Tales From The Crypto: Bitcoin Dumps And Pumps After Tether Robbed Of $31 Million

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.

Got that?

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:

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.

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18 thoughts on “Tales From The Crypto: Bitcoin Dumps And Pumps After Tether Robbed Of $31 Million

  1. Big Banks are far more vulnerable to hacks and have proven it over and over again. The tech level required of cold storage users is about 1st grade equivalency. The BTC dip was bought immediately. Growing pains dawg.

    • cognitive dissonance.

      “it’s fine. none of this matters. it’s all growing pains. none of this is as batshit crazy as it sounds. the nice people with the space tokens promised me they aren’t doing anything shady.”

      • And your nice government men aren’t doing anything “shady”? No worries that the nice government men just printed another $5-trillion and still have $200-trillion of uncollateralized debt obligations including off balance sheet medical & pension promises to folks who are clueless they won’t get theirs, yet no worries they’ll become angry when they learn they’re screwed.

        But hey it’s legal “money” issued by a technically insolvent nation backed by a taxing authority with the right to forcefully take assets from people who mostly have little to none (while many of means move their biz or themselves offshore in record numbers).

        Nope, nothin but blue skies there.

  2. Anyone using exchanges as storage is taking significant risks. I fully agree with that. I put more trust in US based exchanges like Coinbase and Kraken but yes, I treat it like owning physical gold which means security deposit boxes, safes, vaults or a hole in the ground. The protocol is safe, trusting other people to hold your assets overseas is much less so no matter what it is. If you want to have some guy in China storing physical gold for you… I wouldn’t trust your ability to claim delivery too much.

    • Ditto for anyone with any financial assets held at most banks and brokerages. In most cases, your assets are held in your name only as a bookkeeping record for convenience, and the assets are legally the property of the broker and you are legally just an unsecured creditor of the brokerage firm. Anyone who signs up for margin accounts (as most people do, often unwittingly, as it’s often the default) is at risk of hypothecation and rehypothecation of their funds. Even segregated funds sometimes really aren’t, and anyway it’s practically moot if per the foregoing you’ve a margin account. Ask anyone who had anything at MF Global and lost it all when Obama’s bestie, the crook Jon Corzine, gambled with the clients’ assets and lost it all. Ditto for clients of Lehmann, Bear, etc.

      Not all financials are shady and there are (just) a few decent custodian banks. And there are some very reputable, proven, safe, fortress-like storage facilities particularly in Switzerland and Singapore where your treasured assets can be safely stored. It’s actually prudent to store real assets abroad, out of reach of your financially-strapped home government.

      • “And there are some very reputable, proven, safe, fortress-like storage facilities particularly in Switzerland and Singapore where your treasured assets can be safely stored.”

        right. of course you have to get there to access them. you’re better off burying them in your backyard. Swiss fortresses are not a practical alternative for the vast majority of humanity. for regular people, the safest place for your money is in the damn bank down the street.

        i mean i’m sorry, but i get sick of everyone living in a fantasy world. americans put their money in the bank, they pay for goods and services with dollars and debit cards, and that’s the way it’s going to stay for the foreseeable future.

        i love asking regular americans this question: ok, well how about this. tomorrow, you move to all physical gold, all bitcoin. no dollars for you. would you be comfortable with that?

        their answer is always the same: well of course not, how would I buy things easily?

        and my answer is always the same: exactly.

        • It’s not a one-size-fits-all proposal.

          And nobody is advocating 100% allocation.

          There’s also good storage facilities in some states I hear. For example, John Mauldin holds 8% of his total portfolio in gold coins at a safe storage facility in Texas (his home state) because he “doesn’t trust the bastards”.

          Putting all your money in the bank is poor financial advice, except maybe for lower net worth individuals.

          For anyone of appropriate means, geographic diversification is also as sound and prudent a strategy as real asset diversification.

          And long-term investors in financial assets would be prudent holding their bonds and shares in direct registration or certificate form, so they’re unexposed to any bank or broker failures.

          Many larger companies offer direct registration, and a few countries including mine (Singapore) have a mandatory government CDP central depository so your stocks & bonds are unaffected if a bank or brokerage should fail. Good idea.

      • Unless it’s a joke, that’s the most absurd thing here I’ve read here.
        Up there with Avi’s ridiculous “fundamentals are irrelevant” rant at SA.
        I forget his surname, the self-proclaimed EW guru selling something. The difference is he is a completely obnoxious ass and could provoke extreme reactions like the above. I don’t wanna go down that rabbit hole and nobody comes here for TA anyway.

      • Haha, ofc gotta agree with you there.

        But, I did find some interesting info on late-print dark pool block trades (mismatch with print price and price of current day on high volume block trades; legal loophole between London/US trading desks) that is technically just volume and price analysis.

        But alas finding data needed to see if this actually works is difficult. And this is the only form of TA I found could be worth anything.

  3. and at the end of the day, all of these arguments are meaningless, do you know why?

    because look at how you’re reporting the price of Bitcoin. you’re reporting it in ***dollars***

    there’s more than a little irony built into dollar critics pricing Bitcoin in those very same dollars.

    the only way it has any meaning at all is by reference to dollars. you are making a philosophically absurd argument and you don’t even realize it.

  4. Nobody is arguing USD as the current global reserve.

    I assume the majority of your readers are North American. If they were European we can safely assume we’d be describing BTC/EUR.

    Your analysis is stuck in the moment, semantics, and a deep cynicism that is probably more to do with beating your head within the broken system you’re convinced will triumph than anything else.
    It still doesn’t matter much though. Progression is inevitable, and crypto tech represents architectural progression. Leaner, faster, stronger, amorphous, anonymous (some more than others), portable, transparent, I could go on and on.

    When and if you rebut this, this is where you’ll tell me THEY are never gonna let it happen. And then I say but it already is happening. THEY are making their own blockchain. It will not offer the same benefits or architecture, and will only be as valuable as its usage proves to be. Same as one of your central points about Bitcoin. Can you imagine if the tables were turned and more commerce exchanged in crypto? You can’t? Patently absurd? Ok, I hope you’re still in the game in 10 years. We’ll know then who is completely missing the point today.

    The truth is that legacy and crypto will co-exist, probably very messily at times, for quite a while, but I’m not seeing anything in the way of reassurance from DM governments or Central Banks to make me believe they can compete with this in the end.

    • CP,

      I have little doubt the technology crypto-currencies are built on will prove to be quite valuable and will usher a new era of conducting transactions, however, I vehemently disagree BTC/Ethereum are the vehicles to cash in on the movement. Folks tend to conflate the blockchain & smart contract technology’s worth with BitCoin/Ethereum. There is nothing proprietary here. In order for the BTC/Ethereum to prove its value, many more institutions and consumers would need to transition from USDs to BTCs. Only then will it have something proprietary; a network. Hell, I’d assume very few people investing in BTC these days actually understand what the blockchain is. I believe all of the Google searches, headlines, talking heads, etc. are what is driving this mad run up…and it’s so far disconnected from the marginal utility of the BTC ecosystem.

      My 2 cents.

        • obviously that’s to the person above who asked about a “rebuttal.”

          everyone wants to think they finally discovered the next “big thing.” that **this** is the time the little guy pulls one over on the Jamie Dimons of the world.

          sorry, that’s a fairy tale. the little doesn’t win homie. that’s not how the system works.

          it never has worked like that and it never will.

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