Bitfinex, the world’s largest Bitcoin exchange by daily trading volume, has vowed to pursue legal action against critics including the anonymous blogger “Bitfinex’ed.”
Stuard Hoegner, Bitfinex’s in-house counsel, stated:
“To date, every claim made by these bad actors has been patently false and made simply to agitate the cryptocurrency ecosystem. As a result, Bitfinex has decided to assert all of its legal rights and remedies against this agitator and his associates.”
Kyle Samani, a partner at Multicoin Capital, stated that Bitfinex had made a critical mistake by initiating a lawsuit against Bitfinex’ed and other potential “bad actors” in the cryptocurrency space.
Over the past few months, Bitfinex’s involvement with Tether, the US dollar-backed cryptocurrency, has been questioned, given that a long-promised third party audit on the USD reserve of Tether was never performed. Critics such as Bitfinex’ed claimed that not all of the Tether issued are backed by US dollars. Tether (the company) shares many of the same owners as Bitfinex.
Charlie Lee, the creator of Litecoin and former executive at Coinbase, also urged Bitfinex to conduct a third party audit on Tether, to put an end to the controversy.
There’s a fear going on that the recent price rise was helped by printing of USDT (Tether) that is not backed by USD in a bank account.
I urge @bitfinex and @Tether_to to perform a 3rd party audit to prove their reserves. Please do the right thing. Thanks.
— Charlie Lee [LTC] (@SatoshiLite) November 30, 2017
A third party audit would be beneficial for both Bitfinex and the cryptocurrency sector, as it would calm many investors who fear that Bitcoin’s price is being manipulated. It would also reassure holders of Tether that the cryptocurrency is backed by a USD reserve.
However, as Samani noted, instead of performing a third party audit, Bitfinex chose to pursue legal action against its critics.
As a crypto exchange, when you’re accused of being a fraud, you have 2 choices:
1) produce bulletproof audits and *demonstrate* (not just say) a commitment to transparency
2) threaten your accuser with [email protected] chose #2
— Kyle Samani (@KyleSamani) December 5, 2017
Reserve of ether
Several analysts and experts have recently questioned the USD reserve of Tether. Tim Swanson, the founder at OfNumbers and a risk analyst for Blockchain firms, stated that a serious problem could emerge in the short-term if Tether is not backed by USD by a 1:1 ratio.
“Is there anything backing this? If these aren’t backed 1-to-1, then what is the contagion risk if one of these exchanges goes down?”
Given that Bitfinex remains as the largest cryptocurrency exchange in the global market and Tether has evolved into a $813 million cryptocurrency, Bitfinex and Tether should conduct a third party audit to prove their solvency in the upcoming months. Failure to do so will continue to ignite more controversy within the global cryptocurrency community, which is not beneficial for any party involved.
Attacks against Bitfinex
On November 19, Bitfinex revealed that the exchange was targeted by a coordinated attack designed to disrupt the market. The Bitfinex emphasized that both fiat and cryptocurrency withdrawals are functioning as normal, and that the exchange is solvent, after several inaccurate reports circulated in online Bitcoin communities.
The company also encouraged the cryptocurrency market to request for evidence before drawing any conclusion in regards to the insolvency of Bitfinex.
Bitfinex is solvent and both fiat and crypto withdrawals are functioning as normal. We are seeing increasing FUD which we believe is a co-ordinated attack to create a market disrupting event 1/2
— Bitfinex (@bitfinex) November 19, 2017
Currently, the stance of the Bitfinex team is to defend the exchange and its trading platform against “bad actors” in the cryptocurrency sector and inaccurate allegations.
Tether has previously come under criticism for claiming that their tokens aren’t money at all. The “legal” section of Tether’s website states:
“Once you have Tethers, you can trade them, keep them, or use them to pay persons that will accept your Tethers. However, Tethers are not money and are not monetary instruments. They are also not stored value or currency. There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.”
The company responded, saying they cannot legally guarantee redemption for dollars, even though they have every intention of honoring redemption requests:
“Our Terms of Service have been carefully picked apart by various malcontents and twisted to suggest that Tethers would not be redeemable for currency on some bizarre, malicious whim by Tether. That is untrue. While we reserve the right not to redeem for any particular customer, as we must, we will not do so for no reason. We have a duty to try to ensure that our service is not being used by persons from sanctioned countries, that is otherwise on a sanctions list, or that has some background check problem. In short, redemptions will not be unreasonably denied, but we reserve the right to selectively deny redemption and creation of Tethers on a case-by-case basis.”