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The First “Bitcoin Bail-In”: ALL BITFINEX USERS To Lose 36% In “Shared Loss” After Historic Hack

from ZeroHedge:

Adding insult to injury for those who “held” their BTC at the hacked exchange, Bitfinex announced it would pull a page right out of Europe’s bank resolution mechanism, saying that all of its users will lose 36% of their deposits after it concluded its review the massive hack, in what is set to be the first ever “bitcoin bail-in.”

Last week’s sharp, 30% plunge in the price of bitcoin (and its latest competitor, ether), after news hit that 119,756 bitcoins, or about $70 million, had been stolen from the Hong Kong-based bitcoin exchange Bitfinex, demonstrated once again the biggest risk with digital currencies: despite claims to the contrary, outside hacks remain a key threat and risk to anyone holding  (obviously, we use the term loosely) digital currencies.

 

 

Now, adding insult to injury for those who “held” their BTC at the hacked exchange, Bitfinex announced it would pull a page right out of Europe’s bank resolution mechanism, saying that all of its users will lose 36% of their deposits after it concluded its review the massive hack, in what is set to be the first ever “bitcoin bail-in.”

And, in pulling another page out of Europe, Bloomberg adds that to compensate its customers, Bitfinex users would receive (largely worthless) tokens that may later be redeemed or exchanged for shares in its parent company. Following the announcement, bitcoin climbed to $599 in early trading on Sunday. The virtual currency had dropped 12% to $577.23 in the week through Friday, its largest weekly decline since June, however has now recovered all of its sharp drop which had seen its price tumble as low as $470 on August 2.

“After much thought, analysis, and consultation, we have arrived at the conclusion that losses must be generalized across all accounts and assets,” the exchange wrote in a blog post on Saturday. “In place of the loss in each wallet, we are crediting a token labeled BFX to record each customer’s discrete losses.” Good luck monetizing said “token.”

The blog post ended as follows:

Thank you for your continued patience and for the many generous offers of support that we have received over the last several days. Notwithstanding this attack, we continue to believe in the possibilities associated with bitcoin. We will continue to update our customers and the public as and when we can.

According to Bloomberg, a representative of the exchange wrote on Reddit that the 36% loss “applies to all assets across the site, so everyone.” The exchange previously said losses would only apply to users who either had bitcoin deposited at the exchange or who were in the process of lending U.S. dollars for margin trading.

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18 comments to The First “Bitcoin Bail-In”: ALL BITFINEX USERS To Lose 36% In “Shared Loss” After Historic Hack

  • Craig Escaped Detroit

    This is an amazing PARALLEL to bank bail-ins, haircuts, and confiscations coming in the future (as well as the PAST, such as Cyprus, MF Global, bond holder haircuts, etc).

    This is ALSO another great lesson & parallel to the wisdom of NEVER allowing any “exchange, bank, broker, etc” to “HOLD” your assets for safe keeping or for the ease of trading.

    The Bitcoin holders who NEVER put their bitcoins on some exchange, and keep their “BTC” in their own computer wallet, keys, etc, OUT of the exchanges, are NOT affected by this.

    The SAME way that keeping your SILVER & GOLD at your own HOME, buried or sunken someplace is the ONLY sure way to keep it from getting confiscated at some future date. Safe deposit boxes can be seized, stock & bonds can be diluted, zeroed, hair-cutted, etc.

    If you don’t hold it, you don’t own it.

    Putting this wisdom another way (about the GUN debates), When the criminal is in your home….
    “A GUN in your hands, is worth the entire police force on the phone.”

  • d

    and this also shows that the ‘value of bitcoin’ is NOT set by its USERS…it is set by its ‘third parties….36%..this time …next time..and there will be a next time…there always is in a corrupt world….imho

    • dan ww

      “and this also shows that the ‘value of bitcoin’ is NOT set by its USERS…it is set by its ‘third parties….36%..this time ”

      Wow.. so much wrong in 1 comment.

  • FONESTAR….Paging Fonestar…The people at ZH want to know what crevice you’ve been hiding under, figured you wouldn’t be too far away…..

  • Millicent

    How much of a hit did the owners of BitFixedNet take? I would bet zero…
    They are the ones who are responsible for the security or lack thereof on their system and are most likely the ones who took the missing bitcoinz.

    Whatever happened to that French guy who ran Mt. Gox? Was he ever held accountable for anything?

    Computer based “money” will never be safe from manipulation.

  • Johan

    I’de love to hear what the pro-bitcon people have to say

  • The Truth

    I guess they took a bit out of those Bit-coins huh? The price of my silver and gold may fluctuate buy my ounces are still the same. I still think the people who really believe the crypto currencies values are set by the users are really hitting that crack pipe. How can you really set the value of anything which is not in your possession. I have sold some of my stack before and I was paid a premium of every coin. Why? Because I chose who I wanted to sell to and they paid what I asked. That is called a free market!

  • KRELL427

    Computer based “money” will never be safe from manipulation 100% agree with Millicent on that,most people know I have criticized Bitcoin all along, but this would be the equivalent of one bullion depository being robbed and those people storing their bullion there taking the hit. Does that mean that bullion is a bad thing ,no. I would never put my metal into a storage facility period. It would be prone to confiscation, getting John Corzined,and who knows what other frauds could come along. Bottom line is you have to hold your metal outside of the system. Bitcoin is the same only way more complicated.I will stick to hard assets in my possession. Wait till the banks start getting hacked and people loose all their money,its coming.There is no more rule of law just ask Hillary.

  • Benyamin

    I always find it curious how story’s of Bitcoin often have pictures that are created showing Bitcoin as a golden coin ,.
    Seems people are subconsciously desperate to give it some form of physical representation
    Inside it always feels strange that it is actually nothing ,

    I am also curious as to how does someone spend a Bitcoin if it is $600 or $1000 or $1000000 ..??
    How do I buy a $5 pizza ??

    If Bitcoin becomes 1 million dollars , must each Bitcoin then be split into 1/1000000
    1 million parts ?
    That does not seem to work with the idea of limited supply .

  • Kim

    What just happened is Karma 101, I never did fall for all the Bitcoin hype, sorry about you foolish faith Fonestar.

    • dan ww

      If the SGE turned out to be a fraud, would you would say “I never did fall for the PM hype, sorry for your foolish faith”. Of course not. You have your physical gold and silver in your possession. You should do the same with your Bitcoins

      • Kim

        To be honest Dan, I have no knowledge of Bitcoin and have no desire, even after hearing the guru’s, in our space Hoffman, Berwick etc promoting them.
        I am convinced my belief in physical silver to be 100% correct thirteen years after my first purchase.

  • Eric

    Good comments here. I’m adding to my bitgold account this week. If we get a good rally this fall, I’ll be adding some to the debit card and starting to use that for purchases rather than credit cards.

    • Craig Escaped Detroit

      Alert= Some extra info about the “BitGold/ GoldMoney” account DEBIT card (MasterCard).

      They made one good improvement to the “BitGold / Goldmoney” debit card. Now you can go back on line,and money that remains in the debit card (MasterCard), you can use to to “BUY Gold” back into your account again.

      It used to be, that their own MasterCard/Debit card, could NOT be used to buy Gold back into the vault. (It used to be only a ONE WAY transaction, now it works BOTH ways.)

      Because that card is not “Linked” to any “bank account” there are a LOT of “merchants” systems that will NOT accept that card. (But I wonder if the new “2 ways” transactions was any kind of such a “linking” or not.)

      But the bottom line, was that as of 2 weeks ago, the card was NOT acceptable at my Florida Walmart, nor was it useable at my Florida Citgo (Tom Thumb) gas stations, nor at my Florida Winn Dixie grocery stores.

      I would like to know if there is any BLOG out there which TRACKS/Lists what merchants accept/decline to honor that card.

      So far, I have found 2 ATM’s that accept it, but one charges a $4 fee and the other charges a $6 fee. OUCH.

      I have NOT yet tried using it for any ONLINE purchases, but I’d like to know how much the card is accepted in that area too.
      ——————————————-

      There are a number of banks that have hooked up with a couple of different “services” that allows the holder of those particular Debit cards, to go into their ON Line banking, and DE-activate / re-activate their debit cards. One system is called something like “Card Valet” and I’ve read about 2 other similar systems.

      This is exactly what is needed for people who want to protect their cards from getting used if it is lost or stolen, OR, if the POLICE try to do a “Civil asset forfeiture” to your account balance. Your card swipe will show ZERO balance until you re-activate it again.

      But this “service” has to be set up by your “institution”, it does NOT come standard with all debit cards, and I wish it would.

  • Kakistocracy

    BitCoin is an NSA/CIA/Mossad created digital currency to map the evolution of human transactions in a disintermediated economy.

    They are WATCHING and RECORDING ALL BITCOIN transactions.
    Only now the cheating has begun, psychopaths can’t resist.

    BitCoin is a TROJAN Horse.
    Satoshi Algorithm?
    Transactions Fees on everything stored in a centralized database, CIA/NSA/Mossad.

    BitCoin is a TROJAN Horse.
    Never use it.
    Except of course for temporary holdings required to facilitate cannabis purchases :).

  • AgShaman

    “Spec Fees”

    Are these exchanges just another casino for the gamblers?

    I feel like the ones holding it secure in their wallets are laughing at these day traders

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