What Happened in the Bitfinex Hack and Were Victims Compensated?
The Bitfinex hack resulted in massive losses for customers. The exchange launched a remedial measure to compensate the victims, initially with BFX token.
U.S. authorities have seized $3.6 billion in Bitcoin linked to the Bitfinex hack. As reported by The Washington Post, they also arrested a couple on charges that they tried to launder the token funds. What happened to the Bitfinex hack victims and how could they be impacted by the seizure?
Bitfinex is among the largest crypto exchanges in the group that also includes Coinbase, Binance, Huobi, Gate, and Kraken. It supports trading in a variety of cryptocurrencies from blue-chips like Bitcoin and Ethereum to penny cryptos like Shiba Inu and Chiliz.
What was the Bitfinex hack?
In 2016, Bitfinex suffered a major security breach that resulted in the loss of nearly 120,000 Bitcoins worth about $72 million at that time. The hack forced the exchange to temporarily halt trading.
Although some people speculated that the hack was an inside job, Bitfinex strongly defended its team and insisted that the theft was the work of outside actors. The exchange has been able to recover tiny bits of the stolen funds with the help of the government.
The seizure of more than 94,000 Bitcoins worth $3.6 billion by the government could mark a milestone in Bitfinex’s efforts to recover the funds lost in the 2016 hack. The Bitcoins linked to the Bitfinex theft were on the move before the Department of Justice announced that it took control of them.
What happened to the 2016 Bitfinex hack victims?
Bitfinex compensated customers who lost their funds in the hack with the BFX token. The exchange issued a token for every dollar lost. Bitfinex launched a refund program to give the victims actual dollars. The program used profits from Bitfinex’s operations to buy back BFX tokens. It bought back most of the tokens and those that remained were exchanged for shares in Bitfinex’s parent company iFinex. People who received shares in iFinex were able to trade them through the RRT token.
How will Bitfinex use the funds recovered from the hack?
Bitfinex has spent the funds recovered from its 2016 hack in various ways. For example, the exchange has distributed a portion of the funds to RRT holders. However, Bitfinex plans to use most of the recovered funds to repurchase its LEO token.
The exchange issued the LEO token in May 2019 to raise money. There was a setback in which Bitfinex’s funds held by its payment provider Crypto Capital were seized by the government. Bitfinex issued 1 billion LEO tokens, which allowed it to raise $1 billion, but LEO was meant to be a temporary token.
As a result, Bitfinex uses a portion of its revenue to repurchase and burn the tokens with the goal of sweeping them out of the market completely. The buybacks have led to the number of LEO tokens remaining on the market dropping to just over 985 million.
Bitfinex has plans to use at least 80 percent of the funds recovered from the 2016 hack to repurchase and burn the token. LEO's token price soared to a new record high above $8 after the Department of Justice announced that it seized most of the Bitcoins stolen from Bitfinex.