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Public Key Cryptography Simply Explained

Photo by Liam Macleod on UnsplashPublic key cryptography seems magical to everyone, even those who understand it. In this post, I’m going to explain public key cryptography. Public Key Cryptography is based on asymmetric cryptography, so first let us talk about symmetric cryptography. CryptographyYour front door is usually locked by a key. This key unlocks & locks your front door. With symmetric cryptography, you have one key which you use to unlock and lock things.Only people with the key or a copy of the key can unlock the door. Now, imagine you’re on holiday in Bali. You want to invite your friend around to look after your cat 😺 while you’re on the beautiful beaches 🏖️.Before the holiday, you give your friend the key to your door. Your friend is then robbed, so someone else has your front door key now. Or your friend leaves it laying around and someone clones it. The problem with symmetric key cryptography is that this one key is easy to clone, it’s easy to attack your house in many different ways.Let’s take this from an analogy to a real-life example of symmetric cryptography.Caeser’s CipherJulius Caeser used a cipher to send messages that no one else could read other than the intended recipient. Mainly because no one could read back in 100 BC, and those that could wouldn’t understand a random string of letters. That’s the whole point of cryptography. To create ways to communicate without third parties listening in. This cipher is Caeser’s Cipher. Given an alphabet and a key (the key is an integer between 1 and 25), shift all of the alphabet letters by key.With a shift of 3, as seen in the image above, A becomes D, B becomes E and so on until it wraps around with X = A. The original message is called the plaintext and the encrypted message is called the ciphertext.The easiest way to perform Caesar’s Cipher is to turn all of the letters into numbers, a = 1, b = 2, c = 3 and so on.To encrypt, E, you calculate this for every letter (where s is the shift):This is called a function. You put an input into it, and an output comes out. A lot of functions are known as two-way functions. You can encrypt by using the function above, and it makes sense that to decrypt you just do the opposite. Given a function that doubles a number, if you have a doubled number and you want to reverse the function do the opposite of multiplying by 2, divide the number by 2.mod is the modulus operator. It’s the remainder of dividing. We do modulus because there isn’t a 27th letter in the alphabet, you just wrap around from “z” back to “a”. We’ll talk more about modular on in this article. Look at this small example below:Because 4 divided by 3 has a remainder of 1.To decrypt Caesar’s cipher, D, you calculate this for every letter:As you can tell, it’s not very secure. With 25 total shifts you just have to shift the text 25 times until you find the decrypted code, this is called a brute force attack. You take the encrypted text and shift it all 25 times until you find the decrypted text. But let’s imagine for a second that this was a hard cipher — that brute force isn’t feasible.How do you tell your friend you’re using a shift of 9, for example? You have to communicate it to them somehow. Any and all forms of communication can be listened in on — whether that’s writing a letter or going to a hidden forest in Switzerland 30 miles from the nearest town and telling your friend.The latter isn’t very feasible, but it is a lot more secure than telling your friend in Times Square, New York 🗽 what the shift is.Now, imagine you brought your lunch to work in a special lunchbox — the same you’ve had since nursery school. Someone steals your food and your lunchbox. You don’t mind losing the food, but you do want the lunchbox back. You want a way for them to securely return your lunchbox without you knowing who took it — because that takes the pressure off of them.You place a box in the staff room with a lock & key. You give copies of keys to everyone in the office and hope for the best — that someone will return the lunchbox by placing it in the box.Unfortunately, the keys everyone has also unlocks the box as well as locks it. This means that someone could unlock the box and re-steal your lunchbox.We need to find a way to get rid of this idea of sharing keys, get rid of the idea of ‘any key can lock and unlock’, and this is where asymmetric cryptography comes in.Asymmetric cryptographyYou install an extraordinary lock on this box, one that has two separate keys. The first key 🔑 can only turn clockwise, from A (locked) to B (unlocked) to C (locked).The second key 🗝️ can only turn anti-clockwise, from C to B to A. You pick the first key and keep it to yourself. This is called a private key. The second key is called the public key. This key is given out to everyone in the office. You want everyone to have this key.When someone returns your prized lunchbox, they can leave it in this box. All the public keys can do is lock the box. Your private key is the only one that can open it.This is public key cryptography. Everyone knows that if they put something in the box and lock it, only you can open it with your private key.With symmetric cryptography, everyone could open your box if they had the key. Now, no one apart from you can open the box.Public key cryptography was first formulated by Whitfield-Diffie or James Ellis (Ellis discovered first, but he didn’t publish it. Whitfield-Diffie published first). Both Ellis and Whitfield-Diffie enjoyed that public key cryptography could work in theory, but never managed to figure out how it would work in practice.The production of a working Public Key Encryption system is attributed to Rivest–Shamir–Adleman (RSA) or Clifford Cocks. Like above, Cocks discovered first, but he didn’t publish it. Rivest–Shamir–Adleman published first.Let’s look at how this works mathematically.The maths behind public key cryptographyWhile the box analogy was something physical, we’re going to go back to encrypting messages much like we did with Caeser Cipher.When you apply the public key (K+) to the encrypted message, and then the private key (K-)to the encrypted message you get the plaintext message. We are also looking for these attributes:It is computationally easy to:Generate a set of keysEncrypt / Decrypt using these keysBut it is also computationally infeasible to:Turning messages into numbersWe want to turn a message into numbers. Previously we assigned a number to each letter, A = 1 and so on. The American Standard Code for Information Interchange (ASCII) is a table of all English letters and most symbols along with their associated ASCII code & Binary output.When you press a key on the keyboard, the keyboard converts this to Ascii as numbers are easier to work with than letters for a computer. If you want to learn more about ASCII, check out this video.Let’s encrypt the word “cats”. In binary, according to Ascii, this is:If you add them all together and convert to base 10, you get 4430123. For our example, we’re going to look at how Rivest–Shamir–Adleman (RSA), a public key cipher, calculates public & private keys. We’re also going to use much smaller numbers, so the maths isn’t as hard to read.Below is a calculator I created for turning ASCII into Binary. View it better on my website ( ).trinket: run code anywhereRSAChoose 2 large prime numbers, p & q.Prime numbers are numbers that only have 2 factors, 1 and itself. We’re going to pick 5 & 7, not large prime numbers but small for brevity.2. Compute n = pq, z = (p-1)(q-1)3. Choose e (with e < z) such that e has no common factors with z.e = 55 has no common factors with 24, and it is smaller than 24.4. Choose d such that ed — 1 is exactly divisible by z.The easiest way to do this would be to loop over all possible values of d in code. This code is written in Functional Python, but the language and paradigm doesn’t matter. we’re using such small numbers, we have overlap. Both e and d are 5. Let’s set d to 29, just so we don’t have this overlap.d = 295. The public key is (n, e). The private key is (n, d)Below is code to generate RSA keys. Note that we have overlap on d with p = 5 and q = 7, as discussed above.trinket: run code anywhereTo send an encrypted message, Bob computes C = m^e mod n for message m and key e. To decrypt the message, Alice computes m = c^d mod n.Encrypting “cats” gives us 42⁷⁵ mod 35 = 7.Decrypting “cats” gives us 4430123.Then to send a message m, Bob computes c=m^e (mod N) and sends it to Alice and Alice decrypts the message using her private key d with m=c^d (mod N)Why does it work?Prime factorisation. It’s easy to multiply two prime numbers together, but it’s incredibly hard to find out what prime numbers were used to make that number. You can easily multiply these two together:But if I gave you 992,474,117 and told you to find the prime numbers that were used to make this number, it’s not computationally feasible. Even more so when you realise the prime numbers used are very, very large.This is known as a trap-door function or a one-way function. While it is easy to go through one way, it is computationally infeasible to go the other way. Boiling an egg is a one-way function because it is easy to boil an egg, but it is not possible to un-boil an egg. Let’s go deeper into the mathematics and explore modular arithmetic.Back to modular arithmeticImagine a finite range of numbers, for example, 1 to 12. These numbers are arranged in a circle, much like a clock (modular arithmetic is sometimes called clock arithmetic because of this)Count 13 around this clock. You get to 12 and then you need to count 1 more — so you go back to 1. Modular arithmetic is still defined as the remainder of division, however it can also be defined (and is more commonly defined) as a clock.Functions using modular arithmetic tend to perform erratically, which in turn sometimes makes them one-way functions. Let’s see this with an example by taking a regular function and seeing how it works when it becomes a modular arithmetic function.3^xWhen we insert 2 into this function, we get ³² = 6. Insert 3 and we get ³³ = 9This function is easy to reverse. If we’re given 9, we can tell that the function had an input of 3, because of ³³ = 9.However, with modular arithmetic added, it doesn’t behave sensibly.Image we had this formula:3^x mod 7 = 1How would you find out what x is? You can’t put the mod on the other side, because there isn’t really an inverse of modular arithmetic. What about guessing? Let’s input 5:³⁵ mod 7 = 5Okay, that was too big. You might want to go lower, maybe 4 or 3 but actually this is the wrong direction. When x is 6, it is equal to 1.In normal arithmetic, we can test numbers and get a feel for whether we are getting warmer or colder, but this isn’t the case with modular arithmetic.Often the easiest way to reverse modular arithmetic is to compile a table for all values of x until the right answer is found. Although this may work for smaller numbers, it is computationally infeasible to do for much larger numbers. This is often why modular arithmetic is known as a one-way function.If I gave you a number such as 5787 and told you to find the function for it, it would be infeasible. In fact, if I gave you the ability to input any number into the function it would still be hard. It took me a mere few seconds to make this function, but it’ll take you hours or maybe even days to work out what x is.RSA is a one-way function. While it is relatively easy to carry out this function, it is computationally infeasible to do the reverse of the function and find out what the keys are. Although, it is possible to reverse an RSA encryption if you know some numbers such as N.Let’s talk about NRecall earlier where I detailed how the RSA algorithm worked. There was one number, $n$. This n is special because under some circumstances n can make this one-way function reversibleN is a product of 2 prime numbers. As we saw earlier, if we take $5$ and $7$ and multiply them together, we get:n = 35In order for Bob to send Alice a message, he encrypts the message using Alice’s public key. Now that the message is encrypted, there has to be some way for Alice to decrypt it. There has to be some way for Alice to reverse this, but only for Alice to reverse it. You can’t have Eve or Niamh or Hannah reversing it — because that beats the point of encrypting it.RSA is designed so the person who knows P and Q (the two prime numbers that are multiplied together to give N) can decrypt the message.Although Alice has told the world her public key is n = 35, no one apart from Alice knows that P = 7, Q = 5. Note that the prime numbers are intentionally small for brevity.You may be thinking “it’s easy to guess that 35’s prime factors are 5 and 7” and you would be right. But, with large enough numbers it is virtually impossible to find p and q.In fact, with large enough numbers multiplying p and q are essentially one way functions. It is possible that in the future, perhaps the near future (with the invention of quantum computers) that factoring numbers becomes easy. Mathematicians have tried and failed for thousands of years to find an efficient way to factor numbers, so for now it is considered secure.Let’s look more into the mathsOkay, let’s look at how modulus works in all of this. You understand why multiplication works, and how modulus works. But what about the other equations? What are they for?Let’s demonstrate the deciphering algorithm using an identity due to Euler and Fermate:For any integer (M), M is relatively prime to n:This is the Euler totient function giving the number of positive integers less than n which are relatively prime to n. Relatively prime is where 2 numbers only share the factor 1 with each other. In modern day we use Carmichael’s function over Euler’s function, as Euler’s function can sometimes produce numbers too large to use. However, we’re using Euler’s totient function as it is what the original RSA paper used.This sounds confusing, but let’s break it down. By elementary properties of the totient function:Since d is relatively prime to ϕ i (n), it has a multiplicative inverse e in the ring of integers modulo $ϕ (n). What this means is that the formula we used for RSA can be reversed (the trap door can be reversed) given some knowledge about the numbers used.Without this special mathematical property it wouldn’t be possible to reverse the encryption and find out the ciphertext if you know some of the numbers used.The modular multiplicative inverse of the encryption algorithm c = m^e mod n is m = c^d mod n. All of this maths has built up to this. Modular arithmetic and one-way functions are heavily involved here. In order to encrypt, you calculate c. In order to decrypt, you calculate m. Both of these require knowledge of n, which is the special number we talked about earlier.If you want to learn more about the maths of RSA, I highly reccomend the readable, origianl RSA paper.AuthenticationHow do you prove that a message sent by Bob was actually sent by Bob, and not sent by Eve? You need a way to authenticate them. In the real world, we authenticate using signatures. Although these can be forged, you can authenticate using a biometric scanner, but your fingerprints can be lifted and copied.You can use a passcode, but again much like how Caeser cipher and its single key is useless, authentication methods that use single keys aren’t as perfect.You can use a passcode, but again much like how Caeser’s cipher and its single key is useless, authentication methods that use single keys aren’t as perfect.Let’s say Bob wants to prove to Alice that Bob wrote the message he sent her. Bob sends his original message with an encrypted version of the message with his private key (K-). Alice uses Bob’s public key (K+)which, using the formula above, turns the encrypted message back into the normal message. Then Alice checks the message Bob sent with the message she got from the encrypted message. If they match, she can be sure that someone with Bob’s private key (probably Bob) sent it.This method sucks for encrypting because if Bob encrypts his message with his private key, anyone can read it with his private key. Also, it’s computationally expensive to prove that Bob sent something. This is why we create a digest of the message and encrypt that instead to verify Bob. This digest of a message is done using a hash function.To learn more about hash functions, I wrote a sister article which explains them here.Back to cryptographyBy encrypting the hash of the message we speed up the process of encrypting it, which makes authentication a lot faster. Now, let’s play a prank on Bob.We create an e-mail order to a pizza shop asking for 4 pepperoni pizzas. We sign this email with our private key. We send the pizza store our public key, but we tell them that Bob’s phone is dead and that our public key is actually Bob’s public key.The pizza store verifies the signature and sends 4 pepperoni pizzas 🍕 to Bob. The worst part is, Bob doesn’t even like pepperoni. This is where a certification authority comes into play.Certificate authorities (CA) bind a public key to a specific entity. This entity provides proof of identity to the CA, the CA then creates a certificate binding the entity to its public key. The idea is to take the trust out of trusting an individual for public keys. You still have to trust an organisation, but many people find trusting an organisation is better than trusting an individual.The certificate containing the entities public key is digitally signed by the CA. This signing is the CA saying “this is the entities public key”.When Alice want’s Bob’s public key, she gets Bob’s certificate. She then applies the CA’s public key to Bob’s certificate to get Bob’s public key.Cloudflare has an amazing article on certificate authorities here.Secure Email with Pretty Good PrivacyPhil Zimmerman invented Pretty Good Privacy (PGP), the de facto standard for email encryption. Zimmerman used RSA in PGP. RSA is patented and he did not have permission from RSA inc (the company that holds the patent) to publish another cipher using RSA.Zimmerman was also a target of a 3-year U.S federal investigation because at the time cryptography programs were considered munitions under U.S law. When asked whether all of the trouble was worth it to publish PGP, he said he had “no regrets”. Let’s look at how this used to be illegal algorithm works.When Alice wants to send a confidential email to Bob, she:Generates random symmetric private key, K-.Encrypts her email with K-(for efficiency)Also encrypts K-with Bob’s public key.Alice digitally signs the encrypted message.Alice sends Bob bothand her digital signature.In total, Alice uses three keys. Her private key, Bob’s public key, and the newly created symmetric key.This idea of encrypting a symmetric key with a public key is called a Hybrid Cryptosystem. Some email messages can be incredibly large, encrypting these with a public key system would take a very long time.Use a symmetric key system such as AES, which is incredibly hard to break (but not as hard as RSA). Encrypt the AES key (and only the key, not the whole email) with the public key. This way, the receiver can apply their private key and find out the AES symmetric key to decrypt the email.Not many people use PGP, because of how difficult it is to set up. At most, you need to download a program you trust to correctly implement PGP. In 2018 it was shown that email clients such as Apple Mail, Thunderbird, and Outlook — who have settings to enable PGP can be forced to show the non-encrypted versions.Not to mention how suspicious it looks for one person to send encrypted emails on a network of non-encrypted emails. The only email client (and address provider) which enables PGP by default is ProtonMail, but even then it’s only for Proton-to-Proton emails and you have to trust the company to implement it correctly.body[data-twttr-rendered="true"] {background-color: transparent;}.twitter-tweet {margin: auto !important;}@camfassett Most of them do a good job, but we understand your point. We built ProtonMail to make PGP encryption accessible to non-technical people. We will make sure this goal is reached 100%. ;) Thanks again! — @ProtonMailfunction notifyResize(height) {height = height ? height : document.documentElement.offsetHeight; var resized = false; if (window.donkey && donkey.resize) {donkey.resize(height); resized = true;}if (parent && parent._resizeIframe) {var obj = {iframe: window.frameElement, height: height}; parent._resizeIframe(obj); resized = true;}if (window.location && window.location.hash === "#amp=1" && window.parent && window.parent.postMessage) {window.parent.postMessage({sentinel: "amp", type: "embed-size", height: height}, "*");}if (window.webkit && window.webkit.messageHandlers && window.webkit.messageHandlers.resize) {window.webkit.messageHandlers.resize.postMessage(height); resized = true;}return resized;}'rendered', function (event) {notifyResize();});'resize', function (event) {notifyResize();});if (parent && parent._resizeIframe) {var maxWidth = parseInt(window.frameElement.getAttribute("width")); if ( 500 < maxWidth) {window.frameElement.setAttribute("width", "500");}}ConclusionCryptography has been used for thousands of years, almost as long as mankind has held secrets. In our constant effort to keep our secrets secret to everyone apart from a select few we’ve found this magical algorithm that works pretty well. No doubt, in 300 or 400 years it will have been broken much like how Caeser thought his cipher would never be broken.Hey 👋 Want to subscribe to my blog and stay up to date with posts similar to this one? Subscribe to my email list below. I won’t spam you. I will only send you posts similar to this one 😊✨ you’re feeling extra generous, I have a PayPal and even a Patreon. I’m a university student who writes these articles in my spare time. This blog is my full time job, so any and all donations are appreciatedPublic Key Cryptography Simply Explained was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.

Generating RSA Private and Public Keys

We use SSH, HTTPS, etc., on a daily basis. These programs depend on RSA asymmetric key encryption and decryption for providing security.Asymmetric key encryption involves two keys, public key and private key. Public key is used for encrypting the message and Private key is used for decrypting the message.In this post, we will look into how a public key and private key pair are generated using simple mathematics.We will use small numbers for simplicity.Public Key ( e, n )Public key is made up of two numbers called e and n.Generation of nGenerate two prime numbers.Prime number 1, p = 7Prime number 2, q = 17n = p x qn = 7 x 17 = 119Thus n = 119Generation of eCompute totient of n, ϕ(n) = ( p -1) x (q -1)Choose a random prime number that has a greatest common divisor (gcd) of 1 with ϕ(n)ϕ(n) = ( 7 — 1 ) x ( 17–1 ) = 6 x 16 = 96Prime numbers between 1 and 96 are,2, 3, 5, 7, 11, 13, 17, 19, 23, 29, 31, 37, 41, 43, 47, 53, 59, 61, 67, 71, 73, 79, 83, 89Lets us choose a random prime number that has a GCD of 1 with 96We cannot use 2, since 2 is the GCD for 96 and 2.We cannot use 3, since 3 is the GCD for 96 and 3.13 is a good number, since 1 is the GCD for 96 and 13.Now, we have got, e = 13Public Key ( e, n ) = ( 13, 119 )Private Key ( d, n )We have already generated n, which is 119. Now, we need to generate d.Generation of dd is the multiplicative inverse of (e) with ϕ(n)ie, find d, which is the multiplicative inverse of e (13) with 96e = 13, ϕ(n) = 96d * e ≡ 1 mod ϕ(n)d * 13 ≡ 1 mod 96i.e., ( d * 13 )% 96 should yield a remainder of 1This requires computing numbers one by one, until we find the right number. This is hard to do by hand, so let’s use a small python program to generate d,# Python program to find modular # inverse of a under modulo m # A naive method to find modulor # multiplicative inverse of 'e' under modulo 'm'def modInverse(e, m) : e = e % m; for x in range(1, m) : if ((e * x) % m == 1) : return x return 1 # Driver Programe = 13m = 96print(modInverse(e, m))37Computed value of d is 37Verify dd * e ≡ 1 mod ϕ(n)d = 37d * e = 37 * 13 = 48196 * 5 = 480481 % 96 = 1thus d * e ≡ 1 mod ϕ(n)Private Key ( d, n ) = ( 37, 119 )So FarWe have generated a public key and private key, using simple mathematics.Public Key ( e, n ) = ( 13, 119)Private Key ( d, n ) = ( 37, 119 )Generating RSA Private and Public Keys was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.

Bobby Lee Shares How a Bitcoin Public Key For Fundraising Works Via QR Code

Bobby Lee: Bitcoin Public Key Great to Raise Money BTCC CEO Bobby Lee spoke at the Blockchain Cruise Conference in China and discussed the advantages of Bitcoin QR code. He mentioned that Bitcoin’s public key can be used to raise money. Essentially, the process can be facilitated by people creating QR codes for fundraising for causes such as natural disasters and the like. He also mentioned that the same method can be used to send money with Bitcoin account private key QR code. As he explained: So there is a QR code, there this long string . . . so what I just di is, share with you my public account and also my private key. So for those of you who are interested I’m actually giving away $100. So if you go and look on the blockchain, you’ll have $100 in that account. He noted that bitcoin money is in the cloud and that this is significant because bitcoins are moving on the blockchain. You know with all these blocks that keep coming up and it’s all on the cloud, it’s actually not here per say. Even if the private key is here, the private key is just the location, if you knew the password for the account. So this is going to be interesting. I’m curious to see what will happen in the future. He then continued to discuss that currently, the boarding control restricts people from carrying gold and money in currencies. People are required to declare if they are carrying more than $10,000 or 10,000 euros and they fail to do so, authorities can confiscate the funds. On the other hand, bitcoin and other cryptocurrencies prevent authorities from knowing how much a passenger is carrying with them. As he exemplified “For example I came into Barcelona yesterday on a plane, international flight. Did I bring a $100 worth Bitcoin? Did I bring a $1,000 worth of Bitcoin? Or did Bitcoin stay in the cloud? So, this would be interesting to see.”
Bitcoin Exchange Guide

Bitcoin [BTC] account public key is a great way to raise money, says Bobby Lee

During the Blockchain Cruise conference, Bobby Lee, the CEO of BTCC, one of the largest Bitcoin [BTC] exchange platform in China, spoke about the advantages of a Bitcoin QR code. Bobby Lee said that the public key of the Bitcoin account is a great way to raise money. People can put the QR codes to raise money for a natural disaster and people from across the globe can send money to the address, he added. He continued to say that the same method can also be used to send money with the use of the QR code of the Bitcoin accounts private key. He said: “So there is a QR code, there this long string… so what I just did is, share with you my public account and also my private key. So for those of you who are interested, I’m actually giving away a $100. So if you go and look on the blockchain, you’ll have $100 in that account.” Bobby stated that Bitcoin [BTC] is money in the cloud. According to him, this is important as the Bitcoins are moving around on the blockchain. He said: “… you know with all these blocks that keep coming up and it’s all in the cloud, it’s actually not here per say. Even if the private key is here, the private key is just the location, if you knew the password for the account. So this is going to be interesting. I’m curious to see what happens in the future.” The CEO continued to say that, at present, the boarding control restricts people to carry gold and money in currencies. People will require a clear sign from the authorities in order to carry $10000 or 10000 Euros. If failed, then the authorities can confiscate the money. Whereas, with Bitcoin and cryptocurrencies, the authorities will not know how much a passenger is carrying with them. Giving an example, Bobby said: “For example I came into Barcelona yesterday on a plane, international flight. Did I bring in a $100 worth Bitcoin? Did I bring in a $1000 worth of Bitcoin? Or did Bitcoin stay in the cloud? So, this would be interesting to see.” The post Bitcoin [BTC] account public key is a great way to raise money, says Bobby Lee appeared first on AMBCrypto.
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New York Attorney General’s Office Accuses Bitfinex Of Covering $850 Million Losses Using Tether Funds

If you are our BitcoinExchangeGuide’s regular reader. You should already know about the shady connection between Bitfinex and Tether. This Thursday, a document by the New York Attorney General’s (NYAG) office revealed that iFinex, the company behind both Tether (USDT) and Bitcoin exchange Bitfinex, is being sued. In the press release, the attorney general Letitia […]
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New York AG’s court filings written in ‘bad faith’ and ‘riddled with false assertions,’ says Bitfinex’s rebuttal

Bitcoin and Tether have been closely related since time immemorial, but the recent string of events pushed the price of Bitcoin down by 9% in about 3 hours. This has caused a domino effect, causing the price of other altcoins to fall as well. The New York State Attorney General is suing Bitfinex and the closely affiliated firm, Tether, responsible for the infamous stablecoin, USDT. According to Yahoo, NY AG released a 23-page document which suggested that the AG has reason to believe that there might be a fraud being carried out by the two companies in cahoots with each other. Yahoo stated that among other things, Tether and Bitfinex are engaged in, “undisclosed, conflicted transactions to cover Bitfinex’s losses, approximately $850 million, by transferring money out of tether reserve funds.” Tether and Bitfinex aren’t completely unaware of their problems in trying to retain banks for their business and the allegations of Bitcoin’s 2017 pump was fueled by Tether and Bitfinex. Bitcoin’s prices took a nasty fall after the news broke out. However, the prices have recuperated partially since then. Bitfinex too did not waste time with its rebuttal to the New York AG’s charges. Bitfinex’s rebuttal stated that New York’s AG released the order without giving the parties proper “notice or hearing” and that the Attorney General was attempting to “compel Bitfinex and Tether to provide certain documents and seeking certain injunctive relief.” The same rebuttal was released by Tether. The blog further stated, “The New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million “loss” at Crypto Capital. On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded.” Bitfinex stressed that they were actively exercising their rights to get the stated funds released. It also added that the New York State Attorney General’s office seemed to be intent on undermining Bitfinex’s efforts, to the detriment of Bitfinex’s customers. The post New York AG’s court filings written in ‘bad faith’ and ‘riddled with false assertions,’ says Bitfinex’s rebuttal appeared first on AMBCrypto.

How Crypto Markets Are Reacting to the Tether-Bitfinex Allegations

The cryptocurrency markets endured a loss of as much as $10 billion around 21:00 UTC on Thursday, following allegations that the Bitfinex exchange covered up an $850 million shortfall using the U.S. dollar-pegged Tether (USDT) stablecoin. The New York Attorney General’s office alleged in a statement on Thursday that Bitfinex lost $850 million and used customer and […]

There are serious, existential, risks to Bitfinex and Tether with the information out today. Here's a primer on what's going on.

Bitfinex and Tether may be insolvent. Bitfinex and Tether and owned and operated by the same people. They are separate entities, but they share significant common personnel. Today the Assistant NYAG filed a motion to try and prevent Bitfinex from taking part in any transaction between it and Tether. Here's the raw document: Reporting on the above filing is available from the WSJ: What is going on? The filing lays out that Bitfinex has lost access to $850 million dollars of corporate and depositor money to a company called Crypto Capital. Bitfinex believes that those funds may have been stolen and that Crypto Capital has been engaged in defrauding Bitfinex. Bitfinex - in order to pay out withdrawals has been running out of cash. Bitfinex has engaged in multiple transactions with Tether of questionable nature. It has obtained lines of credit and fiat currency (ostensibly to pay out fiat withdrawals - this is speculation but a logical conclusion based on the filing and its context) It also appears to have sold equity in itself to Tether for access to Tether's reserves. There is still a lot of missing information, but it seems clear that Bitfinex has lost $850 million dollars in some fashion and attempted to fulfill customer withdrawal requests from funds from Tether reserves. Tether has recently updated its terms: “Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.” That other affiliated entity is Bitfinex. Tether now no longer holds all currency reserves - it now has extended a line of credit to Bitfinex - to the tune of $700 million, and may also hold shares in Bitfinex. If Bitfinex has lost $850 million, then the equity that Tether holds in Bitfinex may be encumbered or worthless. If Bitfinex has taken out loans or drawn on its line of credit, those funds may never be returned. There is now clear evidence that tether is at serious risk of of not being backed at a 1:1 ratio. What does this mean for you? Tether now is EXTREMELY risky to hold. There is clear evidence that Bitfinex has taken money from Tether, and its ability to repay it is in serious doubt. If Bitfinex truly has lost $850 million dollars, it may be insolvent. If Tether no longer has all the money backing it - because it owns Bitfinex assets, which are of questionable value, it's value will plummet, and all assets denominated in tether will appreciate. There are lessons from Mt. Gox here. Mt. Gox did not just happen in one day. It played out over multiple months, the entire time with assurances that things are fine. Things were not fine - at all. The filing released today is damning. It is linked above, read it for yourself. The evidence presented in there is clear that something is terribly wrong at Bitfinex. It is not a certainty that Bitfinex is insolvent - but the filing lays out items that are terrifying to anyone holding significant financial assets related to Bitfinex and Tether entities. Plain and simple: Depositors, and users of Tether are at serious risk of taking losses. Exchanges are the largest holders of Tethers, and when/if it becomes clear that tethers are no longer worth 1:1 they will be forced to freeze all tether assets until the situation can be straightened out. This process will potentially take years, into a decade or more. Mt. Gox funds are still not distributed to this day, over 5 years ago. The sheer complexity of a Bitfinex/Tether insolvency will play out over multiple jurisdictions and will take an eternity to sort out. Again, read the primary documents filed by the AAGNY and decide for yourself if it is likely that Tether and Bitfinex are completely safe. Thousands of us lost our funds in Mt. Gox - and we've paid dearly. There are serious concerns if you are a Bitfinex customer, or if you hold USDT Tether on other exchanges.
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