Cryptsy, amid various accusations, lawsuits, and complaints have finally unraveled the cause of its multi-million dollar loss.
According to its official blog post from an individual who demonstrated himself as the founder and operator of the exchange, the Cryptsy platform began to experience technical problems when the developer of Lucky7Coin allegedly placed an IRC backdoor into the code of the wallet, which acted as a trojan and control unit.
“it was found that the developer of Lucky7Coin had placed an IRC backdoor into the code of wallet, which allowed it to act as a sort of a Trojan, or command and control unit,” said the founder.
The Cryptsy team emphasized that this was a “critical event for Cryptsy,” but the team was able to handle it with the consistent profit from its operations and investment in various cryptocurrencies.
After a few months since this “event”, Cryptsy users constantly reported withdrawal issues with their accounts. Some users created forum threads to design tutorials in extracting their own user funds from the exchange. While paying substantially high transaction fees, users converted their Bitcoin or Litecoin into other alternative cyptocurrencies, transferred them to more reliable exchanges like Poloniex, then switched back to Bitcoin. Although the entire process took more than week and over US$100, an increasing number of users began to use this method to get a hold of their coins.
Disregarding the technical issues users have experienced, the founder or operator of Cryptsy went on ahead instead in criticizing Coinfire for publishing a misinterpreted article about the exchange. The Cryptsy team emphasized that this was the point in time when things began to crumble.
“It wasn’t until an article from Coinfire came out that contained many false accusations that things began to crumble. The article basically caused a bank-run, and since we only had so much in reserves for those currencies problems began.”
Today, the Cryptsy team has a total liability of 10,000 BTC, which based on the price of bitcoin at the time of writing is equivalent to US$3.8 million. As of now, the Cryptsy team is is trying to find a new owner or an investor to take over the exchange.
The Cryptsy team even considers “Spread the loss to all users in the system and allow trades to continue.” The alleged operator of Cryptsy stated that many suggested this option for the Cryptsy team to implement. However, by the looks of the users, it seems like not many users will be willing to adapt to this “solution.”
Another “solution” the Cryptsy team considers implementing is, “Restrict withdrawals on short balanced coins, allowing withdrawals on a first come, first serve basis upon availability.”
At this point, the intelligent decision the Cryptsy team can make is to declare bankruptcy, and reimburse as many users as possible despite the multi-million dollar loss the company suffered from. While finding investors or a new owner could benefit the users which have their funds frozen in the exchange, it may be difficult to find a financial backer to take care of the losses.