Bitfinex hack

The second-biggest breach of a Bitcoin exchange platform, Bitfinex, caused 120,000 units of the cryptocurrency bitcoin, which was valued at $72 million at the time, to be stolen. Bitfinex first announced the security breach on August 2, 2016. The bitcoin was taken from users’ segregated wallets and Bitfinex has been tracking down the hack. Significant hacker funds transactions were signed off by Bitfinex’s security provider, without full security.


Law Enforcement and Loss Incurrence

The U.S. ordered Bitfinex to pay a $75,000 fine for offering illegal off-exchanged financed commodity transactions. The terms of Bitfinex stated that “bitcoins in your multi-signature wallets belong to and are owned by you,” and imposing losses on customers who were not hacked would breach the terms. However, users would receive another asset called BFX tokens in exchange for the loss that customers suffered from. These BFX tokens could be redeemed by Bitfinex or by its parent company, iFinex.

In September 2016, Bitfinex announced that it had bought back over 1% of the BFX tokens to pay customers back for the losses. The USD/BTC exchange rate rebounded to over $600 from $540, the price after the hack, after the announcement in hopes of further equity conversion and redemption of BFX tokens.

BFX Token Redemption History

Date Days Since Hack Outstanding BFX Redeemed (%) Approximate Cumulative Redeemed (%)* Outstanding BFX Post Redemption^
2016-09-01 30 1.1812 1.1812 Unspecified
2016-09-30 59 1.3152 2.4809 Unspecified
2016-11-02 92 1.5000 3.9437 Unspecified
2016-12-05 125 1.7500 5.6246 Unspecified
2017-01-10 161 2.0000 7.5121 35,712,790
2017-02-03 185 4.6000 11.7666 28,784,623
2017-03-06 216 5.0000 16.1783 24,539,683
2017-04-03 244 100.0000 100.0000 0

<nowiki>*</nowiki>Cumulative scenario accurate for a BFX recipient who never transferred or exchanged BFX (held all BFX in perpetuity after initial receipt).

^Outstanding BFX amount also decreases from other compensation options such as equity conversion.

Lack of Governance

There is no obligation for intermediaries to verify users’ identity. Bitcoin does not have governance other than its software. Bitcoin transactions are irreversible and there is no way for users to reverse an unwanted transaction. If traditional accounts are hacked, banks or the financial institutions will help cover some or all the losses, but with Bitcoin, users are on their own. There is no third party that can help. However, the can enforce rules to virtual-currency-related securities transactions. So the SEC does review the exchange’s registration so that investors will have enough information about the offering.

Governance in other countries

Because of the Mt.Gox Bitcoin exchange scandal, the Japanese government has been working on a regulatory framework similar to standards, which the exchanges will have to follow. The government will treat Bitcoin as a currency.


See Also on BitcoinWiki