Is Tether a bitcoin company?
A good question. I do not think so. I will explain below why, but first where did this question come from?
The statement that Tether is a Bitcoin company was recently made by Samson Mow in X (here) in a response to Paolo Ardoino’s initial Tweet about Tether’s $775 million investment on Rumble (here).
In response to Samson Mow’s statement, I expressed my disagreement by pointing out that Tether prints USDT “out of thin air” and uses these funds to purchase US Treasuries, which in effect helps finance US debt and fund military operations.
In my opinion, a bitcoin company should not provide life support to the current broken financial system that is built on the US dollar’s status as a global reserve currency, allowing a small group of Western elites to control the system and exploit it for wealth transfer.
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”(Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System)
I believe that the primary purpose of bitcoin is to replace the current fraudulent system, not to support it. My assessment is based on this fundamental principle, and I therefore disagree with Samson’s statement. In short, Tether does not align with bitcoin’s purpose of existence, a point to which I will return later.
First, it is necessary to clarify the logic behind my “Tether prints USDT out of thin air” statement as Samson Mow shifted the focus of conversation merely to this specific point instead of clarifying how he considers Tether as a bitcoin company in light of its actions (i.e., financing US debt and thereby funding the US war machine).
My next tweet aimed to highlight the trust concerns inherent in Proof of Stake, a concept that should be familiar to Samson Mow, where ETH holders validate transactions by staking their holdings, creating a system that relies on the implicit trustworthiness of these validators.
In response to my reasoning and explanation, Samson initially claimed that Tether is not proof of stake. Next, in a subsequent tweet where I asked for clarification on whether Tether is on the Ethereum blockchain, he acknowledged this point but introduced a new argument suggesting that Tether’s situation has nothing to do with PoS. This claim is, to be frank, disconnected from reality and raises questions about Samson Mow’s true motivations.
Following my discussion with Samson Mow on X, I decided to provide further clarification on the reasoning behind my statement that “Tether prints USDT out of thin air”. The underlying logic of this argument can be grasped by examining two crucial factors: Proof of Work (PoW) and debt.
Proof of Work:
A critical examination of Tether’s USDT issuance requires a deeper understanding of the PoW.
When individuals exchange their dollars for USDT, they are essentially trading earned value (their time and energy) for a digital representation thereof. However, Tether’s issuance of new USDT units occurs without incurring any cost or spending resources, effectively creating digital tokens that represent claims on value rather than value itself.
In stark contrast, the creation of new bitcoins is facilitated through a competitive mining, wherein miners use computational power (spend energy) to validate transactions and create new blocks, thereby earning newly minted bitcoins as a reward for their efforts. Similarly, in gold mining, the discovery of new deposits is the result of the investment of time, energy, and resources by miners. Likewise, individuals who are employees or entrepreneurs invest their time and energy to generate income or profit.
This underscores a fundamental principle: that genuine value creation typically results from tangible efforts, and resource allocations, distinguishing it from mechanisms that generate value without any corresponding expenditures.
Unlike the aforementioned examples, Tether’s mechanism for creating USDT operates under a distinctly different paradigm. Tether issues USDT without expending time, energy, or resources. Instead, individuals give Tether their hard-earned money in exchange for an IOU certificate represented by USDT. This is in theory, assuming that Tether is an honest player and only mints USDT when a user transfers corresponding USD. In practice, however, there are several factors that complicate the verification of Tether’s claim regarding the backing of USDT with USD.
One issue with Tether operating on Ethereum is that transactions are validated by ETH stakeholders by staking their ETH. This introduces an element of trust in third-party (validators), raising concerns in the integrity of the ledger.
Additionally, in contrast to Bitcoin’s blockchain, Proof of Stake blockchains do not have a clear “chain” of hashes linking each block back to its predecessor through a computationally intensive process, since there’s no mining involved in creating new blocks (as blocks are proposed by validators based on their stake), thereby preventing verification of historical transaction validity. As a result, the current state of a Proof of Stake blockchain reflects only the validators’ confirmation without providing any assurance regarding its historical accuracy or integrity.
Most significantly, there exists no inherent mechanism, as far as I am aware of, preventing Tether from minting additional USDT without corresponding USD backing and transferring to an ETH address under their control and buying real assets (such as bitcoin) with it.
In my opinion, these considerations underscore significant challenges on transparency, accountability and oversight within Tether’s operations. In other words, the entire system relies on the honesty of Tether and Ethereum validators as trusted third parties, which contradicts Bitcoin’s fundamental principle that eliminates the need for trusted intermediaries in transactions as described by Satoshi Nakamoto in Bitcoin White Paper. (source: bitcoin white paper)
While Bitcoin’s decentralized architecture eliminates the need for intermediaries, Tether as a centralized entity controls the issuance and management of USDT and relies on ETH validators for the validity of transactions. This centralized control enables Tether & Ethereum to unilaterally freeze, blacklist, or manipulate accounts at their discretion, as evidenced by past incidents and potential future actions. Furthermore, USDT holdings are exposed to counterparty risk, as holders are only entitled to redeem their funds if Tether maintains its solvency and adheres to a 100% reserve requirement which are significant question marks as explained in previous paragraphs.
Debt:
Even if the claim that all USDT tokens are fully backed is true, it is essential to recognize that USDT is ultimately backed by fiat currency, which itself is debt —whether in the form of dollars or U.S. Treasuries. Consequently, the statement “Tether prints USDT out of thin air” is not entirely unfounded, as the creation of new USDT tokens is effectively facilitated by the issuance of new debt instruments.
How does USD come to existence? As many bitcoiners know very well, they are simply printed out of thin air by FED. This process is facilitated by the US government’s issuance of debt certificates, including short-term Treasury bills and long-term Treasury bonds. The value of these debt instruments is derived from the expectation that the US government will honor its obligations by repaying the indicated amount of USD to certificate holders in the future, primarily through tax revenue collected from its citizens. In essence, these debt certificates represent IOUs and their value is contingent upon the credibility of the US government’s promise to fulfill its debt obligations. The entire system relies on a collective belief in the government’s creditworthiness, rather than any tangible asset backing it. Even if Tether’s USDT is assumed to be backed 1-to-1 with USD, it is ultimately backed by nothing but the US government’s fiat currency, which is itself created out of thin air. This highlights the tenuous nature of USDT’s backing, as it is predicated on trust in the US government’s ability to pay its debt.
In contrast to Bitcoin, which is decentralized money, independent of any third-party liability, holding USDT introduces multiple layers of third-party liability such as:
Trust in the integrity of the Ethereum network & in the honesty of ETH stakeholders who validate transactions and maintain the ledger.
Trust in Tether’s financial stability and solvency, as well as its commitment to honoring its obligations, thereby mitigating the risk of bankruptcy or fraudulent activities.
Trust in the creditworthiness of the US government, as the value of USDT is ultimately tied to the value of US Treasury securities held by Tether.
These cumulative risks underscore the significance of third-party liability in the context of USDT ownership.
In conclusion, the statement “Tether prints USDT out of thin air” is based on the fact that USDT is minted by Tether without incurring any cost or spending resources, there is no mechanism to prove that Tether maintains 100% reserves and USDT is ultimately backed by fiat currency, which itself is debt created out of thin air by the FED. Therefore, “Tether prints USDT out of thin air” notion is not entirely unfounded and highlights the tenuous nature of USDT’s backing.
Tether finances US debt and war machine by buying US Treasuries:
Having laid out the logic behind my statement that “Tether prints USDT out of thin air,” I will now move on to the main argument underlying my position: namely, that Tether is not a bitcoin company because its acquisition of US debt provides life support to a profoundly corrupt and exploitative financial system, which enables a small cabal of western elites exploit the rest of the world to further enrich themselves. The fundamental purpose of bitcoin is to replace this broken system, not to provide life support to it.
The current financial system:
erodes the purchasing power of working-class individuals through inflation
excludes a significant portion of the global population from accessing to financial services
preserves ‘the rules-based global order’ (as it is called by the West) that exploits developing nations for the benefit of a privileged few in Western countries
concentrates control in the hands of an unscrupulous banking cartel and self-proclaimed elites
At the heart of the existing financial system lies the US dollar’s role as a global reserve currency that grants the US government considerable leverage to enforce its economic and geopolitical interests. By controlling USD flows, the US can impose financial sanctions on nations that refuse to comply with its rules and norms.
In instances where financial coercion proves ineffective, the US has historically resorted to alternative measures, including military intervention and covert operations, aimed at bringing disobedient countries into compliance with its policy directives. Historical records are full of examples.
[ ] In 1953, the United States and the United Kingdom collaborated to orchestrate a coup d’état in Iran, resulting in the overthrow of the democratically elected government of Prime Minister Mohammad Mossadegh. This action was carried out following Mossadegh’s decision to nationalise Iranian oil companies, which were vital to the West’s economic interests.
[ ] The Central Intelligence Agency (CIA) played a substantial role in supporting a coup against Salvador Allende, the democratically elected President of Chile in 1970, because they were concerned that Allende’s policies would lead to a shift towards socialism and potentially even communism, which was seen as a threat to US interests in the region.
[ ] Saddam Hussein’s decision to transition Iraq’s oil transactions from US dollars to euros was a major factor contributing to his downfall. By challenging the existing global financial system, Hussein became a threat to the global financial order and therefore paid the price with his life.
[ ] Muammar Gaddafi proposed the establishment of a gold-based currency, known as the gold dinar, intended for use in African oil transactions. This initiative aimed to create a pan-African currency independent of both the US dollar and euro, potentially undermining their influence in regional trade. The perceived threat posed by this proposal to the global financial order has been the main factor to Libya’s destabilization and Gaddafi’s eventual demise.
[ ] The overthrow of Ukraine’s democratically elected president in 2014 by a CIA orchestrated a coup d’état, with Victoria Nuland, then-Assistant Secretary of State for European and Eurasian Affairs, playing a key role in the operation. The intervention was motivated by Western corporations’ desire to colonize Russia and use its resources as collateral to prolong the life of the global financial system that has become unsustainable with its current debt levels.
Those interested in understanding the mechanics of the current financial system or learning about the historical crimes committed by West against the Global South are invited to contact me directly. I can provide access to a comprehensive collection of resources that document these issues. However, due to space and time constraints, it is not feasible to elaborate on these topics in detail here.
The statement that Tether is primarily a bitcoin company is entirely unfounded since Tether provides significant support to the current financial system. The US government is currently facing challenges in financing its debt due to decreasing global confidence in its ability to repay its obligations. This is evident in the fact that China has ceased purchasing US debt, while Russia has sold off its entire holdings prior to the Special Military Operation (SMO). Furthermore, private investors are increasingly wary of investing in US debt, citing concerns over its sustainability. Currently, the UK and EU are the only entities actively buying US debt, which, along with the US, are the other two pillars of the existing global financial order. Notably, Tether has emerged as a substantial purchaser of US debt (approximately $100 billion at the time of writing), effectively serving as a vital lifeline for the prolongation of the Western colonial order.
Tether is NOT a bitcoin company. In my opinion, it is fair to say that those who claim that Tether is a bitcoin company are either lacking in critical thinking or have a financial stake that compromises their objectivity.
It is true that it helps bitcoin adoption and by providing liquidity contributes to the upward momentum of bitcoin price. I believe, it is likely that the current price of bitcoin would be significantly lower without Tether’s involvement. This raises important questions about the motivations and values of those involved in the bitcoin community who claim that Tether is a bitcoin company. Can their support for Bitcoin be attributed to a sincere interest in advancing the principles of decentralization and sovereignty, or might it be influenced by self-interest and the pursuit of personal wealth? Are there other potential motivations or conflicts of interest at play?
As outlined in this article, I have concerns regarding Tether’s alignment with the principles that underpin Bitcoin’s core values. My critique is not intended to be accusatory, but rather to encourage critical evaluation. I acknowledge and appreciate Tether’s contribution to bitcoin ecosystem and see their investment in Rumble as a positive development for freedom of speech and recognize Samson’s dedication for Bitcoin adoption. However, my appreciation for their efforts does not imply unconditional trust.
The defensive responses of some individuals within the community to my criticisms (without any reasonable counterarguments) have raised questions for me about their potential biases and motivations. While I do not aim to convince those who misinterpret my intentions, I will exercise increased suspicion when engaging with individuals who appear more focused on protecting Tether’s interests than upholding the principles of Bitcoin.
In summary, I believe that Tether’s role in propping up the current financial system - intentionally or not - underscores the need for skepticism and critical thinking. As global events continue to unfold with unprecedented speed and complexity, it’s essential to remember: ‘Don’t trust, verify!’