Update

We are still working out the details so nothing is set in stone, however we are leaning towards a socialized loss scenario among bitcoin balances and active loans to BTCUSD positions. The numbers being quoted are erroneous as nothing has been decided as of yet and we are still in the process of settling positions and balances. More details are to follow tomorrow along with a FAQ answering most of the questions we have been asked over the past couple days.

39 Comments
  • RAY KWON
    Posted at 00:47h, 05 August Reply

    1.)Topic: Should the losses be socialized?
    Hell no. A thief takes the cd player from your car. We all park in the same parking lot. My car wasn’t stolen from. Does it makes sense that the lot manager should rip the cd player out of my car and give it to you just because we park in the same lot? No, it doesn’t. This is a correct analogy that applies to this situation.

    2.)Topic: reddit.com/user/zanetackett.
    Zane says on Tuesday, “tomorrow”, on Wednesday, “tomorrow”, on Thursday,”tomorrow”
    This is bullshit! I want some real answers from Bitfinex from someone in charge!!

    • Phil
      Posted at 21:36h, 05 August Reply

      Analogies generally suck. For each one you create to support your view, there exists another to support the opposite. I’ll give you one that is closer to what’s actually happening: A financial institution has been hacked, individual USD accounts drained. Do £ account holders have more right to their balance than $-account holders? There’s no direct “correct” or obvious answer.

      That’s a question too complicated to discuss without any knowledge of the law under which bitfinex operates.

      If all users can be called “creditors”, I’m pretty sure they’ll be treated equally if bitfinex is forced into bankrupcy.

      Socializing amongst USD providers (active swaps) seems OK to me, as one doesn’t know and can’t choose for what trading pair it will be used.

      • Chris
        Posted at 10:59h, 09 August Reply

        You are right, analogies suck, so lets talk consistency. If Bitfinex, like MtGox, claims ALL assets (since they actually took from USD balances as well) were co-mingled then Bitfinex is liable for the loss (which is why MtGox was). If they claim accounts were individualized and they were just custodial then the items stolen were Bitfinex’s, they were the customers’, and so it’s a “tough shit” situation. Here’s the catch, if they are going to claim, as they have MANY times, and as it actually HAD to be to comply with the CFTC regulations, then they have no right to pilfer people’s accounts. You simply cannot have it both ways.

        OK, back to analogies. EITHER it was a communal pool in which Bitfinex got hacked and Bitfinex owes it’s customers their balances, ie a standard bank account if the bank gets robbed, or they were like safe deposit boxes, each client has their own and has ownership of its contents (which was the POINT of the CFTC objection), in which case customers are liable and they have no right to steal from those uneffected.

  • Axel
    Posted at 01:08h, 05 August Reply

    Personally I feel that it’s absolutely terrible practice to socialize losses among only crypto customers. What you are doing is moving a company wide loss, to a small portion of specifically Bitcoin holders only because the hackers happened to hit that portion of your business.

    Socialize sitewide, or don’t socialize at all and let the chips fall where they may.

    I can’t fathom what legal aid would suggest such a dumb idea. You will immediately be emptied of USD and Altcoins, and everyone else (bitcoin holders) will open a class action lawsuit.

    Do you use just examined law clerks to come up with your ideas? Cause this one is terrible. Not only that, but it falls on the fact that you didn’t separate customer accounts (obviously) so you can’t even claim a firm ground for socializing between Bitcoin balances.

    • robert hunter
      Posted at 16:45h, 05 August Reply

      if you take an exposure to BTC it is fair to assume that you are taking an exposure to not just the possibility of price fluctuations (which empirically have shown to be great) but also to the vulnerabilities inherent in the technology, including the risk that security features might be undermined and coins dissipated in a non reversible manner. If you take a USD/other crypto you do not expect it to be susceptible to losses occasioned by BTC and vis versa. Accordingly losses should not be socialised.

    • Chris
      Posted at 11:10h, 09 August Reply

      I object to both “moving a company wide loss” and “HAPPENED to hit that portion”. This was not actually a company wide loss, it was a loss specifically of bitcoins only. They didnt “happen” to hit BTC, BTC is a high risk, uninsured currency. You CHOSE to deal in a high risk investment. I chose to keep a USD balance because USD balances are insured by the FDIC and they are harder to steal, easier to trace, etc etc. You chose a high-risk, high-payout investment, I chose a low-risk, low-payout investment. Your risk bottomed out, mine did not. Sorry for your loss, but dont expect people to cushion your fall. This sort of “socialize the loss but not the gain” is the EXACT reason the US and many European economies went to shit. The government promised to socialize the risks for banks and wall st, so of course they went crazy on high risk behavior. Because there wasnt actually any risk, just huge payouts.

      I really am sorry for your loss, but forcing me to pay out to make you feel better is not ethical, and likely not legal. What’s worse, the risk level I assumed with my investment was based on the idea that 1. hacking USD is highly unlikely 2. under insolvency the FDIC would guarantee my balance. By taking 36% of my balance and exchanging it for useless tokens they have removed that protection, thereby retroactively increasing my risk beyond what I agreed to. If they had not done this and Bitfinex went bankrupt, I would get my full account balance back. Now, I have lost a third of my investment and the FDIC wont even touch it.

      These BTC exchanges will continue to fall like this, and people will stop using them, until they get smart and have a 3rd party insure everyone’s assets from hack, fraud, or insolvency. Once one does, it will be THE only exchange anyone uses.

  • Arne
    Posted at 01:28h, 05 August Reply

    You should haircut across ALL positions. Gives individuals less incentive to sue.

  • Concerned customer
    Posted at 02:00h, 05 August Reply

    First of all – where is the effort to recover the stolen coins? Has Interpol, the FBI or any other highly capable law enforcement agencies been involved in this? A nearly 70 million dollar heist is not your corner mini mart robbery! It should be possible to track down the source, with support from agencies such as the NSA.
    Also, you can’t have your cake and eat it too, either the bitcoins were “customers assets” or they were bitfinex assets. If they were customers assets, then those with USD, or other crypto balances better not have their money taken and spread around! If they are not customer assets, then bitfinex lost the assets, and it still has the liability! I can pretty much assure you that in the second scenario, bitfinex will be forced into bankruptcy, because depositors along with other creditors will want their money.

    Where I’m having a hard time standing by bitfinex, is that one day they claim these are customers assets, and the next day they are talking about socialized loss, as though the assets belong to bitfinex, and they have some say in the matter.
    Which is it?
    I’m a customer, and I want to support this in the manner that will return the most money back to customers as possible.
    That probably isn’t bankruptcy, as it will drag on and cost everyone a fortune in legal fees. However, trust has been lost, more like destroyed, so first of all, bitfinex needs to ensure that there will be no bonuses, excessive executive compensation, repayments of loans to executives, etc. every dollar of profit must go back to repaying the customers who’s money was stolen at the behest of poor management decisions by bitfinex. I mean, for god sake, a $99 trezor would have prevented this!
    No cold storage 120,000 Bitcoin – I how does that decision get made by a capable management team?

  • Ahmed
    Posted at 02:07h, 05 August Reply

    Since the measures were in individual accounts that should not be socially billed.

  • Damien B
    Posted at 04:19h, 05 August Reply

    Will i be able to withdraw my USD anytime soon ?

  • Joel Prime
    Posted at 07:03h, 05 August Reply

    since it’s 12am post does that mean update is likely to be 5th UTC time sometime or during 6th UTC time?

  • Arne
    Posted at 09:47h, 05 August Reply

    I know the BTC-ony haircut sounds good, but I think your logic is deeply flawed. Have BTC holders in some way acted less responsibly than ETH/ETC/LTC holders? Are ETH/ETC/LTC inherently safer investments than BTC, so that BTC holders had to expect greater losses? NO and definitely NO. The hacker merely chose to go for whichever type of coin was held in the greatest quantity by Bitfinex.
    You need to justify only punishing BTC holders for Bitfinex’s mistakes. Explain exactly what your BTC customers did wrong and your other customers did right to justify punishing only the former.

    PS: once you sort out the haircut details and you bring the site only, you should have all features fully enabled. what good does it if you have a ton of pissed of users staring at their losses while being unable to withdraw or trade? that will just increase the aggravation. get trading!!

    • Chris
      Posted at 11:13h, 09 August Reply

      YES. BTC holder have ABSOLUTELY acted in a much higher risk way than, say, USD holders. USD is protected by the FDIC, and is much harder to steal / easier to trace. You chose a high risk investment. I did not. Thats not “punishing” you by not stealing from me, thats just not saving you from yourself.

  • Wendy
    Posted at 14:04h, 05 August Reply

    Question:
    To quote the statement “The numbers being quoted are erroneous”. So are the numbers being better or worse?

    Also, I personally don’t mind BFX to socialize the loss, as long as BFX socialize the gain also. I suggest BFX to setup a DAO and pledge BFX income into it. That is what I mean truly “social.”

    • peter
      Posted at 16:15h, 05 August Reply

      +1

      Where is the incentive for BFX to properly secure customer’s funds if the are not liable for the loss? At the very least, those customers experiencing a loss should receive a trading credit or something, to allow them to, over time perhaps, recover from the loss.

      Just read a statement from BitGo: “Our job is to protect your Bitcoin”. Yes, indeed, it is! So either do our job, or take responsibility if you fail to do so. It really should be that simple, no?

  • john
    Posted at 16:44h, 05 August Reply

    equity owners and shareholders should take the first hit. not customers. try selling equity to raise money to reimburse customers .

  • john
    Posted at 16:46h, 05 August Reply

    if customers are taking the hit to stop any possible litigation ,you have to make them equity shareholders because they are accepting a haircut .

  • Another concerned customer
    Posted at 17:47h, 05 August Reply

    Please assure us:

    (1) that there is a plan to repay these losses over time (preferably with interest!)
    (2) that in the event of bankruptcy for any reason (including regulatory fines or lawsuits from accountholders), that accountholders will be seniormost creditors
    (3) that none of the owners of BFX will be paid (or have loans repaid), and that no executives will be paid high bonuses (please disclose a compensation cap), until these losses are completely repaid
    (4) that you are moving to a system in which the majority funds of even the BitGo segregated accounts are effectively in ‘cold storage’, by which i mean that human retrieval of a cryptographic key from a physical safe is needed to move these funds
    (5) that you periodically hire various security auditors including ‘red teams’

  • Satoshi Nakamoto
    Posted at 18:32h, 05 August Reply

    How about we socialize the loss amongst the company employees/equity holders instead? This is not what I envisioned.

  • Jonathan
    Posted at 19:16h, 05 August Reply

    Of course you need to socialize losses. It makes absolutely no sense not to and then see what you will do after this is done about losses.

  • Carlin
    Posted at 19:34h, 05 August Reply

    Yeah I gotta say it pretty much sucks that all users whether BTC or not would take an equal % haircut , but it makes sense to do it this way and at least it sucks the same for everybody. If any one party gets a greater % than the other , the party getting less can try to file legal suit to achieve socialized losses with all assets. It would essentially place fault with bitfinex as the affected financial entity , and gives everyone the same result as what bankruptcy liquidation would result in anyway – with the added bonus that no litigation is necessary and thus better since no legal fees , and bitfinex can pay back all users over time or immediately with some type of coin/bond/share.

    Basic game theory. Like a warped sort of one way prisoner’s dilemma. If any parties get less than the others , they’ll try legal route to get socialized losses for all. So it’s best to just give everyone that result now , and avoid suits that would result in this outcome anyway -legal costs and time.

    That said , if the split is close enough , and intent is to repay losses , then awesome – sucks , but good enough and I’d rather have that than bankruptcy limbo. 100% for some , 80-90% for others I for one would be willing to live with and calculate that it’s worth it to get that instead of potentially 85%-95% years from now -legal fees. If it’s 100% for some , 20-50% for others … well then obviously those people would be filing against bitfinex for insolvency and seeking the preferable socialized losses for all outcome.

    • Chris
      Posted at 11:18h, 09 August Reply

      “the same result as a bankruptcy” NOPE! Those who had a USD balance would get the full amount back in Bankruptcy. It is FDIC insured up to $250k against insolvency. Not, though, against a forced BFX purchase. So no, dont try to make yourself feel better that those of us who were smart enough to keep a USD balance would have taken about this loss anyway. We would not. You are literally stealing from other members to cover your loss. Thats a REALLY dick move.

  • RAY KWON
    Posted at 20:34h, 05 August Reply

    zanetackett,

    It would seem to myself and other Bitfinex customers that you are stonewalling us in a similar manner in which MtGox did back in 2013. Customers that have bank deposits through Bitfinex have legal rights pertaining to banking laws. You cannot hold our money for ransom while you figure it out. Bitfinex is under definite legal obligations to let us access our money in these bank accounts. By continuing in this current manner, you are setting yourself up for additional trouble that you don’t need!

    I would like some official statements or a press conference from you guys. The current state of limbo is unacceptable and the longer it continues, the more your reputation, the reputation of Bitcoin, and the goose that lays golden eggs, which even now still has the potential for MOUNTAINS of future golden eggs will suffer!

  • Fernando Bittencourt
    Posted at 20:48h, 05 August Reply

    Let’s socialize profits too. I want a share of company profits by my loss be recovered.

    • Chris
      Posted at 11:21h, 09 August Reply

      Do you have any idea how long this will take to pay us back? 1/3 loss means the remaining needs to generate a 50% increase to pay it back. And thats not a 50% profit, thats 50% of the principle in fees. So your .02% that you pay will have to accumulate to 50%. Thats YEARS from now.

  • Kermit
    Posted at 21:01h, 05 August Reply

    whatever you do, just hurry up.

  • Lana Lang
    Posted at 23:44h, 05 August Reply

    Socialized losses should be contained only between BTC and loaned out fiat.

    All other alt coins and fiat that was not lent out should not be socialized.

    Otherwise it is robbing Peter to pay Paul.

  • Kansta
    Posted at 00:24h, 06 August Reply

    Socializing the lost among BTC holder seems fair. When buying Bitcoin, people accept to take the Opportunities and Threads of Bitcoin, but other crypto holders do not.

  • Michael
    Posted at 02:29h, 06 August Reply

    PLEASE READ THIS BITFINEX

    I put my Fiat funds into Bitfinex only for Margin Funding but NOT as an insurance against crypto security risks!!! If it would be taken to cover the risks involved of having Cryptcureencies would be counted most probably as theft as well – WHY?:

    I knew about risks involved with trading and that there was some kind of chances that I could loose money due to extreme volatilitiy in a flash crash, but this was the only risk I was willing to take.
    I also knew, that having Cryptos as assets would involve big security risks, and the possiblity of loosing them in a hack, as past has shown multiple times. That’s why I did not want to keep my money stored in Cryptos but rather in fiat, even though latter also involves quite big risks theese days (therefore I exposed myself to very small amounts in Cryptcurrencies). But I counted the risks lower than having Cryptos. And I was prooved right.

    Crypto traders also knew the risks of trading and having Cryptos. And the bigger risk they took could reward them with much, much greater gains in trading compared to the small interest rates lenders would be rewarded with.

    I was not told by Bitfinex that my money would be used for any other means than covering unforseen margin events that could not be covered by the funds of the traders.

    In a question to Bitfinex regarding the security of fiat money Bitfinex clearly and unambiguous stated in a mail:
    “We maintain a consequent reserves funds to cover the event of flash crash where liquidation would not be processed quickly enough to cover for losses of traders. In this scenario, we would be able to cover the losses of trades (not than we never had to use those reserves during the previous flash crashes, to give you an idea of the scenario that would be needed)

    In the event of a “bank run” where everyone would withdraw funds, we would be able to honor all withdrawals. If you see how our system works you see the fractional reserve is not part of it.”

    Now a BTC-“bank run” has happened – unfortunately by a thief. But according to the statement above my funds should remain safe!!!

    Let’s put it the other way round: If a big “bank run” or theft happened to the banking system, or the system crashed like in Cyprus or other countries, my fiat would have been lost, but those that put their money in Cryptos or Gold would be happy they did so. Taking their assets to cover my losses would also be theft.

    Please beware Bitfinex – PLEASE!

  • Jacob Eliosoff
    Posted at 02:33h, 06 August Reply

    The priorities I would recommend for Bitfinex here, in no particular order, are:

    – Let customers get back (whatever fraction is feasible of) their holdings.
    – Do the above in a reasonably fair way.
    – Let Bitfinex continue operating.
    – Be consistent with legal advice! In particular, involve a bankruptcy lawyer.

    On whether socializing losses to BTC-only or all holders is fair, there are reasonable arguments both ways. One could argue that someone holding BTC with Bitfinex was knowingly taking a greater risk than someone holding USD – the BTC was in fact demonstrably at greater risk. Or one could argue that both were taking comparable risks. I have no strong view really, but again:

    Whatever option you go with, make sure your lawyer’s comfortable with it!

  • TbbW
    Posted at 03:47h, 06 August Reply

    If you socialize the losses then you can set up so that a portion fee’s on the page is used to repay that loss.
    Bitfinex has been around for years and years surely you guys must have some form of cold storage or money saved up incase something like this hapens.

    If your cold storage cant cover what is lost and need the comunitys help to cover the rest as a loan then going with repaying it with fee’s over time is a very good option and it should keep you guys motivated enoughf to stay on your toes to prevent something like this from hapening again.

    Screwing up and saying “hey we screwed up but you guys will pay for it as a comunity” is a realy scummy thing to do unless we as a comunity where the ones that screwed up.

  • MR D
    Posted at 06:08h, 06 August Reply

    My view is this. You hold different kinds of asset in custody for your customers. Through woefully inadequate security practices (both yours for not protecting the API key properly and Bitgo’s for even imagining that they should include withdrawal limits in their management API) a thief has been able to steal massive amounts of Bitcoin belonging to your customers. This is an absolutely terrible situation and your carelessness will be devastating for the lives of many. You need to resolve this situation quickly and return remaining assets to customers before you are forced into bankruptcy whereupon liquidation lawyers will feast on the remains ensuring everybody loses everything. This is your moral duty.

    Since you do not have funds to cover the losses, and unless you can sell your business to cover the losses (and please do not risk all by delaying while you investigate such a possibility) you will need to decide how they will be apportioned to your customers. Since Bitcoin was stolen the losses need to be apportioned among Bitcoin holders. The other types of asset you hold on behalf of your customers weren’t stolen and if they were involved in a loss socialization scheme it would be the equivalent of Robbing Peter to Pay Paul. I understand the argument about BTCUSD positions however.

    Presumably you have not acted yet on legal advice. The problem here is that your lawyers will never be happy with any course of action because they all have severe downsides – except they will of course with to drag this out and maximize their fees. As the people primarily responsible for this disaster (other than the hacker of course, who should be shot) you need to step up to the plate and push ahead. The lawyers act in yours and their interests only. But I ask you to consider the human dimensions of what your mistakes have caused.

    People are agonizing over every thing you say, over every missed deadline, over every single extra minute. The facts are we are in the hands of the very same people who lost our money in the first place. Some of us exhibit Stockholm Syndrome and keep wishing for the best. But as you can see from the posts here and on reddit nerves and tempers and becoming increasingly frayed and the mood more hostile. You need to push ahead regardless of the self-serving advice of your lawyers and make decisions fast.

    That means you need to restart your system once you have secured it. You need to let people see what their losses are and let people start withdrawing what they have remaining. If you delay and allow remaining assets to go the way of lawyers, you won’t be forgiven.

    Having said that I do see that Zane has made incredible efforts to keep people informed of developments. But the prevarication has gone on too long. It’s time for truth, real transparency and action.

  • Daniel Zettetström
    Posted at 07:17h, 06 August Reply

    Bitfinex will die if socialising the losses. How many users is it? What will remain WHEN all users drag this company into court for using their (customers) money to cover the losses.

    None will be happy or satisfied.

    If socialising the losses there has to be a plan to pay back to the customers. With interest. Otherwise Bitfinex will be in the same corner as the thiefs who stole the coins and should answer in front of the court.

  • Doge Economist
    Posted at 10:17h, 06 August Reply

    LMFAO Socialize the loss! What a ripoff to patch up a ripoff.
    Socialism is theft. so you are going to steal to make a theft “fair”? WTF, really?

  • VITALIY
    Posted at 10:31h, 06 August Reply

    Friends, do not you see? Bitfinex will not return. The End ! We must unite and organize a joint lawsuit, and the police investigation of fraud and deception

    • SEEYAFINEX
      Posted at 19:32h, 07 August Reply

      Agreed. They are done now and it is certain. USD balances are not theirs to redistribute. Now the lawyers will decide and USD balance holders will get their funds back in full as they are not subject to the debts of Bitfinex.

  • Chris
    Posted at 00:03h, 08 August Reply

    ok, this fucking sucks, but you did the right thing #bitfinex, the alternate is 2-5 years of litigation in which we all loose 60% and loose the ability to trade in the mean time,. Its an unfortunate situation, but I think you are handling it the best way possible.. FWI i am a DOLLAR holder in Bitfinex.

    • Chris
      Posted at 11:24h, 09 August Reply

      You dont think stealing from USD balances is MORE likely to prompt a lawsuit?

  • Craig
    Posted at 09:35h, 16 August Reply

    A class action lawsuit is already being filled: https://bitfinexlawsuit.com

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