Vircurex Bitcoin exchange teeters after large withdrawals

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Bitcoin has found a captive audience with techies

24 March 2014

A small bitcoin exchange in Beijing is in trouble again after trying to earn back funds lost in two hacking incidents last year.

The exchange, Vircurex, said in a statement it would freeze cryptocurrency accounts held by its customers today after large withdrawals apparently nearly drained it of funds.

A tiny player, Vircurex traded just 54 bitcoins in the last 30 days, according to statistics compiled by Bitcoin Charts. By comparison, the largest China-based exchange, BTC-China, transacted more than 202,000 bitcoins in the same period.

The announcement is the latest in a series of setbacks for proponents of the cryptocurrency. Last month of Mt. Gox, the one-time king of the bitcoin trade, which lost an estimated 650,000 bitcoins and $23 million in cash through poor accounting and security problems filed for bankruptcy protection in the US.

Vircurex lost “a significant” amount of its holdings in two incidents last year, it said on its website. It claimed to be covering the losses from those incidents through normal trading operations, from which it collects a fee.

The exchange apparently had enough in reserve to allow regular trading of bitcoins and several other cryptocurrencies, including litecoin, feathercoin and terracoin, but not enough if many depositors suddenly wanted to withdraw.

The scenario, termed a ‘fractional reserve,’ has long been a worry of bitcoin investors since the finances of virtual currency exchanges, which are mostly unregulated worldwide, are often opaque.

But Vircurex said “large fund withdrawals” in the last few weeks depleted its so-called ‘cold wallet,’ which refers to offline, secure storage for cryptocurrencies.

“We are now facing the option of either closing the site with significant unrecoverable losses for all or to work out a solution that allows the exchange to continue to operate and gradually pay back the losses,” the company said.

It outlined a plan that involved distributing its remaining balances to depositors. Depositors’ accounts will be labeled with the term ‘frozen balance’.

“Funds in this balance type cannot be used to trade or withdraw,” Vircurex said. “Those are the balances that the exchange will gradually pay back and hence transfer back to the available balance over time.”

Jeremy Kirk, IDG News Service
@jeremy_kirk jeremy_kirk@idg.com