19.5.2022 – Bitcoin, Tether, Beanstalk

Jessica McKenzie writes about the less known trend in Bitcoin mining. Bitcoin miners and fossil fuel firms, which increasingly tend to be the one and the same thing, are buying gas-fired generators and use them right next to gas wellheads. End result: to solve the crypto sudokus, fossil gas that would otherwise not be extracted and burned, is extracted and burned.

(My assessment of cryptocurrencies in Finnish is here: https://jmkorhonen.fi/2021/11/02/mista-kryptovaluutoissa-ja-lohkoketjussa-on-kyse/ )

(In English, from 2018: https://jmkorhonen.net/2018/01/12/my-professional-opinion-as-a-blockchain-researcher-i-dont-see-the-point/ )

(Why cryptocurrencies are inherently not very good fit for renewable energy: https://jmkorhonen.net/2018/05/25/bitcoin-is-not-a-good-fit-for-renewable-energy-heres-why/ )

Prof. Nicholas Weaver’s interview: why cryptocurrencies should die in fire. Good explanation if you are unfamiliar with the problems of cryptocurrencies. However, this is just the tip of the iceberg.

https://www.currentaffairs.org/2022/05/why-this-computer-scientist-says-all-cryptocurrency-should-die-in-a-fire/

This especially is important to understand:

“Tether is almost certainly what we’d call a “wildcat bank.” So, back in the 1800s, we didn’t have the Federal Reserve. Do you ever wonder why those pieces of paper in your pocket are technically called “bank notes”? It’s because the original model was not the government issuing pieces of paper. The government only issued coins. But heavy or bulky coins are hard to deal with. So you take your coins to the local bank, and they would give you a banknote, literally an IOU saying “if you want a $1 gold coin, take this IOU back to the bank and you get this dollar gold coin.”

What happened is, basically, fraudulent banks sprang up. They were called wildcat banks because they’d often have animal pictures on the bank notes. What they would do is take deposits and issue pieces of paper, completely unbacked. And when state bank regulators would come along, the wildcat banks would have barrels of coins that were fake. All but the top layer was just junk, with a top layer of gold coins. Or they’d cart around a barrel to all the branch offices just ahead of the inspectors.

And Tether is clearly doing the same thing. Because if Tether was backed by real money, this would mean that there is some $80 billion worth of money from institutional savvy investors that wanted to invest in the cryptocurrency space, but didn’t want to just buy in CoinBase. So they had to go to this third party that has been caught lying about its reserves, run by who-knows-who—the CEO is basically MIA. [Slate reported in 2021 that he “hasn’t been seen in public in years.”] It keeps its reserves in the Bahamas. Why would you invest that way? It’s just complete nonsense. “

Speaking of Tether: Their general counsel Stuart Hoegner used to be Director of Compliance for Excapsa, the parent company of poker site Ultimate Bet. Ultimate Bet allowed some of the players on their site access to a “God Mode” where they could see other player’s cards.

(Source: https://bennettftomlin.com/2021/03/27/before-bitfinex-and-tether/ )

Absolutely not suspicious at all! (It is also worth noting how many people who used to make their money fleecing gamblers are these days involved in the crypto industry.)

On a more hilarious note: one of the “decentralised” financial applications, Beanstalk, found out the hard way why letting people purchase votes is a bad idea. Beanstalk was controlled by a vote by the holders of “governance tokens”, which could be bought and sold. Someone figured a way to leverage loans to purchase the controlling 51 % majority – and promptly used his newfound power to drain 182 million dollars from the Beanstalk fund.

In the real world, similar exploits are not easy. While someone could, for example, acquire a controlling majority in any publicly traded company, there are laws and regulations protecting the minority stockholders. In the crypto circus, there are none.

https://www.coindesk.com/tech/2022/04/17/attacker-drains-182m-from-beanstalk-stablecoin-protocol/

About J. M. Korhonen

as himself
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