Breaking: Vircurex Has Halted Withdrawals

Journalist:
March 23, 2014
Vircurex has stopped withdrawals for BTC, LTC, FTC, and TRC.

Popular altcoin exchange Vircurex just announced that it has stopped withdrawals for BTC, LTC, FTC (Feathercoin) and TRC (Terracoin). Any incoming deposit will not be credited. Furthermore, on 24 March, all BTC, LTC, FTC, and TRC accounts will be frozen until Vircurex can redistribute available funds to users. Last year, the exchange was hacked twice, resulting in a large loss of coins. Vircurex promised to cover the losses from their own income, and the plan seemed to have been working until recently.

“We had enough coin balances in our cold wallet to upkeep our platform and the positive cashflow enabled us to gradually refill the wallets.

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.”

The exchange has decided to go with the latter option, and has outlined the following plan:

The Plan

  • 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 exhchange and credit back that amount distributed to the users based on the described distribution logic.

The freezing of the balances is a one-time action, it does not affect future deposits in any ways.

Distribution logic

50% of the amount will be distributed top down and the other 50% will be distributed bottom up.

Top down means: credit the amount from the largest account balance down to the smaller accounts Bottom up: credit the amount from the smallest account balance to the larger accounts.

Example

User 1: 5 BTC
User 2: 4 BTC
User 3: 3 BTC
User 4: 3 BTC
User 5: 3 BTC
User 6: 3 BTC
User 7: 1 BTC

Amount to distribute: 12 BTC:
Step 1: Top down distribute 6 BTC:

  • User 1: Credit 5 BTC
  • User 2: Credit 1 BTC, remaining frozen balance = 3 BTC

Step 2: Bottom up distribute 6 BTC:

  • User 7: Credit 1 BTC
  • User 6: Credit 3 BTC
  • User 5: Credit 2 BTC, remaining frozen balance = 1 BTC

This approach has the advantages that

  • all users will eventually receive their funds, though the timeframe depends on the monthly volume available
  • new deposits and users are not penalized, thus supporting the ongoing operations of the platform
  • fund withdrawals from the available funds are guaranteed, no surprises or unecessary delays

But Will it Work?

Vircurex seems fairly confident that this plan will work. However, bitcoiners are skeptical after the recent Mt. Gox disaster. Few people will want to use the exchange and make deposits after this announcement. Furthermore, some users are claiming that Vircurex has been operating as a fractional reserve, meaning that only a fraction of deposits are backed by cash-on-hand and are available for withdrawal.

Overall, bitcoiners are displaying little to no optimism regarding this announcement, even though the exchange is being significantly more transparent than Mt. Gox. It remains to be seen whether or not Vircurex’s plan will actually work, though.

Headline image by Zach Copley.

Last modified (UTC): March 23, 2014 20:15

Neil Sardesai @@neilsardesai

I enjoy keeping up with the latest stuff in science and technology and have been following Bitcoin for a few years now. I also occasionally post cool stuff on twitter.