Hacking Of $31 Million Cryptocurrency Peer Tether Results In Fall In Bitcoin

Just a day after hitting an all-time record and passing the $8000 mark, a $31 million theft of a cryptocurrency peer saw the cryptocurrency slip down from the record value as fears about the security of the virtual currency resurfaced once again.

Thee theft was announced on Tuesday by the company behind Tether which is a cryptocurrency that is used by bitcoin exchanges for facilitating trades with fiat currencies. Tokens from the Tether Treasury wallet were removed by a “malicious” attacker and stacked away in an unauthorized bitcoin address, the company said in a statement. The incident had occurred on November 19. The company said it’s trying to prevent the stolen coins from being used.

At 11:32 a.m. in London, there was a drop of 5.4 percent in bitcoin which fell down to $7,798.73 but regained 0.7 percent later.

The confidence in cryptocurrencies have been dented by a series of hacking and thefts and this incident is the latest in that series. The incident is sure to raise questions about the security of digital coins with respect to being considered for entering the mainstream of finance. But bitcoin seemed to be little affected with all this debate as the cryptocurrency remained little changed from its value at the weekend when it had overtaken the $133 billion value of McDonald’s Corp. and made up most of its losses made on Tuesday. It ended at $8,190.15.

Data on Coinmarketcap.com says that Tether is 20th most-valuable virtual currency in the world and has a total market capitalization of $675 million. According t its website, users are allowed to store and transfer the tokens globally and instantly as they are pegged to fiat currencies. The tokens of Tether are completely backed by fiat currencies, said the company behind tether.

Because of its ability to allow trading of the digital coins against currencies like the dollar, euro and yen, therefore tether is considered to be a part of the bitcoin ecosystem, said Arthur Hayes, chief executive officer of BitMEX, a cryptocurrency derivatives venue in Hong Kong. Opening of bank accounts that are needed for holding of hold fiat currencies have been prevented for many bitcoin exchanges due to the anti-money laundering measures and he know-your-customer rules.

The viability of tether was renewed by the theft. Taiwanese banks had blocked all of its international wires, the company had said in April, which had created skepticism. This had also raised doubts about whether tether tokens were completely backed back 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.”

According to Zhou Shuoji, a founding partner at FBG Capital, a Singapore-based cryptocurrency investment company, so long as tether gets support from exchanges and till such time that no other credible pegged token enters the market, users of tether would, in all probabilities,  not abandon it.

“The community will overreact to these incidents,” Zhou said. “The most important thing is more and more people are watching and using virtual currencies.”

(Adapted from Bloomberg)

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Categories: Economy & Finance, Sustainability, Uncategorized

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