Sunday, December 4, 2022

Tether Tries ‘Temporary Fork’ to Nix $31 Million Token Theft

Tether Tries ‘Temporary Fork’ to Nix $31 Million Token Theft

The company behind tethers today released a “Critical Announcement”, stating a hacker had removed $30,950,010 worth of the digital assets from the Tether Treasury wallet on November 19th, 2017. However, the announcement also added that because tether is a centrally-issued asset, the entirety of the stolen funds are likely to be either recovered — or isolated from circulation.

Also read: Using Bitcoin and Virtual Currencies Is Illegal, Says Morocco Central Bank

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Tethers Linked to Fiat Value, May Also Have Ties to BTC Value

Tethers, as the name suggests, are designed to be stable-value cryptocurrencies pegged to an existing fiat currency unit. The “USDT” tethers lifted on November 19th are each worth $1 USD. Tether uses Omni Layer — software linked to data on the Bitcoin blockchain — to verify token ownership.

Tether tethers logoSome consider the current high bitcoin value itself is linked to tethers, if indirectly. BTC dropped dramatically from its $8,250 perch to under $8,000 after news of the theft broke — confirming either the link, or how much the rumors are believed among the trading community.

At press time bitcoin had largely recovered, though, sitting at around $8,110.

Tether’s announcement did not specify how the funds were stolen, or what the actual security breach was. It did offer a list of three steps that tether say they are taking towards a solution.

First, the backend wallet service has been temporarily suspended and is being investigated. Focusing the investigation on the backend wallet may be an indication of where the breach happened.

Omni Core ‘Temporary Fork’ to Aid Recovery of Stolen Funds

Tether’s statement noted a specific Bitcoin address the hacker used to store the ill-gotten funds. (Note that the BTC value of the wallet does not reflect the USD value of the USDT tokens there.)

UK hackerIts next step was to release an emergency “temporary fork” of Omni Core, the software used by Tether integrators to support Omni Layer transactions. The fork will essentially cause a consensus change to prevent the tokens from being moved out of the attacker’s address.

Tether provided a GitHub link for tether integrators, and encouraged them to upgrade as urgently as possible, or risk being stuck with non-redeemable USDT tokens. As the sole issuer of the tokens, it has the power to render them worthless in this manner.

The third step — currently underway — is to work with the Omni Foundation directly on a more permanent solution. This will most likely take the form of a new fork released by the Omni Foundation, superseding the Emergency Tether Fork.

The goals of this new fork will be to bring the tether fork into consensus, and to hopefully recover the stolen funds. However, there is no indication of exactly how that will be accomplished.

The announcement ended with assurances that tether issuances have been unaffected, and promises more information to come.

Anything to Do With Tether Is Controversial

The fallout of this breach is not completely without controversy. Discussion forum threads about the tether hack have reportedly been censored on the popular r/bitcoin subreddit. Twitter and Telegram channels have also been buzzing with the obligatory conspiracy theories and claims of tether insolvency.

US dollars cashFor as long as tethers have existed, there have been murmurings in the community over their value to users.

Some have claimed the assets may not be fully backed by “real” dollars, or that certain traders and companies are artificially pumping the BTC price to boost demand for tethers. Their very nature as fiat-pegged, centrally-managed tokens also arouses skepticism from cryptocurrency fans.

However, the incident and media fallout seems to have little or no impact on USDT trading. USDT still seems to be at or near parity with USD when traded for BTC.

Do you think developers will be able to fix this hack? Is there a deeper more sinister explanation here that only you alone can see?  Share your thoughts in the comments below. 

with Jon Southurst

Images via Tether, Pixabay

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