
Warning Signs About Another Giant Bitcoin Exchange - donohoe
https://www.nytimes.com/2017/11/21/technology/bitcoin-bitfinex-tether.html
======
chisleu
Don't forget that someone has been using Tether to wash trade bitcoin on
bitfinex...

[https://medium.com/@bitfinexed/are-fraudulent-tethers-
being-...](https://medium.com/@bitfinexed/are-fraudulent-tethers-being-used-
for-margin-lending-on-bitfinex-5de9dd80f330)

[https://medium.com/@bitfinexed/wash-trading-bitcoin-part-
ii-...](https://medium.com/@bitfinexed/wash-trading-bitcoin-part-ii-who-and-
why-is-someone-wash-trading-on-bitfinex-e1c7b5e0b3bb)

It was widely believed that the tethers being "sold" weren't really backed by
anything and were being used to inflate BTC prices. Now they are claiming 30M
were stolen? I'm betting it's going to end up being a lot higher. They are
using 30M to soften the blow of the higher number. I believe this tactic has
been using by Yahoo and others in announcing the number of stolen accounts as
well.

~~~
jraines
Tether has a blockchain so you can see for yourself how much was stolen. Also,
they blacklisted the hacker's address^.

The @bitfinexed narrative is so flaky, especially the chart "proving" that
Tether issuance pumps BTC. I could post a similar chart showing that my trips
to Costco pump BTC.

There are legitimate concerns around Bitfinex and Tether^^ but the FUD has
gotten out of hand.

Things to keep in mind if you disagree:

1) There is increased demand for Tether mostly from exchanges other than
Bitfinex. They aren't even the largest holder of Tether by a long shot. This
explains increased issuance as much as any conspiracy.

2) There are no widespread complaints about being able to withdraw from
Bitfinex

3) There is no premium on BTC price on Bitfinex as there would be if there
were problems withdrawing in things other than BTC, a la Mt. Gox.

All this being said -- all this would go away if they would prove they had the
funds backing Tether.

^[https://twitter.com/petertoddbtc/status/932862730415017984](https://twitter.com/petertoddbtc/status/932862730415017984)

^^Mostly, IMO, around 1) making themselves a target for FinCEN, 2) the market
not pricing a proper risk premium into Tether

~~~
Kiro
> Tether has a blockchain

How can they create new tether on demand if it's backed by a blockchain? Do
they control all the mining?

~~~
jacobush
Something like that.

~~~
fiatjaf
Stupid, right? Why don't they just use a Postgres database?

~~~
trophycase
Because then we wouldn't have a known number of issued coins as well as the
full set of holders of those coins? Nor would we be able to trustlessly send
them anywhere?

~~~
runeks
> Nor would we be able to trustlessly send them anywhere?

That’s not the case anyway, since Tether can retroactively refuse to honor
tokens that were allegedly stolen. What if the attacker had traded his 30m
Tether-USD in exchange for bitcoins? Then the seller of these bitcoins would
be left holding the bag, because the central party that is Tether refuses to
honor these obligations.

Tether can never be trustless, because it’s credit. Some party needs to redeem
tether tokens for USD, and if that party refuses to do so then your money is
gone.

~~~
ojr
people who hold Tether trust the Tether system that is enough to keep the peg
to the dollar for now, but I have doubts the peg holds

------
randywaterhouse
One thing I have been remarking recent conversations with other long-
interested crypto-friends hasn't been about the price action, or about the
drama, or about the lack of transparency on exchanges like Bitfinex -- but
rather about the comparability of discussions today to those we were having in
2013. (Disclaimer: I attempt to avoid holding strong opinions in this space)

There are certainly patterns in the environment (maybe marketplace) which are
repetitive and reminiscent of the early days. Confusion around price is one.
Two viscerally opposed schools-of-thought is another.

One thing I think, though, that has suffered is the availability of
information assessing the market structure or environment on it's
merits/deficiencies without bias. This is likely hard to achieve, in general,
but these days you cannot find reliable news without being sucked in to the
swirl. Coindesk is pulling a CNBC-of-crypto, articles flying out every hour
with opposing themes. I totally understand the model, captivating the
audience, but it makes it hard to observe what's happening fundamentally
(without having a grasp on the core narrative).

I continue to follow, in a casual way, but as I said continuously impressed by
how the environment remains young -- trends from '13 persist to '17 and
probably '18 (still young!).

~~~
CyberDildonics
Coindesk is intimately linked with blockstream, the company that has gone to
great lengths to take over the github repository, censor /r/bitcoin, and
ultimately keep the block size limit at 1 MB so that they can profit from fees
on their own 3rd party chain.

~~~
dane-pgp
The controversy surrounding BlockStream is fairly well known, but what is the
connection between them and Coindesk? I've not been following that side of
things.

~~~
kobeya
As far as I can tell, they both share a minor investor, Barry Silbert. And
anyone who thinks that means anything hasn’t been paying attention to what
went down regarding the New York Agreement, where Blockstream (standing
alongside many others) opposed Barry and won.

------
slacka
As someone who lost over 100 bitcoins in a sketchy mining pool, for the love
of god, please be careful. I was in early on this madness, and dedicated my
gaming rig for a couple of years. Basically forgot about it, until one day I
went to move my coins only to find the site just a Cloudflare mirror. Learn
from my mistakes and be careful.

~~~
ringaroundthetx
How did you lose money in a mining pool? Hopped in a cloudmining scam?

Mining pools don't store funds, you tell them your payout address.

~~~
whyenot
I seem to remember that in some pools you had to initiate a payout to your
wallet through the pool website. Payouts weren't automatic.

------
b1daly
It's surprising to me that the rather straightforward question of whether
Tether (Bitfinex) is actually holding the dollar reserves against the issued
tether tokens is so difficult to answer.

Just the fact that the company has not definitively disproved the accusations
of fraud against it, which have been instesifying for weeks, is evidence that
there is something to the charges.

There is a not much discussed point I'm curious if anyone here has a
perspective on.

Tether has claimed that their business model is based, in part, on earning
interest on the reserves they (supposedly) hold to back the issue tether
tokens.

It was pointed out by Bitcoin analyist Tone Vays the other day that such a
business account should not be interest earning, as it is not supposed to be
put at risk (by being lent out.)

This strikes me as rather suspicious: that a significant part of the
explanation for how Tether earns money doesn't make sense.

~~~
jraines
It's probably part of their agreement with the bank(s) -- if they're even
traditional banks -- not to reveal the relationship except to certain parties.

And yeah, assuming all the funds do exist, I'd be amazed if they were being
held in a risk-free non-interest bearing form. Which is why it's a bit crazy
that Tether sticks to the peg so well -- the NPV of a Tether accounting for
even non-conspiratorial risks has got to be less than $1

~~~
panarky
_> It's probably part of their agreement with the bank(s)_

The point is that Tether and Bitfinex have the power to publish their bank
balances, and they could authorize their banks to confirm the deposits if they
wanted to.

Why would they refuse to do this, even while under intense suspicion of
actually not controlling 1:1 reserves, unless the accusations were true?

The question of interest is a distraction. Businesses usually hold cash in
money market accounts or do short-term repo agreements to get a little yield
with very low risk. But that yield would be at most 2% a year, so not relevant
to the real question.

------
aresant
To see adoption go as wide as current HODLERS hope BTC can go newbies need to
be insulated from the type of insanity laid out in this article.

Like at bare minimum and for the survival of crypto nobody should trade on
unaudited exchanges.

Or a step further despite Coinbase's scaling issues the fact that they have
both insurance coverage and FDIC coverage on all accounts makes me much more
likely to refer people interested in starting w Bitcoin there than anywhere
else.

But this is also the kind of centralization that Crypto is designed to avoid.

[https://support.coinbase.com/customer/en/portal/articles/166...](https://support.coinbase.com/customer/en/portal/articles/1662379-how-
is-coinbase-insured-)

~~~
root_axis
> _they have both insurance coverage and FDIC coverage on all accounts makes
> me much more likely to refer people interested in starting w Bitcoin there
> than anywhere else._

Very misleading statements.

The FDIC coverage does not include any bitcoin wallets. The bitcoin insurance
only covers their hot wallets (something like 2% of all the bitcoin they
hold). Yes, cold storage is a bitcoin security best practice, but it obviously
does not eliminate the chance that a breach could occur, and if it does, none
of that 98% is covered.

With that said, to Coinbase's credit, they haven't been hacked yet, which is
actually quite an achievement considering the landscape.

~~~
ActsJuvenile
> With that said, to Coinbase's credit, they haven't been hacked yet, which is
> actually quite an achievement considering the landscape.

They have been victims of massive USD chargebacks. I think Coinbase is
bleeding so much money to chargebacks that co-founder Fred Erhsam figured out
company is never going to turn a profit and resigned.

~~~
c0nducktr
I thought AHC transfers were very difficult to get chargebacks on. How much
could they actually be losing on these events? Are they actually not that
rare?

~~~
ActsJuvenile
They are pretty easy to chargeback as long as you initiate it within 30 days
of your first transfer. Give a notarized letter to your bank stating that you
did not do these ACH transfers to this "Coin Base" company.

You can get ACH charged back for up to 180 days with more involved procedure.

~~~
umanwizard
When your bank figures out that you're probably full of shit, are they likely
to terminate your account and/or report you to the police for fraud?

~~~
saryant
Terminate, yes. Report you to the police, not sure.

Chargebacks for small amounts are often paid by the bank itself because it's
cheaper than actually disputing with the merchant, so banks will certainly
terminate accounts of customers who abuse that.

~~~
FireBeyond
I've heard in most cases, banks don't bother investigating / pursuing (credit
card) fraud for amounts <$10K.

------
pfisch
Honestly it sucks that these incredibly sketchy exchanges do so much volume.
Poloniex and Bitfinex are sketchy as hell, but I guess their fees are low so
no one cares.

It would be somewhat surprising if bitfinex doesn't go down in a spectacular
ball of fire within the next 4 years.

~~~
empath75
The only practical use cases for bitcoin as a currency are money laundering,
selling drugs, evading capital controls and tax evasion so the least regulated
exchanges are going to draw a lot of volume.

As a store of value, you’re depending on its continued use as a tool for
criminals for it to appreciate in value beyond pure beanie baby-style
speculation, so you depend on you still depend sketchy exchanges to drive the
price.

When the futures contracts come out, there is going to be a massive price
correction as bitfinex isn’t going to be able to print enough tether to
counteract all the shorts.

Once the price of bitcoin starts dropping, people are going to try and cash
out of bitfinex en masse, causing a run on the bank and collapsing the whole
house of cards. I wouldn’t be surprised to see sub-1000 bitcoins by January.

~~~
bonestamp2
> The only practical use cases for bitcoin as a currency are money laundering,
> selling drugs, evading capital controls and tax evasion

Bitcoin is actually terrible for these use cases since the blockchain is
public and more traceable than your credit card. If you're really trying to
hide your financial transactions then a better option would be something more
anonymous like cash, or one of the other cryptocoins that actually does
provide anonymity.

Your inaccurate and misconceived perception of what bitcoin's use case is
would be laughable if it weren't so popular and wrong. I fear you're
completely misunderstanding the new world economy. You think that bitcoin is a
sideshow for criminals, and seemingly failed to see that maybe a large
parallel economy is being created digitally.

You see, Bitcoin was created after the 2008 crash where the banks, the
organizations we've trusted with our money for a century, made some deliberate
and knowingly poor decisions and they lost a lot of money for many of us.

Bitcoin was invented so that never has to happen again, so that we can have a
secure storage for our money without someone else controlling that money. You
might say that bitcoin was created to get away from the wall street criminals.
I suggest you pick up some cryptocoin (of any kind) so you're not completely
left in the dust as the centralized banks lose power and the decentralized
economy reigns.

~~~
amarkov
> You see, Bitcoin was created after the 2008 crash where the banks, the
> organizations we've trusted with our money for a century, made some
> deliberate and knowingly poor decisions and they lost a lot of money for
> many of us.

I hadn't heard about that. Which banks lost their customers' money in the 2008
crash?

~~~
rlpb
The banking system deliberately removed value from all holders of EUR, GBP and
USD:
[https://en.wikipedia.org/wiki/Quantitative_easing](https://en.wikipedia.org/wiki/Quantitative_easing)

~~~
sanxiyn
This is false. During QE, inflation rate was below target, so _less value than
normal_ was removed from EUR, GBP, USD, etc.

~~~
rlpb
You can't measure value like that during a recession. Whichever way you look
at it, QE removed value from those currencies.

If I were to rob you, claiming that the overall robbery rate was lower that
year, so you weren't robbed by others, so your expected losses were lower does
not change the fact that I robbed you.

------
modeless
It is certain that US law enforcement will come down hard on Tether
eventually. Anyone pretending to transfer dollars outside the banking system
will meet the same fate as Liberty Reserve. When it happens Bitfinex will be
toast, and Bittrex and Poloniex may fall too.

~~~
aero142
Why would Bittrex be hit by this?

~~~
modeless
Tether is a large fraction of their volume and likely deposits as well. If all
that money vanished overnight their customers would be extremely upset. Also,
without Tether they could no longer pretend to have USD support. So many
people are fooled by "USDT" into thinking that they have dollars.

Could Bittrex push all the blame onto Tether and just keep operating as if
nothing happened? I don't think this would work very well. At the very least
this would suddenly point a ton of law enforcement scrutiny in Bittrex's
direction which might end the unlicensed money transmitter party over there.

------
mrwong
Its interesting to see how hostile HN is towards Cryptos. Completely ignoring
the opportunities that it offers for fund raising Start Ups. At the same time
HN likes to bash VCs that are uptight and how hard it is to find capital. I
think this is a sign that even the tech world is not resistant to legacy
thinking. Just like the legacy thinkers of other industries, like print and
brick and mortar commerce were dismissing the new innovation that is happening
on the internet. This time the "internet guys" that are so familiar with the
legacy VC model are dismissing the new innovation in VC.

As with most legacy thinker its almost impossible to change there mind with
arguments, they like to ponder on the risks and counter arguments, just to
stay comfy in the status quo.

Banking, Finance, VC is one of the oldest industries with the least innovation
in the last century.

The really smart VCs did already realize that and instead of shuffing their
head into the sand. They started proactivaly getting involved into the field

Tim Draper of DFJ, (Tesla, SpaceX, Skype Early Investor) holds over 1B$ in the
crypto space.

[https://www.youtube.com/watch?v=obKtE1in7NA](https://www.youtube.com/watch?v=obKtE1in7NA)

~~~
paulgb
HN was actually pretty pro-crypto 4-5 years ago, I think the tech world in
general has started to see crypto and ICOs as a bubble within the last year or
so.

~~~
MengerSponge
Probably not wrong: I've started seeing crypto investment posts from friends
who are musicians, teachers, and baristas.

[https://blogs.cfainstitute.org/investor/2014/02/10/top-
anecd...](https://blogs.cfainstitute.org/investor/2014/02/10/top-anecdotal-
signs-of-a-market-bubble/)

------
cvsh
Is it wrong that, as a non-Bitfinex customer, I'm kind of rooting for an exit
scam so that the price of BTC tanks and offers a perfect buying opportunity?

~~~
mitchellberry
A token only redeemable for bitcoin collapses and you think that will hurt the
price of bitcoin? It will hurt the price of tether certainly, the other side
of the trade will boom.

Always amazed that some fail to grasp this, tether disintegrating is a solid
buy for bitcoin, apart from the bad media coverage, which going by current
standards has no effect on price. So that's $600m desperately trying to get
into bitcoin all at once, this likely happening within a space of ~72 hours,
think about it for a moment.

~~~
Xixi
It's not a zero-sum game: value can and will be created and destroyed. If a
crash of tether causes a distrust in the whole crypto space (which is not a
given at all, granted), and people rush out of the whole space, all of it will
crash.

Would a crash of tether be a source of concern for the value of Bitcoin? If
bitfinexed hypothesis is correct, that is to say that Tether is printed out of
thin air and used to buy Bitcoin thus artificially inflating its value, then
yes, absolutely: a crash of Tether would cause massive distrust in the entire
crypto space...

------
tryingagainbro
NYT in 1997 about him:

 _PHILIP G. POTTER, who develops investment products for high-net-worth
clients of Morgan Stanley, Dean Witter, Discover & Company, likes to think of
himself as an ''uberconsumer.''

Last year, he spent his bonus on a 50-inch TV and a $3,500 Rolex watch. He
wears custom-made $800 suits, custom-made $80 shirts -- always with white
collars and white French cuffs -- and $200 shoes. He is ''totally wired,'' as
he puts it: His home phone forwards messages to his pager; he answers them
over a tiny $800 cellular phone."_

 _... 'I can continue to come up with new products, to add value, [in a
downturn market]'' he said. ''I'm not responsible for getting money. Getting
it's hard when the market goes down. But there will still be products to sell.
It'll just force me to be a little more creative.''_

[http://www.nytimes.com/1997/10/19/business/faces-of-the-
new-...](http://www.nytimes.com/1997/10/19/business/faces-of-the-new-york-
economy-big-earner-big-spender-little-burden.html)

~~~
derwiki
> Last year, he spent his bonus on a 50-inch TV

That made me chuckle

~~~
pault
Sorry to go OT, but ten years ago we needed five guys and a truck to move my
friend's $2000 55" rear-projection TV. It weighed as much as a small piano and
we almost dropped it off the deck. I just got a 55" 4k LED TV for $400 and it
weighs as much as my dog. The mind reels.

------
sturmeh
The stolen Tether are unredeemable, and thusly worth nothing.

They pose a certain risk with accepting dodgy transactions though.

~~~
kobeya
We don’t know for certain how much was really stolen. We just have Tether at
their word. And if more was stolen than the amount frozen, it certainly is
redeemable—for bitcoin on an exchange.

~~~
lug0r
or do we?
[http://omnichest.info/lookupadd.aspx?address=16tg2RJuEPtZooy...](http://omnichest.info/lookupadd.aspx?address=16tg2RJuEPtZooy18Wxn2me2RhUdC94N7r)

------
sebringj
These exchanges are running off of traditional programming, not decentralize
programming correct? Isn't it possible to run them decentralized like with
Ethereum or something? Maybe that's too slow? Just wondering as trust mixed
with trustless seems tainted by design. I imagine getting some encrypted thing
passed with a one time transaction id to transfer from a real fund that when
completed, verifies transfer and notes that in the blockchain. I don't know
though, haven't done programming DAP stuff yet.

~~~
zencash
Yes, it's called Etherdelta.io

------
bringtheaction
I moved the crypto funds I had on Bitfinex to other exchanges a couple of days
ago because the tether situation was making me uncomfortable and distrusting
of Bitfinex.

------
perseusprime11
With so many issues, how does one invest in Bitcoin safely?

~~~
smacktoward
Buy stocks of GPU manufacturers.

~~~
noitsnot
AMD is very cheap. Morgan Stanley recently downgraded because they believe
mining crypto will fade by 50% in 2018.

~~~
prewett
Considering AMD has lost increasingly large amounts of money every year since
at least 2013, I'd say AMD is pretty expensive.

~~~
noitsnot
Fair enough. They will pull into the black in the 4th quarter if they hit
estimates.

