Chinese cryptocurrency exchange FCoin has shut down, citing technical maintenance in what is turning out to be one of the biggest scandals in crypto this year. The exchange spiked in trading volume upon launch with its controversial trans-fee mining system, but now looks set to defraud thousands of investors of their funds.
FCoin has been controversial since its launch, but it all came to the limelight a few days ago when it announced that it would shut down for system maintenance and upgrade. Hours later, another announcement revealed that the maintenance would take at least two more days due to “ a system loophole that could cause risk control problems.” This was seven days ago and till date, it hasn’t resumed operations.
The founder, Zhang Jian had an update for FCoin clients yesterday, February 17 and it now seems the exchange has officially shut down. “It’s time to reveal the truth,” he stated in a lengthy blog post. According to him, due to some technical errors and bad decisions, the exchange could end up losing over $125 million worth of crypto belonging to thousands of users.
Jian admitted that the issue is not that the systems can’t be restored. He explained, “The biggest problem that FCoin currently faces is not the problem that the system cannot be restored, but the problem that the capital reserve cannot be paid to users. The internal problems and technical difficulties we face are the result of financial difficulties. It is expected that the scale of non-payment is between 7000-13000 BTC.”
This translates to $67 million to $125 million by today’s prices.
Jian explained that the problems began in mid-2018, fuelled by the new transaction-fee mining system. This system rewarded the users with native FT tokens, compensating them for the transaction charges and effectively distributing FCoin’s profits back to the users. This attracted huge trading volumes in a short span of time (although there have been allegations that the trading volume wasn’t genuine and that most of it was done by bots.)
Immediately the exchange went down, many users became suspicious that it was an exit scam and immediately began to seek ways to withdraw their crypto. Initially, this wasn’t possible but after a few days, the exchange opened email withdrawals to its users. The process was criticized by many as it compromises on security. However, the FCoin users jumped on the opportunity and most of them have already applied to withdraw their tokens.
The bad news for the users is that this process will take a long time, with Jian stating, “At present, all mail withdrawals are handled by me, so the efficiency is very low. Mail withdrawal processing will be divided into two phases, the current phase and the long-term phase. I expect the current mail withdrawal process to take 2-3 months.”
Jian further revealed that he’s already working on a new project and that he intends to use the money he makes from this new venture to refund FCoin users. How prudent it is to dedicate funds meant for one project to offset losses made in another remains to be seen.
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.