Further trouble has arrived for the Bitcoin market as another exchange finds itself under pressure, and has frozen customer accounts. While the Vircurex Bitcoin exchange is smaller than its equivalent at Mt. Gox, the development is still no less distressing, not only for those who were holding Bitcoin at the Vircurex exchange, but also for those who are holding Bitcoin at all, wondering if the exchange of choice for those holders might well be the next in line for trouble.
Vircurex recently announced a complete halt on all withdrawals, whether denominated in Bitcoin, Litecoin, or any other such coin, and has in turn frozen all existing user accounts. But Vircurex also, at last report, has a plan in mind for getting users repaid, as well as recovering Vircurex's overall standing as a healthy, operating exchange instead of following in Mt. Gox's footsteps and filing for bankruptcy, which is noteworthy in its own right.
Vircurex has essentially brought out a new kind of account balance known as “frozen funds.” Frozen funds can't be used to trade, or be withdrawn, but rather represent more of a philosophical balance: what the user had invested in the exchange at the time the frozen funds balance was created. The exchange in turn plans to “gradually pay back” the frozen funds balance over time, and as funds are available, transfer back to the available balance, making those funds available to trade with or to withdraw.
Meanwhile, Vircurex will take its “cold storage” balance—essentially a quantity of Bitcoin kept stored offline—and use that to start paying off accounts in a specific order. Vircurex will also do that with the exchange's net profit, on a monthly basis. The specific order in question involves taking 50 percent of the relevant total and distributing it on a “top-down” basis, meaning the largest accounts will be settled using that quantity, and work down from there. The other 50 percent will work on a “bottom-up” basis, meaning the smallest accounts will be settled with that amount, and work upward. Thus, those with huge amounts of Bitcoin, or with small amounts, will likely be settled the fastest, while those in the middle of the scale will have the longest wait in store. Meanwhile, new depositors and users will be able to step right in, and help fund that restoration as, hopefully, part of the “net profit.”
This is something of a risky plan, according to reports, as it requires not only continuous profit to work, but also that the service won't get hacked in the meantime. Given that Vircurex has already been hacked at least twice—it had already, by some reports, been using its “cold storage” balance to pay back those hit by hacking events from last year—it doesn't exactly suggest a secure location to park one's Bitcoin, so to speak. But with reports suggesting over 1,000 new registrations a day back during November, it's possible that there could be enough new users to help drive repayment to old users.
Only time will tell if Vircurex's plan will work, or if the new users will find it all too risky and back out before even getting involved. Hopefully, though, Vircurex can ultimately recover, at least sufficiently to pay off those investors who have had funds frozen, and help keep the Bitcoin a viable investment tool rather than merely the latest bubble fodder.
Edited by Rory J. Thompson
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