Following months of uncertainty & customer withdrawal difficulties, Cryptsy has revealed that it can no longer go on, in its current state.
The digital currency exchange claimed in a blog post today that it was the target of a bitcoin wallet theft on July 29, 2014. The ‘critical event’, as Cryptsy deemed it, has the exchange alleging that 13,000 BTC, approximately, was stolen. The exchange also claimed a theft of 300,000 LTC, approximately.
Cryptsy alleges the developer of Lucky7Coin behind the theft, claiming the developer placed an IRC backdoor with Trojan or command and control capabilities.
The exchange added that it was still earning more than it was spending at the time of the hack, which meant that a conscious decision was made to dig in to the company’s profits and reserves to fill the affected wallets. This decision, Cryptsy adds, was to “avert complete closure of the website at the time.”
An excerpt from Cryptsy’s blog added:
This worked fine for a while, as profits decreased due to low volume and low Bitcoin prices, we would adjust our spending accordingly.
Cryptsy then blamed an article from Coinfire which revealed the exchange was the subject of federal investigations. In a direct response to the article, a blog post penned by the exchange’s CEO Paul Vern claimed at the time, “It’s safe to say that this article and their reporting are completely false,” while adding that Cryptsy will be reviewing its legal options toward what it called a “libelous article.”
Referencing the article again in its latest blog confirming its insolvency, the exchange now stated:
It wasn’t until an article from Coinfire came out that contained many false accusations that things began to crumble. The article basically caused a bank-run, and since we only had so much in reserves for those currencies, problems began.
Cryptsy further revealed its current outstanding liabilities towards customers stood at 10,000 BTC (approx. 4.1 million USD) and claimed it may take up the option to shut down the website and file for bankruptcy.
After alleging that it was the victim of a theft, Cryptsy claimed it did not report the incident to the authorities out of fear of causing panic among its users.
We just didn’t know what happened, didn’t want to cause panic, and were unsure who exactly we should be contacting.
In a strange addition to the explanation provided, Cryptsy revealed it had communicated openly with Secret Service Agent Shaun Bridges on a separate, unrelated matter. “I think we all know what happened with him – so he was no longer somebody we could report this to,” the post added.
In November 2014, Cryptsy claimed it was at the receiving end of a DDoS attack, marking the beginning of turbulent times for the exchange when various claims of fraud were already being made by Cryptsy users. CCN received several messages from readers who saw their withdrawals stall toward the end of the same month.
Also, the post — presumably penned by Paul Vern (although this cannot be confirmed) – talks about a bounty in exchange for information about the stolen coins.
“I’m offering a bounty of 1000 BTC for information which leads to the recovery of the stolen coins,” the writer of the blog said.
Finally, the announcement in its blog ends with Cryptsy stating:
If somehow we are able to re-aquire the stolen funds, then we allow all withdrawal requests to process.
CCN will update this breaking story.
Image from Shutterstock.