Publicly, the Hong Kong-based bitcoin exchange Bitfinex has lumped
its users with a 36 per cent haircut on all balances to cover the $70m
hack which it experienced last week.
The haircut applies to all customers irrespective of whether they were holding bitcoin balances or dollar balances or other altcoin balances. But customers don’t come away with nothing! No. Not in the world of virtual money creation. That would be crazy. They get a BFX token (an IOU) as compensation.
Privately and anecdotally, however, customers are reporting some variance with regard to the way the haircut is being imposed. Some US customers, for example, who only had dollar balances are reporting they’ve been able to get all their money back.
And then there’s this dialogue between Zane Tackett, Bitfinex’s PR man, and concerned bitcoiners the other day, which exposes a lot of confusion with regards to how bail-ins and loss absorbing capital is supposed to work:
Bitfinex has since issued this statement, which users will once again have to take blindly on trust:
The result? A 36 per cent charge from the school of life. Oh, and a lesson in the benefits of regulated/transparent systems and in the usefulness of being paid in a debt-settled instrument that’s universal. But apparently we’re still going to pretend like bitcoin is a thing.
We’ll close on this nice historical snippet from Vanderbilt law professor Morgan Ricks:
Which nicely sums up the real trouble with financial de-regulation:
it opens the door less to value creating innovation and much more to the
repetition of all the same mistakes we’ve already made and learnt from.
For the bitcoiners out there considering a Bitfinex holdout path, meanwhile, we do recommend Joseph Cotterill’s pari passu series.
Related links:
Day three post Bitfinex hack: Bitcoin bailouts, liabilities and hard forks – FT Alphaville
Time to reevaluate blockchain hype – FT Alphaville
Bitcoin continues to evolve into a worse version of the current system - FT
Alphaville
Bitcoin’s panopticon problem – FT Alphaville
Bitcoin companies come of age; start moaning about unfair playing fields - FT Alphaville
The haircut applies to all customers irrespective of whether they were holding bitcoin balances or dollar balances or other altcoin balances. But customers don’t come away with nothing! No. Not in the world of virtual money creation. That would be crazy. They get a BFX token (an IOU) as compensation.
Privately and anecdotally, however, customers are reporting some variance with regard to the way the haircut is being imposed. Some US customers, for example, who only had dollar balances are reporting they’ve been able to get all their money back.
And then there’s this dialogue between Zane Tackett, Bitfinex’s PR man, and concerned bitcoiners the other day, which exposes a lot of confusion with regards to how bail-ins and loss absorbing capital is supposed to work:
Team talk participant: If you’re trying to repair your image and your brand I would think the first thing you should say is we’re contributing hopefully a dollar amount?The participants go on to note that Bitfinex is not a publicly traded company hence information about the group’s financials is scarce. When asked about some basic Bitfinex financial figures such as estimated valuation or revenue, Zane dodges the questions completely leading to a crash course in the delights of doing business in a mostly unregulated sector and inadvertently investing (or god forbid trusting) in the word of companies with zero track record or transparency.
Zane Tackett: If we’re bringing in people we owe money to as shareholders how is that not contributing money?
Team talk participant: Well, you’re making assumptions, and some people won’t see it that way.
Zane Tackett: What’s the assumption?
Team talk participant: You need to put a dollar amount and people want to see that contributed and see how that reduces the loss, not coins, not issuing a bond, because people are forced into that. I mean you can say there’s no waiver. You’re basically putting these coins in their account. You know people are trying to process this right now and you haven’t given them an option, you’ve just made them accept that bond. So I think from a PR perspective you should have at least disclosed that you were offering up voluntary assets from Bitfinex proper to reduce the socialised loss.
Zane Tackett: We’ve said in that PR we’re going to be bringing on some of the people who lost money as shareholders. How is that not contributing a monetary asset? If you get shares of Bitfinex, if you become part of Bitfinex, that has monetary value.
Team talk participant: Because that is not a debt-settled instrument that’s universal. I don’t just go grab my [inaudible] out of my closet and walk over to someone I owe $200 to and say “here you go, here’s this”. “Well clearly I’m making a gesture towards you.” That’s what we’re getting at here and some people may not want that especially considering the fallout of what the brand is experiencing right now, so that’s why I don’t understand from a PR perspective why you wouldn’t go forward and at least offer that out there? To me that would have said a lot. That you guys are actually offering your assets and your funds to reduce the loss, not to go about socialising it through shares and putting it off for years or whatever….
Zane Tackett: If you really don’t believe that Bitfinex is taking on any loss and that’s the end of that, that’s ridiculous.
Team talk participant: But you’re not demonstrating it, what you’re actually losing? Or what you’re actually contributing from Bitfinex proper?
Zane Tackett: Because we can’t share details on what exactly we’re contributing. It will come out in the days, it will come out in the following days. That’s all I can tell you. If that’s not good enough. I’m sorry.
Bitfinex has since issued this statement, which users will once again have to take blindly on trust:
Reports have circulated suggesting that we have not committed reserves in the effort to compensate customers impacted by the security breach last week. Any such reports are false; we have committed all of the company’s reserves to compensate customers. Certain funds are being held back for our working capital purposes as we recommence operations. However, no property held back will be used to pay dividends to current shareholders unless and until our customers are repaidThe ironies will surely not go unnoticed. But, if this affair really proves anything it’s that bitcoin is akin to a giant ‘alternate reality game’ MBA course for people who failed to learn anything about finance in their standard educational path, perhaps because they were overly focusing on tech or coding skills, or playing actual AR games? Who knows. Problem is these same people still wanted to reengineer finance as if they knew the system better than the stuffy authoritative types who had done the classes and teach them a lesson about the drudgery and dullness of book learning in the process. It’s the stuff of teenage temper tantrum rebellion movies. Really.
The result? A 36 per cent charge from the school of life. Oh, and a lesson in the benefits of regulated/transparent systems and in the usefulness of being paid in a debt-settled instrument that’s universal. But apparently we’re still going to pretend like bitcoin is a thing.
We’ll close on this nice historical snippet from Vanderbilt law professor Morgan Ricks:
James Tobin 1985 of some pertinence to Bitfinex methinks @izakaminska @matt_levine pic.twitter.com/EQRM6jiM9S— Morgan Ricks (@MorganRicks1) August 8, 2016
For the bitcoiners out there considering a Bitfinex holdout path, meanwhile, we do recommend Joseph Cotterill’s pari passu series.
Related links:
Day three post Bitfinex hack: Bitcoin bailouts, liabilities and hard forks – FT Alphaville
Time to reevaluate blockchain hype – FT Alphaville
Bitcoin continues to evolve into a worse version of the current system - FT
Alphaville
Bitcoin’s panopticon problem – FT Alphaville
Bitcoin companies come of age; start moaning about unfair playing fields - FT Alphaville
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