Bitcoin Exchange Cryptsy, a company owned by Project Investors Inc. out of Delrey Beach, FL offers a 1,000 bitcoin (BTC) bounty for any information leading to the recovery in over 6.7 Million dollars in stolen funds. The theft occurred on July 7th, 2014 and Cryptsy, after years of silence has released the news of the theft on their blog post dated January 14th, 2016. Cryptsy has ceased operations, although the site is still running. This is very reminiscent of the Mt. Gox scandal of 2014 in which the Japanese based company lost 850,000 BTC claiming they were “lost” or likely stolen, in fact these events occurred in the same year, but both were handled very differently.
Since the theft in 2014, Cryptsy has attempted to turn all of it’s profits to restoring the massive loss of funds, which worked for sometime. However when a BTC blog called CoinFire made an article in October of 2015 claiming that Cryptsy was under federal investigation, users panicked and attempted to withdraw funds and the exchange was left insolvent. Cryptsy attempted for over three months to remain stable by disabling withdraws of BTC and several other currencies such as Litecoin (LTC) and Darkcoin, which of course caused greater panic. For over three months the currencies that could be withdrawn inflated to over 130% of their value, as users panicked and took heavy losses just to avoid losing all of their money.
For three months Cryptsy remained silent, saying little more than the wallets would be back online soon. However on January 12th, hackers presumably unrelated to the theft, got control of Cryptsy’s email and emailed all of Cryptsy’s users in a large phishing attempt, to gain users login information. In the email was a link, directing users to a site they had set up to phish users information, as they attempted to login to the new “refund” site.
BigVern as he is called in the BTC world, is the main representative of the company and was forced to come out of hiding to inform users of the phishing attempt that was sent from their own support email, before larger issues occurred. The site immediately disabled all withdraws, and announced to users to change their passwords if they had opened the emails, in this announcement BigVern also stated he would be coming forth in the following days to explain what had occurred over the last few months. On the 14th of January Cryptsy announced for the first time the massive theft theft that occurred two years earlier. They set up a bounty for anyone that can give them information leading to the recovery of these funds. The announcement was shocking, an astounding 13,000 BTC and 300,000 LTC, which amounts to an impressive 6.7 million dollars in value. In the announcement a reward of 1,000 BTC was offered to anyone that could provide information leading to the funds recovery, and Cryptsy even offered to the culprits that if the funds were returned to them they would pursue the issue no longer.
After attempting to acquire the help of the Miami FBI whom referred them to their website, ignored Cryptsy’s plea for help. So Cryptsy has turned to the BTC community or anyone that can help locate the funds a handsome 1,000 BTC reward has an approximate value of $430,000. Due to the nature of BTC Cryptsy can see the “wallet” that the funds are located in and can see that they have not been moved since the incident. Although they know the wallet id and can watch these funds even if they are moved, BTC wallet owners are largely anonymous and it can be hard to track them down. However still there stands a much better chance of earning this reward than to the one in 292 million chances of winning the Powerball. Cryptsy has posted all information they have regarding the possible cause of the attack, stating that a wallet developer of an eCurrency coin called Lucky7Coin, and states that the found a “backdoor” in their code which acted like a trojan virus just waiting to strike.
Following the announcement Cryptsy, closed the sites Chat box where users can communicate with others and staff. Cryptsy has announced that if the funds can not be recovered with the bounty, users will have to recover funds through bankruptcy. This is one of many scandals in the developing “wild-west” like world of BTC and decentralized currency. This is perhaps one of the closest hitting to home however, as Cryptsy is a Florida based company, that does the best it can to follow all laws of both the US and each state as well. There is a lot of room for crime with BTC, but there is also a strong community looking to do the right thing. There is a good chance that these funds will be recovered, but til then there will be many people across the globe unable to access their money and waiting for a hero, to step up and help the community recover the money and to show that this developing economy can survive.
January 15th 2016
by Douglas Dedrick