TETHER

DESCRIPTION OF EVENTS

"Tether, a start-up that offers dollar-backed digital tokens." "Tether is a controversial cryptocurrency with tokens issued by Tether Limited, which in turn is controlled by the owners of Bitfinex. Tether Limited formerly falsely claimed that each token was backed by one United States dollar, but on 14 March 2019 changed the backing to include loans to affiliate companies." "Originally launched as Realcoin and later rebranded, Tether aims to serve as a proxy for the US dollar that can be sent between exchanges, notably including Bitfinex, Poloniex and other markets without fiat trading." "USDT is a cryptocurrency token pegged to the US dollar, which is [purported to be] fully backed by assets in the company’s reserve account."

Tether "claimed Monday that its systems had been hacked, according to cryptocurrency news site CoinDesk." "$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."

"[W]hat the hackers took off with wasn’t $30.9m USD in US dollars or bitcoins. Instead it was $30.9m USDT, “tokens” backed one-to-one by US dollars Tether says are held in reserve. The Tether transactional ledger that records what happens to those USDT tokens is embedded as metadata in the distributed ledger that records transfers of bitcoins, the blockchain."

"According to a now deleted post on its website, Tether said a “malicious action by an external attacker” resulted in the theft of the tokens, CoinDesk said." "Tether said it would move swiftly to ensure these exchanges do not trade or otherwise introduce the stolen funds back into the cryptocurrency economy."

"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."

"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 [new] software immediately in order to prevent loss." "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."

"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 says it will not try to retrieve the money. Instead, the company will attempt to permanently freeze the stolen funds by updating its Omni Core software."

"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."

"[T]he incident has apparently not caused major disruption to the value of Tether or Bitcoin. According to Coinmarketcap, Tether is ranked as the 19th most valuable cryptocurrency, with a market capitalization of $674 million." "The company said it issued over $300 million worth of USDT in the last week alone." "Bitcoin dropped as much as 5.4 percent to $7,798.73, before paring the decline to 0.7 percent at 11:32 a.m. in London." "[W]hile it took a hit earlier in the day, [bitcoin] recovered quickly and was listed at $8,152 at the end of Tuesday."

"Reddit user SpeedflyChris began looking into the bitcoin addresses associated with the theft, and using WalletExplorer — a smart Bitcoin block explorer that groups individual addresses into clusters to identify likely wallet ownership — he discovered a link between the wallet used to empty the Tether address and the wallets that had been used to during the 2015 hacks of bitcoin exchange Bitstamp." "Apparently, the address that had been used during the Tether hack had received .01 BTC shortly before the hack. The sender of that transaction had recently received coins from this wallet, which was created in 2015." "This same wallet was first used to steal more than 18,500 BTC — worth $5 million then but more than $150 million today — from Bitstamp in January 2015."

“I actually wasn’t looking for it at all which is the crazy thing. It looks like they transferred 0.01BTC to the wallet they were going to move the 30 million tethers to several hours before, presumably so that they would have BTC in the wallet to pay the fees to move those stolen tethers afterwards. In the end the Tether wallet had a little over 5BTC which they took as well so they actually didn’t need to do that at all,” he said.

"He said that what surprised him most about the Tether hack is how brazen the hacker was about linking wallets used in multiple hacks together, irrespective of the powerful blockchain analytics tools that can be used to unmask wallet owners. Amazingly, he also linked these wallets to a series of LocalBitcoins transactions, meaning that whoever was using this LocalBitcoins address in 2015 is almost certainly the hacker."

“Bizarrely, they transferred those coins over using a wallet linked to the Bitstamp hack, which lead me down the rabbit hole somewhat and from there all of the transactions fell into place. Then, if you look at how the Bitstamp and Huobi funds [ Editor’s Notte: the latter has now confirmed there was no hack] were moved around afterwards they went to the same wallets, and were then split up with a lot of the coins being moved to BTC-e mostly in batches of 1000. 1000BTC of it was passed through a wallet that had previously been used for depositing at LocalBitcoins as well months prior,” he continued.

Consequently, he believes that the hacker — who has now apparently stolen at least $250 million worth of funds in today’s dollars — is “not particularly concerned about chain analysis, or they’re just totally ignorant of how powerful a tool it is.”

Tether is a stablecoin that has a typical market value of $1 USD. New tether tokens are issued from a treasury. This treasury held a significant portion of the funds in a wallet protected by a single private key. That wallet was breached, and the funds were sent to a malicious actor.

However, unlike with most crypto-assets, Tether is in full control of the Tether token, and they were able to simply release a software update that froze the stolen funds, before they ended up in the wider marketplace. As a result of this, there was no loss actualized.

Contrary to claims by SlowMist, there does not appear to be any evidence that any bitcoins were stolen in this incident, nor any evidence of another incident with stolen bitcoins from Tether.

HOW COULD THIS HAVE BEEN PREVENTED?

While Tether is not an exchange platform, many exchanges will hold Tether tokens and not have the luxury of being able to quarantine stolen funds.

Like all crypto assets, it's important to use multiple keys for the control of the funds to multiply the protection. Keys should also be stored offline. The ideal security setup has multiple trusted and trained indviduals holding each fund.

Check Our Framework For Safe Secure Exchange Platforms

SlowMist Hacked - SlowMist Zone (Jun 26)
Tether hack: attacker reportedly steals $30 million of digital tokens (Aug 9)
Tether Claims $30 Million in US Dollar Token Stolen - CoinDesk (Aug 9)
Tether Critical Announcement - Archive.fo (Aug 9)
Tether says nearly $31 million worth of its digital tokens have been stolen after hack - The Verge (Aug 9)
Tether (cryptocurrency) - Wikipedia (Aug 9)
$30 million worth of Tether stolen in latest crypto heist (Aug 9)
Tether, a startup that works with bitcoin exchanges, claims a hacker stole $31M – TechCrunch (Aug 9)
Tether hits back after $31m cryptocurrency hack – Naked Security (Aug 9)
$31 Million Tether Hack Linked to 27,000 BTC in Previous Bitcoin Theft (Mar 2)
Bitcoin falls on $31m hack of cryptocurrency peer tether (Aug 9)
Tether crypto-currency operator reports $31m raid - BBC News (Aug 9)

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