Hacked Christchurch-based cryptocurrency exchange Cryptopia will give a “rebate” to investors who lost funds. But details are sketchy. And a decision to refund people who lost currency using the NZ dollar price on the day of the hack, Jan. 14, will be controversial, given the big hikes in cryptocurrency values over the last month.
Cryptocurrency experts have estimated that $23 million-worth of investors’ crypto coins were stolen when a hacker or hackers broke into the Christchurch exchange.
Cryptopia has been working with New Zealand Police to try to work out who the hacker is and where the cryptocurrency has gone, but investors have been frustrated by the lack of information.
On March 18, two months after the heist, Cryptopia emailed investors with details of “a rebate for customers who unfortunately lost funds”.
“We are working through the logistics of this to ensure it is equitable and in compliance with local laws,” Cryptopia’s co-founder Rob (Hex) Dawson said.
Cryptocurrency and tax specialist Campbell Pentney from law firm Bell Gully says while the proposed rebate is likely to be welcomed by the market as a positive step towards the planned restoration of the exchange, investors are still waiting for details.
“In particular whether they can expect a full refund, how losses will be calculated and whether refunds will be made instantly or over time by way of a fee-sharing arrangement.
In his email last month, Cryptopia’s Dawson said the company would be providing more details “shortly” about the rebates and the projected dates for trading to be active again.
“Please be aware we are hoping to achieve this by the end of the month,” Dawson said.
However that date, March 31, has come and gone, and with it the end of the tax year.
Pentney says one key concern will be whether investors can obtain tax refunds for their “lost” tokens.
“The challenge here is that this requires a degree of certainty that the funds are absolutely lost and the portion that is missing. One positive step is that traders can now reclaim their trading records which are vital for tax purposes.”
To add insult to injury for Cryptopia investors, Cryptopia will set the value of the rebate using what each currency was worth on Jan. 14, the date of the hack. But the last month has been a boom time for cryptocurrencies, particularly the less well-known ones.
“The first quarter of 2019 was a breath of fresh air for the cryptocurrency market, having recorded its first quarterly increase in overall network valuations since the fourth quarter of 2017,” journalist Sam Ouimet wrote on the Coindesk blockchain news site this week.
“Interestingly, however, bitcoin is among the least significant price gainers so far this year… This means a sizable portion of the market’s recent growth came from the many other cryptocurrencies trading on exchanges today.”
Some small or medium cap cryptocurrencies doubled or tripled in value in March, Ouimet said.
Cryptopia traded a wide range of currencies, and was a significant trading platform for some smaller cryptocurrencies.
A list of tokens stolen from Cryptopia in the January hack names 98 currencies. Most are relatively obscure and trade at just a few cents, or fractions of a cent. However they add up to a total Cryptopia loss of $US15.9 million.
Some Cryptopia investors will also be unhappy about an announcement that they won’t get back any money they might have accidentally put into the exchange after the hack. Some investors, unaware of the site had been closed down, continued to put money into Cryptopia.
“Any users who sent deposits more than 24 hours after we announced the security breach will not have their deposits recovered,” Cryptopia says.
“We do not have a deadline for when we will be recovering transactions sent before this cutoff, and any deposits that we recover will be subject to the same haircut that has already been applied to our users.”
Meanwhile, in a bizarre twist to the story, an Estonian-based company whose cryptocurrency Mothership was one of the less-well-known ones traded on the Cryptopia exchange, has received half of its stolen tokens back.
Mothership said in a blog that it had been contacted anonymously by someone who claimed to have stolen the private keys to the Mothership currency from the original Cryptopia hacker.
That possible hacker of the hacker then shared the private keys with Mothership, which was able to get back 16.8 million Mothership tokens.
An estimated 32 million were stolen, worth around $US880,000 as of Jan. 19, meaning just over 50 percent has been returned.
Pentney suggests the return of the tokens might have been a way to re-introduce some liquidity into the market so the hacker, or others, could trade the remaining 50 percent.
“Mothership relied on Cryptopia for trading volume and, since the attack, it is no longer tradeable – it now has a miniscule volume on a single obscure exchange. Mothership responded by proposing a token “swap” for existing holders, which would render the previous mothership tokens useless.
“It may be that half the tokens were returned in order to revive the project, which would allow anyone holding those previous tokens to sell in the future. This may have partially worked as already the token swap is on hold.”
Mothership spokeswoman Linh Le says her company is working with Cryptopia and the police to sort how to get the retrieved 16.8m Mothership tokens back to their legitimate owners.
“At the same time we have received new information about the Cryptopia hacker(s) and are actively continuing to investigate our leads on them. We are cooperating with the New Zealand Police and Cryptopia to aid bringing the culprits to justice.”