Mike – hangletonweblogs

We’ve received word that Butterfly Labs will be resuming operations and reopening tomorrow morning after the company has been engaged in a legal battle with the FTC.

District Judge Brian C. Wimes issued his ruling to allow the company the ability to resume partial operations tomorrow morning much to the disappointment of many in the bitcoin community.

The company provided hangletonweblogs the following statement:

“Although Butterfly Labs is still disturbed with the Federal Trade Commission’s rush to judgment and labeling of the company as bogus and scammers, Butterfly Labs is pleased by the Court’s entry of a Stipulated Interim Order, which allows the company to reopen its doors for limited operations. While the Order does not allow Butterfly Labs to fully serve our customers as desired, it is a step in the right direction and will allow for limited order fulfillment. During the period of the Court’s Order, Butterfly Labs will continue to cooperate closely with the Court-appointed Temporary Receiver.

Butterfly Labs views the Order as a promising sign for the future of our company, our customers, and our employees. This lawsuit has severely damaged our reputation and it is up to Butterfly Labs to attempt to repair that damage.

There are a number of unsubstantiated claims circulating about Butterfly Labs. We intend to address all inaccuracies in due course, including the false claims around burn-in testing and Butterfly Labs inappropriately mining bitcoins with customer equipment.

Butterfly Labs thanks its many customers, employees, and business partners for staying with us during this challenging time.”

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.

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.

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.

This post is a meta post about hangletonweblogs. It should not be considered “news”. This is the opening of a dialog…

Adam B. Levine has been doing some really amazing things over on the Let’s Talk Bitcoin Network and I have been super impressed with these various ideas of using a token based economy to really empower others.

For the past several nights I have brainstormed a bit and just throwing out ideas on some of the cool things that can be done with these new technologies such as Counterparty.

What if democratize hangletonweblogs a bit? What if you personally be involved in how we are doing things on the site? What if you could potentially earn from our success as well? Would you like to have a hand in the major decision-making process?

I’ve been seeing a lot of commentary from others that talks about how they would do things differently. What if you had a chance to actually have an impact on how things are done? What if the token you control actually affords you rights and votes in how things go?

These are some of the ideas that I have toyed with when it comes to tokens and hangletonweblogs.

It would allow the site to capitalize a bit, offer an incentive to everyone and just try something new.

Those interested could buy some of the tokens and get some skin in the game and potentially have a major impact on the direction that the company is taking.

What if a site like hangletonweblogs implemented something like this? What are your thoughts?

If everyone hates the idea we will just keep doing exactly what we are doing now. We aren’t jumping the shark, we are just throwing out ideas here and spit-balling possibilities. I will keep putting my ass in flight seats every week and chasing down the stories as we are now… we just might let you have a more hands-on role in how we do it.

What are your thoughts? Join us over on Let’s Talk Bitcoin and join the discussion or leave your comments here.

We recently profiled BIT-FM and have covered Chain Radio since before it launched and now another player to the space will be launching October 1st.

CryptRadio is going to be going live after a series of successful soft launches and tests and we sat down with Lee the founder of the station to speak about what the future holds for CryptRadio.

Mike: With Chain Radio and BIT-FM what is it that makes CryptRadio unique from what others are doing in this radio space?

Lee: To understand how we view our service I need to give you some background on myself Lee (founder and on air personality). I come from an extensive sales background working for 14 years in high level sales/marketing I worked with re-sellers to find ways of growing their businesses. The industry I come from is very devoid of forward thinking and risk, it was/is my job to help my clients overcome this in order for them to realize their goals, the second part to my background is I use to be a DJ and have a love for anything music.

So here is where the these two backgrounds come together to differentiate what we aim to do. CryptRadio.ca wants to Proactively pull the outside world IN.

Our shows and content while always keeping a crypto overtone will also have a very familiar feel to the radio people listen to daily.

Our Talk segments wont just focus on the technical aspects of crypto, we will try to discuss real world use of crypto, and the biggest difference is we will invite our listeners to call in LIVE and share their thought on the topics we pose, and even allow the callers to move the discussion in directions they feel are relevant.

Mike: Tell us a bit more about the programming that you are running on your station. What about the future? What are some of your plans on providing content for your listeners?

Lee: So at the moment we have done 3 soft launches, mostly to test systems, production, and live show recording. Those that tuned in likely heard a kind of mix of talk show/music. We even had one of the I/O coin team dev’s agree to join us live and talk about their new HTML5 wallet which was released the following day.

We want to be able to have something for everyone. Our music will range anywhere from Country to hip-hop to rock, we even have a day for amateur singers, bands, DJ’s to submit their work to be played on our Open Mic shows.

The future depends on how well we are received.

Like many this project is something myself and the two other members of my team embarking on to first help spread the word on Crypto and of course we hope that one day we can make it our full-time jobs, so our evolution will depend on how much demand we get from listeners, and how much support we get from potential advertisers and sponsors.

Our content will be driven from a number of sources, of course popular music and music trends, community news and the ability to turn that news into discussion our listeners will want to take part in, if the chance arises we would love to work with people around the world attending Crypto gatherings to become sort of on the ground reporters for live events.

Mike: What about music licensing? We know that Bit-FM is working to secure licenses to run an Internet radio station and that Chain Radio acquired a license at a significant cost. What does the situation look like for CryptRadio?

Lee: Great Question!

This is a challenging area because it is very much a chicken or the egg situation. to acquire a license can be a significant cost, however we have worked with some services which offer collective licenses, and the rates to be part of this collective is based on how many hours of air time you produce, as well as revenue you generate, the license covers North America and Canada which we feel will cover our needs.

Getting this kind of license is relatively easy but may require some changes to our streaming provider again a relatively simple switch to make.

So for now we are working on and expect we should have that sorted before Oct 1st.

Mike: What kind of plans are in place to keep the station sustainable? We’ve seen Chain Radio struggling with this as the cost of streaming, licenses, and constant DDOS attacks have beaten them down on a fairly regular basis.

Lee: I think as in the case of any project their road ahead is largely the unknown, but we do have a plan which we hope will generate the funds we need for licenses, website production, and all the traditional things like hydro, hardware, rent etc.

So at first if you saw our webpage it was basic and one part much like Chain Radio we were asking for donations, while there were a few which helped donations/community advertising funds was clear would not be our main source for funds.

So I am going to be drawing on my main skills as a sales professional and actively ask for small to med size business to advertise with us, BUT they must be willing to accept Crypto. What this will do is bring users of Crypto more places to spend their coin, teach new business about the community, but also generate what we feel will be 60%- 80% of the fund we need, the balance would come from sponsors, and we will eventually explore donations again, but the community at the moment as we see it is not really a “giving” one by and large at least not until you can bring value, so we feel it is not our place to ask for free money of the hop.

So the good news is we do have some business who have agreed to let us show them how easy it is to accept Bitcoin and would be on board to advertise their goods and services.

Mike: The station is launching on October 1st? What sort of things do you have going on for that day?

So Oct 1st is the date we have slated to launch, again pending technical or licensing that could be pushed back but I can say things are on track for Oct 1st.

Our goal for Oct 1st will be to bring as much interaction opportunities as possible, we have 3 I/O coin give away’s which will largely based on social media interaction LIVE. SO example first tweet on a question to the audience will win, of course we will have some great music played, being a launch we will likely play a bit of everything in segments to give people a feel for what to expect, we even have some open Mic original music by some great local talent.

We will have advertisers and sponsor commercials, and Laura our resident newbie will introduce her segment “the newbie zone” which will be focused on new or curious people to Crypto, of course we have more planned which is evolving daily.

Mike: What made you interested in doing an online radio station for cryptocurrency?

Well I have always had a love for music, and recently a major love of crypto. I also believe there is a big future for crypto or at least the idea of doing business using it. I wanted to find a way to accelerate the process of acceptance by the main stream business community of crypto.

Seeing the work of services like Bitpay and other similar companies who are making accepting bitcoin easier, and practical, I was inspired and felt an almost call to action. Radio was something that combines my love of music, and Crypto to that call to action. Radio is a great medium that reaches millions, so what better way to make a run at moving Crypto into a more accepted way of doing business.

Mike: What most excites you and your team about cryptocurrency?

So the real excitement comes from the possibilities and how much easier doing everything could be using this form of payment. as a sales person one thing I always struggle with is clients who have had challenges finding low-cost ways to accept payments.

For example in order for a business to be set up as a payee with major Canadian banks to do online banking the documents and legal red tape is mind-blowing.

So Crypto to the rescue….. set up a wallet to accept the Crypto of choice and your set up with “online banking” so to speak. No red tape, to banking fees. So in short what excites us most is how Crypto can, and we believe WILL change the way business is conducted, and how this kind of decentralized currency lets smaller to medium size business grow. Our excitement is really in the real world application we see possible.

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.

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.

Chain Radio which has suffered from a major DDOS attack that has brought the online streaming service dedicated to cryptocurrency offline seems to be making a come back tomorrow morning we’ve learned from a blog post on the Chain Radio site.

Rockstar one of the two station managers wrote:

Starting tomorrow, Monday, September 22nd we should be fully back online at 10am Eastern and it is our hope that we have overcome these attacks.

He further went in to the details as to why the streaming service can not simply place streaming servers behind a CloudFlare protection as many other sites have been.

Unlike many other sites in the world of Bitcoin land we are operating a fleet of streaming servers which can not be simply placed behind the protection of CloudFlare. When someone is attacking our servers we are in a constant state of battle blocking IP ranges, blocking specific IPs and trying to keep everything online.

The site which operates at a loss has taken a major beating over the past several weeks from others who have performed massive DDOS attacks against a range of cryptocurrency sites.

It will be interesting to see if CryptRadio which launches on October 1st and uses a streaming provider versus rolling a streaming solution internally will suffer from the same issues or how Bit-FM will handle these sort of potential attacks in the future once it comes to fruition as well.

UPDATE AT 9:57am Tuesday:

This story has turned out to be FACT. Full story is here.

This morning hangletonweblogs received an unconfirmed report about Butterfly Labs stating that the company had been raided by the US Marshal’s Service in addition to the FTC.

A post also was created on Bitcoin Talk from a user reporting to be a former employee of the company who was receiving information from others.

This post along with a thread posted on /r/bitcoin on reddit has led to rampant speculation to the validity of the claims.

hangletonweblogs has been in contact with the US Marshals Service this morning and early afternoon in Kansas that would be directly responsible for this raid and received an official word that none of the agents operating out of the District of Kansas offices and were told via the telephone that from several agents including the head of the office,

None of our agents at this time are involved in any field operations about Butterfly Labs. We are not typically involved in cases with other agencies such as the FTC unless ordered by a judge and those orders come very rarely baring some sort of illegal drug activities.

hangletonweblogs reached out to the FTC who stated via the public information offices on Monday at 2:25pm the following:

At this time we are unable to respond to this story or any court ordered actions that may have been issued in regards to this company for the date given. If and when this changes an official statement will be provided to your organization.

On Tuesday morning the FTC changed gears and reissued a new statement stating:

“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.”

This story will be updated as more information becomes available and via our Twitter: @CoinFireBlog

Image courtesy of BTC Keychain