Vircurex Bitcoin exchange crumbles in the face of cyberattack

Summary:After using cold storage funds to compensate users who lost Bitcoin to cyberattacks, Vircurex has bowed to the inevitable and is freezing user accounts.

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Vircurex has chosen to freeze all user accounts as it teeters towards financial ruin caused by cyberattacks.

The Beijing-based cryptocurrency trading post, a victim of two cyberattacks last year, began dipping into its own cold wallet to release currency -- stored offline -- in order to compensate users affected by the security breaches, in which "significant" losses were suffered by the company.

By using its own funds, the company hoped that users would be kept happy and positive cashflow would eventually boost the firm's financial resources, bringing its monetary health back up over time.

However, following in the footsteps of Mt. Gox, recent "large fund withdrawals in the last weeks" have left Vircurex with two options -- close down the site entirely or freeze all user deposits and withdrawals while a solution is found. Having chosen the latter, Bitcoin, Litecoin and all other cryptocurrencies are frozen, and users are not permitted to withdraw funds from their accounts.

In a statement, the Bitcoin exchange said:

We are now facing the option of either closing the site with significant unrecoverable losses for all or to work out a solution that allows the exchange to continue to operate and gradually pay back the losses.

  • We will introduce an additional balance type called "Frozen Funds." Funds in this balance type cannot be used to trade or withdraw. Those are the balances that the exchange will gradually pay back and hence transfer back to the available balance over time.
  • We will move all current balances for BTC, LTC, TRC and FTC to the "Frozen Balance", i.e. your balance will be set to 0.
  • We'll take the current available cold storage balance and distribute it based on the below described distribution logic.
  • Monthly we will take the net profit of the exchange and credit back that amount distributed to the users based on the described distribution logic.

Read this

The Mt. Gox bitcoin debacle: Bankruptcy filed, customer bitcoin lost

UPDATE: Mt. Gox has closed the bitcoin exchange and filed for bankruptcy in Japan.

Current user accounts will be labeled "frozen balance," so deposits and withdrawals will not be permitted for the time being. Using top-down logic, every month, users will receive funds based on the amount of cryptocurrency they have in their wallets. Half of the proceeds will be distributed top-down, and half bottom-up, based on these values.

The funds to pay back users stem from any profit the exchange makes. 

"Funds in this balance type cannot be used to trade or withdraw,” Vircurex said. "Those are the balances that the exchange will gradually pay back and hence transfer back to the available balance over time. The freezing of the balances is a one-time action, it does not affect future deposits in any ways."

While a small Bitcoin exchange, Vircurex is the latest in a long list of trading posts that have either closed their doors or are facing financial problems due to cyberattacks. 

After filing for bankruptcy several weeks ago, the once-dominant Bitcoin exchange Mt. Gox  admitted that poor accounting and security failures resulted in the loss of Bitcoin worth at least $450 million in today's rates. Smaller trading posts Flexcoin and Poloniex have also been the victims of cyberattacks, losing thousands in the virtual currency. The former was forced to close down with immediate effect, whereas the later has promised to pay investors back -- although it will take some time. 

Topics: Security

About

Charlie Osborne, a medical anthropologist who studied at the University of Kent, UK, is a journalist, freelance photographer and former teacher. She has spent years travelling and working across Europe and the Middle East as a teacher, and has been involved in the running of businesses ranging from media and events to B2B sales. Charli... Full Bio

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