Even a $31 Million Hack Couldn't Keep Bitcoin Down

Bitcoin hit a record high, shrugging off earlier losses posted after the $31 million theft of a cryptocurrency peer renewed concern about the security of digital coins.

The company behind tether, a cryptocurrency used by bitcoin exchanges to facilitate trades with fiat currencies, announced the theft on Tuesday. It said in a statement that a “malicious” attacker removed tokens from the Tether Treasury wallet on Nov. 19 and sent them to an unauthorized bitcoin address. The company said it’s trying to prevent the stolen coins from being used.

Bitcoin climbed as high as $8,339 in New York trading. The largest cryptocurrency by market value had slumped as much 5.4 percent after the tether hack was disclosed

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But Tether developers froze the loot in place before the hackers could cash out. They did this by writing new software that blacklisted the address where the loot was held, and convinced all the exchanges who use Tether to run the new software. This means that the looted funds can’t be moved or liquidated. The move amounted to a hard fork of the Omni Layer protocol, which Tether is built on. For extra safety, Tether says it won’t honor redemptions of any tokens from the stolen funds.

Tether’s users are unlikely to abandon it as long as it’s supported by exchanges and no other credible pegged token appears, according to Zhou Shuoji, a founding partner at FBG Capital, a Singapore-based cryptocurrency investment company. That view may explain why bitcoin recovered from its initial losses.

“The community will overreact to these incidents,” Zhou said. “The most important thing is more and more people are watching and using virtual currencies.”