(A previous version of this article stated that eGold was forced to shut down due to bankruptcy. In truth, the company behind G&SR was allowed to continue operations but were denied the permits required to act as a money transmitter and had to cease P2P transactions because of that.)

eGold was the last false start of digital currencies. Predating bitcoin, the Douglas Jackson created e-currency made big headway into creating an internet-based currency years before Satoshi’s white paper was published.

The idea that the internet would need its own currency goes back decades even that. Before Bitcoin there was eGold and before eGold there was DigiCash and before DigiCash there were futurists and cypherpunks talking about how such a currency would work.

eGold was popular for the time and effective. Over $2 billion was sent through its system in 2006 and it was backed by actual gold. But it ran into some of the same issues Bitcoin ran into early on in its formation. Media reports from the time indicate that it was favored by cybercriminals. Credit Card thieves would use it to cash out their stolen cards before reconverting to fiat. While eGold was willing to work with the government to help track and stop those criminals, the authorities had another idea: shut down eGold.

And so they did it. And it was easy for them to do it because eGold wasn’t decentralized. All it took was one criminal case against Jackson and then the denial of the permits needed to fall into compliance. But that isn’t the case with Bitcoin and most of the authorities know it.

But Tether isn’t decentralized. It is simply a digital currency and not a cryptocurrency, like eGold and unlike Bitcoin. Kain Warwick, Founder of decentralized stable coin Havven thinks that’s a problem.

“The issue is not about whether it’s collateralized or not,. It’s actually more to do with the inherent risk of interference. You’ve got a private entity that has bank accounts that have all this money in them and if a regulator was to decide that they didn’t like what was going on [that would be a problem]. All of the manipulation discussions and not collateralized discussions, probably won’t ultimately end up being the real downfall for it. It’ll be those things that bring attention to what’s actually happening. And like previous digital currencies like eGold that were shut down by the US government, I think that once regulators actually understand what Tether is and what it’s doing, they’re not going to be super happy about it.”

He has a point, and there is nothing stopping a law enforcement agency from shutting down Tether and/or Bitfinex and crashing the cryptocurrency market by doing so. The only thing that has prevented them so far is their own inaction, likely due to the shadow of unregulability that Bitcoin casts over the entire industry. But if they realize that Tether would be easy to shut down and they decide they want to do that, the shock wave of such an event could set Crypto back years.

“I think if eGold existed in the post Bitcoin world, it probably would have been able to survive a lot longer. Because I think Bitcoin provides a massive smokescreen for Tether and for the centralized exchanges because regulators kind of lump it all into this one thing of like, it can’t be regulated and it’s weird and we don’t get it. [. . .] but the big question is what happens if regulators say, we actually don’t like this, and they realize they can shut it down, as opposed to Bitcoin where they can’t.”

The answer, according to Warwick, is to not only have a decentralized stable coin, but to have multiple stable coins so the risk and the effect of failure is distributed outwards.

Havven in particular is a mix of the early stable algorithmic coins like NuBits, and the collateral based stable coins like Tether. Like the ill-fated NuBits, Havven will have two coins, one of its namesake that does vary in value and Nomin. Nomin, if everything goes to plan, will be stable at $1. Havven acts as the on-chain collateral that will increase or decrease in distribution in response to the moving market. Havven holders will be incentivized through fees to release collateral in a way that helps Nomin keep its $1 price. If they do it effectively, they will be rewarded more than if they do it ineffectively.

I’m not technically competent enough to determine if their algorithm and plan will work. NuBits worked, until it didn’t. We are going to have to wait and see if their technology can deliver on their promises. But one thing I am sure of is that Kain Warwick is correct about decentralization of Stable coins. The only questions are will it work and will the decentralized stable coins scale?

Tether, especially with the recent price-fixing accusations and mention by the SEC in Bitcoin’s ETF denial, is in trouble. And if it is shut down by authorities or just fails under its own weight, our industry will be in trouble. Bitcoin’s price could crash. It is connected to every major exchange. While individual exchanges shutting down would have limited affect on Bitcoin, Tether has the potential to affect every exchange and therefore the entire community.

“But one of the concerning things is that you’ve got all these centralized exchanges. Each of them are kind of single points of failure. But in theory, they’re not correlated. They’re disconnected from one another, so if one of them goes down and gets hacked or something happens, it’s ideally not going to impact the other ones. The problem is, Tether is kind of this thread that ties them all together. So, if something happens to Tether, that could possibly cause a cascading effect.”

Without a suitable hedge the entire cryptocurrency speculation market would be thrown into chaos. We didn’t have stable coins just a few years ago, but they have become fundamental for short term traders and speculators make up a huge part of Bitcoin’s current value. I don’t believe a Tether collapse would destroy bitcoin, but it would set it back significantly.

The only solution is to spread that dependence out among as many stable coins as possible, Havven, Dai and others, and for those coins to individually be as censorship resistant as possible.

[Note: This article has been updated to correctly state Kain Warwick’s position with Havven, he is the Founder of Havven, not its CEO]