In a development that reminded some members of crypto-community of the 2014 Mt. Gox fiasco, the value of Bitcoin, Ethereum and other major cryptocurrencies took a rather significant dip on Monday, after a separate digital currency system called Tether, was apparently burglarized by cyber thieves that made off with close to thirty one million dollars worth of digital tokens.
Administrators of the Tether network announced that a large number of digital tokens were “removed from the Tether Treasury wallet” on Sunday and “sent to an unauthorized bitcoin address.”
“We discovered that funds were improperly removed from the Tether treasury wallet through malicious action by an external attacker,” was Tether’s official statement, after the attack became apparent. Representatives of Tether said they would blacklist the address from which the attack originated, so the stolen coins could not be redeemed for currency. The stolen tokens have been flagged — meaning that Tether will track them and prevent the holder from exchanging them into US dollars through its service.
Tether is not a major player in the world of cryptocurrency, like Bitcoin or Ethereum are. Also, unlike Bitcoin and other types of decentralized cryptos, Tether’s digital coins – the USDT – are pegged to the U.S. dollar. Tether’s main function is to only act as a proxy for fiat currencies such as the dollar, euro and yen, for tasks such as settling balances between exchanges. It uses blockchain technology, but claims to avoid Bitcoin’s volatility through its currency pegs.
However it is the implications surrounding the alleged theft, that many members of the crypto-community found disturbing. Some community members have already criticized Tether for its lack of transparency in dealing with the situation and (perhaps more importantly) voiced concerns about the implications of Tether apparently being able to shut-down specific addresses in such way. What is also very troubling, is how easy it was – in retrospect – to “steal” over $30 million worth of digital coins and send them to “an unauthorised Bitcoin address.”
Still other crypto enthusiasts have speculated more darkly, going so far as to imply that the recent attack could have been an “inside job.” These individuals have been pointing out an alleged connection between Tether and another controversial company in the cryptocurrency universe – Bitfinex. This secretive crypto-exchange was itself famously hacked in 2016, under unclear circumstances. The price of Bitcoin fell by 20% in the aftermath of that hack. The two companies are rumored to have same owners, and have been accused of colluding with each other to manipulate the market.
Whether the above-mentioned allegations prove to be true or not, the incident itself highlights an important point: security is still the major concern facing the cryptocurrency community.
With security issues surrounding Tether still not fully rectified, its functionality as an effective hedge for fiat currency is compromised. That is a part of the reason why many industry experts have been advising to only consider digital coins that are backed by an actual physical asset such as gold, silver, diamonds, etc. While this might seem counter-intuitive at first, so far cryptocurrencies have been proven to be much more susceptible to theft than precious metals and stones. When was the last time someone heard of a gold depository being robbed? Not to mention the fact that most depositories have full insurance coverage. Cryptocurrencies backed by precious stones such as diamonds are also an excellent candidate. Diamonds retain their value over long periods of time and even if something happens to the digital tokens, the stones that are endowing those coins with value, will always remain safe and secure.