Another Bitcoin exchange shutters after thefts and unrecoverable losses

By Tim Worstall , written on March 25, 2014

From The News Desk

As I remember it in James Bond it's twice that's just coincidence and thrice that's enemy action. If that's true, we're well outside the realms of happenstance now as Vircurex, one of the smaller alt-currency exchanges, closes its doors. And for the same reason as MtGox collapsed: someone got in, took a bunch of coins and the exchange doesn't have enough to cover the losses.

As you may very well be aware, we had two incidents last year that lead to a loss of a significant number of BTC, LTC, FTC, TRC. We had communicated at that time that we will be covering those losses from our income, which we have done so far. We had enough coin balances in our cold wallet to upkeep our platform and the positive cashflow enabled us to gradually refill the wallets.

Unfortunately we had large fund withdrawals in the last weeks which have lead to a complete depletion of our cold wallet balance and we are now facing the option of either closing the site with significant unrecoverable losses for all or to work out a solution that allows the exchange to continue to operate and gradually pay back the losses. It's what Vircurex is proposing to do next which betrays a certain amount of optimism. They're proposing that the exchange continues to operate in order to pay back those losses. Not something that strikes me as a business plan likely to succeed.

Here's the plan in full: All current balances will be recorded and then frozen. Then everyone's account gets set back to zero with those frozen balances retreating into the shadows. Then either old customers inject new alt-currencies, or cash, into the trading system to be able to continue trading, or new customers are enticed into the system to continue doing the same. The exchange itself will continue to make the usual margins and these will be applied to paying off those frozen balances over time. This isn't dissimilar to that Hail Mary pass that MtGox tried, is it? Continue to operate despite having lost a fortune and hope to make it all back over time. And that didn't work out all that well.

Vircurex is China based and what the insolvency laws are like there is anyone's guess. But sending new cash and or items of value into a company that is blatantly telling you it's insolvent just doesn't sound like one of the greatest investment pitches I've ever heard.

[Image credit: Public Domain]