Bitcoin is headed for its GFC moment. We probably shouldn’t be surprised.
I generally like to think of myself as an optimist. I’m definitely a glass-half-full kind of guy.
And when I’m looking at the amazing stuff Dymphna’s digging up for her Next 10 event (last chance for tix folks!), generally I get pretty pumped. The future looks like it will be an amazing time to be alive.
But then humanity still gives me things that are face-palm worthy.
And I look at all the technology on offer and I think, it doesn’t really solve our fundamental problem – because our problem is us.
Until they invent technology that stops people being greedy, being idiots, or being both, any technology we come with can only ever be a work-around for our most fundamental problems.
There’s a saying that I’ve always loved and hated in equal measure: “From the crooked timber of humanity, no straight thing was ever made. (Immanuel Kant).
I love it because it captures the dilemma perfectly. I hate it because it’s a bit depressing. And I hate it because part of me believes that it could be true.
So take the theft this week of $US31 million worth of Tether tokens. Yep, some hacker ran off with $31m worth of digital currency.
(Build a better bank, they’ll build a better bank robber).
It first caught my attention because it gave the price of Bitcoin a solid (but temporary) whump, but also for the controversy that followed around Tether’s response.
Effectively, Tether froze the funds and suspended the Tether back-end wallet service.
Sounds reasonable. But enter Cornell professor Emin Gun Sirer:
“Tether quietly did a hard fork to blacklist a specific address and freeze funds. Three questions: 1. Who controls the Omni ledger and who can perform these kinds of operations? 2. Why was this address blacklisted? 3. Which other addresses are next in line?”
So sure, maybe it’s ok to blacklist addresses of bad guys. But who says who is a bad guy and who isn’t?
And this is one of the big tensions with digital currencies. They’re outside the system and unpoliceable, which is great, but they’re also outside the system and unpoliceable, which is not so great.
It depends on whether you like the extra-system results you get.
And in all the hype of the promise of post-state economics, how many people participating in Tether knew that Tether could freeze their accounts on a whim?
I mean, of course, they wouldn’t unless it was absolutely necessary. But that’s what the Gestapo said about wire-tapping.
The thing is though, this story doesn’t stop there.
Tether is an interesting beast. It was founded by one of the child actors in The Mighty Ducks, which is irrelevant but I just can’t get that fact out of my head.
In theory, Tether’s tokens are pegged to the USD. 1USDT = 1USD. They do this to facilitate trade on coin exchanges, so people can trade with each other without having to come back into the conventional money system until they need to.
Very useful. With a market capitalization of about $675 million, tether is the world’s 20th most-valuable virtual currency
However, while we know for sure how many USDTs there are in circulation, we don’t know how much backing they actually have.
Some people have been wondering if they’re fully backed at all.
Some people have been wondering if maybe Tether has actually been running an elaborate ponzi scheme.
“Print” more tokens, sell them at a higher price, use the proceeds to sure up your reserves for previously issued tokens.
What could go wrong?
But not only that, some people wonder if Tether is deliberately manipulating the price of Bitcoin.
This guy reckons if you track the issuance of Tether tokens, it lines up with times that the Bitcoin price was looking shaky.
They’ve got the motive. If the Bitcoin price falls, their ponzi scheme comes apart. So they have a strong interest in keeping the price moving higher.
Now I don’t know how much weight to give any of this. I don’t have a lot of skin in the game, so it’s just an interesting show.
But as I’m reading this, it’s all sounding familiar.
Say that your money is backed by something, when it’s not. Print more to line your own pockets and keep the whole show rolling on. When things go wrong, blame some rouge agents and freeze the funds of ordinary folks.
This is exactly the Wall Street business model. This is exactly what gave us the GFC!
Oh crooked, crooked timber. Can’t you do anything right?
I don’t know. I guess people are good, on balance. The good apples out number the bad.
But given the incredible tech coming down on us (seriously, you’ve got to check out the Next 10 event to get your head around it), even just a handful of bad apples could seriously derail the whole species.
Don’t give a monkey a hand gun. Don’t give a human a quantum computer and the ability to genetically modify viruses.
What ever happens, we’re in for a hellava ride.
You be the judge. Get along to the Next 10 event this weekend and tell me if we should be worried or not.