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.
Vircurex has been operating as fractional reserve for sometime, and due to a run is now ending withdrawals. https://t.co/C8rizSD7wq
— Ryan X. Charles (@ryanxcharles) March 23, 2014
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.