The digital currency markets repeatedly remind us of a tired but true maxim: your money is only as secure as the bank that guards it.After a recent hack resulted in the theft of $70 million worth of bitcoin, Hong Kong-based Bitfinex caused a minor panic when it announced it would spread the losses equally among all its customers, even those whose holdings weren’t touched.In doing so, the exchange called our attention — yet again — to how vulnerable virtual currencies are to criminals who hack through the Internet-connected systems that handle money transactions.Proponents of the technology behind bitcoin say the problem isn’t with the  that underpins the currency but rather with the way exchanges store the code that determines ownership.In other words, the banks’ security is to blame.Bitfinex, one of the world’s largest bitcoin exchanges, was hardly the first to suffer from a cyberheist.The most famous robbery came in 2014, when the Tokyo-based exchange Mt.

Gox announced $480 million had been stolen by hackers and filed for bankruptcy.Its customers are still waiting to a claim a fraction of their deposits.This latest theft is rattling the cryptocurrency community.“The failure of one company to secure the private keys of its users is casting a shadow, unfairly, over the bitcoin ecosystem,” Alex Tapscott, co-author of “Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business and the World,” told Salon.“This hack demonstrates the urgent need for stronger governance.”Tapscott adds that Bitfinex’s decision to “socialize the loss” of nearly 120,000 bitcoins (each worth almost $600) is undermining consumer confidence in the exchanges, and with the digital currency itself.Instead, he says, Bitfinex should follow the usual procedures that companies take when there isn’t enough capital available to cover a loss: file for bankruptcy and renegotiate terms with creditors.Instead, Bitfinex announced last week that all of its account holders would lose 36 percent of the value of their deposits, arguing that if it were forced into bankruptcy its clients would lose out anyway.

In exchange, Bitfinex gave its customers debt tokens which it says could be redeemed in the future for shares in BitFinex’s parent company, iFinex Inc.bitcoin per klickBut the tokens quickly became the digital equivalent of junk-status corporate bonds, trading at 30 percent of their initial $70 million value Thursday when they debuted on Bitfinex, Bloomberg reported.mt gox and bitcoinMeanwhile, Bitfinex customers are fuming.bitcoin forum hrvatski“The idea of dipping into USD, and digital asset wallets that were 100 percent unaffected, and without user approval selling 36 percent of those funds is likely criminal,” Bitfinex customer Joseph Schweitzer told CNBC via email on Friday.Hong Kong authorities are at a loss on how to respond.bitcoin mining wie

Like almost everywhere else, virtual currency exchanges operate outside of existing regulatory frameworks.publicly traded bitcoin companiesAn International Monetary Fund report earlier this year focused largely on the need to regulate these currencies to guard against terrorist-funding activities, money laundering by drug gangs, tax evasion and fraud.bitcoin mining rig coolingAnd so far, oversight of virtual currencies exchanges has been largely focused on rooting out criminal activity, not protecting the holdings of the average digital currency user.ethereum get involvedAs consumers become aware of the risks to virtual currency exchanges, the global financial system is rapidly embracing the exchanges’ Achilles heel — highly vulnerable blockchain — as a means of recording and storing transactions.bitcoin cause inflation

Essentially, banks want to introduce this decentralized blockchain technology to make transactions like stock trades and bank-to-bank payments faster and less costly.“Rather than to stay at the margins of the finance industry blockchain will become the beating heart of it,” Giancarlo Bruno, the head of financial services industries at the World Economic Forum, said in a statement.It’s unclear whether this will embolden tech-savvy bank robbers to hack into traditional financial institutions.bitcoin online wallet comparisonBut until that is clear and until there is some security oversight of the virtual currency market: buyer — or depositor — beware.Late last week we reported that Bitfinex, a popular Hong Kong-based Bitcoin exchange was hacked, losing about $70M worth of customer’s bitcoin.The loss caused the price of Bitcoin to drop about 20%, and it still hasn’t fully recovered to pre-hack levels.

In the days following the hack little information was known about how it happened and how Bitfinex would reimburse affected users.Since the exchange used a service to individually segregate each customer’s funds in unique wallets, only some customers’s funds were drained, while others retained their full balances.The question then became would Bitfinex limit losses to only users whose wallets were compromised, or distribute them equally amongst all users (since the attack was essentially indiscriminate amongst random wallets).We now have an answer, as the company has posted that they will distribute losses amongst all users to the tune of 36.067%, which is the total loss experienced by Bitfinex.“Upon logging into the platform, customers will see that they have experienced a generalized loss percentage of 36.067%.In a later announcement we will explain in full detail the methodology used to compute these losses” – Bitfinex So how will users get back that missing 36 percent?

Bitfinex says they will issue a new token called BFX equal to each customer’s exact losses.Eventually the token will be either be redeemed for full repayment or exchanged for shares in the exchange’s holding company.Interestingly, the token will also soon trade on Bitfinex’s platform, so the community can set it’s own price that values the chances that the exchange will actually follow through and repay holders of BFX.The company said they they are also looking into raising capital from investors to pay back customers, but that discussions are still “at an early stage”.The decision is a disappointment for customers who held currency other than Bitcoin (like USD or ETH) who originally may have thought their funds were safe.While the company justified their decision by saying that this type of shared loss is similar to what would happen if the company had to go through a bankruptcy liquidation, it’s still pretty unprecedented for an established financial institution to share losses amongst customers, especially when only one “currency” was comprised.