Customers of hacked bitcoin exchange Bitfinex (BTXNA, Inc.) are set to take a serious haircut on their bitcoin holdings after the company announced it would be taking 36 percent of the balance of their bitcoin wallets to offset losses following the hack of the company early August.

The 36 percent figure represents a generalized loss percentage of 36.067 percent, which was the total of the 119,756 bitcoin stolen from the exchange — at the time it occurred, it was valued at $65.6 million.

“In a later announcement we will explain in full detail the methodology used to compute these losses,” the company said in a statement.

Although the 36 percent will still be taken, the exchange said that in order to compensate their customers, they were planning on issuing a new token on the Omni protocol with a shortcode “BFX” that will be equal to the amount each customer as lost. Those tokens are being handed over without release or waiver, will be tradable, and will remain outstanding until repaid in full by Bitfinex or exchanged for shares in the company itself.

“We are also actively talking with potential investors,” the post added. “Raising capital is one strategy we are considering for making our customers whole. These discussions are at an early stage and will take time.”

Socialized losses

Not surprisingly the decision to lop 36 percent out of every wallet at Bitfinex was not well received by customers, particularly those who were unaffected by the hack.

“We did not agree to socialized losses when we signed up. (Ie lo Ike okcoin) In a broker/dealer relationship it not legal in the U.S.,” Twitter user IamNomad wrote.

“Spoke to a lawyer, there is no way Bitfinex’s “loss socialization” plan holds up in court. This is going to be … interesting,” another user wrote.

Putting aside that Bitfinex is in Hong Kong and United States law does not apply, the decision to socialize the loss and continue trading could best be described as a courageous, and not in a positive sense but in a classic Yes Minister television show one.

Is it fair that everyone pays when their bitcoin wallets were not affected by the hack?

Alternatives are another matter; while it’s easy to criticize the socialization of the losses the alternative for the exchange could have been to close its doors and for its directors to flee with the remaining funds, which has been pretty much par for the course when it comes failed and/or hacked bitcoin exchanges over recent years.

At least with this decision, and the issuance of tokens, there is the chance that customers will one day have their funds returned, which has to be a positive.

photo credit: Bitcoin: Crypto Imperator via photopin (license)