11 ms·

This doesn't seem like an inherent flaw in crypocurrencies as much as a feature of an entirely unregulated secondary market (BTC to USD). Obvious counterpoint:

• gibsons77 8y ago
  There's a decentralized peg to USD called DAI which is backed by ETH as collateral. It's maintained the 1$ USD peg throughout the entire crypto bear market. MakerDAO is quite impressive, and I hope to see it absorb the liquidity away from tether.
  • sidko 8y ago
    How do you define "1$ USD peg"? As of right now, the price of DAI is $0.98, 2% off its "peg". Asking as a serious question, since I see this statement a lot.
    • wmf 8y ago
      I guess if it doesn't drop 10% in one day that's considered "stable" by cryptocurrency standards.
      • arcticbull 8y ago
        That’s objectively bad
        • gibsons77 8y ago
          And also not accurate.
    • gibsons77 8y ago
      That's just due to liquidity. The peg is maintained through arbitrage, so of course if you have low liquidity you're going to have fluctuations around the peg.
    • bouncycastle 8y ago
      Dai is not really a traditional peg, as in the sense that there is someone who always trades on the market to maintain the peg (a liquidity provider like in USDT). It's more of an example of a system that has carefully balanced economic incentives. The fun part is that anybody can mint or destroy DAI, and take advantage of arbitrage opportunities. For example, if I ever see DAI trading at, say, $1.02 then I would quickly mint some new DAI and sell for USD. Likewise, if DAI is at $0.98 then I would buy it back, then burn what I've minted, collecting a profit. Also note that with traditional USD pegs, they are not always on parity and hover a few cents from time to time. For example the HKD. https://en.m.wikipedia.org/wiki/Hong_Kong_dollar https://en.m.wikipedia.org/wiki/Hong_Kong_dollar
    • PeterisP 8y ago
      Well, pegs with a defined fluctuation boundary aren't that uncommon, for example, Danish Krona currently is pegged to Euro in such a manner - where it's pegged to within +/- 2.25% of a specific rate. In essence, if you declare a plausible intent of keeping a rate near 1$ by accepting limitless orders to buy it at 0.98$ and sell it at 1.02$, and can keep that promise, then that's a decent peg.
• arcticbull 8y ago
  I’d argue that by virtue of being totally decentralized and permissionless, an unregulated secondary market is impossible to prevent and therefore an inherent feature / flaw of cryptocurrency. It’s not a necessary step to adoption, it’s just impossible to stop. It’s also what makes cryptocurrency very difficult to use for anything.
  • wmf 8y ago
    USD isn't decentralized or permissionless so regulation should be possible on that side. And the fact that you can't redeem USDT shows that it's kind of working.
    • arcticbull 8y ago
      Very good point, I hadn’t looked at it that way.
    • cdiddy2 8y ago
      not sure if this counts, but there is a direct USDT/USD trading pair on Kraken https://trade.kraken.com/markets/kraken/usdt/usd https://trade.kraken.com/markets/kraken/usdt/usd
      • wmf 8y ago
        The problem with that market is that you're just handing off USDT to another sucker. There's no official way to take USDT out of circulation when demand goes down.
        • cdiddy2 8y ago
          Unless that customer is Kraken itself who may be able to redeem the USDT for USD. The market cap for tether went down 750 million recently so there appears to be some way to take it out of circulation. https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/
        • pstrateman 8y ago
• lucozade 8y ago
  It's a flaw in all current cryptocurrencies that they suffer from an opaque, trust-based exchange infrastructure. I'd argue that it's inherent in the sense that none of them factored that into their model. As such, I'd argue that the models are inherently flawed because a trustless core is fundamentally compromised if you only have a trustful interface to the rest of the world. To that end, I agree with your basic point: you need an interface to the outside word that has similar properties to the core model. At least, trustless, transparent, auditable. Probably anonymous as well.
  • gibsons77 8y ago
    You've just described Bisq
    • lucozade 8y ago
      > You've just described Bisq Not really but they're clearly making an attempt in that direction.
  • spookthesunset 8y ago
    > To that end, I agree with your basic point: you need an interface to the outside word that has similar properties to the core model. At least, trustless, transparent, auditable. Probably anonymous as well. Which is impossible because at some point the entire thing needs to interface with humans and human processes -- neither of which is infallible. The entire premise of Bitcoin, Ethereum and "Code Is Law" is broken at the core. They all try to get rid of "trust" by replacing it with computer code but at some point you need to interact with meatspace and meatspace is not logical, and not at all trustful. In other words, trying to make everything trustless is futile because at the end of the day, you eventually have to trust other people.
  • elwell 8y ago
    If you don't need fiat, however, a decentralized exchange using a transparent smart contract is ideal (e.g., IDEX).
• mancerayder 8y ago
  Wait, what's entirely unregulated about it, if there's a criminal probe? There aren't criminal probes on something that's unregulated; well, at least anything that deals in USD has to deal with U.S. law, regardless of tax haven locale in the world. And Tether claimed to be a USD peg, which means they claimed to own USD, and as an institution that deals in USD they're subject to laws.
  • jstanley 8y ago
    > anything that deals in USD has to deal with U.S. law The act of holding a US dollar bill in your hand doesn't bring you under the jurisdiction of the US government.
    • mancerayder 8y ago
      Oh, gosh. The infantile methodology of purposely misreading something so it's literal and thus nonsensical (or comical). I obviously meant financial institutions - which Bitfinex is.
      • i_am_proteus 8y ago
        A good point, but perhaps we can agree that the mechanisms of the BTC(etc.)-USD exchanges are much less regulated than those of traditional equities/commodities/futures, etc. markets.
        • mancerayder 8y ago
          For sure. I think this Tether thing will be a poster child to reverse that disparity. And having watched the Tether thing hitting the fan for the past 12 months, including when everyone knew something was up and their suspicious transactions were being posted, I'm disappointed the Law didn't crack down sooner.
      • mikekchar 8y ago
        Out of curiosity, is that actually true? I mean Bitfinex is doing business in the US. I thought that was the link to being able to apply US laws on them. Does creating a USD backed security in another country automatically put you under US law? I'm asking because I literally don't understand how that could work.
• tim333 8y ago
  Whether this is a flaw or not depends on whether tethers are backed 1:1 by USD deposits as advertised. If so there's not much wrong apart from maybe money laundering. If not it's fraud in most people's books.
• DINKDINK 8y ago
  >entirely unregulated secondary market Bitcoin to USD exchanges are incredibly regulated. AML/KYC/SAR are all required by many governments.
• JumpCrisscross 8y ago
  > This doesn't seem like an inherent flaw in crypocurrencies Unregulated financial markets don’t work. You’re selling something intangible whose benefits are inherently only realisable after an indeterminable amount of time. That encourages fraud. This is a core and fundamental failure of cryptocurrencies.
  • kakarot 8y ago
    No, it isn't. Cryptocurrencies in this aspect are the same as the fiat money you and I use today. The problem was everyone deciding to brand Bitcoin as an investment vehicle instead of as a currency. Cryptocurrencies are money. The benefits are immediately realizable. If I gave you $5 in exchange for a service worth more than $10, promising that due to market forces that $5 would soon have the buying power of $10, you would laugh in my face and demand the $10 immediately, not later. Yet somehow we decided this was OK to do with crypto. It has to do with a lack of knowledge, partially due to world governments initially being hostile towards crypto and then indifferent. Were this technology correctly introduced to society by trusted parties with regulated information, we wouldn't be having this conversation about whether or not cryptocurrency is flawed due to an inherent volatility that comes with low market adoption.
    • JumpCrisscross 8y ago
      > Were this technology correctly introduced to society by trusted parties ...it would be fundamentally outperformed by said trusted party producing a database.
    • mikekchar 8y ago
      I wonder if you are actually disagreeing. One of the biggest problems with BTC, in particular, is that it is inherently deflationary. This encourages the thinking that its value will inevitably rise. BTC was originally popular with people who also thought that it was a good idea to buy up and hold gold and silver. BTC solved an actual financial problem, though. There was a desire to make distributed financial transactions. The most obvious application was to make purchases where moving the money through central, regulated banks was undesirable (e.g. buying drugs or money laundering). However, there were other applications as well. For my part, although I've never actually spent any BTC (I have a small amount that I actually mined with my CPU, if you can believe it!), the attraction was the possibility to make payments online because as non-permanent resident foreigner, every credit card company refused my business. It's slightly easier to get a credit card now, but I still don't have one. In other places in the world, the banks are corrupt. My friend's wife had her employer pay her with BTC because she would be sure to actually receive payment. In some places, depending on who you are it is literally impossible to get a bank account. This is a form of marginalisation and discrimination. BTC (or something like it) can solve this problem, presuming you can find a way to convert it to fiat currency. But the problem here is that despite the potential (or even because of it) the field is littered with fraud. The banks do not want a distributed payment processing system. They want to be in control. Especially in countries where they are abusing the customers, or actively marginalising parts of the population -- it's not an accident. They don't want to fix the "problem". So the existing regulated industry wants no part of cryptocurrency (at least from the perspective of an actual decentralised payment processing system that removes control from them). This creates the vacuum that attracts the fraud. It also makes the adoption for beneficial transactions (e.g. not drugs and money laundering) very difficult because legitimate vendors have to adhere to the regulated system and cryptocurrency does nothing to make that easier. At best it doesn't make it harder. As many cryptocurrency nouveau-riche can identify with, figuring out how to pay your taxes with the capital gains/losses from FOREX is not trivial. While I'm hopeful that a distributed payment solution will eventually arise, I think the OP's point that the pains we are experiencing are pretty much inevitable is correct. Though we could make our lives a lot easier if we used an inflationary cryptocurrency (because then you'd be forced to spend it quickly).
• tCfD 8y ago
  This is a valid point were it not for the fact that being structurally designed to thwart regulation (by obscuring the link between account and account holder) is the main difference between cryptocurrency and ordinary digital cash, and is a major - if not the principal value proposition of the technology.