Tether Critical Announcement

https://tether.to/tether-critical-announcement/

by benpink • 9 years ago

532 307 9 years ago

tether.to

kytwb• 9 years ago

Grab your popcorn, this is just the beginning.

ktta• 9 years ago

Here's the text since it seems to be overloaded (italics theirs):

#Tether Critical Announcement

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.

The following steps have been taken to address this matter:

1. The tether.to back-end wallet service has been temporarily suspended. A thorough investigation on the cause of the attack is being undertaken to prevent similar actions in the future.

2. We are providing new builds of Omni Core to the community. (Omni Core is the software used by Tether integrators to support Omni Layer transactions.) These builds should prevent any movement of the stolen coins from the attacker’s address. We strongly urge all Tether integrators to install this software immediately to prevent the coins from entering the ecosystem. Again, any tokens from the attacker’s address will not be redeemed. Accordingly, any and all exchanges, wallets, and other Tether integrators should install this software immediately in order to prevent loss:

https://github.com/tetherto/omnicore/releases/tag/0.2.99.s

Note that this software will cause a consensus change to currently running Omni Core clients, meaning that it is effectively a temporary hard fork to the Omni Layer. Integrators running this build will not accept any token sends from the attacker’s address, preventing the coins from moving further from the attacker’s address.

3. We are working with the Omni Foundation to investigate ways that will allow Tether to reclaim stranded tokens and rectify the hard fork created by the above software. Once this protocol enhancement is complete, the Omni Foundation will provide updated binaries for all integrators to install. These builds will supersede the binaries provided above by Tether.to. After the protocol upgrades to the Omni Layer are in place, Tether will reclaim the stolen tokens and return them to treasury.

Tether issuances have not been affected by this attack, and all Tether tokens remain fully backed by assets in the Tether reserve. The only tokens that will not be redeemed are the ones that were stolen from Tether treasury yesterday. Those tokens will be returned to treasury once the Omni Layer protocol enhancements are in place.

We will provide further updates as they come available, and we appreciate the community’s patience, understanding, and support while we work to rectify the situation in the best possible manner to everyone’s benefit.

The Tether Team

patio115• 9 years ago

If you haven't been following along, here's why this matters:

Tethers is a sole-source cryptocurrency, pegged to the US dollar. Bitfinex produces it, though they're cagey (some would say outright lying at times) about the level of involvement.

The primary purpose of tethers is money laundering, even more so than cryptocurrency generally. Bitfinex was cut off from the US financial system, which makes it impossible for them to clear USD-denominated wires. Their clients have ~$400M of USD on deposit with Bitfinex. Their solution: issue a cryptocurrency which is claimed to be 100% backed by USD and say that it is redeemable 1-to-1 for dollars... we just can't actually physically give you the dollars.

Incredibly, this has worked so far. Bitfinex has issued approximately $600 million in tethers, all but $10 million or so in the last 6 months. They're usable on a handful of exchanges, for the purpose of buying BTC and other cryptocurrencies.

Tether claims that someone has stolen 5% or so of their $600 million tethers -- the digital claims, not the underlying dollars sitting at their totally-exists-we-promise bank account. They've made a technological change to the Omni client to disallow transactions on the stolen tokens, but there is no guarantee that they succeed in convincing all parties to use this.

The nightmare scenario for them is 1+ exchanges say "Well, actually, we rely on your money actually being money to list it here, so pick: we delist you or we don't, but we don't have any incentive to apply that patch." [0] The thief immediately exfiltrates to Bitcoin, and suddenly 30 million hot tethers are contaminating the money stream at the exchange, and they cannot be conveniently disambiguated from clean tethers, because money is fungible.

Hilarity then ensues, for values of hilarity which probably mean "bank run" on a bank which is structurally incapable of paying out most holders of money.

[0] Why does Bitfinex care whether their cryptocurrency is listed at other exchanges? Because they need to launder money to support their exchange business. Tethers are institutionalizing a sort of crypto-hawala (or crypto-Liberty Reserve), allowing the physical transfer of real money to happen at legal remoteness to the cryptocurrency exchange.

Bitfinex has an order book filled with something people want. A way to get access to that orderbook is to say "Bitfinex, I want some tether, how do you sell them to me if you can't accept a wire?" Bitfinex might say "Are you a trustworthy US VC? Spiffy. Move $20 million from your left hand pocket to your right hand pocket. The right hand pocket is now ours; here's $20 to $21 million in Tether, which are good for BTC at your favorite exchanges. At some time in the future, a trustworthy US VC other than yourself is going to ask you to buy some tether from them at par value. You will do that, and pay them from your right pocket. If a regulator asks you about this transaction, you bat your eyes and say 'Oh, sophisticated investors doing a cryptocurrency transaction, nothing to see here.'"

Post-script: Is this good news for Bitcoin? Oh this is great news for Bitcoin. If you don't believe Bitfinex's $600 million in liabilities are worth a copper shilling, the only option for getting your value out of Bitfinex is to swap your liability for Bitcoin, which drives up the price of Bitcoin at the margin.

This is exactly what happened in the final months of Mt. Gox.

empath752• 9 years ago

$600 million in fake dollars? Amazing that they've gotten away with it for that long.

rtpg3• 9 years ago

Well if you can take your USDT and buy BTC elsewhere, and then turn those to USD through whatever means it works well for you.

My bet is that exchanges are holding a lot of these, and they're a bit bought in to Bitfinex not falling over...

askmike13• 9 years ago

They are not fake, they have all of them. People from the US just can't access them anymore. Tether is the workaround so they can.

To add to the excellent summary of patio11:

The other side of the coin is that more and more exchanges are using Tether (USDT) as the only thing pegged to the FIAT world in any way (value wise), not having to deal with actual dollars and banks makes the legal side of running an exchange a lot easier and cheaper. So a lot of exchanges are supporting USDT for a reason way bigger than simply providing a trading marketplace for them. Think about exchanges like Bittrex and Poloniex, which volume wise are huge and don't offer any real dollars or euros.

Analemma_• 9 years ago

This is incredible. How many times have cryptocurrency evangelists railed against phony fiat currency, only to be perfectly fine with an abstracted token that is backed by either fiat currency or nothing.

sanxiyn4• 9 years ago

Money is many things. Some people are against fiat currency as store of value, but okay as medium of exchange. Tether is fiat currency used as medium of exchange but not as store of value.

josephagoss• 9 years ago

To be fair a lot of us stay away from these Tethers.

I think there is a place for a 1:1 backed currency on the blockchain, but I'd rather see Governments actually print for example USD and AUD onto something like an ERC20 Ethereum token.

This would add real fiat to the blockchain which is important, as in the end all taxes are paid in fiat. (It would be nice to be able to go directly into AUD for all crypto currencies, rather than the mess I have now which is to use an intermediate crypto currency like Ethereum or Bitcoin to move in and out.)

Those extra transactional costs really screw with a lot of us.

relyio• 9 years ago

Most "cryptocurrency evangelists" as you say stayed as far away as they could from USDT and are rather supportive of Bitfinexed's arguments against tether.

fulafel• 9 years ago

Isn't the "having access to USD" part of their dollar-backing credible as long as they can buy or sell dollars in the global market?

PKop4• 9 years ago

How do we verify they USD exists? Trust them? In their terms they state that there's no guarantee that they're redeemable for USD. The whole debate depends on whether the USD exists or not.

Certainly you won't believe it does without some strong verification right?

floatingatoll• 9 years ago

For the motivated amongst us, the SEC "Tips, Complaints, and Referrals" portal is here: https://denebleo.sec.gov/TCRExternal/disclaimer.xhtml

They accept anonymous reports, and pay out whistleblower penalties in some circumstances.

I can't tell if Tether is a US company or not, but regardless, it's still worth reporting if y'all care to - that USD has to get into the country somehow, and it sure is interesting how it isn't being reported properly!

toomuchtodo• 9 years ago

US customers of Tether should be concerned that transactions repatriating dollars might trigger a SAR. Have your paperwork in order.

https://en.m.wikipedia.org/wiki/Suspicious_activity_report

pera• 9 years ago

AFAIK they are from Hong Kong.

kamaal• 9 years ago

Its hard to imagine they don't know about this stuff already.

Generally, they know about it, but they have to work to build a case against these people?

bousaid2• 9 years ago

Could you go into more detail on what happened to Mt. Gox during final months?

crazypyro• 9 years ago

Mt.Gox started having issues withdrawing funds to "real" fiat currencies, people got scared, wanted to pull out their bitcoin, suddenly their account says they have a balance, but there's not bitcoin backing up the balance. (In Mt.Gox case, this was because a significant amount of bitcoins were stolen from their treasury.

Similar thing could happen with people redeeming USDT for USD if they don't have enough to cover the already issued USDT.

patio115• 9 years ago

I suppose I could: https://news.ycombinator.com/item?id=7304479

The short version: Mt. Gox stopped paying out USD-denominated claims, because (as was correctly perceived by many people) they were insolvent. They continued paying out BTC-denominated claims. The only way to get value out of Mt. Gox was to either go through yen (which the vast majority of customers couldn't do [0]) or buy Bitcoin and withdraw, which caused the price of Bitcoin to gallop upwards in late 2013.

[0] I got a number of interesting business propositions that year: https://twitter.com/patio11/status/423869016776933376

cperciva2• 9 years ago

Post-script: Is this good news for Bitcoin? Oh this is great news for Bitcoin. If you don't believe Bitfinex's $600 million in liabilities are worth a copper shilling, the only option for getting your value out of Bitfinex is to swap your liability for Bitcoin, which drives up the price of Bitcoin at the margin.

Correct me if I'm wrong here, but this seems to be an argument for BTC/USD going up on Bitfinex -- but not necessarily elsewhere. Is the market failing to price in the fact that "USD on account at Bitfinex" has a value which is not identical to that of "USD in a regulated US bank account"?

patio115• 9 years ago

Yep, you'd expect to eventually see a sustained divergence to price in an elevated level of counterparty risk (like we saw back at Mt. Gox). In the short run, though, arbitrage bots gonna arbitrage.

gnarbarian• 9 years ago

Poloniex trades USDT for quite a few ccs

https://poloniex.com/exchange#usdt_str

panarky2• 9 years ago

Oh this is great news for Bitcoin

If the price of Bitcoin has been inflated by 600 million USD that doesn't really exist, then when this unwinds it will be bad news for Bitcoin.

Kazamai2• 9 years ago

Trust in exchanges is what keeps Bitcoin prices up. This is bad for Bitcoin and all digital assets.

polyomino2• 9 years ago

This is much easier to unwind than Mt. Gox since tether is only redeemable through the tether company.

Participating exchanges have to upgrade their omni/tether clients or they run the risk of accepting the unredeemable tethers for which their customers will hold them liable. Omni's design allows tether to track all the disavowed tethers so there's no risk of payout to addresses downstream of this one.

rtpg3• 9 years ago

has anyone checked to see if this money has already spread to downstream addresses? It's possible the damage is already done and exchanges have accepted money from the poisoned address.

askmike13• 9 years ago

You mean until the hacker starts sending some money to known exchange addresses and tether cold storage addresses, infecting everything?

EDIT: it appears I was wrong!

MichaelGG3• 9 years ago

This also illustrates the absurdity of so called "money laundering". Just moving money around between private parties is somehow a serious crime. Hint: It's not. Money laundering is just a cheat code for prosecutors to get easy points when they can't actually find real wrongdoing.

The funny part is that Tethers came into being after Bitfinex was hacked, right, as a way to help them out? Sometimes we say after someone or a company makes a mistake they're less likely to do so again. In this case, "oops"?

an_account• 9 years ago

As you said, moving money isn’t money laundering. No prosecuter is getting a conviction from people moving money.

goialoq2• 9 years ago

moving money around without record-keeping to prove it wasn't criminally obtained is a serious crime.

kobeya3• 9 years ago

The funny part is that Tethers came into being after Bitfinex was hacked, right, as a way to help them out?

No, Tether is completely unrelated and existed (or was in the process of being stood up) years prior. It just became widely used in 2017 after some exchanges (bitfinex being a big one) switched to it for USD for a variety of reasons.

chvid• 9 years ago

Post-script: Is this good news for Bitcoin? ...

That is some backward logic there.

If there was 600 mio. USD of fake money used to trade bitcoin, it would have driven the price of bitcoin up (and the price of USD down).

Now we get that thing in reverse.

darawk20• 9 years ago

...except that Tether long predates Bitfinex's wire issues. They're usable on many of the major exchanges (Bittrex, Poloniex, for example). Tether was explicitly created for the purpose of equalizing prices across exchanges. It's indeed possible that they're insolvent, but there is no real evidence of that, just lots of people speculating incessantly without much justification.

Basically everything about the parent comment is factually incorrect. I'm not sure why it's so upvoted. I guess people just like scandal in the cryptocurrency world and would prefer to believe what comports with their preconceptions.

askmike13• 9 years ago

Just because tether predates the big USD wire problems does not mean it's creation was unrelated. One of the biggest risk any exchange has is compliance, specifically with the US regulators (and banks).

Even if BFX did not know this before they build their exchange, this most likely became clear from day 1. Tether is a great hedge against this (politics aside).

Could you address anything that you think is "factually incorrect"?

iamthirsty6• 9 years ago

without much justification.

Well, they've never proved it. Just a literal: "Hey, we promise we have the money."

So, can't really say; it's basically a Schrödinger's cat to everyone on the outside. We will only know when it booms — or busts.

repomies6915• 9 years ago

Basically everything about the parent comment is factually incorrect. I'm not sure why it's so upvoted.

patio11 is well respected in this community, so I guess the post is upvoted just because of the author. I personally respect patio11 on quite many topics as a very knowledgeable, but when it comes to Bitcoin and cryptocurrencies he seems to have some personal issue with them, which makes his posts on the topic not that objective.

BLanen• 9 years ago

And their previous CEO just 'forgot' to update his twitter status for two years of not being the CEO.

And the company officers are currently actually bitfinex people?

Total coincidence.

banderman• 9 years ago

Who owns and operates Bittrex and Poloniex? How are the licensed? Do they keep customer funds segregated from operating funds?

3pt141593• 9 years ago

I've been in Bitcoin for over 7 years. This type of back and forth is exactly what happened to Mt Gox. And you know what? My friend got the fuck out of Mt Gox before it burst.

When you have to choose between following a pre-bankrun rumour or following unsubstantiated pushback, follow the rumour. It costs you maybe 5% to get out vs 100% if you're wrong and banks / money holders compete on assuring people that there is less risk with their solution so if Tether can't provide assurance then that is their problem. Cut and run.

cwyers• 9 years ago

Bitfinex has an order book filled with something people want. A way to get access to that orderbook is to say "Bitfinex, I want some tether, how do you sell them to me if you can't accept a wire?" Bitfinex might say "Are you a trustworthy US VC? Spiffy. Move $20 million from your left hand pocket to your right hand pocket. The right hand pocket is now ours; here's $20 to $21 million in Tether, which are good for BTC at your favorite exchanges. At some time in the future, a trustworthy US VC other than yourself is going to ask you to buy some tether from them at par value. You will do that, and pay them from your right pocket. If a regulator asks you about this transaction, you bat your eyes and say 'Oh, sophisticated investors doing a cryptocurrency transaction, nothing to see here.'"

I feel like I'm missing something here -- doesn't the first VC end up with more in tether than the right-pocket money?

ThrustVectoring3• 9 years ago

I feel like I'm missing something here -- doesn't the first VC end up with more in tether than the right-pocket money?

Well, yeah. People don't just participate in schemes without getting "paid" for it.

ActsJuvenile16• 9 years ago

Tether announcement on their own website mentions their Taiwan banks have frozen all international wire transfer since April 18: https://tether.to/announcement/

Tether has printed $600 million worth of tokens since, so either: 1) Local Taiwanese have deposited $600 million to buy Bitcoins through domestic wires, OR 2) Tether is lying and printing tokens out of thin air.

Place your bets gentlemen.

iamthirsty6• 9 years ago

Tether is lying and printing tokens out of thin air.

$600 million bet — literally.

repomies6915• 9 years ago

They can also peg the value using BTC. Basically they just buy using their dollars/fiat some BTC, deposit it to exchanges, and then using some simple bot beg the value of the USDT to USD with bid orders. And vice versa, they can have some USDT on exchanges and have ask orders so that people can buy USDT using BTC. If there are more buys than sells, then they withdraw the BTC and sell it for dollars/fiat.

They don't need to do that on that many exchanges to have effective peg to USD. However they of course still need traditional bank accounts, and they need to trade the BTC on OTC markets or somewhere else.

darawk20• 9 years ago

It's perfectly reasonable to assume $600 million has flown in via Taiwan. Note that that doesn't mean that local Taiwanese have personally bought $600 million. Tether creates an arbitrage opportunity. If you have a Taiwanese bank account, whenever Tether gets out of sync, to say, 0.99, you can simply arbitrage that away and make a risk-free profit. That is what is happening. The demand isn't coming from Taiwan per se, it's coming from arbitrageurs (who either are Taiwanese, or are using someone who has a Taiwanese bank account).

elif• 9 years ago

Their curious verbiage makes me think it's not USD. They say they have backing "assets" my guess is they mean BTC, which conveniently gives them more "value" the more they print.

bufferoverflow3• 9 years ago

Why are you singling out Bitcoin though? All cryptocurrencies are affected by this.

kijin• 9 years ago

Because Bitcoin matters more than all of the other coins combined?

Insofar as market cap means anything, Bitcoin alone takes up about 56% of the sum of all cryptocurrencies listed on coinmarketcap.

csomar2• 9 years ago

Patrick, I thought you are better than making these "non-proved" claims. I can make claims about Bitstamp or Gdax too. Their order book has increased 10-15 times in value since bitcoin price was in the 1000-1200 range too.

Tether certainly has a connection to Finex but they are not its biggest client. Tether is being used by crypto-only exchanges mainly Bittrex and Poloniex to give people the possibility to trade coin/usd.

A possible explanation of Tether growth is simply that: Polo and Bittrex started using them. Is that shady and tries to avoid regulation by placing a crypto sign over a real dollar? Yes.

If you don't believe Bitfinex's $600 million in liabilities are worth a copper shilling, the only option for getting your value out of Bitfinex is to swap your liability for Bitcoin, which drives up the price of Bitcoin at the margin.

Except that the price of bitcoin in finex has been lower than other exchanges in the last few weeks and only slightly higher now.

Jasper_6• 9 years ago

http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC...

I, J.L. van der Velde, hereby declare as follows:
1. I am the Chief Executive Officer for iFinex Inc. (“iFinex”), BFXNA Inc. (“BFXNA”), BFXWW Inc. (“BFXWW”), and Tether Limited (“Tether”). I have personal knowledge of the facts set forth below, and if called and sworn as a witness, I could and would testify competently thereto.
2. iFinex, through its subsidiaries BFXNA and BFXWW, owns and operates a leading global Virtual Currency platform called Bitfinex.

I don't know what else you need for a smoking gun. Tether and Bitfinex are the same thing.

modeless4• 9 years ago

Tether certainly has a connection to Finex but they are not its biggest client.

This is false. In fact, every "USD" market on Bitfinex is actually a Tether market. It doesn't matter what the label on the ticker is, because USD cannot be deposited or withdrawn from Bitfinex, only Tether. Given that, Bitfinex is by far the biggest Tether market.

gciruelos• 9 years ago

This is awesome, great write-up, thank you very much.

You briefly mention that crypto-currencies are used for money laundering. Do you think that's what's driving btc price to insane levels? Or is it just good old euphoria?

repomies6915• 9 years ago

It might also be that the central banks are printing money like hell, and people look for places where their value stays better.

For example ECB (european central bank) is issuing 60 billion euros new money each month, and buying bonds with it. That is half of the bitcoin market cap.

thisisit2• 9 years ago

Tethers is a sole-source cryptocurrency, pegged to the US dollar.

There are others though not really at Tether's level. There is bitUSD on cryptocurrency called Bitshares.

Is this good news for Bitcoin? Oh this is great news for Bitcoin.

Some more discussion on this topic here: https://news.ycombinator.com/item?id=15633852

To add to your post, there are some claims on the fact that it is not finex which has the highest volume rather Bittrex and Poloneix.

There is an interesting reason for that- there is no market for BTC/USDT on Bitfinex as far as I can tell: https://coinmarketcap.com/currencies/tether/#markets

Though I am unable to open the exchange link - https://www.bitfinex.com/t/USDT:USD

This means if I need my USDT to convert to BTC Finex is not the place. They are rather Poloneix and Bittrex which have an exchange for BTC/USDT. Hence people are going to those exchanges in droves, instead of finex.

The second interesting thing is as far as I can tell, finex seems to peg the USDT to $1 and invariably sell/buy at the same price. There is no free float. While others have a free float to BTC/USDT which means prices can be pushed higher there. So I will not be surprised if Bittrex/Poloneix had higher BTC prices.

That said, the chart of USDT is also interesting: https://coinmarketcap.com/currencies/tether/#charts

The peg was maintained for a long while before things seem to get hairy in April/May this year.

darawk20• 9 years ago

There are two types of divergences for Tether, and they each mean different things.

1. USDT > USD. This is the benign version. This signifies increased demand for Tether itself. This happens when there are arbitrage opportunities between exchanges that can only be exploited quickly using Tether. This is the variety that is most common, and exactly what Tether was intended to be used for.

2. USDT < USD. This is bad. This means that people are willing to take a small haircut to not be holding Tether. This means that the market views Tether as risky in some way, possibly implying insolvency. This has happened a few times, but is less common.

Understanding this is essential to interpreting Tether, price divergences, and also the nominal divergence between prices on different exchanges.

modeless4• 9 years ago

there is no market for BTC/USDT on Bitfinex as far as I can tell

You have it backwards. There is no BTC/USD market on Bitfinex. Their "BTC/USD" market is a BTC/Tether market. They have simply labeled it wrong to mislead people. USD cannot be deposited or withdrawn from Bitfinex, only Tether, and that makes their "USD" market a Tether market no matter what the ticker says.

It's really a brilliant scam, but it's only a matter of time before Tether is shut down for enabling money laundering, and Bitfinex with it. Banning US citizens may buy them a little time but it won't last forever. Bitfinex will be the next BTC-e, only worse. Not only is their volume higher than BTC-e, they may bring down Bittrex and Poloniex with them.

dmitriid• 9 years ago

If you haven't been following along, here's why this matters:

This is the only thing that matters: no matter how many faults, and bugs, and breaches, and unauthorised transactions there are, people still flock to these poorly specified, even more poorly executed soap bubbles with no real-life uses.

This like the tenth time something like this happened this year (or just last month, I lost track). And still, somehow, there are (perceived) millions upon millions of dollars in these systems.

intended• 9 years ago

So basically Hawala?

PetoU• 9 years ago

"swap your liability for Bitcoin, which drives up the price of Bitcoin at the margin"

Or any other altcoin available on Bitfinex.

nlperguiy• 9 years ago

They printed 60M tether in the last week.

bgitarts• 9 years ago

There are a lot of claims here. Can you please provide proof of:

1) Bitfinex being the producer of tether? 2) Bitfinex being cut off from the US financial system? (According to their knowledge base, USD withdrawal is an option: https://support.bitfinex.com/hc/en-us/articles/213919309-How...)

joosters4• 9 years ago

See http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC... - or https://archive.is/ggehl

1) Declaration 1&2 show that Bitfinex (through iFinex) share the same CEO (and they're the plaintiffs in this case)

2) The whole point of the case was Bitfinex fighting against being cut off by Wells Fargo.

patio115• 9 years ago

Two for the price of one:

http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC...

naveen99• 9 years ago

Your logic is questionable.

The primary purpose of tethers is money laundering.

you don't back up this statement. The primary purpose of cryptocurrency isn't money laundering. CME is not a money launderer. the us vc aren't in the business of money laundering. What do they gain from buying tether ? How do they move their real usd to bitfinex ? Why does bitfinex even want US dollars ? How is bitfinex able to maitain the usdt/ btc rate appropriately ?

mccoyspace• 9 years ago

Back in 2012/2013 there was something called "Mt Gox codes". It was a USD transfer mechanism that was supported by Gox, btc-e, early bitfinex and others. You could magically and instantly get a USD balance transferred from one exchange to the other. It was pretty crazy to see in operation as funds would instantly flow from Japan to Hong Kong to Russia/Bulgaria/wherever-btcE-was.

It was shut down by US authorities sometime in the Spring of 2013 as I recall. Tether is playing a similar inter-exchange roll today. At least now there is some kind of public ledger, but that may not be saying much.

hacko0o• 9 years ago

Two things could've happened.

1. The saw all the buzz about BFX and Tether and decided to pile the negative buzz all at once.

2. Let's tell them we got hacked and shift the attention their; plus they might feel bad for us.

They were good when they first started but then they got full of themselves and started implementing very odd and sketchy operations. Personally, I won't use them until they become verified: https://cryptonaire.com/digital-assets

robjan• 9 years ago

Cached version: https://archive.fo/7XoKB

pbnjay2• 9 years ago

$30M here, $30M there... by all means, please keep proving to me how secure and stable smart contracts are!

I'm indifferent on bitcoin, it's a cool idea but there seem to be a lot of these "hammer everything" types that are doing it a disservice across the board.

chrisco2552• 9 years ago

Tethers are not smart contracts. It's a separate crypto blockchain currency from Bitcoin and it claims to have a near 1:1 ratio with the USD, hence the name...it's "tethered" to the USD. This is not unlike some foreign currencies.

pbnjay2• 9 years ago

Touché. But the Omni Core Layer mentioned in the announcement implements them.

stale20022• 9 years ago

Well, it is "supposedly" backed up by USD.

A whole bunch of people have been questioning whether they ACTUALLY have that money, very recently, and surprise surprise, there just 'happens' to be a hack that happens right now.

jameskegel• 9 years ago

Tethers are not smart contracts.

Tether is an ERC20 token. [1]

[1] https://blog.ethfinex.com/announcing-the-erc20-tether-c84cc3...

krisives5• 9 years ago

Not going to try and convince you of Bitcoin or crypto as a whole but calling USDT an example of smart contracts is pretty absurd.

knieveltech• 9 years ago

This week's installment of internet funbux drama.

nowarninglabel• 9 years ago

I came across this last weekend, which you may find helpful reading for more context on potential fraud with tether and Bitfinex: https://twitter.com/bitfinexed

tfha• 9 years ago

Isn't tether the one that screwed up? They are the ones who got stolen from, why do other exchanges have to bend over backwards and issue updates?

If the attacker is moving fast enough, exchanges probably can't even respond in time. That shouldn't mean that they lose money. If tether reserves the right to delist coins at any time without much notice, why would you ever consider that a safe asset to accept?

sanxiyn4• 9 years ago

Situation seems analogous to DAO hack. It was DAO who got stolen, Ethereum was fine, no Ethereum software had to bend over backwards to follow hard fork. Still, it seems post-ETH/ETC-fork ETH is doing fine, and sometimes even considered a safe asset to accept.

ErikHuisman• 9 years ago

Problem is the tether is allready spent. So the exchanges where the tether is spent is paying it out their pockets, no?

pmorici2• 9 years ago

Because there are two kinds of crypto exchanges. Ones that have banking and can deal directly with government issued fiat currency and those that don't. If you don't have that banking then your pairs are all in USDT. If the Tether/USDT scheme goes to hell those exchanges w/o banking lose out to a degree so I think it is in all their interest to cooperate.

MichaelGG3• 9 years ago

Because Tether can set the rules since they run the system? Perhaps they will use this as an excuse to claim everyone is tainted and force another haircut?

Jd• 9 years ago

Here's some more context:

Tether was originally setup as RealCoin. It originally had a clear bank account relationship with a Taiwanese bank. It had about $30mm. Then the bank cut them off.

Since then they've been floating without any announced banking relationship and they also changed their terms of service. Over the same time period they made a partnership with BitFinex and their supposed AUM has gone up over 10x.

No one really knows how much of that corresponds to actual USD or if anyone can actually withdraw. A famous twitter account (https://twitter.com/Bitfinexed) points out every day the ostensible discrepancies between the supposed AUM and public amounts.

I'm generally a huge fan of the goal of Tether (a stable USD backed cryptocurrency), but the proof is in the pudding (i.e the reserves) and your access to it, and both of these are rather questionable.

Full disclosure: I know and am friends with some of the current Tether team and was recruited for RealCoin in the early stages of the project. They are working on a hard problem (asset-backed cryptocurrency on the way that gets the most traction in the market at present, not necessarily the way that inspires the most confidence.

ActsJuvenile16• 9 years ago

Tell your friends they should shutdown the company immediately to avoid prison time. Using USD to back any token or digital asset 1:1 is a serious crime as demonstrated by Liberty Reserve.

chx• 9 years ago

What...? Liberty Reserve was a money laundering operation and had nothing to do with 1:1 or whatever. If there's something in the US Criminal Code about that, you need to cite it but I believe there isn't.

runeks4• 9 years ago

I'm generally a huge fan of the goal of Tether (a stable USD backed cryptocurrency), but the proof is in the pudding (i.e the reserves) and your access to it, and both of these are rather questionable.

A “USD-backed cryptocurrency” is a misnomer — it’s just credit. It’s a promissory note saying some issuer will, allegedly, pay you a given USD amount. But unless you believe this claim is 100% certain, it will trade under par, which means it’s no longer backed 1-to-1 (or, at least, the market doesn’t believe it to be in practice).

billylindeman• 9 years ago

Check out bitUSD (a stable asset on the bitshares platform).

bitUSD is backed by a liquid-market peg and has generally held up fairly well since 2014.

unabridged4• 9 years ago

Tether is handling this completely wrong. They should not hard fork Omni and force everyone to blacklist addresses. Instead, tell everyone to halt on-chain trading, take a snapshot of the chain, then create a new tether token and send them to everyone holding the old tethers (minus the thief). I think the bitcoins Tether would have to pay in transfer fees would be a fitting punishment for their poor security.

matt_wulfeck2• 9 years ago

You can't just keep hard forking even time something had happens. The problem is inherit to digital assets: they can be hacked.

chrisco2552• 9 years ago

Banks can be robbed, museums can be swindled, even credit bureaus like Equifax can get hacked. There's no such thing as hack-proof. That some cryptos will hard fork and adjust shows that the system can heal itself and not be in a permanent state of disrepair. That's not a bad thing at all.

zeven7• 9 years ago

That is a fantastic idea.

verroq• 9 years ago

Tether uses the Bitcoin blockchain (omnilayer) to store transactions. To do that they'll need to rewrite the block chain (150gb).

unabridged4• 9 years ago

Not the entire chain or even the entire omni chain, they only need to send coins to the current endpoints holding tether.

matt_wulfeck2• 9 years ago

$30,950,010 USDT was removed from the Tether Treasury wallet on November 19, 2017 and sent to an unauthorized bitcoin address

And will you get it back? By design, no. This is the unfortunate reality of crypto currencies.

pmorici2• 9 years ago

Haven't listened to this yet but audio interview with one of Bitfinex's and Tether's main detractors...

https://www.youtube.com/watch?v=TerIjELO7IY

nikolay• 9 years ago

Bitcoin is crooks' playground! Inside theft, hacks, and everything possible happens as there are enough idiots who hodl and who keep buying at any price in hopes to become millionaires overnight.

ajcodez• 9 years ago

Twitter account @Bitfinexed [1] has been calling out Tether and Bitfinex for possible fraud for a while. Time for popcorn, see how this plays out.

[1] https://twitter.com/Bitfinexed

iamthirsty6• 9 years ago

A lot of good reads on the Medium [1] as well.

[1] https://medium.com/@bitfinexed

foxhop4• 9 years ago

The abstractions and tech which cryptocurrency works on is fragile in most of the same ways as the layers that came before it (credit cards/banks/etc).

Try to look at all this holistically.

How many people and resources do we dedicate on this planet to keep track of money, economy, mine the coins, cash the checks, swipe the cards, keep the lines working?

All of these abstractions make trade faster and more liquid but honestly it really feels like dimished returns in the grand scheme of things.

So many people make money by keeping track of money. So much resources. I can't even fathom it.

Bankers, store clerks, amazon servers, politicians, Dunbar, Stock markets, its crazy.

How much do we allocate to this cause, the cause of keeping track of "who owns what"?

This is not rhetorical, If I had to guess, I would guess that 70% of our resources and jobs are dedicated to this nonsense.

Just think we are mining coal out of the real ground just to mine these "valuable" ones and zeros. What the actual fuck?

It all just seems like a waste.

Use my empty clock cycles to mine and keep track of everyone's virtual coins?

I was behind folding proteins and SETI, and all the other distributed computing ideas. It felt meaningful, like I could help change the world and help raise up the human condition...

Thanks to this post, I just learned what "Tethers" are, and I have to say, I'm so fucking disappointed with this part of the industry.

One of the early promises of cryptocurrency was to "sick it to the man and governments". Now its powered largely by greed and consuming our most important resources in breakneck speeds.

I wish you all luck this this "investment", hopefully the planet will survive this next abstraction of "money".

20after4• 9 years ago

And then there is the whole "root of all evil" thing.

hvk• 9 years ago

Without making a comment on the crypto/tether aspect, I just want to express that it seems to me that the "cause of keeping track of 'who owns what'", as you put it, is precisely the singular technological achievement which has enabled the "human condition" to evolve to its current state. Money is literally the decentralized, asynchronous, dynamic, and continuous computation that has evolved to process the combinatorial coordination of signals/information on resources between 7+ billion unfathomably complex and independent agents. To me, the staggering thing wouldn't be that "70% of our resources and jobs are dedicated to this nonsense", but rather that the technology known as money is so incredibly efficient that it leaves 30% surplus (in this example) for society to further grow.

shobith7• 9 years ago

Money is literally the decentralized, asynchronous, dynamic, and continuous computation that has evolved to process the combinatorial coordination of signals/information on resources between 7+ billion unfathomably complex and independent agents.

I liked that thought, however, I don't agree with the sentence that followed it. We can do way better than that, if we're designing the "next gen" currency, it better give us way more productivity.

Nursie3• 9 years ago

Really?

You really think that having only 30% of output go into actual, productive endeavour would be a good thing?

It just screams of a completely broken system to me, and inefficiency.

I could understand if your attitude was that, well, it seems it had to be this way, it's the best we can do. But to actually celebrate a ~2:1 ratio of fund-shuffling busywork over production seems crazy.

Don't get me wrong, I work in the sector right now, I'm happy to get paid for it, and I can see a use for what I'm doing (exposing data for use in new services) but really not so much when it comes to using distributed supercomputers and thousands of coders to try to predict tiny market movements. And really not "burning energy as fast as possible to (adversarially) compute transactions on a shared ledger".

shobith7• 9 years ago

I understand your sentiment.

However, I think about it slightly differently -- crypto currencies (and their likes) are just an attempt to replace man-power with computer-power. We need someone to enforce the rules without human intervention, hence, freeing up more people to do stuff that doesn't involve managing the abstraction of money.

edit: When we imagine "mining" in this realm, it'd help to think in terms of mining abstract resources like cost for verification of a transaction, rather than tangible resources like coal.

foxhop4• 9 years ago

Most of the other layers of abstractions and tech are still present.

We literally are mining coal to burn it in powerplants to energize servers and GPUS to waste clock cycles to find "coins".

The world is the realm and how we use its people and resources matters, especially when its to just create more entropy faster then natural systems.

cup-of-tea• 9 years ago

Countries like the UK are dominated by the business of deciding "who owns what". Of course the people running the system are "earning" a whole lot of money for themselves.

But money is a strange thing. Almost everyone you speak to doesn't understand it. People think the money itself---the bank notes and numbers in an app---are "worth" something. The system itself does have value because it enables asynchronous trade, which seems to be a good thing. But when you tell people that the numbers in their bank account were just created from thin air by some bank who lent someone money at one time, their eyes glaze over.

When you look around it is obvious that there really are people who are "good with money", and people who are not. Who knows if the poor understanding is intrinsic or has been nurtured by the finance sector. But if we accept that money is a good thing and that some people are bad with it, then that does mean the finance sector has some value.

Bitcoin has long been about greed, unfortunately. In the beginning it seemed like a majority were in it because they saw the value of trustless electronic cash. A system much like gold but completely electronic and completely accurate. But it hasn't been about that for a while. Today you can't even move BTC around due to high transaction fees. I can't believe that the current market cap reprents the value in the current system.

whiskers08xmt• 9 years ago

Proof of work was the first, crude consensus algorithm for crypto-currencies. A lot of more eco-friendly consensus algorithms have been proposed. Ethereum, the second largest crypto-currency in the world, is currently moving towards a Proof-of-stake consensus algorithm, instead of the old proof-of-work one.

Don't forget that decentralized currency is a rather new technology, and is constantly seeing progress being made on all fronts. You can even mine Grid coins doing SETI and Protein folding work!

VMG• 9 years ago

Ethereum [...] is currently moving

* has been moving for years with no end in sight

pjc50• 9 years ago

I would guess that 70% of our resources and jobs are dedicated to this nonsense

I think that's a wild overstatement, even if you're including every kind of management and public service job in the world.

infinity0• 9 years ago

I disagree with the approach to just say "this all sucks". It sucks in particular ways, but I do agree with the other comment that this system has gotten humanity this far, so there are certain benefits to it. I hope in the future we'll have better systems than money to be able to allocate resources.

So we need to understand why part of it sucks, why part of it is great, and develop better alternatives that are also great but suck less. For example, it is important to keep track of who owes what to whom, otherwise people can't trust each other to make promises on a large scale with strangers. It's less good that people can gain a lot of profit simply by manipulating numbers and moving financial instruments around. Part of this stems from all value judgements being collapsed down into a single number which of course can never be self-consistent [1], part of it stems from informational differences between actors and other real-world deviations away from what a "perfectly-liquid" market should look like. If financial activity was truly a "market optimisation" mechanism, we ought to be able to replace the entire thing with a neutral algorithm and get rid of bankers and personal profits here completely.

[1] you cannot totally-order a 2-vector (and in general a n-vector) so that the ordering obeys the neighbourhood principle

parasubvert• 9 years ago

The global financial sector is about 13-19% of the global economy, and 20-30% of the global services sector: https://www.investopedia.com/ask/answers/030515/what-percent...

Which is higher than it should be, but thankfully not 70%...

The above probably includes the accounting industry but not all employee accountants/cashiers embedded in all companies, but even if it did, it would move the needle only a bit (maybe 10% of employees?)

nadam• 9 years ago

Proof of work is not the only scheme to ensure consensus. There are multiple projects based on some kind of proof of stake. One of the most promising such projects is EOS in my opinion. I suggest you not to gain knowledge about cryptocurrencies on HN. Yes, cryptocurrency forums may be an echo chamber, but HN seems to be the other way around. Lot of HN-ers are extremely cynical about cryptocurrencies, so you will mostly hear the bad news here. Reality is not as black and white as most commenters here suggest.

wyldfire2• 9 years ago

New coins using proof-of-stake should look to Peercoin for guidance. It's the oldest PoS coin, had no premine/developer fee. (note that it does use PoW for distribution).

Lot of HN-ers are extremely cynical about cryptocurrencies

I think cryptocoins are great but we can all see folks dumping their money into assets that they have no hope of understanding, guided by FOMO. As a whole it seems like there's not enough cynicism.

wyldfire2• 9 years ago

One of the early promises of cryptocurrency was to "sick it to the man and governments". Now its powered largely by greed and consuming our most important resources in breakneck speeds.

There is a really critical distinction between truly trustless currencies like bitcoin and "managed" [centralized, trusted] assets like the ones Ethereum offers. Interesting that once you start to grant some amount of trust there are options that don't leverage proof-of-work at all, so the waste is not necessarily a concern.

Proof-of-work is "only" necessary if you want trustless coin w/egalitarian distribution. Some folks would argue that it's not necessary to be truly trustless (perhaps bootstrapping a new bitcoin node could suffer a DoS from a sybil false-chain attack, at which point you would trust someone authoritative's copy of the blockchain).

No matter how you slice it, you should be very, very suspicious of any new cryptocurrency and super extremely suspicious of any new "crypto-asset".

hw• 9 years ago

I'm super pumped and bullish about crypto and the whole idea of a decentralized world, but there's so much money involved right now (most of it speculative money, and arguably lots of illegal money), that there needs to be some real measures to ensure the security around it.

Crypto has made it easy for people to essentially start a bank, without actually thinking too much about or knowing how to build a vault properly.

quickthrower2• 9 years ago

The advantages of centralisation. You can fork ... without a fork!

ringaroundthetx• 9 years ago

when you're anxiously waiting for tether to gox the whole market and their critical announcement is ... not that bad

krisives5• 9 years ago

Basically clicked it expecting to read what you're describing. I'm not "disappointed" but at the same time I feel the writing is on the wall. I still expect to read something like a MtGox in the next few weeks/months.

dangero3• 9 years ago

I released a paper earlier this year talking about how we can reasonably lock cryptocurrency to fiat, but unfortunately the space is still rather immature. A single provider of USD tokens is extremely dangerous. Best case scenario would be if there were many companies like Tether and you could spread your token purchases between them automatically to minimize counterparty risk. Stellar and Ripple are closest to solving this since they have fiat trading pairs for each trusted exchange on their network. In the future that could mean issuance from hundreds of banks.

Here is the paper if anyone is interested: https://www.gogreenmango.com/whitepapers/Bitcoin-Volatility-...

ActsJuvenile16• 9 years ago

Ripple is a scam and Jed McCaleb has been dumping thousands of Ripples a day since forever. You shouldn't encourage new users to buy Ripples.

krisives5• 9 years ago

Ripple is a scam it also predates Bitcoin entire thing was a sever to server bank basically

Nemant• 9 years ago

Could you elaborate more on this point?

alwaysnotright• 9 years ago

Jed McCaleb left Ripple pretty early and started Stellar instead, which is probably why he is dumping Ripple.

dangero3• 9 years ago

Ripple the platform is closest to solving the counterparty problems with 1-1 USD tokens. I'm not encouraging people to buy Ripples I'm just stating -- the only way to limit the counterparty risk is to diversify. Banks are perfectly positioned to offer these 1-1 fiat tokens. Ripple is partnering with them.

jankotek• 9 years ago

The only reliable way is for central bank to issue its own crypto currency. Stellar / Ripple are not crypto currencies.

dangero3• 9 years ago

Outside of a central bank issuing cryptocurrency, you can remove counterparty risk with diversification. Stellar Lumens and Ripples are cryptocurrency based on the wikipedia definition: A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions, to control the creation of additional units, and to verify the transfer of assets.

SrslyJosh• 9 years ago

#buttcoin

krisives5• 9 years ago

Use the chrome extension it automatically does it

https://chrome.google.com/webstore/detail/bitcoin-to-buttcoi...

mavdi• 9 years ago

Have all the fun :) While I steadily get rich. I hope they'll make an extension for "fiat money to food on table" when this whole corrupt financial systems comes crashing down (again).

dcw303• 9 years ago

Looking at the attacker's address in Omni Explorer: https://omniexplorer.info/lookupadd.aspx?address=16tg2RJuEPt...

I'm finding this a little confusing as it looks like BTC blockchain addresses can also be Tether addresses. Is this correct?

They are currently holding $30.9M USDT. If they transfer this to another USDT address, I assume it would show up here, like the 3 inbound tx from 31okFF1rUu8jjPEVuajycTRBp82Nteo4Mv that makes up their balance.

But what if they want to cash out to BTC? If they bought on Bitfinex with their USDT would another transaction appear? And could it then be tracked to the BTC blockchain explorer?

It was claimed that the stolen USDT could be mixed into the main supply of BTC, but I'm failing to understand how that would happen, as it seems traceable from the public addresses.

sanxiyn4• 9 years ago

I'm finding this a little confusing as it looks like BTC blockchain addresses can also be Tether addresses. Is this correct?

Yes. Tether is so-called Smart Property (with Property ID 31) stored using Omni Layer. Omni Layer stores transactions on Bitcoin Blockchain. Transaction data is encoded as output script, which uses OP_RETURN opcode and zero value. OP_RETURN opcode allows 80 bytes of data. Omni Layer uses 4 bytes ("omni") of 80 as a prefix to coexist with other systems using OP_RETURN.

runeks4• 9 years ago

Yesterday, we discovered that funds were improperly removed from the Tether treasury wallet […]
[…] they have been flagged and will not be redeemable by Tether for USD.

How will this ever work in real life?

If I yesterday — right after the hack, but before the announcement — in good faith received $1m in USDT, and paid in Bitcoin, who’s liable?

In effect, this policy just shifts the financial burden to innocent people, who may have paid e.g. Bitcoin in exchange for “fake” USDT in good faith.

The issuer needs to take sole responsibility for this. Not because it’s the right thing to do, but because the USDT is useless otherwise. How can it be used for payments if the issuer can make a blog post saying “by the way, if you received USDT from this guy then you have nothing”?

thethimble• 9 years ago

Presumably the stolen coins have not been spent yet.

The attacker is holding funds in the following address: 16tg2RJuEPtZooy18Wxn2me2RhUdC94N7r.

GreaterFool• 9 years ago

As Tether is the issuer of the USDT managed asset, we will not redeem any of the stolen tokens

Rip Tether. I'd expect everyone to stop accepting Tether transactions effective immediately. Tether just made their own security breach a collective responsibility. Now you have two types of coins: the clean ones and tainted ones that are useless.

krisives5• 9 years ago

What they mean I think is that they have hard-forked their underlying blockchain technology (Omni in this case) and it has a Ethereum Classic style check in it not allowing a specific TX/wallet

By-Jokese• 9 years ago

The page is down, what a coincidence!

Kazamai2• 9 years ago

If you have money on bitfinex, get it out now~

brentis2• 9 years ago

It may be an issue. But $600m / $200b = tiny

brentis2• 9 years ago

May be an issue, but $600m / $200b = tiny

Kiro• 9 years ago

How are tethers created exactly? Are they not mined? If so, how can they be a cryptocurrency?

Tether Critical Announcement

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