$356 000 USD

MAY 2015

HONG KONG

BITFINEX

DESCRIPTION OF EVENTS

"Bitfinex is a Hong Kong-based cryptocurrency exchange owned and operated by iFinex Inc., which is headquartered in Hong Kong and registered in the British Virgin Islands." "The Bitfinex exchange is a popular platform for exchanging cryptocurrencies, also hosting spot and derivatives trading as well as certain lending, borrowing and staking features. Bitfinex came into existence in 2012." "BitFinex offers three main functions - it is a pure bitcoin to fiat exchange, a margin trading exchange and a liquidity provider. The platform offers a number of features available that expand the financial positions you can take - for example, the ability to short Bitcoin via margin trading."

 

"Bitfinex also has its own utility crypto token called Unus Sed Leo (LEO). Because it restricts a number of regions, Bitfinex U.S. customers are not allowed. On Bitfinex, KYC and Anti-Money Laundering procedures are employed." "It serves all except few countries in the world (mentioned below) and supports both fiat-to-crypto and crypto-to-crypto trades. Other notable features include margin trading, limit and stop orders, over-the-counter (OTC) trades, and others. While there are many options available, everything is laid out in an impressively intuitive fashion, with easy-to-navigate dashboards and menus."

 

"In May 2015, 1500 bitcoins were stolen during a hack." "Bitfinex los[t] 1,500 bitcoin, worth $400,000 at the time, when its hot wallets, connected directly to the internet, are hacked." "Following the hack, Reddit user gowithbtc tracked an estimated 1474 BTC (approximately $356 thousand USD) funneled away from Bitfinex in approximately eight hours."

 

"Dear Customer although we keep over 99.5% of users' BTC deposits in secure multisig wallets, the small remaining amount in coins in our hot wallet are theoretically vulnerable to attack. We believe that our hot wallet keys might have been compromised and ask that all of our customer cease depositing cryptocurrency to old deposits addresses. We are in the process of creating a new hot wallet and will advise within the next few hours."

 

"BitFinex’s hot wallet has been compromised. The hack may have resulted in the loss of only 0.5% of the total funds." "The amount represents 0.06 percent of the company’s total holdings."

 

"BitFinex' Director of Community and Product Development, Zane Tackett, told Cointelegraph that "trading was not affected" and confirmed that the Bitcoin address posted in the article below does indeed belong to the culprit. He also said they have generated a new hot wallet "using a spare-machine designed especially for scenarios like this.""

 

"Don't deposit to old BTC addresses. New addresses are online and updates will follow soon."

 

"Bitfinex indicates it will absorb the losses." "Although this incident is unfortunate, its scale is small and will be fully absorbed by the company. Thanks a lot for your patience and comprehension."

Bitfinex wat the largest exchange by volume at this time. It stored the vast majority of funds in proper sold storage, and a relatively small amount was in a hot wallet, which was breached.

 

The exchange absorbed the loss without impact to customers.

 

HOW COULD THIS HAVE BEEN PREVENTED?

In this case, there were no customer losses.

 

Greater security can be obtained by storing more funds in offline multi-signature storage, and signing specific transactions for larger withdrawals.

 

Check Our Framework For Safe Secure Exchange Platforms

Sources And Further Reading

 For questions or enquiries, email info@quadrigainitiative.com.

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