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Bitcoin exchange Vircurex heads into insolvency, outlines user plans

updated 04:00 pm EDT, Sun March 23, 2014

Beijing-based exchange freezes accounts and halts withdrawals

Another Bitcoin exchange has run into financial problems, following in the wake of other recent turmoil surrounding the currency after the collapse of Mt. Gox. Vircurex, based in Beijing, is faced with insolvency, causing the company to immediately halt withdrawals. Starting March 24, the company will put a freeze on all customer accounts.

Vircurex suffered two breaches last year, resulting in an undisclosed loss of Bitcoin and other cryptocurrencies. The company had been attempting to reimburse customers, using its own "cold storage" reserves. According to a posting on the company's front page, a number of "large fund withdrawals" in the last few weeks have lead to "a complete depletion of our cold wallet balance."

Because of the fund depletion, Vircurex was faced with either shutting down -- which would leave customers with a complete loss of their funds -- or consider taking drastic steps to keep the exchange running, while funds were hopefully paid back to customers over time. Vircurex chose to keep going, developing a strategy in hopes that it would be able to pay back all of its customers.

A new tier of funds on the exchange will be created called "Frozen Funds" or "Frozen Balance" to mark the funds that will have to be paid back to users. Existing funds will be effectively unavailable to depositors until the exchange can pay them back. In doing so, all accounts will be set to a zero balance, leaving anything deposited marked as one of these frozen numbers.

It isn't a complete loss to account holders, however, as Vircurex will use the remaining funds in their cold storage to pay back some of the frozen funds according to a logic outlined on their website. Monthly net profit of the exchange will be used to pay back users according to the same logic as well.

Vircurex states that this is a one-time action and should not affect future deposits.



By Electronista Staff
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Comments

  1. Makosuke

    Forum Regular

    Joined: 08-06-01

    Guess that's what happens when you put your money (or "money") in a bank that isn't FDIC insured. Everything's great until it isn't, at which point there's no larger entity to step in and bail you out.

    Of course, anyone who is treating a currency with deflation rates in the tens of thousands of percent, alternating with brief periods of inflation as high as hundreds of thousands of percent, may not be thinking of it as "money", in the sense of a stable medium for exchange, anyway. (And if they are, they're probably very bad at math, economics, or both.)

  1. pairof9s

    Senior User

    Joined: 01-03-08

    At this point, you'd have to be a complete fool to invest in Bitcoin...these seem to be daily occurrences where these "institutions" are failing, like a house of cards.

  1. climacs

    Dedicated MacNNer

    Joined: 09-06-01

    Bitcoin cannot fail; it can only be failed!

  1. climacs

    Dedicated MacNNer

    Joined: 09-06-01

    #thanksobama

  1. Makosuke

    Forum Regular

    Joined: 08-06-01

    pairof9s--that's the thing: Do you "invest" in Dollars, or Yuan, or Yen, or Euros? It's theoretically possible for governments or high-level currency traders to do so, but the intent (and for the vast majority of users actual use) of each of those currencies is, as the label states, as a currency. That is, as an abstraction you use to exchange for goods or services.

    If you're using it as an investment, it's not a currency, it's something entirely different. So proponents need to ask themselves--would you be as excited about bitcoin if it had an inflation rate of 0% or 1%, versus a deflation rate of 10,000%?

    Because normally currencies do not increase in value if you don't spend them, certainly not by factors of hundreds or thousands. If they did, they would make rather poor currencies--if I exchange, say, one hour of labor or one pizza for a currency equivalent, it's rather unreasonable (and unsustainable) to expect that currency to be worth 100 hours of labor or 100 pizzas a year later without my having done anything but keep it in my pocket.

  1. Charles Martin

    MacNN Editor

    Joined: 08-04-01

    Remember this the next time some politician or "Libertarian" friend tries to sway you with "free market, no regulation" talk ...

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