In August 2016, Bitfinex fell victim to a large-scale hack that resulted in $65 million being stolen from customers. Amazingly, not even a year later, they’ve seemed to have made big progress towards recovery. However, several obstacles still stand in the way, with the exchange still working to regain trust.
Bitfinex Fully Recovers from 2016 Hack
Bitfinex is sitting pretty nowadays, having recovered from their devastating 2016 breach.
They’ve avoided bankruptcy, and last month they announced that they had paid back all of their customers. Additionally, the have even posted their most profitable month ever.
What’s more is they did all of this at a neck-breaking pace, achieving all less than a year after the breach. They also remain one of the largest cryptocurrency exchanges in the world by trade volume.
And Bitfinex did it without having to rely on the government to bail them out through bankruptcy. Instead, they discovered what they believe is a market-centered alternative to bankruptcy.
This alternative sets a precedent for successfully dealing with digital currency disasters and could set a standard in the industry in how to deal with business crises — especially the fallout after large-scale hacks which have been a problem for crypto exchanges in the past.
Bitfinex’s Comeback Tale
Some of Bitfinex’s recovery could have been helped by an increase in cryptocurrency exchanges this year. However, what seemed to have really saved their skins was a market-based solution they concocted themselves to deal with the crisis.
While this plan was eventually successful, it began painfully at first as they were forced to socialize the losses incurred due to the hack. This policy led to Bitfinex reducing balances of client accounts by 36 percent — including those that did not lose money.
This move unsurprisingly angered customers who were not affected by the breach, many of whom tried to mount a lawsuit against them.
The exchange was able to avoid pending lawsuits by offering their customers tokens that amounted to IOUs promising to pay them back the full amount they borrowed from them. Moreover, Bitfinex gave users the ability to sell these tokens on the open market.
The IOU token did not fare well when they first became tradeable, sinking to 15 cents on the dollar. Over time, however, the token’s price slowly began to ratchet up as the market’s confidence in the exchange returned.
Within a month the token’s price was at 50 cents and by March 2017 the token had reached 90 cents on the dollar. When management redeemed the last of these tokens they announced a successful recovery.
Not Out of the Woods Yet
Bitfinex’s (potentially) successful road to redemption has not been an easy one for the digital assets exchange. They’ve consistently been plagued by problems that have caused incremental damage to their reputation.
First, it was the flash crash in 2015 that caused their servers to go offline, directly leading to Bitcoin’s price to fall 14 percent in just 30 minutes.
Then, it was the 2016 breach that led to millions of dollars being stolen from them, causing significant damage to their reputation and triggered concerns that it was going to become another Mt. Gox.
Finally, to top it all off, earlier this year they were forced to take legal action against banking giant, Wells Fargo, for preventing their clients from wire transferring their funds into their bank accounts.
To sum it all up, Bitfinex has come a long way, but they’re still earning the community’s trust.
Do you think Bitfinex will make a full recovery, or are they on their deathbed? Share your thoughts down below.
Images via CNN, Bitfinex