Vircurex Bitcoin exchange crumbles in the face of cyberattack

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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TOPICS: Security
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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

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. 

Topic: Security

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8 comments
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  • "We will serve no wine before its time"

    This may be an idea before it's time. Hackers, funded by criminal organizations, seem to be winning the battle for the internet. Researchers regularly find zero day exploits in just about any software. The software manufacturers have to put out massive security updates every week, while every user needs to be on top of those updates. Anarchists and government black ops delighting in DOS attacks. Even large companies (eg. Target) are not safe. Good idea, but the world is not ready, not until software and networks can be better secured.
    kurio99
  • Bitcoin... ugh

    Did any IT person NOT see this coming ?
    klashbrook@...
  • I wonder how many other exchanges are going to fold

    It's not surprising that there has been a fair amount of amateurism in the Bitcoin world, given its origins, but that's going to need to change quickly if BTC is to taken seriously as a medium of exchange.
    John L. Ries
    • Garage Operations

      You're right. A lot of these operations seem to be run out of a garage, and lack the security infrastructure to properly protect themselves. On the other hand, stories abound of big companies being bitten by hackers. This stuff is even easier than credit card fraud, so it is going to be subject to more "investment" by criminal organizations looking for a quick buck. Big doesn't necessarily mean safe.
      kurio99
      • Not just operational security infrastructure of the exchanges

        The Bitcoin currency has bugs, which contributed to the Mt. Gox disaster.
        Rabid Howler Monkey
  • I'm surprised...

    ...that anyone is still talking about Bitcoin.
    Sir Name
    • I'm not

      I don't use it, but it's still an interesting story, if for no other reason than as a testbed for the longstanding claims of laizzez faire advocates.
      John L. Ries
    • I am as well....

      "...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..."
      This should be very strong evidence that miscreants & criminals not only dominate that "field", but seem to be working to reserve it for their own private use.
      So, why would any person with even a reasonable amount of integrity still be involved in the mess???
      Willnott