From Boom to Bust: How Cryptsy’s Troubles Reflect Broader Trends in Crypto Exchanges

Cryptsy is one of the largest exchanges for Bitcoin and other cryptocurrencies. It also trades in other currencies, including several new ones that have grown in popularity recently. It is a crypto-to-crypto exchange and does not accept fiat currency.

In July 2014, a hacker stole 13,000 BTC and 300,000 LTC from the company’s cold wallets. The company’s CEO, Paul Vernon, aka Big Vern, did not report the hack until months later. Click here to read from the source.

Founded in 2013

Founded in 2013, Cryptsy is one of the oldest and largest Bitcoin exchanges. Its user base and trade volume eclipse that of its competition. It also offers a variety of digital currency pairings, including BTC/USD, DOGE/USD, DRK/USD, LTC/USD, and RDD/USD.

The company was started by Paul Vernon, an early Bitcoin adopter and serial entrepreneur who also ran several web-hosting companies specializing in x-rated sites. The company grew rapidly and was soon handling thousands of trades a day.

But things went wrong. In January 2015, Vernon told employees that the company had been hacked and millions of dollars worth of digital assets had been stolen. Then, he disappeared. He is believed to be living in China. The lawsuit was filed by two Florida law firms.

Licensed in the U.S.

In the United States, there are a variety of licenses that can be obtained for cryptocurrency exchanges. These include a BitLicense, which is granted by the state of New York to individuals and legal entities that specialize in digital currencies. A BitLicense allows companies to offer a full range of services, including fiat-to-crypto trading.

The owner of the Delray Beach, Florida-based Cryptsy exchange has been ordered to pay $8 million in damages to customers. He allegedly stole their funds and fled to China after the company closed down. The customers received class certification in their lawsuit, which was brought by Wites & Rogers and Silver Miller.

A court-appointed receiver has begun collecting assets from hacked exchanges to pay creditors. But not all victims have been paid.

Launched as a crypto-to-crypto exchange

Cryptsy was launched in May of 2013 as a crypto-to-crypto exchange for altcoins, including Bitcoin. Today, the exchange handles thousands of trades per day, making it one of the largest in the world. It also offers fiat trading for certain coins.

In the past, Vernon ran several mining pools for alternative cryptocurrencies like Litecoin and Feathercoin. He earned fees in these currencies by mining them.

But in 2014, Cryptsy was hacked and millions of dollars were stolen from customers’ wallets. The FBI subsequently arrested Vernon for fraud and conspiracy to commit money laundering. He reportedly told employees that the hack had occurred but didn’t tell customers until more than a year later. Class representatives have filed a lawsuit against him. The lawsuit seeks damages for customers who lost their Bitcoins.

Launched as a fiat-to-crypto exchange

A fiat-to-crypto exchange is a platform that allows users to convert traditional currencies into cryptocurrency. The best fiat-to-crypto exchanges offer a variety of payment methods, including bank transfers, debit and credit cards, and e-wallets. They also prioritize security, which is vital in the crypto space due to cyber threats and hacks.

Initially, Cryptsy was created to address the issues faced by altcoin miners who were unable to trade their coins for the small amount they earned. Paul Vernon, known as Big Vern, created the exchange out of his experience running mining pools for altcoins.

In a lawsuit filed in Miami, Florida, the DOJ alleges that between May 2013 and May 2015, Big Vern concealed his losses from his customers. He allegedly failed to disclose that a hacker had stolen $5 million worth of bitcoin and other cryptocurrencies from the exchange.

Expansions

In addition to the crypto exchange, Cryptsy also offers a mining platform. One of its most recent ventures is a partnership with digitalBTC, which will allow users to trade mining contracts for coins on both platforms. The partnership will also make available a new mining product called Mintsy, which will provide customers with mining infrastructure based on the chosen algorithm.

A class action lawsuit filed last year by Cryptsy account holders alleged that Coinbase failed to stop the laundering of stolen cryptocurrency by the now-inaccessible exchange, according to a CoinDesk report. The Wites Law Firm and Silver Miller are pursuing the case against Coinbase on behalf of Cryptsy victims. They are seeking unjust enrichment and conversion damages. The lawsuit is pending in the United States District Court for the Southern District of Florida.