Tether: The Story So Far

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2021-05-22 02:30:07

The dominant use case for cryptocurrency is speculation. Speculators want to put value into the system, somehow have it become greater, and then take more value out of the system than they put in.

The cryptocurrency community includes many exchanges, each a group of affiliated companies, but it is sometimes clearer to view it as an single entity. It would have a series of ledgers, some mechanism for exchanging between the ledgers (taking a cut for each ledger hop and sometimes for bookkeeping within a ledger), and onramps and offramps to traditional currencies (which the community calls “fiat”). From the point of view of the ecosystem, it doesn’t matter which company has those ramps, because value flows unimpeded within the ecosystem.

The ecosystem is not a single entity with unified control. Cryptocurrency is not Liberty Reserve. It has, however, recapitulated Liberty Reserve’s architecture of a network of peer “exchangers” with a shared ledger between them to enable hawala-like transfers of value. In cryptocurrency’s case, those shared ledgers are blockchains rather than a single traditional database kept by an organizing entity.

Most exchanges do not have fiat onramps and offramps, but the ecosystem has to have them. Because the cryptocurrency community largely does not sell products or services other than speculation, there is no extrinsic sort of funding like you see in other businesses (e.g. no material revenue from customers). Every dollar that goes out to buy the clichéd Lambo is a dollar that went in from a speculator.