Another Day, Another Bitcoin: After the Bitfinex Hack

  • Grace Noto
  • August 9, 2016
  • 2

#Phelpsface when you talk about Bitfinex security

It’s been just about a week since the bitcoin exchange Bitfinex was hacked, with a loss of 119, 756 BTC, or about $80 million in boring old, traditional currency. The hack remains a hot-button topic in the bitcoin world, with many calling for the need of increased oversight of bitcoin exchanges.

“Bitcoin remains the most secure form of value transfer ever created and this hack does nothing to change that,” said the founder and CEO of Northwest Passage Ventures, Alex Tapscott, co-author of Blockchain Revolution. “However, once again, the failure of one company to secure the private keys of its users is casting a shadow, unfairly, over the bitcoin ecosystem. This hack demonstrates the urgent need for stronger governance of the ecosystem.”

Cryptocurrency advocates didn’t talk this way a few years ago. But a number of high-profile hacks have led to an increased awareness of the need for security and oversight.

At this point the hack’s effects, at least in the short-term, have become slightly more clear. First, there’s a plan, though people remain unsure about how it’s going to work: Bitfinex is “socializing” its losses, with Bitfinex customers sharing 36% of the loss. The company plans to share how this was done at a later date. Customers have also reportedly received a BFX token equal to their personal loss, redeemable for eventual repayment by Bitfinex, or alternatively, for shares of parent company iFinex Inc.

Whether or not Bitfinex’s plan for shared losses is a sound one is still very much up for debate among bitcoin advocates. Bitfinex’s Zane Tackett is still fielding user inquires on reddit about the future security of bitcoin as a whole. How to gain that security without sacrificing the supposed anonymity of the cryptocurrency seems to be the question on everyone’s lips. However, as readers of cryptocurrency blogger Izabella Kaminska know, this is a question with no easy answer.

Despite this being the first time a solution such as this is being implemented, industry experts seem confident Bitfinex’s response won’t have an adverse effect on bitcoin as a whole.

“The fact is that a certain volume of coins is out of circulation,” said Bitstamp Head of Business Development Vasja Zupan, whose company has issued statements aiming to reassure its users regarding the safety of its own exchange. “However, we do not see that this incident, or the way it will be handled by involved parties, will have any longer lasting impact on the price of bitcoin.”

Zupan agreed that the Bitfinex incident does show a need for oversight and “minimal common standards,” which he maintained were needed for the future development of the industry. Bitstamp states that it is the first virtual currency exchange that has formal oversight in place, a factor it maintains provides the needed security to its users. However, despite the disagreements, bitcoin fans seem more invested than ever in the success of the virtual currency.

“This will do little to stop bitcoin and blockchain technology ultimately changing the world,” said Tapscott. “Blockchain technology represents the second generation of the internet- an internet of value — that will have a profound impact on financial services, business, government and society.”

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