The good news is that Vircurex is still accepting deposits. The bad news is that all withdrawals have been frozen. The Beijing-based digital currency platform announced that it will freeze all Bitcoin, Litecoin, Terracoin, and Feathercoin accounts (Vircurex deals in nearly 20 different cryptocurrencies) and put them on ice to be repaid with future profits (h/t The Next Web).
Bitcoin: Vircurex unable to cover outflows after being hacked
Vircurex says that it was hacked twice in recent months, but continued operating with the intention of honoring withdrawals out of its own stores of the affected currencies until it could make all the accounts whole from the fees that it collects. Apparently not everyone had faith that this would happen, because the exchange has had enough outflows recently to empty its coffers.
“We had enough coin balances in our cold wallet to upkeep our platform and the positive cashflow enabled us to gradually refill the wallets,” Vircurex posted on its site. “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.”
Bitcoin: Frozen fund accounts will replace actual deposits
The company’s plan is to create a new frozen funds balance in everyone’s accounts and move the affected currencies onto that balance, zeroing the amount available for withdraw. New deposits would go to the normal, unfrozen account, and future profits will be regularly distributed among frozen accounts.
If you have money on Vircurex, this is a better outcome than simply losing everything permanently, but it would be hard to stick with a company that has such a poor track record. There is some incentive to keep doing business with them so that customers can eventually recoup their losses, but it sounds like throwing good money after bad. Vircurex claims that this is a one-time action, but that really depends on whether they get hacked again. For anyone not currently using Vircurex, it’s hard to imagine why you would trust them with your money now.
When Mt. Gox went bankrupt, it claimed that the security problems were intrinsic to the code that Bitcoin is based on, and that we will start to see the same problem at other exchanges. At the time it sounded like a struggling company shifting the blame, but if we see more exchanges failing because their Bitcoins are stolen, Bitcoin enthusiasts may have to reevaluate Mt. Gox’s claim.