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An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

348 points by rayuela 9y ago

jatsign 9y ago
My latest side-project is an alternative to Tether (the "mystery" in the title). It's similar in that the currency is pegged to the dollar, but it's implemented as a smart contract on the Ethereum block chain, so the reserve (held by the smart contract and not touchable by me) is instantly auditable. https://unum.one https://unum.one The code is open source and can be found here: https://github.com/unumone/unum https://github.com/unumone/unum If anyone wants to help, let me know. I could REALLY use a better website design ;) Also if anyone wants to peruse the smart contracts and let me know if I'm doing anything glaringly stupid, I'd appreciate it. I plan to pay to get a proper security audit done, but not until I'm "done" writing the contracts. john at unum dot one
- ufo 9y ago
  I don't understand this. How can you store the USD reserves inside the blockchain? AFAIK the blockchain can only keep track of the cryto-tokens, not of the real money.
  - jatsign 9y ago
    The reserve will be in Ethereum (and possibly also in ERC20 tokens like OMG), not USD. You buy Unum using these other cryptocurrencies, and can always sell Unum to buy anything in the reserve, always at the current USD spot price. This of course raises the possibility of the USD value of the reserve falling below the # of issued Unum. In that case, a sale penalty goes into affect, to discourage selling and increasing the deficit. It's explained more here on the website: https://unum.one/#!/learn#reserve-deficit-sell-penalty https://unum.one/#!/learn#reserve-deficit-sell-penalty
    - cantrip 9y ago
      Doesn't a sale penalty mean the token is not actually pegged to the dollar? It's pegged to the whims of the cryto currency?
    - ufo 9y ago
      Lots of issues here... - Buying Unum is a lose-lose situation. If the USD price of Ether goes down you redeem your Unum for less than you paid for it. If the price of Ether goes up, you redeem your Unum for less than if you just had bought Ether instead. - Why bother tethering a cryptocurrenvy to Ether instead of just using Ether directly? - Who determines what is the spot price of Ether at any given moment? - Unum can be bought for 0.99 USD during "Bonus Sales", which goes against the whole point of it. tl;dr: this is a terrible idea at best, and a total scam at worst.
      - jnbiche 9y ago
        @jatsign, would you address these questions? I can answer the second one (you would tether to Ether in order to establish enough reserve value to back a certain amount of USD, since you can't reliably back a crypto with a fiat currency as we see with this Bitfinex business). But some of the other questions are good ones, can @jatsign address them?
      - jatsign 9y ago
        - Ether isn't price-stable, which is the whole point of this project. - The spot price of Ether is found via Oracalize query to cryptocompare's api. - I'm getting rid of the bonus sale idea, as many people had that concern. The original intent was to use it as a way to build up the reserve. Sorry, the docs on the site is a bit old. As I said, it's a side project, and I'm incorporating ideas as people give me feedback.
    - bufferoverflow 9y ago
      So if Ethereum price goes down, you're insolvent.
      - deleted 9y ago
- tudelo 9y ago
  Can you give me the tldr what a normal person would use this for or what it accomplishes?
  - jatsign 9y ago
    For a normal person/business to ever use a cryptocurrency, there needs to be one that is price stable. Meaning it's going to be worth the same $ tomorrow that it's worth today. Imagine if you could send money anywhere, with almost no fees. That was the dream of bitcoin, but currently bitcoin fees are crazy high, and the community isn't close to solving it yet. Ethereum seems to be more scalable and has a benevolent dictator moving it forward.
    - vasilipupkin 9y ago
      bitcoin fees are crazy high but fixed per block, right? in other words, if I were to send 2 mln usd, the fee would actually be low in % terms?
      - nathan_f77 9y ago
        Fees aren't fixed per block, and they're also not a percentage. Exchanges and Bitcoin software suggest a fee that ensures a quick confirmation, but you can choose whatever fee you want. Transactions with a higher fee are prioritized by miners, because then they make more money. Coinbase always uses a really high fee (around $3.50), so your transactions are always confirmed as fast as possible. I made a few transactions recently where I set the fee to $0.20, and it just took a few hours before it was confirmed. So if it's not urgent, you can send $2 million USD with a fee of $0.20.
        goialoq 9y ago
        Parent was saying that you can lower your percentage by raising your transaction size.
      - deleted 9y ago
        [deleted]
- SirensOfTitan 9y ago
  I thought people found USDT problematic because they found no way to audit whether each USDT has a corresponding USD to balance it?
- chatmasta 9y ago
  From where does the contract pull the current price of USD? Wouldn’t it be vulnerable to receiving incorrect pricing data?
  - jatsign 9y ago
    I've gone back and forth on this. Current plan is to use Oracalize. http://www.oraclize.it/ http://www.oraclize.it/
    - chatmasta 9y ago
      I might also suggest pulling from as many exchanges as possible and applying something like an average function to them. Of course you need to make sure that doesn’t cause the contract to be even more vulnerable due to outliers spiking the average.
      - jatsign 9y ago
        The oraclize query will get data from cryptocompare.com, which is an aggregate.
  - pbhjpbhj 9y ago
    Any average will be subject to arbitrage opportunities surely as it necessarily differs from prices being averaged. Or was that not the point? If transaction cost is low enough then one can continuously buy and sell and the only limit to profit would be the transaction rate (and holdings of those buying/selling the coin).
- wslh 9y ago
  I am flagging you again since this is the second time I see a clickjacking[1] and investors could think that you are pegging your cryptocurrency to fiat currency when indeed is something completely different. [1] https://news.ycombinator.com/item?id=15796016 https://news.ycombinator.com/item?id=15796016
  - jnbiche 9y ago
    What's the problem? He's talking about a projected related to TFA. We do that all the time on HN, in fact it's encouraged. And if you look at the other responses, people are clearly interested in this project, although many are skeptical (justifiable in the world of cryptocurrencies). I know nothing about it, but on face value it doesn't look like any type of a scam. In fact, it looks like he's trying to solve a big problem of Bitcoin, which is the volatility. If you have information that this project is unethical, please spill it. Otherwise, please don't flag comments like this. It's clearly of interest to hackers and thus is appropriate on HN. Edit: Also, as others have pointed out, you're misusing the term "clickjacking".
    - wslh 9y ago
      His token is not pegged to USD dollars since he doesn't have the reserves to convert back and forth between his token and USDs. Full stop. He should clearly explain upfront what he is doing for the massive public and the risks involved following his approach, which is perfectly understandable as it happens with every other investment.
      - jnbiche 9y ago
        There's a big difference between a currency being "pegged" to another currency and being "backed" by another currency. I do agree that it would behoove his project to clearly enumerate that it's experimental and the risks involved. But that's a good comment for him, not a flag. Edit: The article you linked to is incorrect, unless the word "pegged" is different in cryptocurrencies than elsewhere in the world of finance. Please see: https://en.wikipedia.org/wiki/Fixed_exchange-rate_system https://en.wikipedia.org/wiki/Fixed_exchange-rate_system
searine 9y ago
Rising complexity of financial instruments? Check. Uncertainty about the capital backing of a booming market? Check. FOMO fever? Check. Where have I seen this before?
- viach 9y ago
  In "Atlas Shrugged"?
  - Havoc 9y ago
    Pretty sure he means the subprime crisis
- alexasmyths 9y ago
  The sheer scale of these potential frauds - including the total ambiguity of massive $ raised for ICOs is not only consistent with the shenanigans of the .com - it's much worse. In .com - companies were creating value, and we all assumed people would pay for 'email' - turns out consumers would not - so many businesses failed, and there was a stampede out of equities. All of this coin and ICO fraud, including 'regular company' valuations of 300x P/E rations - is absurd. In 2000 - the bubble was popped with a little bit of an interest rate hike that caused major funds etc. to scramble, causing a stampede. Markets are definitely emotionally positioned for a black-swan event to cause a scramble. The markets have to correct for all this sketchy/possible fraud going on.
  - deleted 9y ago
    [deleted]
  - goialoq 9y ago
    Parent was talking about the 2008-2009 GFC, not the 2000 .com stock bubble. The .com stock bubble was just speculation about a new technology, not massive worldwide fraud.
    - nissimk 9y ago
      https://en.wikipedia.org/wiki/Enron_scandal https://en.wikipedia.org/wiki/Enron_scandal https://en.wikipedia.org/wiki/MCI_Inc https://en.wikipedia.org/wiki/MCI_Inc.
abledon 9y ago
What is that style of art/animation the video uses? I feel its aesthetic is really 'greasy', kinda covered in grime from cigarettes. I've seen it before in order graphic design.
- sbarker 9y ago
  It looks like 60s graphic design with a vibrant modern color palette to me, but when it first opened I thought 80s PBS
ksutariya 9y ago
There has been a blogger/journalist tracking this and writing some great analysis on Tether and BitFinex https://medium.com/@bitfinexed/ https://medium.com/@bitfinexed/
- burger_moon 9y ago
  It's really unfortunate that Bitfinex is now suing this person because of simply trying to bring some transparency to the situation. I'm really glad the news outlets are picking this up and hopefully Bitfinex and their shady PR firm stop trying to silence this person.
slazaro 9y ago
WARNING: Auto-playing video with possibly loud sound.
- epaga 9y ago
  Why sites continue to do this is beyond me. But, fortunately, disabling auto-playing in Firefox is actually not that hard. about:config, then set "media.autoplay.enabled" to false. Done.
  - Illniyar 9y ago
    Thats should be the default really
  - StavrosK 9y ago
    Yes, but I do want YouTube and other sites to autoplay.
    - DyslexicAtheist 9y ago
      yepp youtube then no longer even works
      - gcb0 9y ago
        there are million of front ends for youtube with better search which will work woth autoplay off. plus they show the emded version of videos that usually have less ads (because advertisers rightly deny their ads out of the main domain) or you could just use uMatrix and whitelist sites where you want video to play
        StavrosK 9y ago
        Good shout, thanks. Can you point to any good YouTube frontends? I just use MPV with sites, but I could do with good search/related functionality.
    - Sir_Cmpwn 9y ago
brndnmtthws 9y ago
There's a lot of FUD, but very little evidence of wrongdoing. It seems mostly like one person on a campaign to discredit Bitfinex because of some grudge. https://twitter.com/Bitfinexed https://twitter.com/Bitfinexed is the person spreading the FUD, they're also shitposting all over Reddit and elsewhere. Seems like now the 'media' is going along for the ride and enjoying the ad revenue.
- kbart 9y ago
  This "FUD" could be easily dismissed by showing a bank account statement containing these $814M. The fact that Bitfinex doesn't do that means they have something to hide or are in serious trouble.
  - brndnmtthws 9y ago
    No, it's pretty normal for private companies not to share that kind of data.
    - abritinthebay 9y ago
      Not in financial businesses it’s not.
      - brndnmtthws 9y ago
        You evidently have no idea. At a lot of places, that's the crown jewels, and would never be revealed publicly.
        moduspol 9y ago
        They do claim they are audited regularly right on their transparency page [1]. Audits are meaningless for consumer confidence if they don't take place, or the results are not shared. [1] https://wallet.tether.to/transparency https://wallet.tether.to/transparency
        scurvy 9y ago
jpereira 9y ago
Stable coin systems are going to be massively important and there's a ton of different projects trying to make it happen. This [1] is a really solid explanation on how one of them, Dai from MakerDAO, works. [1] https://medium.com/cryptolinks/maker-for-dummies-a-plain-english-explanation-of-the-dai-stablecoin-e4481d79b90 https://medium.com/cryptolinks/maker-for-dummies-a-plain-eng...
- grandalf 9y ago
  Dai seems like a clever idea, but I'm not convinced it will ultimately be necessary. For one thing, the idea that dollars are stable is illusory. And the volatility we see in BTC these days is largely due to the ratio of speculation to storing value in its usage pattern. So if you buy 500 Dai with Bitcoin today, and the price of Bitcoin goes up, you simply have more Dai to spend, and if the price goes down, you have less to spend, but all the while Dai was pegged to USD and the exchange was going on behind the scenes. Two factual quibbles with the article, in case you can offer insight: The example about doing a bet using Ether does not make sense, because chances are the smart contract would collect collateral for the bet at the time it was made, with the idea that upon resolution of the outcome the collateral would be used to pay off the bet. So if I bet 1 ETH on the superbowl outcome, 1 ETH is collected from me and from my counter-party, and then after the game finishes the smart contract awards 2 ETH to the winner. The other issue has to do with commerce. What's the difference between a store marking prices in USD and also accepting payment in BTC vs marking prices in Dai? During checkout, if I'm paying with BTC I'll see how much BTC my purchase will cost. If the price in dollars is more useful to shoppers than the price in BTC, then merchants will denominate in dollars. Dai would seemingly just involve a predefined method of doing the exchange rate math (and fees), but I'm not clear on why this is really a significant advantage.
- wpietri 9y ago
  One of the other parallels that interests me is that there's very little incentive to be publicly skeptical of the nonsense. People were immensely critical of Warren Buffett during the dot-com bubble. He was frank that their valuations didn't make sense to him, and he took a pasting for it. He turned out to be right, but only after taking a lot of heat: http://news.bbc.co.uk/2/hi/business/1217716.stm http://news.bbc.co.uk/2/hi/business/1217716.stm There's little glory or money in being critical of Bitcoin and cryptocurrencies. But there is a great deal of money and attention for hyping them. That means anybody new to the topic receives an unbalanced information diet, deepening the problem. Even if I were a Bitcoin fan I'd be concerned about this; bubbles misallocate resources and cause a lot of damage when they pop. The taint can last a long time. E.g., it took Florida decades to recover from their 1920s land boom.
doctoboggan 9y ago
For a decentralized solution to the problem of a price stable cryptocurrency check out BitShares and bitUSD https://bitshares.org/technology/price-stable-cryptocurrencies/ https://bitshares.org/technology/price-stable-cryptocurrenci... You can see it has not been as stable as USDT but it has certainly been hovering around $1 USD: https://coinmarketcap.com/currencies/bitusd/ https://coinmarketcap.com/currencies/bitusd/
thisisit 9y ago
Aside from the discussion on Tethers I am sure this is not going to stop cryptocurrency buffs from talking/selling another round of "stable" coins. The unfortunate thing is time and again same old story is presented about either: how the company releasing the coins will act as lender/buyer of last resort or how "markets" will prevent the peg from going out of whack. The former logic forgets about how it puts a lot of power in hands of one company and leads to questions, like Tether. While latter logic forgets markets are not efficient. And sometimes it can remain irrational longer than someone can remain solvent. This whole thing is not a maths problem but an economics and market microstructure problem, two apparently least understood topics in cryptocurrency circles.
- greenleafjacob 9y ago
  > how "markets" will prevent the peg from going out of whack. One only needs to read about Long-Term Capital Management to see how flawed this is.
  - pjmorris 9y ago
    If anyone is looking for books to read during holiday down time, they could do worse than 'Liar's Poker' [0], followed by 'When Genius Failed' [1], following the career of John Meriwether and the rise and fall of LTCM. [0] 'Liar's Poker', Michael Lewis [1] 'When Genius Failed', Roger Lowenstein For a 'light reading intro to finance' trilogy, add 'A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation', by Richard Bookstaber.
    - coliveira 9y ago
      Complementing this good list, if you really want to understand what the stock market is (despite all the advertisement), read Frenzied Finance: The Crime of Amalgamated. In this book, a participant of the early markets in the 20th century explain what they really do under the covers. The laws changed a lot from that time, but the goals didn't.
    - CamelCaseName 9y ago
down 9y ago
all the "safeguards" the financial instruments have, didn't stopped them from crashing the economy in 2008, bitcoin is actually a response to that, I did lost my job then and had quite a hard time, now the same bankers tell me what is fraud and what is not. In my country banks moved away from their social propose lending, and they just take high commissions for everything (eg. ATM commission for seeing how much I have in my account) and buy state bonds with deposits money, they advertise credits, but they don't actually credit businesses they credit people who don't need a credit and have enough real estate guarantees to pay the loan in full, so they won't lose interest profit.
- goialoq 9y ago
  If you had securities investments in 2008, your money is fine, as long as you held it for a few years before or after 2008. Only if you cashed out stocks in 2009 or sold your last house in 2010 would you be hurting. For the larger economy, there's no reason to expect Bitcoin would promote general economic health/growth more than national fiat currency.
  - agottem 9y ago
    Stocks only recovered because of unprecedented money printing by central banks across the world. That experiment is, at best, half over. I'll trust in bitcoin, thanks.
  - etr-strike 9y ago
    Stocks only recovered because of unprecedented money printing by central banks across the world. That experiment is, at best, half over. I'll trust in bitcoin, thanks.
    - Aunche 9y ago
      That's not an entirely accurate representation what the Federal Reserve does, but even so, it's their job to issue bonds, which helps regulate the economy.
mancerayder 9y ago
Can anyone with a more studied background in economics help hypothesize the after-effects on Bitcoin and other altcoins if this 814M 'digital counterfeiting' for lack of a better term, is true? For example, 800M has been artificially pumped into the Bitcoin and general crypto ecosystem, like air in a bicycle tire. And this is a game theory sort of question, too: If this is true: now, what?
- empath75 9y ago
  If people want to pull dollars out of bitfinex, and can't redeem tethers, then the price of bitcoin will skyrocket on bitfinex due to tether hyperinflation (we're probably already seeing that, and have been for months). People will be buying bitcoin at basically any price on usdt denominated exchanges, and start moving them to other exchanges to sell. At that point, you'll start to see price differences between usdt and usd exchanges, as the bitcoin price skyrockets up on bitfinex and drops on gdax. Probably at some point, bitfinex will become insolvent and shutdown withdrawals entirely. Not sure what will happen then-- probably the price of bitcoin collapses in a general panic.
  - mancerayder 9y ago
    Bittrex also uses USDT as their base, though. And I don't know who else. I think this is bigger than Bitfinex.
  - rsynnott 9y ago
    Note that this basically happened with mtgox. It took a surprisingly long time to shake out.
- python-guy-vt 9y ago
  > For example, 800M has been artificially pumped into the Bitcoin. This is impossible with Bitcoin. Bitcoins can only be created via mining, Bitcoin mining is a proof-of-work crypto currency. Crypto's typically use proof-of-work or proof-of-stake in order to have value. Tether, on the other hand, seems to have no proof-of-work or proof-of-stake at all and just claims to have a 1:1 ratio of their currency to dollars. Seems there is some skepticism around this claim of a 1:1 ratio. If Tether, was found out to be a fraud I think it would have minimal impact on real Crypto currencies that use proof-of-work or proof-of-stake. The only negative impact would be the people that exchanged a real Crytpo for Tether might be burned and decided not to use/accept Crypto at all, which could impact the larger Crypto market a bit, but IMO I don't think it would shake it too badly, unless of course the main stream media took the story and click baited it with crappy headlines and poorly written articles that would falsely come to the conclusion that such a artificial pump is possible with real Crypto.
koolba 9y ago
> Neither Tether nor Bitfinex disclose on their websites or in any public documents where they’re located or who’s in charge, but information is available elsewhere. > Jan Ludovicus van der Velde is CEO of both Bitfinex and Tether, Torossian said by email on Dec. 3. A LinkedIn page for someone named J. L. van der Velde, who identifies himself as Bitfinex’s CEO, says he speaks Dutch, English, German, Italian and Chinese, attended National Taiwan Normal University from 1985 to 1988 and was previously CEO of PAG Asia Inc I'm continually amazed that people will put $1,000s of dollars (or coins, or whatevers) in the custody of an entity whose location they can't even identify, let alone locate. The only thing I can see stopping them from running off with whatever assets they currently do have are either: - They're extremely profitable. - They're broke. - They're scared of mafia style entities following up where regulation hasn't.
- mancerayder 9y ago
  Well, they're also on the regulatory radar, now, almost certainly. Now if they try to run off, that turns into a fugitive-like situation versus a potentially just oops-type one. There's a lot of leeway for business fuckups in most jurisdictions. Although in this case, there seems to be a strong case for fraud, so who knows.
  - deleted 9y ago
    [deleted]
- notyourday 9y ago
  No, they are starting to piss themselves realizing that their swindle went out of control. They also remember what happened to CEOs of other funky enterprises that attempted to screw what US thinks are its interests: * Think of other bitcoin exchanges * Think of betting companies
sailfast 9y ago
This whole discussion reminds me of the Argentine peso. Pegged to the dollar, economy slumps, harder and harder to back with actual dollars, then government decides to float the currency. US did this moving off the Gold standard as well. I guess these backing commitments are useful for some stability? But it won't entirely eliminate risk, so instead of relying on the wild swings of the market you're now relying on a single institution's trustworthiness / solubility. Take the risk you're willing to accept and hedge the others? A market for all kinds I guess! Either way, this model feels like it's already been run at scale a few times.
goialoq 9y ago
Why does HN have an active discussion of every rehashed ("hashed", hah!) crypto ponzi/pyramid/fraud scheme that flies, but not every new MLM? There were always be scammers peddling garbage backed by lies. It's getting boring.
- 659087 9y ago
  Probably because people in the tech industry are far more likely to be involved with cryptocurrency than an MLM scheme?
- Fnoord 9y ago
  > Why does HN have an active discussion of every rehashed ("hashed", hah!) crypto ponzi/pyramid/fraud scheme that flies, but not every new MLM? > There were always be scammers peddling garbage backed by lies. It's getting boring. What's even more boring is posts like yours which add to the meaningless noise. If you don't enjoy a subject on an article, don't bother reading it. There are tools which let you alter the content on HN such as [1] [2] [1] http://www.taggernews.com/ http://www.taggernews.com/ [2] http://diethn.gq/ http://diethn.gq/
panarky 9y ago
When something doesn't make sense, usually it's because information is missing. Every market participant knows that Tether doesn't prove their reserves, and yet the market exchange rate to USD stays in a tight band between 0.98 and 1.02 across multiple exchanges. If the market doesn't trust Tether, then it should trade at a deep discount to USD, not at parity. Similarly, the conventional wisdom says cryptocurrencies are in a massive speculative bubble. The negative sentiment on Bloomberg, WSJ, NYT, Twitter (not to mention HN) far outweighs the fanboys. This is the most unregulated free market we've ever seen with many exchanges in many countries, person-to-person facilities like https://localbitcoins.com https://localbitcoins.com, margin trading, short selling, futures, options, etc. If everyone knows the whole thing is a Ponzi-bubble-hype-scam, why isn't that information reflected in the markets? There must be missing information that would make this make sense.
- rsynnott 9y ago
  Bear in mind that this is bitcoin. People continued pumping money into mtgox for _months_ after it was clear to anyone who’d been paying attention that it was dead. And currently bitcoin’s in an unusually large bubble, so there are lots of people buying into it who’ve never previously had experience of it. I see ads for, basically, “get rich quick with bitcoin” every day now. The people clicking those are not the world’s greatest critical thinkers; if the site on the other end says “buy tethers with our affiliate code to BUY BITCOINS AND GET RICH”, they’ll do it. There are sufficient people buying tethers at face value, from the company, to keep parity. And I don’t think there’s really a facility to short sell them (that might change things a bit)
  - panarky 9y ago
    > Bear in mind that this is bitcoin It's still a market, so market logic should apply. > get rich quick with bitcoin I see the same shit with real estate. > sufficient people buying tethers at face value It's a market. Smart money can sell tethers. When there's information that all market participants know, the market price should reflect that information.
    - 9y ago
azureel 9y ago
I'm not sure but, isn't this how the real banks operate, too? For example let's take a legal, legit, Bank named X in a country. If all the account owners wanted to retrieve their money, at the same time: can that bank serve that demand? Because normally for every 1 dollar deposited inside, bank can give away 5 dollars worth of credits to other people. (the ratio changes in every country probably). So accusing a virtual currency corporation with "you don't own all that money you claim" applies to a real, physical currency banks. I guess.
- koolba 9y ago
  In the US banks have reserve requirements that are regularly audited by regulators. A localized run on a bank is possible (particularly for cash on hand), but reserves combined with FDIC insurance make it a non-issue.
- coliveira 9y ago
  Banks are secured by the government. If you have deposits up to a limit (I think it is $250K), the government guarantees the money will be there no matter what happens to the bank.
- mdemare 9y ago
  You guess wrong. If a bank does not have enough liquid capital, it can borrow from the central bank. If the value of its deposits exceed the value of its loans, it’s insolvent. Stockholders lose everything. Depositors are insured up to $250,000, which is enough to prevent them from participating in bank runs.
- PeterisP 9y ago
  Fraction reserve lending doesn't mean "for every 1 dollar deposited inside, bank can give away 5 dollars worth of credits to other people" - it means that if people deposit 5 dollars, you can give away 4 dollars of them as loans and only keep 1 dollar in reserves (as opposed to keeping all 5). It still has to have more assets than liabilities, except that some of those assets can be not available on demand, but loans to other people. It does mean that a short-term run (e.g. if all depositors request all of those 5 dollars back) can be a problem, but it's a problem of liquidity (you have enough assets to pay all of them back, but they aren't available right now), not one of missing assets. Tether, on the other hand, has not properly shown that they have enough assets to buy back 100% of tethers to USD at a 1-to-1 rate; we don't expect them to hold 800m dollars in large bags of cash, but we'd expect them (just like a "real physical currency bank") to show that they hold 800m of assets backing this.
busterc 9y ago
I found this comment, by Richard Berger on SeekingAlpha, compelling: > STOP! and think about what this author has revealed. Even IF Tether is NOT running a fraud, the arbitrage positions that automatically exist between Bitcoin and any tether are real and do create incentive to create an arbitraged feedback loop whereby a pegged tether between Bitcoin - any_generic_tether - USD does exist and self feeds, driving up Bitcoin exactly as the author contends may be happening with the current Tether. So long as such a scheme emerges naturally out of the system design, the design is fatally flawed and must asymptotically compound grow to an infinite exchange rate (impossible and unsustainable by definition), or it must ultimately collapse. > Thus, the author has demonstrated a basic inherent flaw to crypto-currencies that can not be repaired other than by legal estoppel. Legal estoppel will never occur because jurisdiction is off-shored and proving a case by case would generate infinite litigation along with each estoppel creating a crash. This in itself would kill the cryptos as surely as the fatal flaw itself will. > It is meaningless to argue WHETHER the author's speculation as to Tether's actions are fraud. The ONLY question is if his identifying of the nature of the available arbitrage can exist in reality. If it can, crypto is dead. No other conclusion is available. https://seekingalpha.com/article/4129543-bitcoin-one-way-go-true#comment-76992585 https://seekingalpha.com/article/4129543-bitcoin-one-way-go-...
- darawk 9y ago
  There's no reason arbitrage should push up the price of Bitcoin. Tether exists to normalize arb opportunities between exchanges. That's what it was created for. There is indeed a real question as to whether or not Bitfinex has issued more Tether than it has in reserve, or whether or not they will actually pay people out for their Tether tokens. But there is no 'arbitrage feedback loop' driving the price rise.
  - notthemessiah 9y ago
    > Tether exists to normalize arb opportunities between exchanges. That's what it was created for. What things are created for and how they actually behave often diverge.
jondubois 9y ago
For all the bad press that Bitfinex gets, they're the only exchange that I know which lets you sign up for an account and start depositing, trading and withdrawing cryptocurrencies in less than 10 minutes. At least when my money is on Bitfinex, I know that I can take it all out at any time... With that kind of liquidity, I wouldn't care if Bitfinex was owned and operated by a colony of wild monkeys. I don't care if they get hacked, so long as they don't get hacked during that small 10 minute window when my funds are sitting on their wallets. By comparison, I've been waiting for 1 month and a half to get my account verified on Bittrex (to enable withdrawals). Ticket #347145
- deleted 9y ago
  [deleted]
- kurthr 9y ago
  That ability to withdraw even from Bitfinex appears to be limited to small (1 BTC) amounts. They like others have quite onerous verificatiin and anti-moneylaundering documentation requirements and give themselves at least a month to review your papers. You, like most people, won't need to get out a lot of money, until you do... and then you may not be able to. Good luck :^)
- sireat 9y ago
  This is nice, but how quickly can you withdraw USD from Bitfinex? You can get USDT out but what do you do with it if you want USD? I mean, any half competent startup should be able to rig up a system allowing deposits and withdrawals of cryptocurrencies only AS LONG as no real world banks are involved. The weak spot of all crypto exchanges has been banking regulations. Disclaimer: I've never put any of miniscule BTC holdings on exchanges when I saw how shakey MTGox was looking. The only quick and workable solution seems to be localbitcoins.
tlb 9y ago
Tether shows the problem with non-shortable securities. If even 1% of traders believe it's valuable and 99% don't, the 1% can happily trade amongst themselves at full value. If there were a short market, the majority non-believers would drive the price down. I think you could find 1% of cryptocurrency traders that believe any theory you care to name.
- nissimk 9y ago
  Futures coming soon. Look what happened to subprime when it became possible to go short.
  - cusx 9y ago
    it wasn't possible to short subprime in the past?
    - ErikHuisman 9y ago
      Nobody did it until someone did. Then it went big! For reference watch the movie: The big short.
    - nissimk 9y ago
      You can't short real estate easily because it's a physical thing. Subprime was bonds that were secured by mortgage loans on real estate. You can short bonds but it's not easy because you have to find some to borrow. But then someone invented credit default swaps for subprime bonds. CDS are derivatives insuring bonds from default. They are similar to futures by being a 2 sided contract where cash flows between the two parties and the winner pays the loser the difference. One side is long and the other short. In subprime they took it a step further and made packages of these CDS contracts so you could go short a ton of subprime all at once. These instruments coming out coincided with the top of the real estate market in 2005 and their peak popularity was at the peak of the subprime boom in 2007.
- Cakez0r 9y ago
  You can short Tether on Kraken.
synaesthesisx 9y ago
I would highly, highly recommend moving money off of Bitfinex in the near future (especially if you are a U.S. customer)...
- FireBeyond 9y ago
  Yeah, good luck. They only recommend using a few exchanges, only one of which seems able to get your money back into USD...
deleted 9y ago
[deleted]
SkyKitty 9y ago
1. Create Tethers out of thin air, claim they are backed by real US Dollar. 2. Buy Bitcoins with Tethers and tell people they get real US Dollars. 3. Push up the Bitcoin price until the general public starts to invest, depositing real US Dollars. 4a. Sell your Bitcoins for real US Dollars. 4b. Generate real US Dollar revenue from fees and operating an unregulated asset exchange. TL;DR: why is the team behind Tether not proving the reserves? There is only one logic reason for this.
JohnJamesRambo 9y ago
https://makerdao.com/ https://makerdao.com/ is a decentralized stablecoin that is coming soon hopefully.
antisthenes 9y ago
Is this another scare story to create a temporary trough in the BTC price?
vesak 9y ago
I yet have no reason to believe anything else but articles like this having just a single reason: to drive BTC price down so people can make money off the dip.
perseusprime11 9y ago
Is ETH a better alternative?
lxcid 9y ago
2 camps: USD 814M accumulated over a year, legit vs not legit? You don’t really need to think hard, who is these 30 mil, 30 mil deposit? If you divide by a year, they need to have an average 2.2 millions of deposit a day. That’s just to Tether. That’s a lot. Just moving these amount of money in any country will put your account in question. Will you do it if their T&C doesn’t guarantee withdrawal? A bank actually need a govt to issue deposit insurance for it to work? People are depositing 2.2 millions without any deposit insurance, with shady T&C? I mean you can believe in it, but I’m definitely skeptical.
ThomPete 9y ago
This is off topic but since a lot of people seem to be experts I just wanted to ask. Can someone explain this to me http://000fff.org/uploads/bitcoinprice.png http://000fff.org/uploads/bitcoinprice.png The flat-lines. I have seen it several times. Is is because of lack of data of trading or lack of trading or what's making the price flatline like that?
- RexetBlell 9y ago
  It's definitely not the lack of trading that's causing this. It's funny that you would even think that haha.
  - ThomPete 9y ago
    Why is it funny? Is there some obvious explanation for this I am missing? Seen it a couple of times now.
    - RexetBlell 9y ago
      It's funny because the trading volume of Bitcoin is huge - about 250 million dollars worth of Bitcoin is bought and sold per hour around the world, 24/7. My guess is that the reason we see the horizontal lines is because let's say someone places a large sell order (say 1000 Bitcoins) at $11600. It takes a few minutes for the market to absorb it. The price stays flat until the entire order is bought.
      - ThomPete 9y ago
        Yes, which is why I was asking. I have had bitcoin since early on so I am aware of increased trading volume. Thanks for the explanation.
- lowdest 9y ago
  It's due to large order volume at those prices. If an unusually large limit order or group of limit orders is placed at $11,800, then incoming market orders can chip away at the remaining volume available at that price but not move the externally visible price.
zitterbewegung 9y ago
Patio11 has commented on this already https://news.ycombinator.com/item?id=15745532 https://news.ycombinator.com/item?id=15745532
ataturk 9y ago
I read to the part where it says Potter was connected with Bear Stearns. Full stop. This stuff is gigantic scam operated by scam artists outside the typical regulatory structures. In that regard, it is identical to the pink sheets penny stock market of Wolf of Wall Street fame.
dude01 9y ago
I find this whole set of crypto-currency experiments fascinating. It's a grand libertarian experiment -- what happens if you create a new market, without any government regulator? It looks like you initially have chaos (makes sense), and I think there are now groups of people working together. The one thing we definitely don't have is transparency. I'm a bit worried that the groups of people working together are manipulating prices, but without transparency, I have no idea.
victor106 9y ago
This sounds like what would happen to stocks if NYSE/NASDAQ are able to print USD to just keep the stock market going up...oh, wait the FED is doing that...
trhway 9y ago
Basically Tether does what banks did in 19th century - printing their own dollars. It worked for banks back then because of gold reserve. Without enough gold ( or dollar in case of Tether) reserve we have an opening scene of Cryptonomicon in the near future.
cryptodogemoon 9y ago
Why would anyone buy more new tethers @ $1 when they're selling for less than $1 at Kraken?
FooHentai 9y ago
>every tether is always backed 1-to-1 by traditional currency held in our reserves >There is no contractual right or other right or legal claim against us to redeem or exchange your tethers for money. We do not guarantee any right of redemption or exchange of tethers by us for money Then it's not backed by anything, is it?
kkotak 9y ago
Is there a single person in HN that has profited more than $1M through Bitcoin? And I mean someone who has actually sold and now has $1M more in the bank?
- gruez 9y ago
  Are you looking for a documented case, or just wondering about the probabilities? The former is "no", and even if there was, I doubt it was formally verified. Think about it, if you made millions in bitcoin, why would you paint a huge target on your back by posting to an online forum? The latter is "probably yes", considering that at least 20% of hners heard about bitcoin when it was cheap (< $100).
brendanw 9y ago
BTC Trading volume over the last 24hrs is $6,795,970,000 (https://coinmarketcap.com/currencies/bitcoin/#markets https://coinmarketcap.com/currencies/bitcoin/#markets) Tether trading volume over the last 24hrs is $803,868,000 (https://coinmarketcap.com/currencies/tether/#markets https://coinmarketcap.com/currencies/tether/#markets) At most tether can make up 11.8% of BTC's daily trading volume. If tether tanks, then it seems that worst-case BTC could suffer a 10% drop in demand, ceteris paribus. Please tell me if there is a flaw in this logic. Seems like there is a valid critique about BTC being boosted by tether, but that doesn't come anywhere close to explaining the exponential growth of value in BTC.
- joshschreuder 9y ago
  Reputational risk from BTC being tied to Tether?
- heptathorp 9y ago
  It could be misleading to look at volume. For example how much of that $6.8B is due to wash trading? Also Bitcoin is paired with literally hundreds of altcoins, which make up a portion of that volume. We would want to focus on how much BTC is purchased with USD vs how much is purchased with USDT.
lee101 9y ago
If your anxious about things going to crash because of tethers the best way you can hedge against the volatility is watch the markets like a hawk lol. Can be very profitable too with all the volatility Checkout the live charts and forecasts at https://bitbank.nz https://bitbank.nz
- jaaames 9y ago
  Problem is there's no safe rail to exit a position. You can sell to USD but can't withdraw overnight and deposit in the morning so you're exposed to counterparty risk which in the crypto sphere is enormous. Only safe position is to be out of this market currently.

348 points by rayuela 9y ago

My latest side-project is an alternative to Tether (the "mystery" in the title). It's similar in that the currency is pegged to the dollar, but it's implemented as a smart contract on the Ethereum block chain, so the reserve (held by the smart contract and not touchable by me) is instantly auditable. https://unum.one https://unum.one The code is open source and can be found here: https://github.com/unumone/unum https://github.com/unumone/unum If anyone wants to help, let me know. I could REALLY use a better website design ;) Also if anyone wants to peruse the smart contracts and let me know if I'm doing anything glaringly stupid, I'd appreciate it. I plan to pay to get a proper security audit done, but not until I'm "done" writing the contracts. john at unum dot one

ufo 9y ago
I don't understand this. How can you store the USD reserves inside the blockchain? AFAIK the blockchain can only keep track of the cryto-tokens, not of the real money.
- jatsign 9y ago
  The reserve will be in Ethereum (and possibly also in ERC20 tokens like OMG), not USD. You buy Unum using these other cryptocurrencies, and can always sell Unum to buy anything in the reserve, always at the current USD spot price. This of course raises the possibility of the USD value of the reserve falling below the # of issued Unum. In that case, a sale penalty goes into affect, to discourage selling and increasing the deficit. It's explained more here on the website: https://unum.one/#!/learn#reserve-deficit-sell-penalty https://unum.one/#!/learn#reserve-deficit-sell-penalty
  - cantrip 9y ago
    Doesn't a sale penalty mean the token is not actually pegged to the dollar? It's pegged to the whims of the cryto currency?
  - ufo 9y ago
    Lots of issues here... - Buying Unum is a lose-lose situation. If the USD price of Ether goes down you redeem your Unum for less than you paid for it. If the price of Ether goes up, you redeem your Unum for less than if you just had bought Ether instead. - Why bother tethering a cryptocurrenvy to Ether instead of just using Ether directly? - Who determines what is the spot price of Ether at any given moment? - Unum can be bought for 0.99 USD during "Bonus Sales", which goes against the whole point of it. tl;dr: this is a terrible idea at best, and a total scam at worst.
    - jnbiche 9y ago
      @jatsign, would you address these questions? I can answer the second one (you would tether to Ether in order to establish enough reserve value to back a certain amount of USD, since you can't reliably back a crypto with a fiat currency as we see with this Bitfinex business). But some of the other questions are good ones, can @jatsign address them?
    - jatsign 9y ago
      - Ether isn't price-stable, which is the whole point of this project. - The spot price of Ether is found via Oracalize query to cryptocompare's api. - I'm getting rid of the bonus sale idea, as many people had that concern. The original intent was to use it as a way to build up the reserve. Sorry, the docs on the site is a bit old. As I said, it's a side project, and I'm incorporating ideas as people give me feedback.
  - bufferoverflow 9y ago
    So if Ethereum price goes down, you're insolvent.
    - deleted 9y ago
tudelo 9y ago
Can you give me the tldr what a normal person would use this for or what it accomplishes?
- jatsign 9y ago
  For a normal person/business to ever use a cryptocurrency, there needs to be one that is price stable. Meaning it's going to be worth the same $ tomorrow that it's worth today. Imagine if you could send money anywhere, with almost no fees. That was the dream of bitcoin, but currently bitcoin fees are crazy high, and the community isn't close to solving it yet. Ethereum seems to be more scalable and has a benevolent dictator moving it forward.
  - vasilipupkin 9y ago
    bitcoin fees are crazy high but fixed per block, right? in other words, if I were to send 2 mln usd, the fee would actually be low in % terms?
    - nathan_f77 9y ago
      Fees aren't fixed per block, and they're also not a percentage. Exchanges and Bitcoin software suggest a fee that ensures a quick confirmation, but you can choose whatever fee you want. Transactions with a higher fee are prioritized by miners, because then they make more money. Coinbase always uses a really high fee (around $3.50), so your transactions are always confirmed as fast as possible. I made a few transactions recently where I set the fee to $0.20, and it just took a few hours before it was confirmed. So if it's not urgent, you can send $2 million USD with a fee of $0.20.
      - goialoq 9y ago
        Parent was saying that you can lower your percentage by raising your transaction size.
    - deleted 9y ago
      [deleted]
SirensOfTitan 9y ago
I thought people found USDT problematic because they found no way to audit whether each USDT has a corresponding USD to balance it?
chatmasta 9y ago
From where does the contract pull the current price of USD? Wouldn’t it be vulnerable to receiving incorrect pricing data?
- jatsign 9y ago
  I've gone back and forth on this. Current plan is to use Oracalize. http://www.oraclize.it/ http://www.oraclize.it/
  - chatmasta 9y ago
    I might also suggest pulling from as many exchanges as possible and applying something like an average function to them. Of course you need to make sure that doesn’t cause the contract to be even more vulnerable due to outliers spiking the average.
    - jatsign 9y ago
      The oraclize query will get data from cryptocompare.com, which is an aggregate.
- pbhjpbhj 9y ago
  Any average will be subject to arbitrage opportunities surely as it necessarily differs from prices being averaged. Or was that not the point? If transaction cost is low enough then one can continuously buy and sell and the only limit to profit would be the transaction rate (and holdings of those buying/selling the coin).
wslh 9y ago
I am flagging you again since this is the second time I see a clickjacking[1] and investors could think that you are pegging your cryptocurrency to fiat currency when indeed is something completely different. [1] https://news.ycombinator.com/item?id=15796016 https://news.ycombinator.com/item?id=15796016
- jnbiche 9y ago
  What's the problem? He's talking about a projected related to TFA. We do that all the time on HN, in fact it's encouraged. And if you look at the other responses, people are clearly interested in this project, although many are skeptical (justifiable in the world of cryptocurrencies). I know nothing about it, but on face value it doesn't look like any type of a scam. In fact, it looks like he's trying to solve a big problem of Bitcoin, which is the volatility. If you have information that this project is unethical, please spill it. Otherwise, please don't flag comments like this. It's clearly of interest to hackers and thus is appropriate on HN. Edit: Also, as others have pointed out, you're misusing the term "clickjacking".
  - wslh 9y ago
    His token is not pegged to USD dollars since he doesn't have the reserves to convert back and forth between his token and USDs. Full stop. He should clearly explain upfront what he is doing for the massive public and the risks involved following his approach, which is perfectly understandable as it happens with every other investment.
    - jnbiche 9y ago
      There's a big difference between a currency being "pegged" to another currency and being "backed" by another currency. I do agree that it would behoove his project to clearly enumerate that it's experimental and the risks involved. But that's a good comment for him, not a flag. Edit: The article you linked to is incorrect, unless the word "pegged" is different in cryptocurrencies than elsewhere in the world of finance. Please see: https://en.wikipedia.org/wiki/Fixed_exchange-rate_system https://en.wikipedia.org/wiki/Fixed_exchange-rate_system

searine 9y ago

Rising complexity of financial instruments? Check. Uncertainty about the capital backing of a booming market? Check. FOMO fever? Check. Where have I seen this before?

viach 9y ago
In "Atlas Shrugged"?
- Havoc 9y ago
  Pretty sure he means the subprime crisis
alexasmyths 9y ago
The sheer scale of these potential frauds - including the total ambiguity of massive $ raised for ICOs is not only consistent with the shenanigans of the .com - it's much worse. In .com - companies were creating value, and we all assumed people would pay for 'email' - turns out consumers would not - so many businesses failed, and there was a stampede out of equities. All of this coin and ICO fraud, including 'regular company' valuations of 300x P/E rations - is absurd. In 2000 - the bubble was popped with a little bit of an interest rate hike that caused major funds etc. to scramble, causing a stampede. Markets are definitely emotionally positioned for a black-swan event to cause a scramble. The markets have to correct for all this sketchy/possible fraud going on.
- deleted 9y ago
  [deleted]
- goialoq 9y ago
  Parent was talking about the 2008-2009 GFC, not the 2000 .com stock bubble. The .com stock bubble was just speculation about a new technology, not massive worldwide fraud.
  - nissimk 9y ago
    https://en.wikipedia.org/wiki/Enron_scandal https://en.wikipedia.org/wiki/Enron_scandal https://en.wikipedia.org/wiki/MCI_Inc https://en.wikipedia.org/wiki/MCI_Inc.

abledon 9y ago

What is that style of art/animation the video uses? I feel its aesthetic is really 'greasy', kinda covered in grime from cigarettes. I've seen it before in order graphic design.

sbarker 9y ago
It looks like 60s graphic design with a vibrant modern color palette to me, but when it first opened I thought 80s PBS

ksutariya 9y ago

There has been a blogger/journalist tracking this and writing some great analysis on Tether and BitFinex https://medium.com/@bitfinexed/ https://medium.com/@bitfinexed/

burger_moon 9y ago
It's really unfortunate that Bitfinex is now suing this person because of simply trying to bring some transparency to the situation. I'm really glad the news outlets are picking this up and hopefully Bitfinex and their shady PR firm stop trying to silence this person.

slazaro 9y ago

WARNING: Auto-playing video with possibly loud sound.

epaga 9y ago
Why sites continue to do this is beyond me. But, fortunately, disabling auto-playing in Firefox is actually not that hard. about:config, then set "media.autoplay.enabled" to false. Done.
- Illniyar 9y ago
  Thats should be the default really
- StavrosK 9y ago
  Yes, but I do want YouTube and other sites to autoplay.
  - DyslexicAtheist 9y ago
    yepp youtube then no longer even works
    - gcb0 9y ago
      there are million of front ends for youtube with better search which will work woth autoplay off. plus they show the emded version of videos that usually have less ads (because advertisers rightly deny their ads out of the main domain) or you could just use uMatrix and whitelist sites where you want video to play
      - StavrosK 9y ago
        Good shout, thanks. Can you point to any good YouTube frontends? I just use MPV with sites, but I could do with good search/related functionality.
  - Sir_Cmpwn 9y ago

brndnmtthws 9y ago

There's a lot of FUD, but very little evidence of wrongdoing. It seems mostly like one person on a campaign to discredit Bitfinex because of some grudge. https://twitter.com/Bitfinexed https://twitter.com/Bitfinexed is the person spreading the FUD, they're also shitposting all over Reddit and elsewhere. Seems like now the 'media' is going along for the ride and enjoying the ad revenue.

kbart 9y ago
This "FUD" could be easily dismissed by showing a bank account statement containing these $814M. The fact that Bitfinex doesn't do that means they have something to hide or are in serious trouble.
- brndnmtthws 9y ago
  No, it's pretty normal for private companies not to share that kind of data.
  - abritinthebay 9y ago
    Not in financial businesses it’s not.
    - brndnmtthws 9y ago
      You evidently have no idea. At a lot of places, that's the crown jewels, and would never be revealed publicly.
      - moduspol 9y ago
        They do claim they are audited regularly right on their transparency page [1]. Audits are meaningless for consumer confidence if they don't take place, or the results are not shared. [1] https://wallet.tether.to/transparency https://wallet.tether.to/transparency
      - scurvy 9y ago

jpereira 9y ago

Stable coin systems are going to be massively important and there's a ton of different projects trying to make it happen. This [1] is a really solid explanation on how one of them, Dai from MakerDAO, works. [1] https://medium.com/cryptolinks/maker-for-dummies-a-plain-english-explanation-of-the-dai-stablecoin-e4481d79b90 https://medium.com/cryptolinks/maker-for-dummies-a-plain-eng...

grandalf 9y ago
Dai seems like a clever idea, but I'm not convinced it will ultimately be necessary. For one thing, the idea that dollars are stable is illusory. And the volatility we see in BTC these days is largely due to the ratio of speculation to storing value in its usage pattern. So if you buy 500 Dai with Bitcoin today, and the price of Bitcoin goes up, you simply have more Dai to spend, and if the price goes down, you have less to spend, but all the while Dai was pegged to USD and the exchange was going on behind the scenes. Two factual quibbles with the article, in case you can offer insight: The example about doing a bet using Ether does not make sense, because chances are the smart contract would collect collateral for the bet at the time it was made, with the idea that upon resolution of the outcome the collateral would be used to pay off the bet. So if I bet 1 ETH on the superbowl outcome, 1 ETH is collected from me and from my counter-party, and then after the game finishes the smart contract awards 2 ETH to the winner. The other issue has to do with commerce. What's the difference between a store marking prices in USD and also accepting payment in BTC vs marking prices in Dai? During checkout, if I'm paying with BTC I'll see how much BTC my purchase will cost. If the price in dollars is more useful to shoppers than the price in BTC, then merchants will denominate in dollars. Dai would seemingly just involve a predefined method of doing the exchange rate math (and fees), but I'm not clear on why this is really a significant advantage.
wpietri 9y ago
One of the other parallels that interests me is that there's very little incentive to be publicly skeptical of the nonsense. People were immensely critical of Warren Buffett during the dot-com bubble. He was frank that their valuations didn't make sense to him, and he took a pasting for it. He turned out to be right, but only after taking a lot of heat: http://news.bbc.co.uk/2/hi/business/1217716.stm http://news.bbc.co.uk/2/hi/business/1217716.stm There's little glory or money in being critical of Bitcoin and cryptocurrencies. But there is a great deal of money and attention for hyping them. That means anybody new to the topic receives an unbalanced information diet, deepening the problem. Even if I were a Bitcoin fan I'd be concerned about this; bubbles misallocate resources and cause a lot of damage when they pop. The taint can last a long time. E.g., it took Florida decades to recover from their 1920s land boom.

doctoboggan 9y ago

For a decentralized solution to the problem of a price stable cryptocurrency check out BitShares and bitUSD https://bitshares.org/technology/price-stable-cryptocurrencies/ https://bitshares.org/technology/price-stable-cryptocurrenci... You can see it has not been as stable as USDT but it has certainly been hovering around $1 USD: https://coinmarketcap.com/currencies/bitusd/ https://coinmarketcap.com/currencies/bitusd/

thisisit 9y ago

Aside from the discussion on Tethers I am sure this is not going to stop cryptocurrency buffs from talking/selling another round of "stable" coins. The unfortunate thing is time and again same old story is presented about either: how the company releasing the coins will act as lender/buyer of last resort or how "markets" will prevent the peg from going out of whack. The former logic forgets about how it puts a lot of power in hands of one company and leads to questions, like Tether. While latter logic forgets markets are not efficient. And sometimes it can remain irrational longer than someone can remain solvent. This whole thing is not a maths problem but an economics and market microstructure problem, two apparently least understood topics in cryptocurrency circles.

greenleafjacob 9y ago
> how "markets" will prevent the peg from going out of whack. One only needs to read about Long-Term Capital Management to see how flawed this is.
- pjmorris 9y ago
  If anyone is looking for books to read during holiday down time, they could do worse than 'Liar's Poker' [0], followed by 'When Genius Failed' [1], following the career of John Meriwether and the rise and fall of LTCM. [0] 'Liar's Poker', Michael Lewis [1] 'When Genius Failed', Roger Lowenstein For a 'light reading intro to finance' trilogy, add 'A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation', by Richard Bookstaber.
  - coliveira 9y ago
    Complementing this good list, if you really want to understand what the stock market is (despite all the advertisement), read Frenzied Finance: The Crime of Amalgamated. In this book, a participant of the early markets in the 20th century explain what they really do under the covers. The laws changed a lot from that time, but the goals didn't.
  - CamelCaseName 9y ago

down 9y ago

all the "safeguards" the financial instruments have, didn't stopped them from crashing the economy in 2008, bitcoin is actually a response to that, I did lost my job then and had quite a hard time, now the same bankers tell me what is fraud and what is not. In my country banks moved away from their social propose lending, and they just take high commissions for everything (eg. ATM commission for seeing how much I have in my account) and buy state bonds with deposits money, they advertise credits, but they don't actually credit businesses they credit people who don't need a credit and have enough real estate guarantees to pay the loan in full, so they won't lose interest profit.

goialoq 9y ago
If you had securities investments in 2008, your money is fine, as long as you held it for a few years before or after 2008. Only if you cashed out stocks in 2009 or sold your last house in 2010 would you be hurting. For the larger economy, there's no reason to expect Bitcoin would promote general economic health/growth more than national fiat currency.
- agottem 9y ago
  Stocks only recovered because of unprecedented money printing by central banks across the world. That experiment is, at best, half over. I'll trust in bitcoin, thanks.
- etr-strike 9y ago
  Stocks only recovered because of unprecedented money printing by central banks across the world. That experiment is, at best, half over. I'll trust in bitcoin, thanks.
  - Aunche 9y ago
    That's not an entirely accurate representation what the Federal Reserve does, but even so, it's their job to issue bonds, which helps regulate the economy.

mancerayder 9y ago

Can anyone with a more studied background in economics help hypothesize the after-effects on Bitcoin and other altcoins if this 814M 'digital counterfeiting' for lack of a better term, is true? For example, 800M has been artificially pumped into the Bitcoin and general crypto ecosystem, like air in a bicycle tire. And this is a game theory sort of question, too: If this is true: now, what?

empath75 9y ago
If people want to pull dollars out of bitfinex, and can't redeem tethers, then the price of bitcoin will skyrocket on bitfinex due to tether hyperinflation (we're probably already seeing that, and have been for months). People will be buying bitcoin at basically any price on usdt denominated exchanges, and start moving them to other exchanges to sell. At that point, you'll start to see price differences between usdt and usd exchanges, as the bitcoin price skyrockets up on bitfinex and drops on gdax. Probably at some point, bitfinex will become insolvent and shutdown withdrawals entirely. Not sure what will happen then-- probably the price of bitcoin collapses in a general panic.
- mancerayder 9y ago
  Bittrex also uses USDT as their base, though. And I don't know who else. I think this is bigger than Bitfinex.
- rsynnott 9y ago
  Note that this basically happened with mtgox. It took a surprisingly long time to shake out.
python-guy-vt 9y ago
> For example, 800M has been artificially pumped into the Bitcoin. This is impossible with Bitcoin. Bitcoins can only be created via mining, Bitcoin mining is a proof-of-work crypto currency. Crypto's typically use proof-of-work or proof-of-stake in order to have value. Tether, on the other hand, seems to have no proof-of-work or proof-of-stake at all and just claims to have a 1:1 ratio of their currency to dollars. Seems there is some skepticism around this claim of a 1:1 ratio. If Tether, was found out to be a fraud I think it would have minimal impact on real Crypto currencies that use proof-of-work or proof-of-stake. The only negative impact would be the people that exchanged a real Crytpo for Tether might be burned and decided not to use/accept Crypto at all, which could impact the larger Crypto market a bit, but IMO I don't think it would shake it too badly, unless of course the main stream media took the story and click baited it with crappy headlines and poorly written articles that would falsely come to the conclusion that such a artificial pump is possible with real Crypto.

koolba 9y ago

> Neither Tether nor Bitfinex disclose on their websites or in any public documents where they’re located or who’s in charge, but information is available elsewhere. > Jan Ludovicus van der Velde is CEO of both Bitfinex and Tether, Torossian said by email on Dec. 3. A LinkedIn page for someone named J. L. van der Velde, who identifies himself as Bitfinex’s CEO, says he speaks Dutch, English, German, Italian and Chinese, attended National Taiwan Normal University from 1985 to 1988 and was previously CEO of PAG Asia Inc I'm continually amazed that people will put $1,000s of dollars (or coins, or whatevers) in the custody of an entity whose location they can't even identify, let alone locate. The only thing I can see stopping them from running off with whatever assets they currently do have are either: - They're extremely profitable. - They're broke. - They're scared of mafia style entities following up where regulation hasn't.

mancerayder 9y ago
Well, they're also on the regulatory radar, now, almost certainly. Now if they try to run off, that turns into a fugitive-like situation versus a potentially just oops-type one. There's a lot of leeway for business fuckups in most jurisdictions. Although in this case, there seems to be a strong case for fraud, so who knows.
- deleted 9y ago
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notyourday 9y ago
No, they are starting to piss themselves realizing that their swindle went out of control. They also remember what happened to CEOs of other funky enterprises that attempted to screw what US thinks are its interests: * Think of other bitcoin exchanges * Think of betting companies

sailfast 9y ago

This whole discussion reminds me of the Argentine peso. Pegged to the dollar, economy slumps, harder and harder to back with actual dollars, then government decides to float the currency. US did this moving off the Gold standard as well. I guess these backing commitments are useful for some stability? But it won't entirely eliminate risk, so instead of relying on the wild swings of the market you're now relying on a single institution's trustworthiness / solubility. Take the risk you're willing to accept and hedge the others? A market for all kinds I guess! Either way, this model feels like it's already been run at scale a few times.

goialoq 9y ago

Why does HN have an active discussion of every rehashed ("hashed", hah!) crypto ponzi/pyramid/fraud scheme that flies, but not every new MLM? There were always be scammers peddling garbage backed by lies. It's getting boring.

659087 9y ago
Probably because people in the tech industry are far more likely to be involved with cryptocurrency than an MLM scheme?
Fnoord 9y ago
> Why does HN have an active discussion of every rehashed ("hashed", hah!) crypto ponzi/pyramid/fraud scheme that flies, but not every new MLM? > There were always be scammers peddling garbage backed by lies. It's getting boring. What's even more boring is posts like yours which add to the meaningless noise. If you don't enjoy a subject on an article, don't bother reading it. There are tools which let you alter the content on HN such as [1] [2] [1] http://www.taggernews.com/ http://www.taggernews.com/ [2] http://diethn.gq/ http://diethn.gq/

panarky 9y ago

When something doesn't make sense, usually it's because information is missing. Every market participant knows that Tether doesn't prove their reserves, and yet the market exchange rate to USD stays in a tight band between 0.98 and 1.02 across multiple exchanges. If the market doesn't trust Tether, then it should trade at a deep discount to USD, not at parity. Similarly, the conventional wisdom says cryptocurrencies are in a massive speculative bubble. The negative sentiment on Bloomberg, WSJ, NYT, Twitter (not to mention HN) far outweighs the fanboys. This is the most unregulated free market we've ever seen with many exchanges in many countries, person-to-person facilities like https://localbitcoins.com https://localbitcoins.com, margin trading, short selling, futures, options, etc. If everyone knows the whole thing is a Ponzi-bubble-hype-scam, why isn't that information reflected in the markets? There must be missing information that would make this make sense.

rsynnott 9y ago
Bear in mind that this is bitcoin. People continued pumping money into mtgox for _months_ after it was clear to anyone who’d been paying attention that it was dead. And currently bitcoin’s in an unusually large bubble, so there are lots of people buying into it who’ve never previously had experience of it. I see ads for, basically, “get rich quick with bitcoin” every day now. The people clicking those are not the world’s greatest critical thinkers; if the site on the other end says “buy tethers with our affiliate code to BUY BITCOINS AND GET RICH”, they’ll do it. There are sufficient people buying tethers at face value, from the company, to keep parity. And I don’t think there’s really a facility to short sell them (that might change things a bit)
- panarky 9y ago
  > Bear in mind that this is bitcoin It's still a market, so market logic should apply. > get rich quick with bitcoin I see the same shit with real estate. > sufficient people buying tethers at face value It's a market. Smart money can sell tethers. When there's information that all market participants know, the market price should reflect that information.
  - 9y ago

azureel 9y ago

I'm not sure but, isn't this how the real banks operate, too? For example let's take a legal, legit, Bank named X in a country. If all the account owners wanted to retrieve their money, at the same time: can that bank serve that demand? Because normally for every 1 dollar deposited inside, bank can give away 5 dollars worth of credits to other people. (the ratio changes in every country probably). So accusing a virtual currency corporation with "you don't own all that money you claim" applies to a real, physical currency banks. I guess.

koolba 9y ago
In the US banks have reserve requirements that are regularly audited by regulators. A localized run on a bank is possible (particularly for cash on hand), but reserves combined with FDIC insurance make it a non-issue.
coliveira 9y ago
Banks are secured by the government. If you have deposits up to a limit (I think it is $250K), the government guarantees the money will be there no matter what happens to the bank.
mdemare 9y ago
You guess wrong. If a bank does not have enough liquid capital, it can borrow from the central bank. If the value of its deposits exceed the value of its loans, it’s insolvent. Stockholders lose everything. Depositors are insured up to $250,000, which is enough to prevent them from participating in bank runs.
PeterisP 9y ago
Fraction reserve lending doesn't mean "for every 1 dollar deposited inside, bank can give away 5 dollars worth of credits to other people" - it means that if people deposit 5 dollars, you can give away 4 dollars of them as loans and only keep 1 dollar in reserves (as opposed to keeping all 5). It still has to have more assets than liabilities, except that some of those assets can be not available on demand, but loans to other people. It does mean that a short-term run (e.g. if all depositors request all of those 5 dollars back) can be a problem, but it's a problem of liquidity (you have enough assets to pay all of them back, but they aren't available right now), not one of missing assets. Tether, on the other hand, has not properly shown that they have enough assets to buy back 100% of tethers to USD at a 1-to-1 rate; we don't expect them to hold 800m dollars in large bags of cash, but we'd expect them (just like a "real physical currency bank") to show that they hold 800m of assets backing this.

busterc 9y ago

I found this comment, by Richard Berger on SeekingAlpha, compelling: > STOP! and think about what this author has revealed. Even IF Tether is NOT running a fraud, the arbitrage positions that automatically exist between Bitcoin and any tether are real and do create incentive to create an arbitraged feedback loop whereby a pegged tether between Bitcoin - any_generic_tether - USD does exist and self feeds, driving up Bitcoin exactly as the author contends may be happening with the current Tether. So long as such a scheme emerges naturally out of the system design, the design is fatally flawed and must asymptotically compound grow to an infinite exchange rate (impossible and unsustainable by definition), or it must ultimately collapse. > Thus, the author has demonstrated a basic inherent flaw to crypto-currencies that can not be repaired other than by legal estoppel. Legal estoppel will never occur because jurisdiction is off-shored and proving a case by case would generate infinite litigation along with each estoppel creating a crash. This in itself would kill the cryptos as surely as the fatal flaw itself will. > It is meaningless to argue WHETHER the author's speculation as to Tether's actions are fraud. The ONLY question is if his identifying of the nature of the available arbitrage can exist in reality. If it can, crypto is dead. No other conclusion is available. https://seekingalpha.com/article/4129543-bitcoin-one-way-go-true#comment-76992585 https://seekingalpha.com/article/4129543-bitcoin-one-way-go-...

darawk 9y ago
There's no reason arbitrage should push up the price of Bitcoin. Tether exists to normalize arb opportunities between exchanges. That's what it was created for. There is indeed a real question as to whether or not Bitfinex has issued more Tether than it has in reserve, or whether or not they will actually pay people out for their Tether tokens. But there is no 'arbitrage feedback loop' driving the price rise.
- notthemessiah 9y ago
  > Tether exists to normalize arb opportunities between exchanges. That's what it was created for. What things are created for and how they actually behave often diverge.

jondubois 9y ago

For all the bad press that Bitfinex gets, they're the only exchange that I know which lets you sign up for an account and start depositing, trading and withdrawing cryptocurrencies in less than 10 minutes. At least when my money is on Bitfinex, I know that I can take it all out at any time... With that kind of liquidity, I wouldn't care if Bitfinex was owned and operated by a colony of wild monkeys. I don't care if they get hacked, so long as they don't get hacked during that small 10 minute window when my funds are sitting on their wallets. By comparison, I've been waiting for 1 month and a half to get my account verified on Bittrex (to enable withdrawals). Ticket #347145

deleted 9y ago
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kurthr 9y ago
That ability to withdraw even from Bitfinex appears to be limited to small (1 BTC) amounts. They like others have quite onerous verificatiin and anti-moneylaundering documentation requirements and give themselves at least a month to review your papers. You, like most people, won't need to get out a lot of money, until you do... and then you may not be able to. Good luck :^)
sireat 9y ago
This is nice, but how quickly can you withdraw USD from Bitfinex? You can get USDT out but what do you do with it if you want USD? I mean, any half competent startup should be able to rig up a system allowing deposits and withdrawals of cryptocurrencies only AS LONG as no real world banks are involved. The weak spot of all crypto exchanges has been banking regulations. Disclaimer: I've never put any of miniscule BTC holdings on exchanges when I saw how shakey MTGox was looking. The only quick and workable solution seems to be localbitcoins.

tlb 9y ago

Tether shows the problem with non-shortable securities. If even 1% of traders believe it's valuable and 99% don't, the 1% can happily trade amongst themselves at full value. If there were a short market, the majority non-believers would drive the price down. I think you could find 1% of cryptocurrency traders that believe any theory you care to name.

nissimk 9y ago
Futures coming soon. Look what happened to subprime when it became possible to go short.
- cusx 9y ago
  it wasn't possible to short subprime in the past?
  - ErikHuisman 9y ago
    Nobody did it until someone did. Then it went big! For reference watch the movie: The big short.
  - nissimk 9y ago
    You can't short real estate easily because it's a physical thing. Subprime was bonds that were secured by mortgage loans on real estate. You can short bonds but it's not easy because you have to find some to borrow. But then someone invented credit default swaps for subprime bonds. CDS are derivatives insuring bonds from default. They are similar to futures by being a 2 sided contract where cash flows between the two parties and the winner pays the loser the difference. One side is long and the other short. In subprime they took it a step further and made packages of these CDS contracts so you could go short a ton of subprime all at once. These instruments coming out coincided with the top of the real estate market in 2005 and their peak popularity was at the peak of the subprime boom in 2007.
Cakez0r 9y ago
You can short Tether on Kraken.

synaesthesisx 9y ago

I would highly, highly recommend moving money off of Bitfinex in the near future (especially if you are a U.S. customer)...

FireBeyond 9y ago
Yeah, good luck. They only recommend using a few exchanges, only one of which seems able to get your money back into USD...

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SkyKitty 9y ago

1. Create Tethers out of thin air, claim they are backed by real US Dollar. 2. Buy Bitcoins with Tethers and tell people they get real US Dollars. 3. Push up the Bitcoin price until the general public starts to invest, depositing real US Dollars. 4a. Sell your Bitcoins for real US Dollars. 4b. Generate real US Dollar revenue from fees and operating an unregulated asset exchange. TL;DR: why is the team behind Tether not proving the reserves? There is only one logic reason for this.

JohnJamesRambo 9y ago

https://makerdao.com/ https://makerdao.com/ is a decentralized stablecoin that is coming soon hopefully.

antisthenes 9y ago

Is this another scare story to create a temporary trough in the BTC price?

vesak 9y ago

I yet have no reason to believe anything else but articles like this having just a single reason: to drive BTC price down so people can make money off the dip.

perseusprime11 9y ago

Is ETH a better alternative?

lxcid 9y ago

2 camps: USD 814M accumulated over a year, legit vs not legit? You don’t really need to think hard, who is these 30 mil, 30 mil deposit? If you divide by a year, they need to have an average 2.2 millions of deposit a day. That’s just to Tether. That’s a lot. Just moving these amount of money in any country will put your account in question. Will you do it if their T&C doesn’t guarantee withdrawal? A bank actually need a govt to issue deposit insurance for it to work? People are depositing 2.2 millions without any deposit insurance, with shady T&C? I mean you can believe in it, but I’m definitely skeptical.

ThomPete 9y ago

This is off topic but since a lot of people seem to be experts I just wanted to ask. Can someone explain this to me http://000fff.org/uploads/bitcoinprice.png http://000fff.org/uploads/bitcoinprice.png The flat-lines. I have seen it several times. Is is because of lack of data of trading or lack of trading or what's making the price flatline like that?

RexetBlell 9y ago
It's definitely not the lack of trading that's causing this. It's funny that you would even think that haha.
- ThomPete 9y ago
  Why is it funny? Is there some obvious explanation for this I am missing? Seen it a couple of times now.
  - RexetBlell 9y ago
    It's funny because the trading volume of Bitcoin is huge - about 250 million dollars worth of Bitcoin is bought and sold per hour around the world, 24/7. My guess is that the reason we see the horizontal lines is because let's say someone places a large sell order (say 1000 Bitcoins) at $11600. It takes a few minutes for the market to absorb it. The price stays flat until the entire order is bought.
    - ThomPete 9y ago
      Yes, which is why I was asking. I have had bitcoin since early on so I am aware of increased trading volume. Thanks for the explanation.
lowdest 9y ago
It's due to large order volume at those prices. If an unusually large limit order or group of limit orders is placed at $11,800, then incoming market orders can chip away at the remaining volume available at that price but not move the externally visible price.

zitterbewegung 9y ago

Patio11 has commented on this already https://news.ycombinator.com/item?id=15745532 https://news.ycombinator.com/item?id=15745532

ataturk 9y ago

I read to the part where it says Potter was connected with Bear Stearns. Full stop. This stuff is gigantic scam operated by scam artists outside the typical regulatory structures. In that regard, it is identical to the pink sheets penny stock market of Wolf of Wall Street fame.

dude01 9y ago

I find this whole set of crypto-currency experiments fascinating. It's a grand libertarian experiment -- what happens if you create a new market, without any government regulator? It looks like you initially have chaos (makes sense), and I think there are now groups of people working together. The one thing we definitely don't have is transparency. I'm a bit worried that the groups of people working together are manipulating prices, but without transparency, I have no idea.

victor106 9y ago

This sounds like what would happen to stocks if NYSE/NASDAQ are able to print USD to just keep the stock market going up...oh, wait the FED is doing that...

trhway 9y ago

Basically Tether does what banks did in 19th century - printing their own dollars. It worked for banks back then because of gold reserve. Without enough gold ( or dollar in case of Tether) reserve we have an opening scene of Cryptonomicon in the near future.

cryptodogemoon 9y ago

Why would anyone buy more new tethers @ $1 when they're selling for less than $1 at Kraken?

FooHentai 9y ago

>every tether is always backed 1-to-1 by traditional currency held in our reserves >There is no contractual right or other right or legal claim against us to redeem or exchange your tethers for money. We do not guarantee any right of redemption or exchange of tethers by us for money Then it's not backed by anything, is it?

kkotak 9y ago

Is there a single person in HN that has profited more than $1M through Bitcoin? And I mean someone who has actually sold and now has $1M more in the bank?

gruez 9y ago
Are you looking for a documented case, or just wondering about the probabilities? The former is "no", and even if there was, I doubt it was formally verified. Think about it, if you made millions in bitcoin, why would you paint a huge target on your back by posting to an online forum? The latter is "probably yes", considering that at least 20% of hners heard about bitcoin when it was cheap (< $100).

brendanw 9y ago

BTC Trading volume over the last 24hrs is $6,795,970,000 (https://coinmarketcap.com/currencies/bitcoin/#markets https://coinmarketcap.com/currencies/bitcoin/#markets) Tether trading volume over the last 24hrs is $803,868,000 (https://coinmarketcap.com/currencies/tether/#markets https://coinmarketcap.com/currencies/tether/#markets) At most tether can make up 11.8% of BTC's daily trading volume. If tether tanks, then it seems that worst-case BTC could suffer a 10% drop in demand, ceteris paribus. Please tell me if there is a flaw in this logic. Seems like there is a valid critique about BTC being boosted by tether, but that doesn't come anywhere close to explaining the exponential growth of value in BTC.

joshschreuder 9y ago
Reputational risk from BTC being tied to Tether?
heptathorp 9y ago
It could be misleading to look at volume. For example how much of that $6.8B is due to wash trading? Also Bitcoin is paired with literally hundreds of altcoins, which make up a portion of that volume. We would want to focus on how much BTC is purchased with USD vs how much is purchased with USDT.

lee101 9y ago

If your anxious about things going to crash because of tethers the best way you can hedge against the volatility is watch the markets like a hawk lol. Can be very profitable too with all the volatility Checkout the live charts and forecasts at https://bitbank.nz https://bitbank.nz

jaaames 9y ago
Problem is there's no safe rail to exit a position. You can sell to USD but can't withdraw overnight and deposit in the morning so you're exposed to counterparty risk which in the crypto sphere is enormous. Only safe position is to be out of this market currently.