Cryptocurrency Tether, hit by a $31 million hack, calls criticism ‘uninformed and baseless’

Tether's website.

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Tether’s website.
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Screenshot/Tether

  • US-dollar linked cryptocurrency Tether hit by $31 million hack in November.
  • Since then, there has been speculation that the company doesn’t hold the dollar reserves it says it does.
  • Tether calls criticism “uninformed and baseless” in a new statement and says it is beefing up security and changing its terms of service.

LONDON – Under-fire cryptocurrency company Tether has hit responded to criticism in the press and online, telling customers it is building new, more secure digital wallets, changing its terms of service, and reopening withdrawals.

Tether created a cryptocurrency called USDT that is pegged to, and backed by, the dollar. It is meant to function as a more stable cryptocurrency than bitcoin and is often used when trading bitcoin. It allows you to avoid the volatility of bitcoin but still have the operability of a cryptocurrency (i.e. being able to send to digital wallets and exchanges.)

The cryptocurrency was hit by a $31 million heist in November. The attack led to online rumours that Tether, which is closely linked to cryptocurrency exchange Bitfinex, is facing deeper issues around its solvency. The press has also raised questions about Tether’s handling of its cryptocurrency.

The New York Times wrote shortly after the hack: “One persistent online critic, going by the screen name Bitfinex’ed, has written several very detailed essays on Medium arguing that Bitfinex appears to be creating Tether coins out of thin air and then using them to buy Bitcoin and push the price up.”

Bloomberg wrote earlier this month: “Among the many mysteries at the heart of the cryptocurrency market are these: Does $814 million of a digital token known as tether really exist?” The article highlighted suspicions that the company may not hold the dollar reserves to back Tether that it claims to.

‘The amount of due diligence being performed is substantial’

Tether has strongly denied these allegations, saying all tethers are backed by physical dollars held by the company. It has also hired a law firm to take legal action against Bitfinex’ed.

The company said in a statement on its website on Thursday that it is aware of “questions and doubts throughout the community” but said it “cannot disclose much about ongoing investigations.”

“We can provide the following information about actions which have taken place over the past month to recover, secure, and move forward from the security breach,” Tether said.

An audit of its books by accountants Friedman LLP is ongoing and Tether said accusations that it does not hold dollars to back up its cryptocurrency are “uninformed and baseless.”

“We understand that the public is anxiously awaiting the completion of this process, but it cannot be rushed and we are not Friedman’s only customer,” the company said. “Moreover, the amount of due diligence that is being performed by Friedman is substantial.”

Tether is overhauling its terms of service, as they have been “widely misunderstood as meaning that Tethers are not redeemable at Tether’s whim or that Tethers are not backed by their underlying assets.

“This is false. Absent a reasonable legal justification not to redeem Tethers, and provided that you are a fully verified customer of Tether, your Tethers are freely redeemable. However, we must and will take steps to prevent terrorists and other bad actors from trafficking in Tethers.”

‘We cannot create or redeem tether for any U.S.-based customers’

As well as addressing recent criticism, the company on Thursday also discussed the latest developments in the hacking case. Tether said it has been able to “freeze and blacklist stolen Tethers” using a software update. Following this action, the company is restarting its wallet services, which enable people to hold and transfer their cryptocurrencies. The company cautioned that it has a big backlog to get through and it may take a while to process transactions.

Tether is closely linked to the Bitfinex cryptocurrency exchange.

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Tether is closely linked to the Bitfinex cryptocurrency exchange.
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REUTERS/Dado Ruvic/Illustration

Tether is now developing new wallets and a new platform and has disabled new sign-ups in the meantime. It is also telling existing customers not to deposit any money in the existing, old wallets.

Despite reassuring customers that Tether is redeemable against the dollar, the company said: “Until we are able to migrate to the new platform, the purchase or sale of Tether will not be possible directly through tether.to.

“For the time being, though, we invite you to use the services of any one of a dozen global exchanges to acquire or dispose of Tethers for either USD or other cryptocurrencies. Such exchanges and other qualified corporate customers can contact Tether directly to arrange for creation and redemption.”

“Sadly, however, we cannot create or redeem tether for any U.S.-based customers at this time.”

The company gave no details as to why it cannot serve US customers. The New York Times noted in its November article that Bitfinex, the exchange that is run by the same people at Tether, has been “been fined by regulators in the United States and cut off by American banks.”