6 ms·

Bitfinex Interim Update

48 points by Heliosmaster 10y ago

TekMol 10y ago
Still no word on what happened. How did the heist happen? Why did BitGo sign the transactions? My expectation: It will throw a very bad light on BitFinex and BitGo when the nature of the breach is revealed.
- ubersync 10y ago
  This is more important than the 36% haircut (and the likely lawsuits that will follow).
- Animats 10y ago
  BitGo announced two days ago that their insurance policy was discontinued in January 2016. They claim their customers were informed of this.[1] Customers are claiming they were not. [1] https://blog.bitgo.com/bitgo-secures-first-ever-comprehensive-bitcoin-theft-insurance-xl-group-insurance-companies/ https://blog.bitgo.com/bitgo-secures-first-ever-comprehensiv...
- xorcist 10y ago
  Bitfinex was started with the leaked Bitcoinica source code, after it had been hacked. The founders openly talk about trading at their own exchange. I don't know how much more bad light could make a difference. People still trade there because that's where the liquidity is, just like they traded MtGox knowing full well the account database had leaked, it regularly kneeled under pressure etc. That first mover advantage is a problem in the Bitcoin space but maybe that will change with time.
jboggan 10y ago
So everyone loses 36% of their account value?
- 467568985476 10y ago
  Seems like it... this can't possibly be legal, right? Surely the company should be forced to liquidate to make customers whole again, or issue debt/equity to get the money. I'd love to read a take on this from someone with a better understanding of the regulatory environment Bitfinex is subject to.
  - imaginenore 10y ago
    But it might be in the interest of the customers. If Bitfinex can keep functioning (a big "if"), they will eventually make that $80M that got stolen. Bitcoin exchanges generally are quite profitable enterprises, so I would say it's theoretically possible.
  - tedunangst 10y ago
    In a way, it sounds like they are issuing debt, the BFX token. The people "buying" the debt just don't have much say in the matter.
  - Animats 10y ago
    From a CFTC action: "BFXNA Inc. d/b/a Bitfinex is a corporation formed and existing under the laws of the British Virgin Islands, and has its principal place of business at suite 13/F, 1308 Bank of America Tower, 12 Harcourt Road, Central, Hong Kong, China."
- bdcravens 10y ago
  If a bank tried to pull this ...
  - daveguy 10y ago
    Banks couldn't pull this. They're regulated and insured. Investment banks less so, but plain old banks holding your checking and savings -- not a chance.
    - imaginenore 10y ago
awt 10y ago
That Bitfinex was not legit was predicted: http://btcbase.org/log/2013-05-16#34498 http://btcbase.org/log/2013-05-16#34498
Animats 10y ago
The founder of BitFinex, Raphael Nicolle, seems to have disappeared.[1] It also turns out that he previously tried to start a Ponzi scheme. His previous job was working the help desk at Gutenberg Networks, according to LinkedIn. BitFinex has been in previous trouble with the CFTC over customer account custody issues.[2] Having multi-sig keys doesn't help if the exchange has the keys. Inside job? [1] https://www.cryptocoinsnews.com/bitfinexs-ceo-seemingly-tried-start-ponzi-scheme/ https://www.cryptocoinsnews.com/bitfinexs-ceo-seemingly-trie... [2] http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfbfxnaorder060216.pdf http://www.cftc.gov/idc/groups/public/@lrenforcementactions/...
- dhfromkorea 10y ago
  I am not familiar with the early days of BitFinex, and I hope the conclusion the two articles point to may not be true. How come so many people managed to trust BitFinex that appears to have such opaque management? If it's an insider job by the founder, why did (s)he not withdraw 100% of the assets in the exchange? Probably to make it look more likely to be done by an outsider(s)?
  - tinco 10y ago
    If I recall correctly 100% of the assets that were withdrawable were actually withdrawed. edit: Well regardless of that being the case, why would an attacker not withdraw all the funds they can lay their hands on? Many people seem to believe the bitcoin-exchange-as-a-scam thing is worthwile, but I don't think it really is. Karpeles is in jail, and will be for a very long time, and I've heard he doesn't enjoy his jail time much. The identities of these people are known, their spending can be tracked. I can't see how the life of a exchange scammer is in anyway more attractive than that of a straightforward exchange runner. What are they going to do, cash out a couple of million somewhere and emigrate to South America? They could do the same simply by selling their exchange. Besides, Dread Pirate Roberts showed that emigrating is not really attractive to many people, even when not doing so is a terrible idea.
    - dhfromkorea 10y ago
rbobby 10y ago
So... just pretending not to be insolvent and hope nobody goes to court to force them into insolvency?
- eximius 10y ago
  Their argument is that this haircut is pretty much what would happen if they went into insolvency voluntarily. But now they are opening an avenue to redeem themselves and stay operating. It makes some sense. I don't know whether I think it is a good idea, but it isn't without sense.
  - rbobby 10y ago
    Except of course with insolvency an independent 3rd party is put in charge and the board power's removed and a court overseas any liquidation of assets and repayment of creditors. Here on the other hand... the existing players all remain in place and whether or not there's any liquidation occurring is unknown. If auctioned I wonder what bitfinex as an entity would be worth? Or even just it's assets (like a functioning, somewhat, crypto-currency exchange application)? Frankly I'm a bit surprised. There can be significant legal risks involved in operating a business that you know is insolvent.
f055 10y ago
It seems like a pattern with Bitcoin platforms: 1. Start an exchange 2. Get millions in assets 3. Claim a hack 4. Profit I'm surprised the Nigerian prince didn't jump on this one.
- frevd 10y ago
  I wonder if this was actually a sophisticated trade to profit from shaking up the market - claiming a substantial hack to make the market panic, then buy back the "lost" coins for way lower prices. If you control this kind of assets you can easily corner the market and participate from the emotional reactions. The lost coins can either not be lost at all or sold off way before that in small chunks, netting a profit after all is over.
- coupdetaco 10y ago
  classic exit scam

48 points by Heliosmaster 10y ago

Still no word on what happened. How did the heist happen? Why did BitGo sign the transactions? My expectation: It will throw a very bad light on BitFinex and BitGo when the nature of the breach is revealed.

ubersync 10y ago
This is more important than the 36% haircut (and the likely lawsuits that will follow).
Animats 10y ago
BitGo announced two days ago that their insurance policy was discontinued in January 2016. They claim their customers were informed of this.[1] Customers are claiming they were not. [1] https://blog.bitgo.com/bitgo-secures-first-ever-comprehensive-bitcoin-theft-insurance-xl-group-insurance-companies/ https://blog.bitgo.com/bitgo-secures-first-ever-comprehensiv...
xorcist 10y ago
Bitfinex was started with the leaked Bitcoinica source code, after it had been hacked. The founders openly talk about trading at their own exchange. I don't know how much more bad light could make a difference. People still trade there because that's where the liquidity is, just like they traded MtGox knowing full well the account database had leaked, it regularly kneeled under pressure etc. That first mover advantage is a problem in the Bitcoin space but maybe that will change with time.

jboggan 10y ago

So everyone loses 36% of their account value?

467568985476 10y ago
Seems like it... this can't possibly be legal, right? Surely the company should be forced to liquidate to make customers whole again, or issue debt/equity to get the money. I'd love to read a take on this from someone with a better understanding of the regulatory environment Bitfinex is subject to.
- imaginenore 10y ago
  But it might be in the interest of the customers. If Bitfinex can keep functioning (a big "if"), they will eventually make that $80M that got stolen. Bitcoin exchanges generally are quite profitable enterprises, so I would say it's theoretically possible.
- tedunangst 10y ago
  In a way, it sounds like they are issuing debt, the BFX token. The people "buying" the debt just don't have much say in the matter.
- Animats 10y ago
  From a CFTC action: "BFXNA Inc. d/b/a Bitfinex is a corporation formed and existing under the laws of the British Virgin Islands, and has its principal place of business at suite 13/F, 1308 Bank of America Tower, 12 Harcourt Road, Central, Hong Kong, China."
bdcravens 10y ago
If a bank tried to pull this ...
- daveguy 10y ago
  Banks couldn't pull this. They're regulated and insured. Investment banks less so, but plain old banks holding your checking and savings -- not a chance.
  - imaginenore 10y ago

awt 10y ago

That Bitfinex was not legit was predicted: http://btcbase.org/log/2013-05-16#34498 http://btcbase.org/log/2013-05-16#34498

Animats 10y ago

The founder of BitFinex, Raphael Nicolle, seems to have disappeared.[1] It also turns out that he previously tried to start a Ponzi scheme. His previous job was working the help desk at Gutenberg Networks, according to LinkedIn. BitFinex has been in previous trouble with the CFTC over customer account custody issues.[2] Having multi-sig keys doesn't help if the exchange has the keys. Inside job? [1] https://www.cryptocoinsnews.com/bitfinexs-ceo-seemingly-tried-start-ponzi-scheme/ https://www.cryptocoinsnews.com/bitfinexs-ceo-seemingly-trie... [2] http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfbfxnaorder060216.pdf http://www.cftc.gov/idc/groups/public/@lrenforcementactions/...

dhfromkorea 10y ago
I am not familiar with the early days of BitFinex, and I hope the conclusion the two articles point to may not be true. How come so many people managed to trust BitFinex that appears to have such opaque management? If it's an insider job by the founder, why did (s)he not withdraw 100% of the assets in the exchange? Probably to make it look more likely to be done by an outsider(s)?
- tinco 10y ago
  If I recall correctly 100% of the assets that were withdrawable were actually withdrawed. edit: Well regardless of that being the case, why would an attacker not withdraw all the funds they can lay their hands on? Many people seem to believe the bitcoin-exchange-as-a-scam thing is worthwile, but I don't think it really is. Karpeles is in jail, and will be for a very long time, and I've heard he doesn't enjoy his jail time much. The identities of these people are known, their spending can be tracked. I can't see how the life of a exchange scammer is in anyway more attractive than that of a straightforward exchange runner. What are they going to do, cash out a couple of million somewhere and emigrate to South America? They could do the same simply by selling their exchange. Besides, Dread Pirate Roberts showed that emigrating is not really attractive to many people, even when not doing so is a terrible idea.
  - dhfromkorea 10y ago

rbobby 10y ago

So... just pretending not to be insolvent and hope nobody goes to court to force them into insolvency?

eximius 10y ago
Their argument is that this haircut is pretty much what would happen if they went into insolvency voluntarily. But now they are opening an avenue to redeem themselves and stay operating. It makes some sense. I don't know whether I think it is a good idea, but it isn't without sense.
- rbobby 10y ago
  Except of course with insolvency an independent 3rd party is put in charge and the board power's removed and a court overseas any liquidation of assets and repayment of creditors. Here on the other hand... the existing players all remain in place and whether or not there's any liquidation occurring is unknown. If auctioned I wonder what bitfinex as an entity would be worth? Or even just it's assets (like a functioning, somewhat, crypto-currency exchange application)? Frankly I'm a bit surprised. There can be significant legal risks involved in operating a business that you know is insolvent.

f055 10y ago

It seems like a pattern with Bitcoin platforms: 1. Start an exchange 2. Get millions in assets 3. Claim a hack 4. Profit I'm surprised the Nigerian prince didn't jump on this one.

frevd 10y ago
I wonder if this was actually a sophisticated trade to profit from shaking up the market - claiming a substantial hack to make the market panic, then buy back the "lost" coins for way lower prices. If you control this kind of assets you can easily corner the market and participate from the emotional reactions. The lost coins can either not be lost at all or sold off way before that in small chunks, netting a profit after all is over.
coupdetaco 10y ago
classic exit scam