Insights into the biggest scam in the history of cryptocurrency
Recently more and more unsettling arise about and . While many experts warned about the usage of Tether and the consequences it could have for , and every other coin that relies on with it, many investors still stayed with Tether as their main currency to trade with. This article serves as an entry point to see how Tether started and its evolution to where it is now. Currently, tether is used as a currency to trade nearly every on the biggest exchanges such as , , , and .
History
Tether was launched in July 2014 under the name of “Realcoin”. On 20 November 2014, the Tether CEO renamed the Project to “Tether” and announced that they are launching a private beta which supports 3 “Tether+ ”: USTether (US+) for USD, EuroTether (EU+) for Euros and YenTether (JP+) for Yen. According to statements of the company, every is backed 1 to 1 by its original currency and can be redeemed at any time.
In the exchange enabled with Tether. It was the first exchange that started to accept Tether as currency to trade against other coins.
While Bitfinex and Tether assured they are separate companies, the leaks in November 2017 showed that 2 Bitfinex officials were responsible for setting up a Tether Holdings in 2014. This is later confirmed by a spokesperson which states that the CEO of both firms is .
From January 2017 to September 2018, the total amount of issued tether grew from $10 million to $2.8 billion. After the rise of to 20.000 Tether accounted for 10% of the total volume in January 2018. 6 months later this number . This meant that nearly every transaction for was handled with Tether. Currently the total amount of printed Tether is 2.78 billion which makes it 8th biggest according to .
Backing of Tether with US Dollar
For Tether to function as a stablecoin it is important to always be backed 1 to 1 by a real US Dollar. If that is not the case, the whole currency becomes invaluable because investors do not know whether they could get money for their Tether back or not. Tether has always claimed that the hold the sufficient resources to buy back every Tether , but history has shown that there is no real proof and the situation remains unclear.
Audit situation
Tether has failed to provide third party audit results of its accounts, despite promising in 2017. Instead a balance sheet on Tether’s official website claims to provide a complete and transparent listing of all its accounts.
As the crypto community wanted security on the financial state and covering of the billions of issued Tether, Tether commissioned Friedman LLP to conduct an audit of its account balances. This was done to ally fears that Tether has the adequate cash reserve to back every Tether .
After that, Tether a memo from the audit Firm, Friedman LLP, with the company’s accounts, hoping to appease the concerns of the community and other online parties:
“We hope that the community considers the attached memorandum for what it is: a good faith effort on our behalf to provide an interim analysis of our cash position and our issued and outstanding , as part of ongoing efforts to further professionalize the transparency mechanisms of Tether Limited.”
As critiques arose from the public, Bitfinex threatened to pursue legal actions against parties that questioned the authenticity of November 2017 operation.
Both Bitfinex and Tether then received government subpoenas in December 2017 from the Commodity Futures Commission (CFTC) in response to the concerns raised towards the end of the year.
With significant pressure, Tether reemployed Friedman to conduct a full audit in January 2018. Less then a month into the process it was suddenly stopped by Tether, claiming that the audit would not be completed in a foreseeable time, :
“Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable timeframe.”
Removal of the 1 to 1 backing rule
Since the beginning of Tether the most important rule was, that Tether is always backed 1 to 1 by US Dollars. Even tough those funds might not be confirmed to exists there was kind of a security, that the company has enough balance to buy all coins back.
On March 15, 2019, this was quietly changed, so that there do not have to be an equivalent in US Dollars but the Tether commits itself to back up all 2.8 billion Tether with all kinds of currencies, e.g. US Dollars, and “other assets and receivables from loans”. As it was always unsure wether Tether had the back up for their currency, this change was a huge hit to Tether’s credibility.
Tether’s loan to Bitfinex
On April 25th 2019 came out that Bitfinex had used funds from Tether to cover up a financial loss. This was possible because they have the same parent company as mentioned before. The New York Attorney General’s office that they obtained against the iFinex Inc., which operates both Bitfinex and Tether, ordering them to cease violating New York law and defrauding New York residents.
An investigation lead to the conclusion, that those funds were moved internally to cover up a loss of $850 million of corporate funds. Additionally the New Your Attorney General Letitia James stated:
“New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek on their behalf when misled or cheated by any of these companies.”
According to the statement, Bitfinex sent $850 million of customer and corporate funds to Crypto Capital Corp., a payment processor that is said to be holding funds from other exchanges as well, such as QuadrigaCX. Funds from Tether’s reserve were used to make up the shortfall, but neither the loss nor Tether’s fund movements were disclosed to .
So far, more than $600 million is alleged to have been transferred.
Conclusion
Tether is by all means not the best way to secure your funds with falling or prices. It has not proven itself to withstand closer investigations and its overall credibility is falling rapidly. It is strongly suggested to not use Tether as a or storage currency and instead rely on real Fiat or other stablecoins. A very good strategy is also holding and there are many .
If you insist on with stablecoins here are some good examples. Keep in mind due to Tethers popularity it is available on nearly every exchange, not like the others so you have to select carefully which you will use. It is likely that short or long term the exchange support of those currencies will rise.
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There are many in crytocurrency. Stablecoins are one way, but there are many other and sometimes you .
Published at Tue, 07 May 2019 12:00:45 +0000
