An Introduction to the Tether/Bitfinex Controversy
Bitfinex is one of the historically largest Bitcoin exchanges and Tether is by far the largest stablecoin. Each potentially has significant influence over the industry on their own, and their interconnectedness makes this more of a concern. However, since both were founded years ago and many of the events have happened and been in revealed in bits and spurts it can be difficult to understand their place in the cryptocurrency environment. This will hopefully serve as a basic introductory document that will then prompt further research.
Bitfinex was founded by Raphael Nicolle, a helpdesk technician(best I can do for an archive is a screenshot), in 2012. It quickly grew in popularity in part due to its ability to serve as a meta-exchange where you could trade on Bitfinex, Mt. Gox, or Bitstamp from the same interface, and later their lending features. However, even from the founding there were issues that plagued Bitfinex. Not the least of which being that the source code for Bitfinex was stolen from Bitcoinica (archive), an earlier hacked and failed exchange created by a 17 year old. Furthermore, the nature of the meta-exchange meant that they also frequently had large amounts of funds on other exchanges including Mt. Gox. As late as April 21st of 2013 you can see in the leaked email below that they had half of their funds on Mt. Gox. Mt. Gox was famously hacked for three years and had approximately 650,000 Bitcoin stolen, culminating in ending withdrawals on February 24, 2014 (archive). It is unknown if Bitfinex had funds on Mt. Gox when it became impossible to withdraw.
The early history of Tether is complicated. The precursor to Tether, RealCoin was started in July (archive) of 2014 by Brock Pierce (who was arrested in Spain with a fugitive child sexual offender (archive)[released with no charges] and was once sued for child sexual abuse [he was voluntarily dismissed of all charges])(who once DMed me), Reeve Collins, and Craig Sellars. It was going to be the first dollar backed stablecoin, where each token on the blockchain would represent a dollar in the bank. This was possible thanks to a new protocol built on top of Bitcoin called Omni that allowed for these tokens to be minted easily. On September 5th 2014 Tether Holdings Limited (archive) was founded by Phil Potter (CSO of Bitfinex at the time) and Giancarlo Devasini (CFO of Bitfinex)[once ordered to pay 100 Million Italian Lira to Microsoft over his sale of pirated software(archive)]. On October 6th 2014 (archive) [Bitcoin/Omni transaction id: ce36efda15bc6cf99ba6a010e71b47b00a5ea2071a392839effe7ed392cf690f] the very first Tether tokens were minted. At some point during this process Tether and Bitfinex ended up having the same leadership team and the same ownership (though they would deny this fact for a while). UPDATE: ADDITIONAL CONTEXT ON THIS CLAIM HERE
