Blockchain released an interesting infographic this afternoon that we’d like to draw some attention over to.
2,300,000 bitcoin wallets and climbing. $2 billion transacted monthly. 900,000 monthly transactions.
The infographic shows just how many monthly transactions the company recently processed in a single month and shows that the number of wallets the company hosts to be even larger than previously suspected.
The Bitcoin Foundation today announced the addition of Bitcoin France, the tenth chapter affiliate to join the foundation’s growing international network of leaders providing education to local media, merchants, consumers, policy-makers and regulatory agencies. Philippe Rodriguez serves as President, Thomas France as Treasurer, Pierre Noizat as Secretary General and board members Thomas Voegtlin, Gonzague Grandval, David François and Eric Larchevêque.
“France is a country where liberty ranks high as a top value, making the country fertile ground for innovative services and companies using the Bitcoin protocol,” said Jon Matonis, Executive Director.
“We are delighted to join forces with the Bitcoin Foundation to promote the Bitcoin protocol and educate policy-makers in France. We deeply believe that bitcoin has the potential to disrupt not only part of the financial system as we know it, but, down the road, other markets where trust in a central organization is the current status quo,” said Philippe Rodriguez, President of Bitcoin France.
France currently ranks fourth worldwide in global active bitcoin nodes and recently, Minister of Finance Michel Spain stated, “We believe that France should let people try, invest and develop business with bitcoin before we tax it.” He also noted that when it comes to regulation, they prefer to take the middle road, “halfway between the strictest regulations [from] China, Japan or Russia or the lightest regulations adopted by countries such as the United States, Canada or Israel.”
Gems is a new and exciting mobile messaging application for iOS and Android that brings cryptocurrencies to the masses, with no need for knowledge about Bitcoin, cryptography or encryption.
This is the kind of exciting innovation I have waited for. The Gems app puts the power of cryptocurrency in the hands of the users, without the usual complications that surround cryptocurrency technology today. Gems is a social-messenger app that comes integrated with next-generation bitcoin technology. Gems offers a WhatsApp-style mobile experience, but with fully encrypted private messaging and a built-in wallet.
The application is both a messenger and a wallet. Every Gems user automatically receives a wallet, protected by a passphrase chosen at registration. A chosen Gems username also acts as alias to a linked Counterwallet address, making it simple and easy for users to send and receive either gems or bitcoins (and later other assets).
The Gems app looks flashy and is easy to use. The user simply downloads the app, sets up an account, and then can immediately start sharing messages with friends and, by being active in the network, earning gems. Introducing new users to Gems is just one example of a way that a user can be rewarded with gems, the value of which is directly tied to the value of the network, since there will always be a fixed and limited supply of gems.
While many point to the option of Gliph for a new crypto-messaging platform, Gliph’s interface is not as attractive or as user-friendly as Gems. Gliph currently lacks the features that many mainstream messenger users would like to see for a daily messaging application.
The promotional video gives a simple overview of how Gems works:
We sat down with Daniel Peled from the Gems team to talk about Gems.
Mike: Why would users switch from regular messaging apps to Gems?
Daniel: Due to recent incidents where private information was leaked, technology users have become much more concerned about the security of their data. WhatsApp, for example, stores and does not encrypt its users’ communications, messages, pictures or videos. In comparison, user data is not stored by Gems, which has no way to access messages, and therefore messages and data are truly private.
Gems has other key features that differentiate it from other messaging apps, including the way it approaches its users. WhatsApp was recently bought by Facebook for $19 billion. Thanks primarily to its users, it has become an extremely valuable company. WhatsApp charges users $1 per year to use the app. Gems, on the other hand, is free—and even more, it actually pays users.
This works thanks to our unique in-app currency-reward model. Those who wish to advertise on the Gems network must purchase gems tokens in order to do so. Gems pays the tokens directly to the users to whom they advertise. If users do not want to receive advertisements, they can easily opt out. This creates a market where users can profit directly from their gems. We are the first to bring this brand new sharing-economy model to the market.
Mike: Can you tell us a bit more about the encryption used by Gems?
Daniel: The Gems app assumes zero trust and even protects user data from Gems’s own cloud servers. Every secure outgoing message is encrypted with a key that is unknown to the server, making the message recipient the only one who can decrypt it. This privacy model prevents any possibility of eavesdropping by third parties, including government agencies and corporations.
Gems offers a mixture of RSA 2048 and AES with 256-bit keys. Encryption is performed client to client, making secure messages indecipherable by the Gems infrastructure. This is the only real way to achieve 100% privacy because it does not entrust any third parties.
Mike: From a technical standpoint, it is our understanding that Gems usernames are essentially aliases of addresses on the Counterparty system. Will we be able to have lots of different currencies in our Gems wallets?
Daniel: Our goal is to develop a really easy and simple user experience; therefore, even though it possible to have lots of different currencies in the Gems wallet, we believe it is better to launch the app initially with support for Gems and Bitcoin only.
It is important to note that since this is the first time users will control the core value of the social network, it is too early to predict what other novel ideas will come into existence. We will take Gems holders’ input into consideration for future features.
Mike: How anonymous can I be on this application?
Daniel: Most social networks do not encourage or support true anonymity of their users. Consider WhatsApp: every account must be tied to a working phone number, enforced by a requirement to send an SMS during registration. You cannot open a WhatsApp account without identifying yourself. The same goes for Facebook, which by definition contains your real name, rather than an anonymous alias.
Gems, unlike other networks, allows you, the user, to choose the level of anonymity and privacy with which you feel comfortable. Your data is never shared with third parties, unless you consent. By default, a Gems account only contains an anonymous alias—your chosen username. This username does not have to reflect your real identity in any way.
Users who feel comfortable sharing their real phone number may choose to connect a phone number to their Gems account. Users will be able to find each other more easily if they do not have to know a username and they can instead rely on a phone number they may already know. The phone number is always kept confidential, however, and only those chosen by a user will have access to it. It is always possible to maintain complete anonymity, if desired. Gems does not require any real-world identification in order to operate.
The same level of anonymity applies to your gems wallet. Since every Gems account is also a gems wallet, your wallet address will be as anonymous as your account.
Mike: Right now you’ve got an iOS application and Android application in the pipe. Any plans on doing a web-based messenger, OS X application, Windows Phone app, and other varieties? We’ve seen that Telegram has been working on expanding to several other spaces quickly. Do you intend on doing the same?
Daniel: We have other platform versions planned on our long-term roadmap; however, at this initial stage we are focusing only on mobile Android and iOS, since they account for a majority percentage of our target market.
Mike: What elements of Gems will be open source, if any?
Daniel: During the beta development phases, the source code will not be available to the public. The client-side application will be open source once we have performed the necessary quality assurance and security analysis to ensure the process will not put our users at risk.
This will enable third-party developers to audit and improve upon the functionality of the Gems application. We see much value in the participation of the open-source community. It is important to emphasize that all currency-related transactions in Gems are currently based on open-source code (Counterparty), and that the core of our IM technology is based on open-source software as well (SignalR).
Further information about Gems can be found on the Gems website, Bitcoin Talk thread, or via @getgemsorg Twitter account.
hangletonweblogs will stay abreast of the latest developments with Gems and will be sure to share them with our readers!
Images courtesy of Gems.
The Chamber of Digital Commerce has received approval from the Internal Revenue Service as a Tax-Exempt Non-Profit organization under section 501(c)(6) of the Internal Revenue Code. The Digital Chamber is now federally recognized as a business league that promotes the digital currency and digital asset industries.
“To have the IRS recognize our organization is a big step for the digital currency industry because this brings an added level of credibility to our efforts in Washington,” said Perianne Boring, President of the Digital Chamber. “This recognition adds legitimacy to our efforts to guide policy makers in sensitively and intelligently addressing blockchain technology.”
This announcement comes just one day before the Digital Chamber’s joint event with the influential Heritage Foundation to hold its first Congressional Bitcoin panel. On Wednesday, October 1st in the Lehrman Auditorium, with Perianne Boring, President and Founder of the Chamber of Digital Commerce; Carol Van Cleef, Partner at Manatt, Phillips and Phillips; George Gilder, of The Discovery Institute moderated by Norbert J. Michel, of the Heritage Foundation, will hold a public discussion on Bitcoin and the regulatory environment.
Participants and the media can attend in person or watch online. Please visit (http://www.heritage.org/events/2014/10/bitcoin) for more information and to RSVP.
On April 4, 2014, consumers filed a class action complaint against Defendant BF Labs Inc. (“BFL”) in the United States District Court for the District of Kansas on behalf of Kyle Alexander and Dylan Symington.
In their Complaint, consumers alleged BFL violated the Kansas Consumer Protection Act (“KCPA”), were unjustly enriched, made negligent misrepresentations, and committed conversion. Specifically, consumers alleged BFL collected pre-payments for non-existent Bitcoin mining equipment, failed to ship Bitcoin mining equipment orders for which consumers have pre-paid, misrepresented the date such equipment would ship to customers, and profited from Bitcoin mining for BFL’s own benefit by using customers’ equipment without permission or authorization from customers. Consumers seek damages and a constructive trust to recover the purchase price, the value of bitcoins paid to BFL, the loss of use of bitcoins, the loss of use of mining equipment that was never received or not received in a timely manner, the loss of bitcoins mined by BFL using consumers’ equipment, the diminution in value of mining equipment, costs of suit, attorney’s fees, and punitive damages.
Between April and September of 2014, consumers engaged in significant discovery and were in the process of negotiating a class settlement on behalf of a putative class consisting of “all persons who pre-paid Defendant for Bitcoin mining equipment.” Consumers and BFL engaged in settlement negotiations and agreed to mediate on November 5, 2014. Trial is scheduled for January 4, 2016.
On September 15, 2014, the FTC filed a complaint in this Court against BFL and other individuals seeking temporary, preliminary, and permanent injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.
The attorneys have presented an argument to the court stating that the FTC action will cause damage to the separate actions of a class-action suit. The attorneys argument states:
The remedies sought by the FTC conflict with, frustrate, and deny remedies available to consumers, the FTC cannot adequately represent consumers’ interests. The FTC action, on its face, does not even purport to adequately represent consumers’ interests. The FTC is a civil enforcement agency that has no attorney-client relationship with consumers and has no fiduciary duty to act in any particular consumer’s best interests.
Here, consumers and the consumer class action provide the best mechanism to protect the interests of the consumer class. Consumers have already engaged in months of investigation and substantial progress in their suit. Procedurally, consumers already have survived the motion to dismiss stage, obtained a discovery framework (including a comprehensive protocol for the exchange of electronically stored information and a protective order), issued multiple subpoenas to non-parties (many of which are still pending), collected and reviewed hundreds of thousands of pages of relevant documents, engaged in meaningful settlement discussions, modeled complex scenarios that may involve cash and non-cash benefits for class members (cash, bitcoin, hardware, hashing), selected and retained a mediator, scheduled a mediation date with BFL, and obtained a trial setting.
It is virtually without question the consumer class has a strong interest relating to the property and transaction that is the subject of this action and the disposition of this action will likely both impair and impede the consumer class’s ability to protect its interest. The FTC’s desire to exclude the consumer class from having a voice in this action is at best, puzzling and demonstrates the existing parties to this action, will not adequately represent the interest of the consumer class. This Court should grant consumers’ Motion to Intervene and hear from people who actually paid for mining equipment, who actually engage in Bitcoin mining, and whose legal rights and property are actually at issue.
The attorneys state they are hoping to be heard and that they believe the FTC is not acting in the best interest of consumers in this case.
Counsel for the FTC indicated the FTC objects to the motion. Counsel for the receiver indicated he was not able to take a place until consulting with the receiver and the FTC. Butterfly Labs does not object to this motion as it could result in the FTC case taking a backseat to the already pending consumer class-action under which Butterfly Labs is most likely to come out more favorably versus the FTC actions.
This case continues to grow and become further complex as more parties seeking to protect themselves are likely to file more motions with the court.
Image from Butterfly Labs Management Portfolio
In a strange twist of events the General Manager of Butterfly Labs is claiming that due to personal asset freezes by the court order from the FTC she is now unable to even buy groceries.
Butterfly Labs requested the court allow what it calls five key witnesses to give live testimonial to the court.
Those witnesses now include a Representative of the Johnson County District Attorney’s Office; Mr. Bruce Bourne, Consultant to Company and Acting CFO; Mr. Jeff Ownby, Vice President of Marketing and E-Commerce and Co-Founder of Company; Ms. Jody Drake, General Manager; and Ms. Linda M. Freeman, MarksNelson LLC.
All five are expected to give testimonial in support of Butterfly Labs if allowed to give testimonial.
Rep from District Attorney’s Office
This witness, who is expected to be either an attorney or investigator from the DA’s office, will address aspects of its investigation into BF Labs, explain how the company has been cooperative during the investigation, has met all deadlines, and has been involved in ongoing negotiations toward settlement of the dispute over the application of the Kansas Consumer Protection Act, Kansas Consumer Protection Act.
Mr. Bruce Bourne
Mr. Bourne will tell the Court about why he was attracted to the opportunities presented by BF Labs, and his views on the former and current management team. He will address the allegations and claims made by the FTC and tackle head on the issues in the past and the future of the company if not already destroyed by the FTC’s heavy-handed tactics. Mr. Bourne will tell the Court why BF Labs is not a fraud, and why he put his talents to work at the company and made a personal investment of his time and energy in the opportunity.
Mr. Jeff Ownby
He will testify about the history of BF Labs and the early days of this start-up technology company. He will describe his role as one of three founders of BF Labs, the initial goals of the company, its operating history, and its future. Mr. Ownby also has helpful knowledge to share with the Court about bitcoin and the bitcoin mining industry. He will explain to the Court the opportunity he saw in the industry, how he helped breathe life into it, the criticisms of the company, and his hopes for the future of the company.
Ms. Jody Drake
Ms. Drake will describe her role at BF Labs. While she has been involved in customer service, shipping, human resources, and general office purchasing, she has never made policy at the company or been actively involved in management decision making. She will describe for the Court the shock and horror of being served with the FTC Complaint, facing a personal asset freeze, filling out financial forms that are totally unnecessary for someone in her role, and her meager assets. She will also describe her request that she be allowed to buy groceries and gas after being personally sued by the FTC.
Ms. Linda M. Freeman
She will testify about start-up companies, accounting, reporting, tax and other financial issues related to BF Labs. She can answer questions the Court may have about BF Labs finances. She will also testify and inform the Court about improvements made at BF Labs over time and the internal controls that have been implemented, along with efforts made (with supervision provided by Bruce Bourne) by the company to better itself and comply with all accounting and tax obligations under the laws of the United States of America.
The community has been ablaze about the news of Butterfly Labs and the FTC lawsuit against the embattled company and this morning hangletonweblogs has learned of more details before the hearing set to take place today.
Josh Zerlan the VP of Product Development has given his testimony in a deposition performed with the FTC and we’d like to take a few minutes to highlight a few key elements of that testimony that our readers might find interesting.
hangletonweblogs will be working throughout the case to get further information and will be posting new entries as further information is obtained.
Josh Zerlan gave testimony that he received a set of 10 Butterfly Lab Singles from the company as part of his compensation package.
We later would learn in the deposition that Mr. Zerlan personally generated about 15 BTC before returning the hardware to the company. He did not give a reason specifically why he had returned the hardware.
He was also promised by the company a Monarch but it has yet to be received.
Mr. Zerlan also used a company credit card to purchase guns for his own protection after receiving threats from the community.
After repeated denials from the company and Mr. Zerlan himself in the past on the Butterfly Labs website, the BFL website and other locations on the Internet that the company DOES NOT mine on customer purchased hardware before sending it out he gave new testimony indicating that those statements were false and that the company was mining using hardware that had already been purchased by customers.
The following pictures taken from Butterfly Labs shows customer equipment that was being actively used to mine bitcoins for the direct benefit of the company.
Elizabeth T. Han, an investigator with the Federal Trade Commission also gave the following statement regarding the user of customer miners for mining internally.
Butterfly Labs also purchased EMC Mining Pool and has failed to provide that wallet to the FTC and this has been noted later in the deposition.
hangletonweblogs is highly suggesting anyone currently mining on EMC please begin moving your miners as it is likely after today’s hearing these wallets will be taken over by the receiver based on later information in the deposition.
Chat transcripts internally show that the company was also actively working to defraud customers and find reasons to cancel orders.
They also show the company’s internal panic as other companies cropped up with better systems and the subsequent debates if they should lie about the progress they are making to deflate some of the announcements.
It also appears the company actively worked to defraud Dwoalla with transfers to personal accounts even suggesting they claim they were “customer accounts” in internal chat transcripts to make transfers immediate and in violation of Dwoalla’s TOS.
We also learn that the company knew how behind it was and began debating what lies to tell the public to manage shipping expectations.
The company was also aware internally they would not make the shipping times promised but continued to lie publicly.
It now appears we are just barely scratching the surface on what remains to be an even larger story. More information will be coming in the near future.
We’ve seen some interesting ideas and concepts based on blockchain technologies over the past several months and plenty of people have been talking about video games and blockchain technologies.
This week Mark Kern who was a key founding member at Red5 Studios and was one of the original lead developers on World of Warcraft announced his latest gaming venture MEK-Entertainment and an Oculus VR game that will integrate blockchain technologies.
The indie game developer has worked in secret on a new gaming universe that will be powered by the modding community, built for the Oculus Rift from the ground up, and integrated with blockchain technology similar to Bitcoin to power its player driven economy.
The game features a retro 8-bit and SNES inspired art style powered by MEK Entertainment’s new ray-tracing, voxel graphics engine. The game’s multiverse will contain vast procedural landscapes and user scriptable servers.
Kern is joined by several other game industry professionals, including former key developers from Oculus Rift, ID Software, Red 5 Studios, Activision-Blizzard and Chucklefish, as well as experts from the emerging crypto-currency industry.
hangletonweblogs was able to pin down Mark from heavy development to speak with him about the new game and what the future holds for blockchain technologies with games.
Mike: The game concepts look really cool. What prompted you to create an 8bit game for such a powerful platform?
Mark: Well, 8-bit is more of a marketing phrases to conjure the feeling of retro gameplay that we wanted to get across to gamers. The engine is actually a very powerful “micro-voxel” ray-traced engine that runs at very fast frame rates which are essential for the VR illusion. We can display 4096 micro-voxels for every traditional sized voxel in a game such as Minecraft.
But to answer you question, we did a retro graphics approach for a few reasons. The first was that we love retro gaming, and the SNES days. The book that inspired this game, “Ready, Player One” by Ernest Cline is chock full of retro 80’s and 90’s gaming references. We wanted to capture that feeling. Second is that we are a small indie studio, and we wanted other small studios to be able to create MMO experiences in our game. SNES style graphics are about 30-40x easier and faster to make than next-gen models. That really opens the doors for small modder teams of 1-3 people.
Mike: We’ve heard word that you are looking at how blockchains can integrate with games? Can you give us any more specifics for our readers on what that looks like with your game?
Mark: We’re very excited about the providing an in-game currency for player to player trades. This isn’t gold drops in the game, btw, its more like a currency dedicated to transporting value between players. Since we have this universe of game servers with different games, we wanted a universal currency that could work “between worlds” so to speak and even, possibly, outside the game. The public and decentralized nature of blockchain technology fit perfectly with our goals.
But there are other applications. We have the concept of land ownership in our game, for example. This is a great virtual asset that can be tracked on top of blockchains. Bitcoin colored coins and NXT’s asset marketplace are great ways to do this. There is also the idea of a decentralized auction house. Most games have an internal auction house, but some blockchains out there already support decentralized marketplaces for virtual and even real goods. Exploring the blockchain tech to allow us to say, have an auction house that trades between games is a very interesting possibility.
Mike: What sort of time frame are you looking at for having the game come out?
Mark: We believe in rapid development and quick release cycles. We also will be building out in phases, so while I don’t have a release date yet, you will be seeing playable public builds from us next year.
Mike: What are some other cool concepts you can see with games and blockchain technologies?
Mark: I mentioned some of them already, but I’m also interested in seeing if we can use the blockchain for things such as secure player to player in-game e-mail and cross game communications. If you sense a theme here, it’s the “cross game” part. We think blockchains offer an exciting way to finally transfer information and assets between games, even entirely different types of games.
Why is this exciting? Well, from a player’s point of view, you put hundreds of hours into a game to earn rewards and advance your character. Isn’t it a shame there is no way to take your hard work with you to another game? Wouldn’t it be great if you could convert your gear on the market to a universal, decentralized currency, and use that to buy stuff in a completely different game? That way, your efforts and time as a player are never wasted or locked into a single game.
Mike: Can you see games where the currencies earned in games are traded on markets along with other currencies such as bitcoin?
Mark: Definitely. Look, Bitcoin is around a6B market cap, but games have at least14B in market cap for virtual goods alone. Everyone says crypto currency isn’t backed by anything…well, they would be in games. Virtual currencies in games are already well understood and accepted by gamers. Virtual gold is bought and sold for value determined by the players time and effort toobtain gold and items in-game. We can bring that value to the blockchain, potentially making crypto currencies more valuable as they have a “yardstick” of value based on these virtual items.
While the developers of the game are being fairly tight-lipped about what is coming they are going to be releasing more details and information in the near future and are encouraging others who are interested in the game and platform to signup on the website at http://MEK-Entertainment.com/ because those signing up earliest will receive extra perks and prizes in the game as a special thanks from the team.
Butterfly Labs has provided an official response via Public Relations firm Blanc & Otus about earlier reporting that the FTC has launched an official investigation against the company.
“Butterfly Labs is disappointed in the heavy-handed actions of the Federal Trade Commission. In a rush to judgment, the FTC has acted as judge, jury and executioner, contrary to our intended system of governmental checks and balances. The FTC’s current actions are negatively impacting our thousands of customers and our dozens of employees. Their current media campaign should only further alarm a knowing citizenry and raise questions as to why the FTC wouldn’t simply let this case play out through the judicial system. That is what Butterfly Labs intends to do.”
“It appears the FTC has decided to go to war on bitcoin overall and is starting with Butterfly Labs. Butterfly Labs is being portrayed by the FTC as a bogus and fake company. To the contrary, Butterfly Labs is very real. As pointed out in court filings Butterfly Labs made last night, Butterfly Labs has shipped more than $33 million in products to customers and voluntarily granted refunds approximating $17 million to customers for cancelled orders. Butterfly Labs was literally in the midst of shipping out completed products to fulfill the remaining millions of dollars of orders on our books and issuing requested refunds when the FTC effectively closed the doors of Butterfly Labs without any chance to be heard in court.
“At this time, Butterfly Labs is cooperating fully with the Temporary Receiver appointed by the Court. A hearing is set for September 29 and Butterfly Labs has asked the Court to allow it to present testimony from key witnesses for the company. Butterfly Labs intends to defend our business and our nascent and promising industry. The government wants to shut Butterfly Labs down, and we are not going away without a fight to vindicate bitcoin, our company, and our employees. Our continued focus is our customers and finding a way to continue to deliver products and processing refunds for those who have requested them.”
hangletonweblogs had contributors in DC over the weekend working with the FTC to get the documents unsealed and provided to the public after first reporting late last week about a FTC investigation. We will continue to watch this story for further developments and will have contributors in the first hearing if the court allows to bring the latest information.
Full scanned complaint appears at bottom.
At the request of the Federal Trade Commission, a federal court has shut down Butterfly Labs, a Missouri-based company that allegedly deceptively marketed specialized computers designed to produce Bitcoins, a payment system sometimes referred to as “virtual currency.”
The FTC’s complaint against the company and its corporate officers alleges that Butterfly Labs charged consumers thousands of dollars for its Bitcoin computers, but then failed to provide the computers until they were practically useless, or in many cases, did not provide the computers at all.
A company representative said that the passage of time rendered some of their machines as effective as a “room heater.” The FTC charged that this cost the consumers potentially large sums of money, on top of the amount they had paid to purchase the computers, due to the nature of how Bitcoins are made available to the public.
“We often see that when a new and little-understood opportunity like Bitcoin presents itself, scammers will find ways to capitalize on the public’s excitement and interest,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “We’re pleased the court granted our request to halt this operation, and we look forward to putting the company’s ill-gotten gains back in the hands of consumers.”
The FTC’s complaint alleges that Butterfly Labs marketed Bitcoin mining machines. Starting in June 2012, Butterfly Labs touted the computers, which they called BitForce, as cutting-edge, powerful and efficient. Consumers who bought the computers were required to pay in full, up front. The computers ranged in price from $149 to $29,899 based on the computers’ purported computing power. According to the FTC’s complaint, as of September 2013, more than 20,000 consumers had not received the computers they had purchased.
Despite failing to deliver tens of thousands of BitForce computers, the complaint alleges that Butterfly Labs in August 2013 announced a new, more powerful computer to mine Bitcoins called the Monarch, which was available for sale for $2,499 to $4,680. According to the FTC’s complaint, the company had delivered few, if any, Monarch computers as of August 2014.
Even where Butterfly Labs did deliver a Bitcoin mining computer to a consumer, the complaint notes that because of the unique nature of the Bitcoin system, the outdated computers were useless for their intended purpose. While more Bitcoins are being mined each day, the total number of Bitcoins available to mine is reduced in half each year. Combined with the fact that each new generation of computing technology used to mine Bitcoins renders previous generations essentially obsolete, the delay in delivering computers to consumers meant that the Bitcoin mining computers could never generate the amount of Bitcoins that Butterfly Labs promised consumers.
Butterfly Labs, the complaint alleges, also offered a service beginning in December 2013 in which consumers would pay up front for Bitcoin “mining services” in which the company would provide Bitcoins to consumers in exchange for payment for computing time. The complaint notes that by August 2014, Butterfly Labs had not provided any Bitcoin mining services to consumers, despite some having paid thousands of dollars for the services.
The court’s order in the case requires the defendants to immediately stop making misrepresentations about their products and services, and places a freeze on their assets.
The defendants in the case are BF Labs, Inc., doing business as Butterfly Labs; Darla Drake; Nasser Ghoseiri and Sonny Vlesides.
The Commission vote authorizing the staff to file the complaint was 5-0. The complaint and request for a temporary restraining order was filed in the U.S. District Court for the Western District of Missouri. The court granted the order on Sept. 18, 2014.