Tether: Helping Fiat Infiltrate Cryptocurrency One Token At a Time

Tether: the token that boasts a peg to the dollar, claiming to cut down on volatility and make cryptocurrency use and investment easier. In reality, though, this token system is a hotbed for cryptocurrency inflation — with proof that lends credit to that claim.

What Tether Is and What It Does

Tether is a blockchain-based token that holds a 1:1 peg with USD, reportedly allowing efficient swaps between cryptocurrency and fiat. This helps traders transfer between the two monetary technologies easily, and has become quite popular since its launch in 2014.

According to the project’s website, it gives you “the joint benefits of open blockchain technology and open currency.” Sounds great, right? Yeah, not so much.

Why Tether Sucks

Essentially, Tether acts as a fiat gateway to cryptocurrency. By having a peg to the dollar, Tether can really inflate its supply infinitely, as long as the company can prove it has reserves matching the supply of its token (even though they’ve done a poor job of that as of late).

Other than that, Tether can inflate its supply at will, for any reason. And that eliminates one of the biggest benefits cryptocurrency provides.

A blockchain-based currency with a potentially unlimited supply removes any possibility of deflation. Plus, with the ability to inflate at will, an economy based on such a token will become rife with boom-bust cycles. Basically, nothing will change from the current, fiat-controlled economy.

Equally bad is the fact that users have to trust Tether to be honest about its dollar reserves, that it really does have enough money to back the supply of its tokens. The requirement of such trust makes for a bad currency all around, and Tether itself has proven that in recent months, as its honesty has come into question.

Bitfinex Controversy: Confirming The Money Printing Fears

In late 2017-early 2018, traders and enthusiasts noticed a huge spike in the supply of Tether, with the company claiming that it held over $2.2 billion USD in reserves. However, it had no proof to support this claim, and people started having suspicions about the company’s honesty and whether or not it had the fiat to back the new coins being printed.

Making the situation even more difficult for Tether is the fact that one of its main exchanges, Bitfinex, shares a CEO with the company, and has been the subject of many controversies in 2017. In response to the community’s accusations of unbacked money printing, both Tether and Bitfinex said they would open themselves to an audit to prove the two companies had enough money in the bank to cover the new coins.

Unfair? But it reflects a common sentiment regarding Tether’s operations

However, that audit never happened, and the firm slated to conduct the review eventually removed all mentions of Bitfinex from its website, suggesting that an audit will never happen — at least not through that firm.

And so, Tether is left minting tokens with abandon, without providing proof it has the dollar reserves to back them up — despite promising that they would always be able to prove they had money in the bank.

I personally warned the community in 2014 that this would happen, back in 2014 when Tether was first announced under the name “Realcoin.” Of course, as a greenhorn journalist at a no-name, now defunct crypto blog, no one listened to me.

But in many cases, economics and history are all you need to see whether or not something is a good idea. And 4 years later, it looks more like Tether is a bad — and very dangerous — idea.

What’s your take on this and “stablecoin” cryptocurrencies in general? Let’s hear your thoughts.

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