Butterfly Labs vs. Robogate: A Revealing Case Study in Justice

As happens in all brand-spanking-new industries, the first actors who come to market aren’t vetted yet. The vast majority of merchants in the cryptocurrency space don’t have lengthy records of successful service—in fact, most of them haven’t even existed for more than a year or two. The buyers, too, are all relatively new to the digital money marketplace.

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Butterfly Labs vs. Robogate: A Revealing Case Study in Justice

As happens in all brand-spanking-new industries, the first actors who come to market aren’t vetted yet. The vast majority of merchants in the cryptocurrency space don’t have lengthy records of successful service—in fact, most of them haven’t even existed for more than a year or two. The buyers, too, are all relatively new to the digital money marketplace.

This combination of un-vetted merchants and new buyers all but guarantees outcomes like the Butterfly Labs and Robocoin debacles we’ve seen, in which customers either received purchased products late or never received them at all. Broken promises and breached contracts are of course undesirable, but it’s difficult to avoid them while we’re all still trying to feel each other out. Reputations take time to form.

These two situations, however—Butterfly Labs and Robocoin—have been handled very differently and, as a result, have had vastly different outcomes for the parties involved. So different, in fact, that I think there is a serious lesson to be learned for anyone who hasn’t noticed it already.

A Major Difference in Presentation and Response

About a year ago, the first complaints against Butterfly Labs began appearing on the Bitcoin subreddit. Posts included:

For whatever reason, there didn’t seem to be many members of the community who cared about these complaints (at least not enough to upvote them into prominence).

Then Robogate 2014 took the stage. It began and ended with a single post entitled: “The Great Robocoin Rip-off: How we lost $25,000 buying a Robocoin ATM”. The post’s author, Andrew Wilkinson, took the time to screenshot emails between Robocoin’s CEO Jordan Kelly and himself, demonstrating Robocoin’s lack of response to his requests for shipping clarity and, eventually, for a refund. Wilkinson informed the subreddit that he made his experience and the emails public to give Kelly a taste of “Internet justice.” The post got 2,858 upvotes.

Robocoin’s CEO Jordan Kelly

Opposite Outcomes

The buyers left waiting for their Butterfly Labs miners began filing complaints with the U.S. Federal Trade Commission (FTC). The FTC ignored these complaints for many months, but then in September of this year, sent armed government employees to break into (“raid”) Butterfly Labs. Shortly thereafter, the government also seized the money in their bank accounts (“froze their assets”).

Butterfly Labs’ legal team is currently asking the government court to dismiss the FTC’s accusations. They also claim that they’re unable to issue refunds to customers because their bank accounts are frozen. There is no end in sight to this ordeal, and there certainly doesn’t appear to be any refunds on their way (the FTC hardly ever gets refunds for customers, anyway). Butterfly Labs buyers have not been made whole and likely never will be.

The now-called “Robogate,” however, couldn’t have turned out more differently. Andrew Wilkinson, the jilted Robocoin buyer, stated in his massively-upvoted Reddit post that he was willing to turn to government courts to seek justice if Robocoin didn’t send his refund.

But that didn’t turn out to be necessary. Within 48 hours of the story going viral online, Robocoin sent Wilkinson a full refund and the CEO fell all over himself issuing apologies and explanations. Wilkinson never dropped a dime (or a bit) on lawyers, never spent time filling out forms and never had to show up to a government court room. He was made whole in less than two days. For free.

The Verdict

I was surprised from the beginning when I read that Bitcoiners had turned to the FTC to resolve their dispute with Butterfly Labs. These Bitcoiners, who are often heard hailing the vast superiority of decentralized systems, went running to the most centralized system of all in their time of despair.

Wilkinson, on the other hand, brought his case to the largest decentralized network (the Internet) first. And it worked fantastically. Some of the Butterfly Labs customers came to the Internet first, too, but they didn’t receive much support. This may be due to the fact that they didn’t make complete and documented cases as Wilkinson did. I don’t know.

What is certain is that one of these approaches was better, cheaper, faster, more just and (not coincidentally) far more decentralized than the other. I applaud Andrew Wilkinson for his post, I applaud the Bitcoin community for giving it the attention it deserved, and I applaud Robocoin’s response in making Wilkinson whole. I hope for full refunds for the miner buyers who complained to the FTC, but feel sorry in advance that they probably won’t get them.

The court of public opinion (a.k.a. the market) is more powerful and more just than any centralized government court. I sincerely hope that Bitcoiners learn this lesson well, and that we all look out for one another as a self-regulating community in the future by holding wrongdoers publicly accountable for their misdeeds. It’s the only way forward.

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