The fact that Bitcoin itself acts somewhat like a corporation is a fact that has been highlighted on Coin Brief in the past. However, because of its unique, decentralized nature, and global scope, it has created space for many other businesses to grow in the community that has been built around it. Many of these Bitcoin-based, or at least Bitcoin-accepting companies become quite popular in the digital currency world, and seem like massive operations from the outside. This view is somewhat misleading.
In reality, every company built around Bitcoin, altcoins, or just decentralized systems in general is a startup, and startups often have incredible potential, but also a high rate of mismanagement, risk, and, ultimately, failure.
Mt. Gox, The Biggest Bitcoin Exchange, and The Largest Loss of BTC
Mt. Gox is the first thing that comes to mind when I, and many others, think of failure in the Bitcoin realm. It was the first true Bitcoin exchange, and held the majority of the marketshare up until only a few months before it began to crumble. The fall was spectacular to witness, in a horrific way, and painful for everyone involved, especially those who had funds trapped in the company’s system. The company’s incompetence, recklessness, and, potentially, fraud is still causing ripples today, and even gave birth to a new term for a company that fails while holding customer’s funds: “Goxxed” or “Goxed” (both spellings are used, but mean the same thing).
Since Mt. Gox’s collapse, there has been a lot of information released, or discovered, that seems to support the idea that the company was actively manipulating the market for quite some time before the collapse, known as the Willy Report, and it likely was insolvent well before any obvious problems were noticed. This insolvency was potentially related to hacking, maybe to incompetence resulting in the loss of private keys, or could even be the result of internal theft. The verdict is still out, and we may not ever know the whole story, but it was a cautionary tale that has instilled a wariness of exchanges in a large number of people.
Mintpal, Moolah, and The Ongoing Exchange Scandal
Currently, one of the major altcoin exchanges, Mintpal, is collapsing under the weight of the insolvency of its parent company, Moopay LTD, better known as Moolah. The owner of Moopay, Alex Green, is attributing the insolvency to a bug in Moolah’s system that was allowing users to double spend their funds without being detected. Mr. Green has promised to provide full details of their expenses, including receipts and invoices, to investors and has claimed full responsibility for the oversight.
Shortly after the news of Moolah’s insolvency, many allegations arose, and conspiracies abounded. Some are likely fabrications, but one fact is known for sure. Alex Green was formerly known as Ryan Kennedy, which is a known alias of a long-term internet con-artist, Ryan Gentle. Ryan Gentle was also an active member of the Bitcoin community, under the username “Lemon” on Bitcointalk, who defrauded multiple members of the community before vanishing.
Whether this Alex Green, who has admitted that he changed his name from Ryan Kennedy, is indeed the con-artist Ryan Gentle is yet to be 100% confirmed, but the circumstances surrounding Moolah and Mintpal’s collapse are looking quite shady.
Hashfast and Butterfly Labs, From Cutting Edge Bitcoin ASIC Manufacturer to Failure
Hashfast’s problematic history, culminating in Chapter 11 bankruptcy in mid 2014, was awash in scandal, as their promised ASICs had been in limbo for a very long time, and its customers lost incredible amounts of money due to the delays. The root cause seems to be their costs in obtaining / producing their ASICs, as it has been reported that they were paying upwards of 5-10x as much to have similar hardware produced as other companies.
While cries of fraud have abounded, the fact that they are going through Chapter 11 bankruptcy, which allows the company to restructure and continue operating in a limited fashion, shows some promise. As of today, their website is still running, and lists 750 GH/s chips for sale, and hopefully the company has sorted out its production issues. Still, I would not recommend any sort of investment with this company without doing thorough research on what their finances, production, and inventory looks like right now.
Butterfly Labs, on the other hand, has had its operations completely stopped by the FTC, and has now been placed under temporary receivership by the US District Court for the Western District of Missouri. The company, allegedly, was using Bitcoin mining machines that were ordered by customers to mine for itself, or allowing employees to use machines to mine for their own personal benefit, while delaying shipments to its customers. I personally ordered a BFL “Little Single” in early 2013, did not receive it until 2014, and it died after a few days of running.
While the charges against Butterfly Labs are still pending trial, which leaves its future uncertain, it is unlikely that the company could continue on as a Bitcoin ASIC Manufacturer regardless of the outcome. While many in the community are wary of Hashfast, or were upset by delays, that pales in comparison to the resentment that seems to linger against Butterfly Labs. Much of that can be attributed to the company’s attitude toward customers, which was indifferent at the best of times, and other times outright hostile.
Other Bitcoin, and Scrypt Mining companies have done quite well, and are fighting for supremacy in the market. However, it is impossible to predict when / if another will fall.
Robocoin, the Bitcoin ATM Provider With Worrying Signs
Unlike the other companies mentioned in this article, Robocoin has not had any formal charges filed against it, nor is it in bankruptcy. In fact, it seems as if Robocoin is doing ok in terms of sales, and the potential from Bitcoin ATMs is huge. That being said, recent complaints from customers, and missteps by CEO Jordan Kelley, have had a chilling effect on the community. It started with a company, Metalab, creating a post on reddit that linked to a Google document which showed, from start to finish, their horrible experience with the company.
For those that do not want to read through it all, it started with a long delay in receiving their unit, continued through even more delays in Canadian customs which should have been handled ahead of time, moved on to the unit finally being received but being defective, and culminated in Robocoin refusing to refund their purchase unless Metalab paid a $5,000 restocking fee, and then, finally, when Robocoin agreed to refund it, and the machine was shipped back, Metalab was informed that the machine was being “refabricated” and would need to be “resold” before their refund would be processed. The entire time this communication was going on, Mr. Kelley was attempting to put the blame on Metalab. He (Kelley) claimed that they were returning the machine, because they (Metalab) “decided” that they “did not want to work with our (Robocoin’s) support team to fix the issue,” even though that was what Metalab originally attempted to do, but were informed by Robocoin’s support that the machine needed to be returned due to “hardware failure”.
After this ended, Mr. Kelley proceeded to post an “apology” on reddit, while still managing to blame Metalab for the issue by claiming that Robocoin’s support team was “met with constant belittlement and noncooperation” and that Andrew (one of the owners of Metalab) “lost patience and decided he was over it.”
The uproar on reddit was immediate, and Mr. Kelley quickly changed tones, and it seems that he created a new reddit account (likely due to negative karma preventing any further posting) and wired a refund to Metalab. Unfortunately, in doing so, this new reddit account posted an image of the wire that had been improperly redacted. The original image only partially covered Metalab’s physical address, leaving it easily readable, and covered their bank account numbers slightly better, but still left enough uncovered that the account numbers could be potentially extracted by someone skilled enough in photo-editing or recovery.
I have included the image below, but edited it further to completely remove all personal data. However, to get an idea of how it was before my editing, there was an SVB number at the top with 2 lines through it, but easily recoverable, only one of the lines of Metalab’s address was marked through, but was human readable, the 2nd line of their address, as well as Bank Beneficiary details were completely uncovered, and both Metalab’s and Robocoin’s own account numbers were more thoroughly blacked out, but left the top and bottom of each number visible.
After this was done, his mistake was pointed out, and members of the reddit community were even more furious at the leak, but were also hopeful that the refund was legitimate. It seems that it was, as Metalab confirmed that they have received a full refund, and they are now moving on. Since their complaint, a number of other Robocoin customers have come forward with their own frustration with the company, though no one seems to have had an experience quite as bad as Metalab.
On October 16th, Mr. Kelley reached out to the Metalab team to offer an apology that seems to be much more humble and sincere. While he does plead for the original post to be removed, which I would assume is quite unlikely, he does not attempt to put any blame on the Metalab team, strongly affirms that the issue was his fault, and claims that he is “disappointed in myself and sad that I had to learn this lesson the hard way.” Unlike the other companies mentioned above, who either kept quiet, or continually shifted the blame to others, until they finally failed, he seems to be coming to terms with his mistakes, and hopefully the young CEO does learn from this. Robocoin is delivering products, and maybe this lesson will help to spur the company to re-evaluate its customer service and support strategy.
Some Bitcoin Businesses Have Problems. What is the Point?
The point of this article is not to lambaste the owners or managers of these companies, though I would condemn any who are proven to have acted fraudulently, nor is it to insinuate that all Bitcoin related startups will have problems.
Instead, the point is that Bitcoin is a young currency, industry, and almost “corporation” in its own right, and the altcoin industry, and currencies, are even younger. This means that nearly every business that is seriously involved with Bitcoin, especially those where Bitcoin and / or other digital currencies are their main focus, are startups, and are being built by young entrepreneurs. These people will make mistakes, they will mess up, and yes, many of these companies will fail. A large portion of all startups fail.
However, if Bitcoin, and the idea of decentralized systems is to succeed, these businesses and entrepreneurs are needed. Bitcoin’s current price isn’t important, nor is news about the latest big company to accept Bitcoin (which is turned instantly into a fiat currency). Risk taking entrepreneurs and businesses built with Bitcoin at the center are the important ones. They will be the ones developing the systems, products, and software that will allow Bitcoin to be integrated into mainstream society, and the ones who learn from their mistakes will be the leaders of a new industry. While I obviously do not agree with everything that the businesses and individuals mentioned above have done, I do thank them. Every one of them has contributed to the community, to Bitcoin, and to those that will follow them. Their mistakes should be embraced as learning experiences for us all, and the sequences of events that lead to each one should be analyzed thoroughly. It is only by learning, and adapting, that better businesses will be created, and with that, the chances of Bitcoin’s success will increase.