Bitfinex asks users to share losses of bitcoin theft

The digital currency exchange is bringing the website back online in phases

Bitfinex, the digital currency exchange in Hong Kong that reported a bitcoin theft last week, has decided to shave a little over 36 percent from its customers' accounts and assets to make up for losses from the hack.

“Upon logging into the platform, customers will see that they have experienced a generalized loss percentage of 36.067%,” Bitfinex said in a blog post Saturday. It promised an announcement later on the details of the methodology used to arrive at the losses.

"This is the closest approximation to what would happen in a liquidation context," Bitfinex wrote. Customers will be issued a token labeled BFX to record their losses, though the exchange is still not clear about how it will compensate them.

The BFX tokens will “remain outstanding until redeemed in full by Bitfinex or possibly exchanged—upon the creditor’s request and Bitfinex’s acceptance—for shares of iFinex Inc.” The exchange said it is still sorting out the details and will post updates in the coming days. The exchange is owned and operated by iFinex.

The proposal is likely to meet with protests from customers, some of whom have already suggested that shareholders should take the first hit and not customers. “Try selling equity to raise money to reimburse customers,” one person said in response to the exchange’s proposal on Friday for a “socialized loss.” The measure has also been described as unusual and could make the exchange vulnerable to legal action.

Bitfinex said Tuesday it had faced a security breach and some of its bitcoins stolen. It said it was working with law enforcement. To investigate which users had been affected by the theft, the exchange said it would pull down its website bitfinex.com with only the maintenance page available.

On Sunday, the website was restored only partially in a read-only mode, allowing users to log into their accounts but continuing to disable trading, depositing, and withdrawing. Full platform functionality would be available in the coming days with withdrawing, depositing and exchange trading coming online first, it said.

BitGo, a supplier of security software to the exchange, said last week its systems were not breached in this attack and its software functioned correctly.

The exchange lost 119,756 bitcoins, Zane Tackett, the site’s director of community and product development, wrote in a post on Reddit. Those bitcoins were worth about US$63 million at the exchange rate prevalent around the time.

The crisis at Bitfinex is not the first time virtual currency exchanges have reported losses of money. Mt. Gox in Tokyo shut down in 2014 after losing bitcoins then valued at a whopping $474 million.

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John Ribeiro

IDG News Service
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