Everyday it’s something else.
Bitcoin suddenly dove as much as 5.4% overnight after Tether said this in a statement:
Yesterday, we discovered that funds were improperly removed from the Tether treasury wallet through malicious action by an external attacker. Tether integrators must take immediate action, as discussed below, to prevent further ecosystem disruption.
$30,950,010 USDT was removed from the Tether Treasury wallet on November 19, 2017 and sent to an unauthorized bitcoin address. As Tether is the issuer of the USDT managed asset, we will not redeem any of the stolen tokens, and we are in the process of attempting token recovery to prevent them from entering the broader ecosystem. The attacker is holding funds in the following address: 16tg2RJuEPtZooy18Wxn2me2RhUdC94N7r. If you receive any USDT tokens from the above address, or from any downstream address that receives these tokens, do not accept them, as they have been flagged and will not be redeemable by Tether for USD.
What’s “Tether”, you ask? Well, for one thing it’s the 19th most-valuable virtual currency on the planet. But beyond that, it’s a fiat currency-backed token. Here, let them “explain” it to you:
A digital token backed by fiat currency provides individuals and organizations with a robust and decentralized method of exchanging value while using a familiar accounting unit. The innovation of blockchains is an auditable and cryptographically secured global ledger. Asset-backed token issuers and other market participants can take advantage of blockchain technology, along with embedded consensus systems, to transact in familiar, less volatile currencies and assets. In order to maintain accountability and to ensure stability in exchange price, we propose a method to maintain a onetoone reserve ratio between a cryptocurrency token, called tethers, and its associated realworld asset, fiat currency. This method uses the Bitcoin blockchain, Proof of Reserves, and other audit methods to prove that issued tokens are fully backed and reserved at all times.
Ok, so this thing has a market cap of $676 million, and the other thing to know about Tether is that they partner with Bitfinex, which ads an extra layer of shadiness to Tuesday’s “theft.”
“Under scrutiny has been the unclear relationship between Tether and the troubled British Virgin Islands-based bitcoin exchange Bitfinex – and long-standing allegations the exchange has been using the asset to engage in fraud and market manipulation,” CoinDesk writes, adding that if this wasn’t complicated enough already, “the two companies are said to share a common ownership, though details remain murky as to the exact nature of the connection.”
So here’s what happened to Bitcoin:
Needless to say, that’s just further evidence to support the contention that these things are not in any way, shape, or form reliable. Also, don’t forget the whole Taiwanese banks hiccup from April when Tether said all incoming international wires were being “blocked and refused”, raising questions about whether Tether (alliteration alert) was actually backed by real money.
And see some people still don’t get why all of this is shady and why it will invariably lead governments to turn the screws. Take Singapore-based Zhou Shuoji, a founder at cryptocurrency investment company FBG Capital, for instance. Here’s what he told Bloomberg:
The community will overreact to these incidents. The most important thing is more and more people are watching and using virtual currencies.
No, “the most important thing” is that yet again, millions in something (although what that “something” is is itself debatable) have disappeared and even a cursory look into the backstory throws up all kinds of red flags.
For now, we’ll leave you with what Goldman said last month about the vulnerabilities (and remember: Goldman is kinda, sorta on the side of the Bitcoin crowd when it comes to their express interest in becoming the first blue chip bank to get into the business):
Cryptocurrencies are vulnerable to hacking. It is critical to note that we do not mean directly via the protocols of the networks, but rather, indirectly, through either online eWallet or other services, the user’s own computer or smartphone, or (for more recent cryptocurrencies, such as Ethereum) through vulnerable “smart contracts”. In one of the earliest Bitcoin hacks, an online wallet, MyBitcoin.com, had around 51% of its bitcoins stolen (worth $49 million at the time). The largest Bitcoin hack to date was on the online currency exchange Mt. Gox, which saw repeated thefts from 2011 to its closure in early 2014, taking around $500 million worth of bitcoins. The largest Ethereum hack, which exploited vulnerability in a smart contract called the DAO (“Decentralized Autonomous Organization”) saw one-third of tokens stolen, worth around $50 million at the time.
Offline storage can help to mitigate these risks, but only to some extent, and ultimately this is somewhat like keeping gold in a safe at your home. The recommended way to handle security is to generate an offline “cold storage” wallet. However, having complete confidence in this process requires significant technical known-how. Furthermore, this is not a permanent solution as new, backwards incompatible versions of the Bitcoin client may be released in future, security algorithms might be broken, and “bit rot” (the physical deterioration of storage media, which flips bits and garbles data) could destroy wallet data. Multiple backups, either electronic or even paper copies, can be made, reducing this risk but increasing inconvenience and security vulnerabilities.