Maybe we should ask why all those people had that much funds there...?
Bitcoinica was the first fully licenced financial service provider that provided decent interest of 6% on both BTC and USD currency accounts. The interest on my USD account alone provided me with ~0.5 BTC per day, so I simply used it as a BTC savings account, while leaving speculation to the other customers.
This is the post (from Donald) that won me over:
http://bitcoinmedia.com/first-licensed-advanced-trading-platform-for-bitcoin/While Bitcoinica had some previous security concerns, namely where the attack on the Linode cloud hosting provider generated them a loss of 40k BTC, Bitcoinica has fully recovered from the loss and no longer depends so heavily on 3rd party platforms. The Bitcoinica reigns have been taken up by the recognized development group called the Bitcoin Consultancy which have a record of solid security in the tumultuous world of Bitcoin.
On a personal level:
I did not commit any sizeable deposits until Bitcoinica got their new ToS, status as registered FSP in NZ and contracted the Bitcoin Consultancy, who at the time were regarded as some of the best and reputable in the business.
I found Zhou to be responsive, honest and helpful in his communication with customers and the bitcoin community. The fact that he was able to deal with the first hack to the complete satisfaction of the entire customerbase only bolstered my confidence that this was not a scam operation and assumed he learned a costly lesson in security that would not be repeated.
I was impressed by Bitcoinica as a service, it worked very well for my needs. I secured my account with a strong unique password + Google 2-factor authentication and Bitcoinica stated they did not keep deposits on site but at MtGox. Little did I know that while providing strong user facing security features they did not have adequate security measures internally (No offsite backups, cheap VPN, no OTP on their MtGox, root password reset broadcast to a mailinglist, etc.)
I realized this was one of my riskier investments since the legal status of Bitcoin is uncertain and Bitcoinica was still a largely unproven business. I did my due diligence to the best of my ability. I did my risk assessment. I decided the risk/reward was worth it.
I was wrong. Mea Culpa.
http://youtu.be/NmFo-LKHGY0So far this has been an painful and protracted lesson in counterparty risk. Now I see no option left apart from considering joining possible legal action and feeding the lawyercats. I admit I don't like it one bit, but the alternative is to sit around like a fool and I tried that strategy for the last 2 months without much success.
