Bitfinex hack

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In August 2016, $72 million worth of bitcoin was stolen from Bitfinex, a bitcoin exchange. This was the second-largest theft of bitcoin, with 120,000 units of bitcoin stolen, about 0.75% of all bitcoin then in circulation. Bitfinex announced the theft on August 2, 2016. The bitcoin was taken from users' segregated wallets, according to a Bitfinex spokesman.[1]

Law enforcement and loss incurrence[edit]

Two months before the theft the U.S. Commodity Futures Trading Commission ordered Bitfinex to pay a $75,000 fine for offering illegal off-exchanged financed commodity transactions. The order also found that Bitfinex violated the Commodity Exchange Act by not registering as a Futures Commission Merchant.[1][2]

The terms of Bitfinex stated that “bitcoins in your multi-signature wallets belong to and are owned by you,” and imposing losses on customers who were not hacked would breach the terms.[3]

Exchange customers, even those whose accounts had not been broken into, had their account balance reduced by 36% and received BFX tokens in proportion to their losses.[4]

In September 2016, Bitfinex announced that it had bought back over 1% of the BFX tokens. The USD/BTC exchange rate rebounded to over $600 from $540, the price after the hack, after the announcement in hopes of further equity conversion and redemption of BFX tokens.[5]

Lack of governance[edit]

Bitfinex operates in several countries and it is not clear which country regulates its operations. Bitcoin does not have a governance system other than for its software. Bitcoin transactions are irreversible and there is no way for users to reverse an unwanted transaction.[6]

Because of the Mt. Gox Bitcoin exchange theft, the Japanese government has been working on a regulatory framework similar to KYC standards, which the exchanges will have to follow.

References[edit]

  1. ^ a b "Bitcoin Worth $72M Was Stolen in Bitfinex Exchange Hack in Hong Kong". Fortune. Retrieved 26 October 2016. 
  2. ^ "CFTC Orders Bitcoin Exchange Bitfinex to Pay $75,000 for Offering Illegal Off-Exchange Financed Retail Commodity Transactions and Failing to Register as a Futures Commission Merchant". Commodity Futures Trading Commission. June 2, 2016. Retrieved June 4, 2018. 
  3. ^ "FINANCE BITCOIN Can Bitfinex Really Impose a $72 Million Theft on Its Customers?". Fortune. Retrieved 26 October 2016. 
  4. ^ Baldwin, Clare (6 August 2016). "Bitfinex exchange customers to get 36 percent haircut, debt token". Reuters. Retrieved 20 June 2018. 
  5. ^ Mizrahi, Avi. "Bitcoin Price Back Above $600 for First Time since Bitfinex Hack". Retrieved 26 October 2016. 
  6. ^ Bohme, Rainer; Christin, Nicolas; Edelman, Benjamin; Moore, Tyler (2015). "Bitcoin: Economics, Technology, and Governance". The Journal of Economic Perspectives. 29 (2): 219. doi:10.1257/jep.29.2.213. JSTOR 24292130.