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Centre and Tether Blacklist Accounts. This is Not How Crypto Should Work.

By request from law enforcement, Centre and Tether have blacklisted addresses holding their stablecoins. This should not be happening in crypto.

Centre, the consortium that includes Coinbase and Circle and issues the dollar-backed, Ethereum-based USDC stablecoin, blacklisted an Ethereum address holding 100,000 USDC.

In a transaction dated June 16, 2020, the address in question had a “blacklist(address investor)” function called on it by an address owned by Centre.

The transaction where Centre blacklisted an Ethereum address. Image courtesy of Etherscan.

A Centre representative confirmed in a statement that “it blacklisted an address in response to a request from law enforcement. While we cannot comment on the specifics of law enforcement requests, Centre complies with binding court orders that have appropriate jurisdiction over the organization.”

This is the first time Centre has blacklisted an address, but it may not be the last.

The Block then reported that Tether, creators of dollar-backed stablecoin USDT, has blacklisted 39 Ethereum addresses since 2017 that hold millions of USDT, making those stablecoins unusable.

USDT banned addresses. Courtesy of Philippe Castonguay and Dune Analytics

Similar to the Centre situation, these accounts were frozen upon request of law enforcement.

This blatant censorship by centralized entities like Centre and Tether is the diametric opposite of what crypto is about.

Problems with Fiat-Backed Stablecoins

Fiat-backed stablecoins are simple to understand and maintain their peg to the US Dollar easily, so these cryptocurrencies are a good on-ramp for those who are new to the industry. But their problems have become glaringly evident in these recent events.

The primary drawback of fiat-collateralized stablecoins is that they are managed by central entities — in this case, Centre and Tether/Bitfinex. This causes a few issues.

First, these companies are a single point of failure. If they are mismanaged and go bankrupt, the stablecoins that you hold may be worthless, and you would lose all of the money you put into them.

Next, you need to trust that these companies will act reasonably and follow proper monetary policy. This isn’t always the case.

For instance, Tether has not had a good reputation of operating in a transparent and honest manner, to say the least. In 2019, Tether admitted that only 74% of their stablecoins are backed by cash and securities, when they initially claimed 100% backing. Also, Tether has been accused of issuing too many of their stablecoins into the market.

Tether Money Printer Go BRRRRRR

Maybe most importantly, and certainly the most relevant to this situation, is the increased regulatory oversight of fiat-backed stablecoins.

External audits are necessary to ensure that there is enough fiat collateral in reserve.

And because these coins are collateralized by government-based fiat, they are much more susceptible to government involvement and law enforcement.

Because cryptocurrencies are built on public blockchains, anyone can trace the movement of these coins from address to address.

But for fiat-backed stablecoins specifically, if law enforcement believes that there is criminal activity going on with particular accounts that they’re tracing, they can force the issuers to blacklist these accounts, as we’ve seen in these situations.

Decentralization and Censorship Resistance is Why Crypto and Meter Were Created

On January 3rd, 2009, Bitcoin started its journey to create a decentralized financial system without government-backed currencies.

Satoshi Nakamoto saw the rampant misuse of funds in federal bailouts and mismanagement of economies around the world, and s/he set out to create a financial system that could operate independently from governments and centralized entities.

Needless to say, Satoshi would not, and could not, ban any addresses from sending or receiving bitcoins.

Now, I’m no proponent of breaking the law. I do believe that if you break the law, you should suffer the consequences.

But I also believe in the core theses of crypto — permissionlessness, decentralization, and censorship resistance.

And as crypto users and believers in this new financial system, the censorship that Centre and Tether have done is not what we signed up for.

They may as well be thought of as Paypal 2.0 — a middleman who can censor users and discontinue their services, as they did to the porn industry.

That’s why we created Meter. We want to complete the mission of Satoshi Nakamoto — to create a decentralized, uncensorable, peer-to-peer payment system — but with a currency that has a more consistent, stable value that is better fit as a medium of exchange.

Like Bitcoin, the Meter stablecoin (MTR), is mined using Proof-of-Work, the most decentralized and permissionless way to create digital currency. Anyone with enough computing power can mine and bring MTR into the world.

This decentralization will make Meter immune to oversight and regulation by central banks and law enforcement.

Furthermore, because Meter doesn’t rely on collateral — whether it’s fiat, commodities, or crypto — to be created or maintain its value, authorities can’t seize this collateral to affect the value of MTR. Rather, MTR naturally holds value in itself due to its unique consensus mechanism.

In short, as a user of a fully-decentralized cryptocurrency like Meter, you can’t and won’t be censored by law enforcement, government organization, or any other centralized entity, and certainly not by us.

Conclusion

While centralized, fiat-backed stablecoins like USDC and USDT are easy to use and understand, I believe we need to really consider their drawbacks, which these blacklist situations have brought to light.

Crypto was built on the beliefs of permissionlessness, decentralization, and censorship resistance. And Centre and Tether are not adhering to these core principles.

There’s a reckoning coming for centralized stablecoins, and we believe that this is just the beginning of it.

What are your thoughts on the blacklisting of addresses by Centre and Tether? We know this is a controversial topic, and we’d love to hear your opinion. Comment on this post or hit us up on one of our social networks below.

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Originally published at https://www.meter.io on July 10, 2020.

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Meter is a high performance infrastructure that allows smart contracts to scale and travel seamlessly through heterogeneous blockchain networks.

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Mike Chan

Mike Chan

Dad and husband! Growing @zkpanther, advising @meter_io and @ututrust. #crypto, #startup, ex-marketer @capitals, expert power napper

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