Bitcoin ATM
Britain's first bitcoin ATM is found in a Shoreditch cafe and bar in east London. IBTimes UK

Following last month's closure of MtGox, Chinese-based bitcoin exchange Vircurex has suspend all withdrawals of bitcoin, along with all other cryptocurrencies it trades in - litecoin, feathercoin and terracoin.

A statement on the company website said:

"On 24th March 2014 we will be freezing the current BTC, LTC, TRC and FTC accounts. All incoming deposits will also not be credited to the users accounts for the time being."

The company has not said what the shortfall between customers' balances and the amount of cryptocurrencies it holds is, but as Vircurex is a much smaller exchange than MtGox, the shortfall is likely to be significantly less than the £220 million 'missing' from MtGox.

Last year Vircurex was hacked twice, and at the time the Beijing-based exchange said it would be covering any customer losses from its own pockets, which until now it says it has been able to do:

"We had enough coin balances in our cold wallet to upkeep our platform and the positive cashflow enabled us to gradually refill the wallets."

Accounts depleted

However a number of major fund withdrawals in recent weeks have completely depleted the contents of Vircurex's offline wallet leaving it with just two options.

The first was to close the site with "significant unrecoverable losses for all" while the second would see Vircurex "work out a solution that allows the exchange to continue to operate and gradually pay back the losses."

The company has chosen to take the latter option and below are the steps it is planning on taking to get back on its feet:

  • Introduce a new balance type called "Frozen Funds" which cannot be used to trade or withdraw. These balances will gradually be paid back and be converted to the available balance over time
  • All customer balances (for bitcoin, litecoin, feathercoin and terracoin) will be reset to zero
  • The current available "cold storage balance" will be distributed based a unique "distribution logic" Vircurex has come up with
  • Each and every month Vircurex will distribute its net profit to its customers based on the same "distribution logic"

However, according to Vircurex's most recent financial statement covering the three-month period from September to November 2013, the company only generated revenue of around 64 bitcoins (around £21,500) in that period, meaning it could take a long time for customers to recover any lost cryptocurrencies using this method.

Trust

The plan also relies on new customers will to trust Vircurex with their cryptocurrency despite the exchange showing a history of incompetence when it comes to protecting customers' balances.

Vircurex was a minor exchange compared to much bigger exchanges such as BitStamp, btc-e or BTC China but the suspension of trading highlights a worrying trend among such exchanges.

While the amounts involved may be vastly different, the situation at Vircurex mirrors the situation at MtGox in one way. Leaked slides revealed that MtGox also had a recovery plan in place which would rely on the support of customers to trust the Japanese exchange again, as well as support from significant figures within the bitcoin community.

In a statement on the website, Vircurex said: "We believe that this is the best way forward and hope for your support and understanding."

Already criminals are seeking to take advantage of the sudden closure, with Viurcurex warning customers that there are two bogus Skype accounts impersonating Vircurex support.

"The account names are vircurex. and vircurex.eu Both accounts have no association with Vircurex. Do not use them to ask for help."

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