could some one clue me in on how bitfinex is different than bitcoinica...
.... It had a similar system of putting requests through another exchange (MtGox) and having users lend each other money (though at fixed rates).
Both Bitcoinica and Bitfinex have a similar risk from losing the connection to an exchange and thus becoming a bucket shop (where the company has the reverse position of its customers). Bitfinex runs out of funds on Bitstamp, and most problematically lost its connection to MtGox during the April 2013 crash (MtGox had massive lag during that month due to problems with its trading engine).
Bitfinex may have used the same code base as Bitcoinica, but it has since been modified (and note that Bitcoinica's code had nothing to do with the hack which was related to an email account).
I'd like to add some details to that description (which IMHO is overall accurate).
I used both sites; very little is known about the internals of Bitcoinica beyond what can be concluded from the source code, which was leaked to the community during the turmoil of the final falldown of that platform in Summer 2012.
In a finance-technical sense, both Bitcoinica and Bitfinex offer a derivative instrument called "Contract-for-Difference". Bitcoinica initially was a huge success -- it was the first such platform for the Bitcoin world and arrived just at the right moment, when the Bitcoin market for the first time was not just rising, but turned down -- a time when derivatives become a necessity. But in the following months, the origin of the money available as credit on Bitcoinica never became clear. The official version was that Bitcoinica was based on some clever formula and in addition to that used the generated profit to increase its ability to lend money. Later, there were some indications that also the money of investors was involved. And there is a nebulous "hedge factor", which was used and adjusted manually during the operation, especially in the last time (and leaked internal documents hint into the direction that the platform started to run into financial problems; but there wasn't enough time for this situation to manifest, since then the 3 hacks happened, basically ruining the financial ability to continue operation)
If there is anything, which sets Bitfinex apart from Bitcoinica, than it is transparency of the financial mechanics. Bitcoinica was completely opaque. As a trader on Bitcoinica, you constantly worked against a spread, which sort-of followed Mt.Gox, yet it was impossible to see how this spread was created, nor was it possible to predict its behaviour. Bitfinex started out with mechanics strikingly similar than Bitcoinica, but one of the first things changed by the Bitfinex people was to replace them with a visible and verifiable link to the underlying market, so you can see the aggregated order book and you can discern the spread between Bid/Ask side clearly from the fees added by Bitfinex for generating revenue. Then, the next and really
innovative addition of the Bitfinex people was to create a
market for credits, which is driven by
demand and supply -- and there is a verifiable link between the rates at which people offer and request credits, and the swap rates you pay (all of this was completely opaque with Bitcoinica)
Maybe we should add the fact that -- independent from the trustworthiness of the operators -- the financial instrument "Contract-for-Difference" has one systemic risk, which is the danger of slippage when executing forced liquidations during a strong market movement. Under normal circumstances, the risks of an open position are covered by your margin, but when performing a forced liquidation of a position, the platform temporarily carries the full risk of that position (until it can actually be closed on the underlying trading account). This risk exists
by principle, and can not be overcome by any technical means -- but this risk will only become relevant when the market really collapses without turning back up.
