Researchers at the University of Texas at Austin found that at least half of bitcoin's astronomical returns last year may have been a result of manipulation. What may be at the center is another digital token called tether. Tether, whose price is equivalent to the dollar, was designed to make cryptocurrency trading more seamless, by converting cash into digital currency. The company behind the token, also called Tether, claims that each tether "is always backed 1-to-1, by traditional currency held in our reserves." Tether is sold by the cryptocurrency exchange Bitfinex and is also used on other cryptocurrency marketplaces including Poloniex and Bittrex.
Tether has assumed this role because of its link to the dollar. Unlike other cryptocurrencies that fluctuate wildly in value, one tether generally equals one dollar. This makes it a sort of digital-dollar substitute. That is also why it is important that Tether has dollar reserves backing each of its approximately $2.5 billion worth of coins in circulation. But Tether has never produced an audit showing it has the purported reserves.
It's not just the hacks and outright scams that make cryptocurrency a risky investment. According to a report from the office of the New York state attorney general, the exchanges themselves -- the places where would-be investors go to buy and sell cryptocurrencies like bitcoin and ether -- are not doing enough to protect their customers. And that should concern you. SEE ALSO: It only took 37 seconds for two bitcoin'celebs' to start fighting on a cruise ship The in-depth look at 13 exchanges, released today, details all the ways in which major exchanges fail to guard their customers against fraud, manipulation, and abuse. "[Virtual] asset trading platforms now in operation have not registered under state or federal securities or commodities laws," reads the report.