- The U.S. government may recognize Bitfinex as the sole eligible entity for compensation after the 2016 Bitcoin hack.
- Bitfinex’s creative compensation strategy included issuing BFX tokens and helping customers recover losses from the hack.
- The government plans to set up a website for affected Bitfinex users to claim their rights under victims’ restitution laws.
In relation to the theft of 119,754 Bitcoin during the 2016 breach, the U.S. government declared that Bitfinex might be the sole party qualified to receive compensation. The government claimed it was unaware of any further victims who qualified for compensation in a recent filing pertaining to the case against hackers Heather Morgan and Ilya Lichtenstein. After publicizing the loss, Bitfinex was able to repay its clients. Nonetheless, it seems the administration will move farther “out of an abundance of caution.”
Bitfinex’s Response and Compensation Efforts
Following the hack, Bitfinex reduced customer accounts by approximately 36%. It issued BFX tokens to offset customer losses. Customers could trade these tokens or exchange them for shares in iFinex. All BFX tokens redeemed within eight months allowed customers to regain some of their losses.
Customers who opted for shares received Recovery Right Tokens (RRTs), which can be redeemed for $1 if funds are recovered. Currently, about 30 million RRTs remain outstanding. iFinex committed to redeeming these tokens upon recovery.
Government’s Perspective on Victimhood
Even with Bitfinex’s massive efforts at compensation, the authorities suggested that a large number of account holders might have suffered losses. It suggested building a website where people could disclose whether they were victims. The Crime Victims’ Rights Act and the Mandatory Victims’ Recompense Act would both grant victims the right to seek compensation that they are legally entitled to.
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Following the seizure of $3.6 billion in Bitcoin, Lichtenstein and Morgan were detained by the DOJ back in February this year. Later on, they entered a guilty plea to money laundering-related counts. In July 2023, the Department of Homeland Security distributed $312,219.71 in cash and 6.917 Bitcoin Cash to RRT holders. Pro-rata distribution of these funds took place. The value of the stolen Bitcoin has increased to around $7.5 billion from its $72 million value in 2016.
Future Implications for Bitfinex and Its Customers
Bitfinex plans to use recovered funds to redeem RRTs before allocating up to 80% of remaining assets to UNUS SED LEO token holders. While LEO holders won’t directly benefit from recovered Bitcoin, they may see value through potential burn mechanisms. Moreover, this determination may streamline legal proceedings, focusing efforts on returning assets to Bitfinex. The 2016 hack remains a significant event in crypto history, shaping security practices in the industry.
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