Top 5 Failures in Bitcoin History
A historical perspective for the Bitcoin community as it exists today.
We started doing a little research this week to build a historical perspective for the Bitcoin community as it exists today, and in that spirit we wanted to take a look at some of the more spectacular scams, failures mess-ups that involve Bitcoin.
In December 2013, a Silk Road-type of black market called Sheep Marketplace shut down abruptly after the site’s administrator found a bug that someone had exploited to steal 5,400 BTC.
Shortly thereafter, users found what they thought was a wallet connected to the heist that had 96,000 BTC in it, which was especially big news because this was right around the time bitcoin broke through the US$1,000 mark. A wild sheep chase ensued on Reddit, but instead of a thief or even a mythical creature in the north of Hokkaido, all the sleuths had found was one of BTC-E’s wallets.
The Guardian’s Alex Hern reported in December the thief most likely cashed out those bitcoins for fiat money quickly.
Neo & Bee
Cypriot startups Neo & Bee (two companies working together) launched with a ton of hype in the spring of 2014 as they set out to create both a network of brick-and-mortar branches (read: banks) as well as a robust payments system.
Weeks later, CEO Danny Brewster disappeared to the UK, and with him thousands of bitcoins that customers deposited. All Neo & Bee employees soon quit, and a couple of them publicly spoke out about having been “misled” by Brewster, who was by then wanted by Cypriot police. Brewster’s whereabouts are currently unknown.
Even before founder Charlie Shrem’s arrest, his company was in trouble. The startup was founded in 2011 to make it easy to quickly pay fiat money into Bitcoin exchanges. By 2013, it had 16 employees and a $1.5 million Winklevoss investment to its name. But by June of that year, thousands of customer complaints were coming in, and a class-action lawsuit was filed against the company on behalf of customers for failing to render services and misrepresentation.
There have been two class-action lawsuits filed against Bitcoin mining-equipment company Butterfly Labs for taking pre-orders then either failing to ship the paid-for miners or shipping them too late. Many customers lost money simply as a result of the opportunity costs of the late shipping.
The biggest fail of them all. Mark Karpeles’ Tokyo-based exchange started in 2010, and by 2013 was handling upward of 70% of all Bitcoin transactions. In February of this year, Mt. Gox suspended all trading activity after months of rumors and speculation that something was wrong. Mt. Gox officials said trading was suspended because some 850,000 BTC had gone “missing,” though about 200,000 BTC were later “found.”
Whether mismanagement, hackers, fraud, or some combination of the three is to blame remains a matter of intense speculation. At the time of writing, 650,000 BTC are unaccounted for, and the company has filed for bankruptcy protection.