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Hacked Bitcoin Exchange ‘Bitfinex’ Distributes Losses to All Users Equally

This move is an unprecedented, and unexpected solution.

Cecille De JesusAugust 10th 2016

Socialized Loss

On August 2, Hong Kong-based Bitcoin exchange, Bitfinex, was hacked, losing over $70 million of its customer’s Bitcoins, and ultimately dragging the cryptocurrency’s value down by 20%. This is the largest Bitcoin loss by an exchange since the infamous $350-million Mt Gox meltdown.

The exchange has frozen all trading activities on the company’s site since the hack. Bitfinex has been regularly updating the public on developments and actions being implemented through their blog

The hacker was able to siphon money from random virtual wallets instead of the whole collective vault due to the fact that Bitfinex wallets are segregated individually. This means that, while some wallets were drained, others remained untouched, raising a debate on what Bitfinex intends to do for those who did suffer losses.

While there is still no conclusion as to how it happened, Bitfinex has released a statement saying that they will be distributing the loss equally amongst all Bitcoin holders in the exchange by reducing balances by 36.067%.

Reimbursement 

This decision, of course, garnered violent reactions, with some users comparing this to a bank force opening unopened deposit boxes in order to spread the loss equally. Others even suggest that the exchange should just file for bankruptcy.

Bitfinex says that they will be issuing a new token in the form of BFX that will be equal to the amount each wallet lost to the hack, and will be reimbursed by the company. These tokens may either be redeemed for full repayment or exchanged for shares in the company.

The company also assures the public that they have no plans of allowing current shareholders to run away with whatever money is left in the exchange. “Certain funds are being held back for our working capital purposes as we recommence operations. However, no property held back will be used to pay dividends to current shareholders unless and until our customers are repaid,” they posted in an announcement.

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