As news major bitcoin exchange Bitfinex was robbed of more than $60m continues to echo across the media, less clear for many is who – and what – is at the center of this story.

Based in Hong Kong, Bitfinex was the largest bitcoin exchange by US dollar volume prior to the hack. Since opening in 2012, the exchange has attracted a clientele looking to corner a piece of the growing market for leveraged trading amid declining volatility in the bitcoin price.

The exchange would go on to develop a positive reputation among traders for peer-to-peer margin trading facilities that offered users access to a key source of liquidity. According to exchange and trading experts, it was this aspect that both fueled interest in the platform and gave traders a reason to first engage on the website.

BTC VIX, an admin at bitcoin trading club Whale Club, believes that this innovation helped boost the exchange’s profile.

He told CoinDesk:

“That was extremely valuable because it wasn’t just, we’re allowing margin trading and margin comes from some magic funds. We actually saw that people were willing to lend their funds and have other people engage in margin trading.”

At the same time, recurring platform issues drew criticisms, sparking the moniker “Bugfinex” among some segments of the community on social media.

Bitfinex also made a name for itself by way of its staff and the connection with Whale Club (not to be confused with trading platform Whaleclub), the bitcoin-centric trading community that, more often than not, hosted exchange staffers for chats about the marketplace.

Beyond an exchange, Bitfinex became a focal point for the development of bitcoin’s trading market, perhaps exemplifying both the best and the most controversial aspects of the space.

But that success now hangs in the balance.

Last week, the exchange lost nearly 120,000 bitcoins in a hack observers say has led Bitfinex into uncharted waters on legal and regulatory fronts.

A new plan to effectively bail-in the service by forcing a 36% haircut – while also issuing a cryptographic token tied to future revenues – has also raised questions across the industry.

Strange beginnings

The origins of Bitfinex start with a lesser-known exchange called Bitcoinica.

Bitfinex is essentially the reborn version of that earlier exchange, as it used its source code as a basis for its platform. Sources at the time indicate that it was less than a year after Bitcoinica’s fall that Bitfinex opened for business.

Launched in late 2011, Bitcoinica sought to position itself as a location for sophisticated trading activities, offering leveraged trading options to users.

Yet within a year of its launch, the exchange suffered a debilitating theft that resulted in the loss of more than 43,000 BTC (worth $200,000). As Ars Techina reported at the time, the incident included the theft from the platform itself. Other users are believed to have lost smaller amounts.

But the thefts didn’t end there.

Weeks later, a second incident resulted in the loss of more than 18,000 BTC (worth close to $90,000 at then-current prices). Bitcoinica was subsequently taken offline, and soon after accusations began to fly that founder Zhou Tong himself was behind the theft.

Ultimately, the exchange’s collapse sparked civil litigation.

Traders in the community say one of Bitfinex’s early moves as an exchange was to build its order book, a process that essentially entailed drawing liquidity from bitcoin exchange Bitstamp. The exchange would go on to alter the code and later looked at using AlphaPoint for its back-end infrastructure, though that initiative fell to the wayside during initial testing.

Exchange at a glance

Prior to going offline, Bitfinex offered trading between digital and government-issued currencies. The exchange primarily served as a place for the trading of bitcoin and US dollars, though other digital currencies like litecoin and ether (and later ethereum classic) were ultimately added.

Users can deposit funds and trade between those pairs, or borrow funds from one another in a peer-to-peer fashion to engage in that activity as well.

But while this information is public, the exchange was not the most open in its public presence.

It’s since come to light that Bitfinex, according to its now widely circulating terms of service, is registered in the British Virgin Islands under the name iFinex Inc, with subsidiaries Bitfinex in Hong Kong and BFXNA in the US.

More is known about its team, some of whom were vocal on message boards and other focal points for traders.

Data from LinkedIn points to a globally distributed Bitfinex team, including founder Raphael Nicolle, who is based in France, and director of community and product development Zane Tackett, based in San Francisco.

Several executives and others tied to the exchange are also based in the California region. These include director of applications Drew Samsen, based in Orange County, and Craig Sellars, who has advised the exchange in the past.

Others in the Bitfinex orbit are based elsewhere in the world, including CSO Phil Potter, based in New York, and director of infrastructure Adam Chamely, who is in Atlanta, LinkedIn profiles reveal.

Representatives have said in the past that the exchange is self-funded, a position driven by trading volume and the fees collected over time.

Further, the exchange has moved to invest in other services in the digital currency ecosystem. These include ShapeShift, the digital currency exchange that raised $1.6m in funding last September, and Netki, an identity-focused startup that raised $3.5m in July.

Operational problems

For all its success in attracting users to the platform, Bitfinex was dogged by technical issues, a characteristic that traders say fostered concerns among some segments of the community and, ultimately, led others to look for alternatives in the exchange ecosystem.

The exchange experienced periods of downtime that it attributed to data center problems, API issues and data corruption. While any website is prone to technical problems, it was the recurring nature of these situations that led to the “Bugfinex” moniker.

Some of these problems have impacted the price of bitcoin itself.

In August of last year, Bitfinex closed its order books due to what it said were post-processing problems, a move that came a week after a “flash crash” on the exchange sent bitcoin markets nosediving. Issues reported at the time were attributed to the AlphaPoint integration Bitfinex had undertaken.

That integration itself would prove problematic, traders say, though the justification was clear – the platform needed to be scaled.

Though parts of the system were brought online, issues with how the integration affected the exchange’s ordering system are said to have doomed the initiative.

Continued criticism

Day-to-day problems aside, the exchange has has stoked its share of criticism and controversy since it first opened its doors.

Commentators took issue with Bitfinex’s use of the Bitcoinica source code soon after it entered beta testing. In early 2015, some in the bitcoin trading community sharply criticized Bitfinex CSO Phil Potter after he disclosed that he was trading on the exchange during a conversation on Whale Club.

Exchange representatives later moved to clarify Potter’s remarks, saying that they believed its staff can and should have access to the trading platform, albeit under the supervision of administrators.

Still, the exchange faced accusations of privileged trading, evoking memories of Mt Gox and allegations of manipulated trading that were later confirmed after the Japanese bitcoin exchange collapsed.

In late 2015, rumors surfaced that the exchange was being investigated by the US Commodity Futures Trading Commission after a leaked email began circulating via social media.

The agency, one of several that regulates commodities trading in the US, would go on to fine Bitfinex $75,000, drawing issue with how it held custody over user funds prior to the settlement.

Uncharted waters

One way to look at the history of bitcoin is through the success (and failures) of its exchange ecosystem, and for better or for worse, Bitfinex now occupies a controversial spot in that history.

Last week’s theft is unlikely to immediately spell doom for the exchange, traders say, though the success or failure of its recovery plan and the controversial token it has issued will no doubt have a significant impact.

In the immediate term, from the trader perspective, getting access to as-yet-unreleased funds is the key factor.

Bitfinex could continue to operate given the attractiveness of the kind of margin trading it offers, but whether traders will move to pull funds or continue to support the company remains to be seen.

Wilting Bitfinex logo via cryptograffiti

Correction: This article has been updated to correct information regarding Bitfinex’s corporate registration and subsidiary structure.