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Bitcoin exchange Vircurex freezes user accounts

by Mark Tyson on 24 March 2014, 12:45

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Following the collapse of Mt. Gox last month, Vircurex, a small bitcoin exchange based in Beijing has announced, via a statement posted on its site, that it will be the latest to join the list of insolvent Bitcoin exchanges.

The firm has been in trouble since trying to earn back funds, lost through two hacking incidents last year, through the fees collected from normal trading operations. Vircurex stopped withdrawals of all cryptocurrency and all accounts are frozen as of today, due to the recent few weeks' rush of "large fund withdrawals" by depositors, said to be a significant drain on its reserve funds.

"Unfortunately we had large fund withdrawals in the last weeks which have led 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," wrote Vircurex.

According to Bitcoin Charts stats, the small firm traded only 54 Bitcoins in the past month which would seem tiny when compared to BTC-China, the largest exchange based in China, which transacted more than 202,000 Bitcoins during the same period.

In the statement, the firm has outlined its strategy, aiming to distribute its remaining balances to affected depositors, rather than filing for bankruptcy like Mt. Gox. "Funds in this balance type cannot be used to trade or withdraw," said the firm. "Those are the balances that the exchange will gradually pay back and hence transfer back to the available balance over time." Vircurex gives an example of how its 50:50 top-down: bottom-up redistribution will work in its statement.

Vircurex account holders are also told to be aware of two Skype accounts impersonating official support with no association to the actual company. Accounts under the Skype names of vircurex. and vircurex.eu may use social engineering techniques to try and get your passwords.



HEXUS Forums :: 5 Comments

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It's becoming a very awkward situation at the moment. Regulated financial institutions have to adhere to closely monitored restrictions in terms of capital, liquidity and transparency, which Bitcoin institutions don't. Furthermore, they're backed by the FSCS, which Bitcoin institutions aren't.

We know that sites are going to be hacked eventually, so resilience, reputation and so on aren't really relevant in the great scheme of things. The ultimate question is whether it's best to have an unregulated industry, and have everyone take their chances, or whether it's best to start regulating it and provide some security for customers.

I'm inclined towards unregulated, given that it's one of the benefits of Bitcoin, but then you've got to consider the protests in the wake of Mt Gox - people don't seem to accept the downsides of an unregulated investment.
Well if bitcoin would become regulated, then the whole point and philosophy of bitcoin would become nil. Bitcoin is based on the ideea that high risk provides a possible high gain. Regulating it will reduce the risks, but also the gain you could get from bitcoin investments.

still, in my opinion, the future does not sound that great related to bitcoin.
the people that needed to win money from bitcoin, already won, and now it's only the moment for the "little people" to gather the left-overs.
ap0phis
Well if bitcoin would become regulated, then the whole point and philosophy of bitcoin would become nil. Bitcoin is based on the ideea that high risk provides a possible high gain. Regulating it will reduce the risks, but also the gain you could get from bitcoin investments.

still, in my opinion, the future does not sound that great related to bitcoin.
the people that needed to win money from bitcoin, already won, and now it's only the moment for the "little people" to gather the left-overs.
I'm not sure it really is, maybe bitcoin speculation is based on that principle, but bitcoin itself is essentially based on the idea that fiat money is a 'Bad Thing' and essentially we should move back to a barter economy (the best way to think of bitcoin is a some form of commodity, gold being the obvious analogy, although not a great one as that has some intrinsic value which bitcoin doesn't.

Essentially what we're seeing now is akin to the establishment and regulation of a banking system that most industrialised nations went through donkeys ago, but at a pace accelerated by the fact that its online. If you look back at the history of early banking systems, they're fraught with thefts, runs, ponzi schemes etc that we're seeing now.

Inevitably now, as then, in order to make the transition into the mainstream some form of regulation, control, insurance or similar needs to be provided.
Most currency has little intrinsic value,£1 coins don't cost £1 to make. Gold only really has a socially constructed worth, its pretty and rare so it has a human ascribed value. The alchemist's dream of turning boring metal into gold would instantly devalue it.

Bitcoin is no different - the value is all constructed. Its lack of control and regulations is its strength but also its weakness, an unstable currency that merely represents an imagined value is of little use when it cannot be trusted to hold that value.

Would you want a £1 coin if it might suddenly become worth 1p? Of course not, you'd exchange it for a Euro and some cents - Bitcoin is heading that way, a hot potato you don't want to sit on.
I sometimes wonder if bitcoins were created by the power companies trying to offset people reducing their carbon footprints!