Tether $31m crypto-currency theft fuels debate over digital-coin security
Hong Kong — Bitcoin slipped from a record high, after the $31m theft of a crypto-currency peer renewed concern about the security of digital coins.
The company behind tether, a crypto-currency used by bitcoin exchanges to facilitate trades with fiat currencies, announced the theft on Tuesday. It said in a statement that a "malicious" attacker removed tokens from the Tether treasury wallet on November 19 and sent them to an unauthorised bitcoin address. The company said it was trying to prevent the stolen coins from being used.
Bitcoin dropped as much as 5.4% to $7,798.72, before paring declines to 0.7% at 9.20am in London.
The incident is the latest in a long list of hacks that have dented confidence in the safety of crypto-currencies. It’s likely to fuel the debate on Wall Street over whether digital coins are secure enough to enter the mainstream of finance.
Tether, with a market capitalisation of $676m, is the world’s 19th most valuable virtual currency, according to data on CoinMarketCap.com. The tokens are pegged to fiat currencies, allowing users to store and transfer globally and instantly, according to the website. Tether has said the tokens are 100% backed by fiat currencies.
Tether has become part of the bitcoin ecosystem because it helps exchanges facilitate trades against currencies such as the dollar, euro and yen, according to Arthur Hayes, CEO of BitMEX, a crypto-currency derivatives venue in Hong Kong. Anti-money laundering and know-your-customer rules have prevented many bitcoin exchanges from opening bank accounts needed to hold fiat currencies.
The theft has renewed concerns over the viability of Tether. Skepticism had already been building after the company behind the tokens said in April that all international wires had been blocked by its Taiwanese banks. This fueled speculation about whether the tokens were fully backed by fiat currencies.
"If Tether is actually fundamentally compromised, that will be a very big issue for many exchanges," Hayes said. "The knee-jerk reaction was that fear."
An e-mail to the support address on Tether’s website wasn’t immediately returned.
Tether users are unlikely to abandon it as long as it’s supported by exchanges and no other credible pegged token appears, according to Zhou Shuoji, a founding partner at FBG Capital, a Singapore-based crypto-currency investment company. This view may explain why bitcoin recovered some of its initial losses.
"The community will over-react to these incidents," Zhou said. "The most important thing is more and more people are watching and using virtual currencies."