BitFloor and Bitcoinica, the two largest victims of digital theft in Bitcoin history, are making strides in repaying their clients. A court filing made by Tihan Seale in August to place Bitcoinica into receivership for liquidation was finally reviewed by a judge on October 31. Anthony John McCullagh and Stephen Mark Lawrence were appointed as liquidators. Subsequently, the liquidators reached out to creditors via email and the Bitcointalk forums, requesting their address and contact details. Meanwhile, BitFloor recently announced that it will refund 1.7% of its users' lost funds, with further refunds planned as the exchange's business grows.
In 2012, Pirate, Bitcoinica, and BitFloor experienced significant mishaps within the Bitcoin world. Bitcoinica, a margin trading platform launched by Zhou Tong in September, initially thrived and became one of the largest exchanges after MtGox. However, a series of hacks in the spring tarnished its reputation. The first hack in March resulted in over $220,000 worth of BTC being stolen from Bitcoinica's servers. Despite receiving additional funding from investors, Bitcoinica faced another $90,000 hack two months later, leading to the deletion of its user balance database and subsequent shutdown. The claims process was slow and complicated, with the team sifting through evidence to distinguish legitimate claims from fraudulent ones. Only a small portion of claims were paid out before the process stalled, and the claims fund was even hacked due to poor security practices.
In the case of BitFloor, the incident was less severe. In early September, a thief discovered an unencrypted backup of the service's wallet on the server, which had been accidentally left there during a manual software upgrade. The thief made off with $250,000. Founder Roman Shtylman managed to keep BitFloor operational by freezing the Bitcoin balances of depositors at the time. The plan was to restore BitFloor's operations and generate enough profit to reimburse depositors.
These events severely shook the confidence of the Bitcoin community. By September, many individuals had given up hope of recovering their funds from these exchanges, especially Bitcoinica. However, the appointment of legal liquidators for Bitcoinica brings a glimmer of hope that depositors may eventually receive a significant portion of their funds back. Due to the third theft in July, the compensation will not be 100%, and anonymous Bitcoinica users will only receive a refund if they provide their legal name and address to the liquidators. The estimated payout currently stands at around 60-70%. Bitcoinica creditors, as well as non-creditors, are advised to provide truthful information to the liquidators, as submitting false claims could have legal repercussions.
A noteworthy aspect of this chapter in Bitcoinica's story is the recognition of Bitcoin as a legitimate form of digital property. The liquidators' post mentioned the possibility of distributing funds either in the form of Bitcoins or as cash, marking the first time a formal legal process has acknowledged and handled Bitcoins. This development may help alleviate legal uncertainties surrounding Bitcoin businesses and boost confidence among those working with the cryptocurrency.
The Bitcoin community has learned
valuable lessons from these unfortunate events and has taken steps to improve
security and focus on strengthening the underlying economy. Financial service
providers have implemented stronger security measures, such as two and
three-factor authentication and offline cold storage for client funds. The
community has also shifted its focus to fostering a resilient economy. If the
liquidation of Bitcoinica and the recovery of BitFloor continue positively,
these incidents could serve as a turning point toward a brighter future for the
Bitcoin community.