approach will have been proven superior.