Coinex back online, still missing 50% of stolen funds

Christoph Marckx @cryptomaniacs
March 31, 2014
CoinEx is online again, after being hacked two weeks ago. 50% of missing funds will have to be found in transaction fees. Only BTC and LTC markets are open at the moment.

Two weeks ago, I reported on cryptocurrency exchange being hacked. All coins were stolen, and the site went offline. After two days, founder Erundook posted a statement at Bitcointalk, saying Coinex would reimburse the stolen coins from their own pockets. Needless to say, the community felt worried and didn’t want to take Erundook’s word for it. As of today, Coinex is back online.

Not enough funds

On March 31st, Coinex customers were able to log into their accounts again. This was made public by Erundook on both Bitcointalk and Coinex’ Twitter account. The statement read:

“CoinEx is online. Only BTC & LTC withdrawals will work yet; rest will come next week.
Please note that we don’t have enough funds for *all of you* to withdraw *all of your funds* so please only do so if you really need it.
We have security audit pending with, will post more details as it goes on.

Thanks for your patience,
– erundook”

Obviously, this is still a vague analysis of the Coinex situation. Yes, the site is back online but only with about 50% of its former funds. Erundook made a post about this prior to the announcement of Coinex being back up.

“We have managed to gather about 50% of missing funds in bitcoins, we will be buying missing altcoins with them this weekend. After some calculations, we came to the conclusion that 50% is a fair number to resume exchange operation, and if all the users won’t withdraw their funds right away, we can keep it running using fee incomes to get the second missing part covered with them.”

With only 50% of the missing funds in the Coinex wallet, bringing the exchange back online is still a very risky move. Many customers will not be happy with Coinex, either because funds are missing or because it’s hard to deem an exchange that has been hacked twice trustworthy. If the majority of customers decides to take their coins elsewhere, that will mean game over for Coinex.

On the other hand, Coinex does not have much of a choice. They went out of their ways to regain half of the missing funds. The other half will have to be found by resuming normal operations and let the exchange do what it was made for in the first place, generate money. Transaction fees will be used to buy the rest of the missing altcoins. Because of this, Coinex made the decision to only open Bitcoin and Litecoin markets for now.

Several people have replied in Coinex’ Bitcointalk thread about their experience after logging in again. Most customers saw a correct balance of coins in their accounts. It seems it is possible to trade altcoins for Bitcoin or Litecoin and, in most cases, it also was possible to withdraw. Only small withdrawals were used as an example so it remains to be seen whether big amounts can also be withdrawn out of the exchange.

Audit incoming

Of course, since only half of all stolen funds has been recovered, it’s clear that the balances in people’s accounts aren’t ‘really’ there. Coinex tweeted that it will refund accounts during this week. That is why it’s so important for the exchange to see its customers remain there. If everybody decided to withdraw all funds, Coinex would not be able to fulfill these requests and bankruptcy would be imminent. Luckily, this does not seem to be an issue right now. Most people understand what is going on and look willing to stay put, for now. However, should Coinex fail to refund all accounts soon, it leads no doubt many people will take their belongings and leave.

To restore maximum faith, Erundook promised to have an audit for Coinex. Audits are becoming popular.

“We also called several security audit companies to do an audit for coinex. We’re sorry for this to take so long but it should be understandable that recovering a business from this point is really ALOT of work. I am personally a rare guest at forums and other chats since chatting doesn’t really help to get it back to life, it only takes time from getting the actual things done.”

Last week, Kraken announced results of their own audit. Bitstamp, another popular exchange, also had one some time before. Audits are a great way to convince people an exchange can survive a hack. After Mt. Gox, it seems audits are going to be of utmost importance for every exchange that wants to be taken seriously in the world of cryptocurrencies.

Last modified (UTC): April 20, 2014 18:34

Christoph Marckx @cryptomaniacs

Internet addict and virtual currency aficionado living in Belgium. I work in a school, where I am responsible for every computer and the entire network that keeps our students connected to the world. I love cryptocurrencies, mostly because it gives us a chance to take back our freedom. If we do this right, there are exciting times ahead!