A popular digital currency exchange company recently had their security compromised and had a large amount of bitcoin stolen from them and their users. They plan to do what they call “socializing” the loss. This means that they are going to spread the loss around their entire customer base until the losses are made up. Bitfinex is also running a huge bounty campaign to return the bitcoins that are worth about $70 million in total
Bitfinex is a software company that has dedicated its operations to getting its clients the hardware and peripherals that they need to make digital currency transactions online. These trades command that the user has access to hardware and software that can make extremely fast transactions in the heat of the moment when they are trading. Bitfinex helps with that goal.
Bitfinex’s hot wallet was recently hacked. The perpetrators of the crime stole over 1,500 bitcoins with the total aforementioned value of $70 billion dollars. The company immediately gave its users a new address where they should begin to make their new deposits. The company’s director of product development, Zane Tackett, has stated publicly that the hacking did not affect the trading process at the company
The company has said that they are offering an award for information leading to the recovery of the bitcoins. The reward that is being offered is $3.5 billion dollars. This is exactly 5% of the total amount that was stolen during the hack. It is important to note that if more than one person is involved in the recovery of the bitcoins they will all have to share the reward amongst themselves.
While this may seem like a big sum to receive for helping with the cause, it pales in comparison to some rewards offered by other companies for similar tasks. The person will only get the reward if the bitcoins are actually recovered. There is no reward for information that doesn’t directly lead to the end goal.
Effect on the Market
The market for bitcoins did take a downturn after news of the security breach reached the general public. Some people pulled out of fear that they too would have some of their bitcoins stolen online. Bitcoins did see a slight bounce back last month, but overall they are still down ever since the bitcoins were stolen from Bitfinex. The recovery from this event could be slow. It will definitely help the process if the bitcoins are found and returned.
Not the First Time
This actually isn’t the first time that Bitfinex has suffered a security hack like this. A smaller hack where the hacker stole about #1,500 in bitcoin happened almost exactly a year ago. The holdings of the company were much more spread out then. The total amount stolen only came out to be about .05% of Bitfinex’s total holdings.
Bitfinex has decided to remedy the issue until the bitcoins are recovered by doing what they call “socializing the losses”. This means that they will be taking an equal amount of bitcoins of each of their clients. Each client will have approximately 36% of their total investment in the companies eWallet subtracted from their total investment. This, of course, will be repaid once the coins are recovered. The total amount stolen was a huge chunk of Bitfinex’s total holdings in bitcoin.
Some people think that the users will have a right to sue the company in court for the socialized losses campaign. Many experts, like Cornell professor Emin Gun Sirer, say that the procedure will probably not hold up in court if someone tries to sure. This has to do with the procedure itself and the fact that it will be extremely difficult to recover the bitcoins. Distributing them will also be a tricky process.
This is a huge blow to the company. Customers are starting to doubt the effectiveness of the company as they have had their security breached twice in the last year. Moving forward, Bitfinex has promised to do everything they can to recover the lost currency. They will reimburse clients with coins as they are able to. It remains to be seen how long it will take the market to fully recover from this event.