Digital Currency Exchange Vircurex Halts Withdrawals

Bitcoin and altcoin exchange Vircurex announced today that they’ll be halting the withdrawal of bitcoin, litecoin, feathercoin, and terracoin, and also not crediting deposits made to user accounts “for the time being”, according to an announcement posted on their website.

The halt is effective immediately, according to the company, who adds that on Monday (24th of March), they’ll be freezing accounts with holdings in BTC, LTC, FTC, TRC, and removing open sell orders.

The halt comes following two thefts in 2013 which “lead to a loss of a significant number of BTC, LTC, FTC, TRC.”

As explained by Vircurex:

We had communicated at that time that we will be covering those losses from our income, which we have done so far. We had enough coin balances in our cold wallet to upkeep our platform and the positive cashflow enabled us to gradually refill the wallets.

The company says that in the past several weeks they’ve had “large fund withdrawals” that have effectively emptied their cold wallets.

“…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,” they write.

Proposed Solution

As outlined by Vircurex:

1. We will introduce an additional balance type called “Frozen Funds”. Funds in this balance type cannot be used to trade or withdraw. Those are the balances that the exchange will gradually pay back and hence transfer back to the available balance over time.
2. We will move all current balances for BTC, LTC, TRC and FTC to the “Frozen Balance”, i.e. your balance will be set to 0.
3. We’ll take the current available cold storage balance and distribute it based on the below described distribution logic.
4. Monthly we will take the net profit of the exchange and credit back that amount distributed to the users based on the described distribution logic.

The “distribution logic”:

50% of the amount will be distributed top down and the other 50% will be distributed bottom up.
Top down means: credit the amount from the largest account balance down to the smaller accounts Bottom up: credit the amount from the smallest account balance to the larger accounts.

Vircurex touts that this approach will be beneficial on three fronts:

1. Users will eventually see their funds, the time-frame depending on monthly volume.
2. New deposits, users are not affected.
3. “Fund withdrawals from the available funds are guaranteed, no surprises or [unnecessary] delays.”

Unfortunately, this concept relies on the fact that the exchange will need to continue its growth. Given the current situation, it’s not guaranteed that new users will flock to the service.

What do you make of it?