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Summary:

As Bitcoin exchange collapses go, this one is notable for its highly optimistic approach to overcoming insolvency.

Coin image adapted from Flickr user Antana
photo: Gigaom Illustration

Vircurex, a Beijing-based altcoin exchange, has frozen withdrawals after, you guessed it, thieving hackers made off with its bitcoins, litecoins, terracoins and feathercoins. The exchange is pretty small, but its strategy for dealing with insolvency is hilarious enough to share nonetheless.

As The Next Web noted, Vircurex was hacked twice in 2013 and had since then been using its “cold storage” funds for liquidity. Then the reserves ran dry (See also: Flexcoin and of course MtGox).

So here’s Vircurex’s plan. Note the clever use of the term “frozen funds” as a stand-in for “IOU”:

1. We will introduce an additional balance type called “Frozen Funds”. Funds in this balance type cannot be used to trade or withdraw. Those are the balances that the exchange will gradually pay back and hence transfer back to the available balance over time.
2. We will move all current balances for BTC, LTC, TRC and FTC to the “Frozen Balance”, i.e. your balance will be set to 0.
3. We’ll take the current available cold storage balance and distribute it based on the below described distribution logic.
4. Monthly we will take the net profit of the exchange and credit back that amount distributed to the users based on the described distribution logic.

In other words, having demonstrated its incompetence in protecting its customers’ money, Vircurex is now banking on new customers flocking to its service to generate enough profit to pay off the first lot.

I don’t personally think Bitcoin is, as some see it, a Ponzi scheme. But with logic such as the above on display, it’s not hard to see why some view it that way — and the faster outfits like this clear out, the better things will be for the credibility of the wider Bitcoin ecosystem.

Anyhow, it’s entertaining to see that MtGox, with its “Oh sorry we forgot about those 200,000 bitcoins” approach to bookkeeping, doesn’t have a monopoly on failed-Bitcoin-exchange comedy.

  1. As I see it this “Anyhow, it’s entertaining to see that MtGox, with its “Oh sorry we forgot about those 200,000 bitcoins” approach to bookkeeping, doesn’t have a monopoly on failed-Britcoin-exchange comedy.”

    Would have done Bernard Madhoff grand, he could sell a house or some asset h bought with stolen funds and return that sale cash to the ledger, pretending he found it in a missed book keeping entry, that fell into his private mystery and i now un-lost.

    Beaut give back 1/3rd of the missing money and hope that shuts the investors gaps a little longet as he slips our a back door and avoids jail a bit longer. Then with years of trials and searches his end of life probably cancells the debt?

    Ponzi or not such a csreation as “BITCOIN” is far too open and lacking supervission, Governance and laws to ever be permitted again.

    Perhaps a Zukerbugger could invent a frozen fish futures exchange with greater surveillance and audit.

    Mark my words it’s a Ponzie when the new suckers are expected to pay the capital refunds of past investors. That’s how American Government is structuring DEBT so our great-great-great lations pay the debt with new debt for next 100 gen to cover. There is more logic in that as the USG take only a small inheritance tax and the lations get easy asset equities born to them for the price of a few past debts still cheaper than buying those assets new on inflated prices of that day. Notwithstanding that wars might reduce it all to rubble and then the inheritees cant pay the old debt so we call then “Debtors too Smaii or hardpushed to pay” the ‘Statute of frauds” ensures they can’t be sent to debtor prisons ever again.

    Unless the Kids have sense enough to dum[p that statute. Oh well “Too Big to fail” also sounds Ponziish.

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