Bitcoin has been trying desperately these last few years to be viewed as a legitimate currency and a reliable alternative to paper currency. But setback after setback seems to plague the company, and on August 2nd a crippling blow was struck.
Bitcoin has been trying desperately these last few years to be viewed as a legitimate currency and a reliable alternative to paper currency. But setback after setback seems to plague the company, and on August 2nd a crippling blow was struck.Last Tuesday Hong Kong-based Bitcoin exchange, Bitfinex, was hacked, losing over $70 million of its customer’s Bitcoins; dragging the cyber currency’s value down by 20%. This is the single largest Bitcoin loss since the infamous $350 million Mt Gox meltdown.
The Bitfinex exchange, the second largest in the world, froze all trading activities on the company’s site since the hack. Bitfinex has been posting regular updates on developments on their public Blog.
While the Stolen Bitcoin —numbering nearly 120,000 — only represents a mere 0.8% of all Bitcoin in circulation, this has created a number of financial scares similar to those immediately preceding the great depression.
People Are Angry
The hacker was able to siphon money from random virtual wallets instead of the whole collective vault, due to the segmented nature of the Bitcoin wallets. Meaning some users had their entire wallets drained, while others were left untouched. This quickly raised debates on what Bitfinex intends to do for those who did suffer losses.
While there are still no answers for how it happened, Bitfinex has released a statement saying it will be distributing the loss equally amongst all Bitcoin holders in the exchange by reducing balances by 36.067%
As you can imagine this garnered violent reactions, with users comparing the decision to a bank opening unopened deposit boxes in order to spread the loss equally. While others suggest that the exchange should simply file for bankruptcy.
Bitfinex has attempted to alleviate concerns by stating they will issue a new token in the form of BFX that will be equal to the amount each wallet lost to the attack. These tokens can be either redeemed for a full repayment or exchanged for a share in the company.
These developments prompted a financial panic that forced the exchange to stop all trading activity, deposits or withdrawals to stall an all-out collapse. Assuring the public that Bitfinex has also not allowed 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,”
Bitfinex has stated they are working with authorities to solve the issue quickly and efficiently.
The damage though stalled might be irreversible, however, as public trust in the currency is quickly falling, spelling disaster for the company’s aspirations as being viewed as legitimate currency.