‘A Strong Stench of Fraud’: Butterfly Labs Allegedly Buys Buttcoin.org

Recently evidence has begun to emerge that ButterFly Labs may have purchased ButtCoin.org, a website that satirizes Bitcoin, about two months ago. In order to understand why this might be the case, let’s take a step back and look at how we got to this point.

The Story Thus Far

Butterfly Labs has had a rocky history. The company, which theoretically manufactures dedicated-hardware ASIC Bitcoin miners, originally came into the public consciousness in 2012, when it announced a relatively inexpensive commercial Bitcoin miner, and took in millions in pre-orders. The hardware itself ranged – you could spend $274 for 5GH/s, all the way up to $22,484 for 500GH/s. The company immediately proceeded to start making people angry with it a mere four months later, when it missed its first estimates ship date… and then its second. Then its third. Eventually, the hardware originally intended to ship in October of 2012 finally wound up shipping a substantial number of units in late September, 2013 — almost a full year after the original estimated ship date, and well after the hardware in question was obsolete and unprofitable to operate. The company refused to issue refunds, despite the fact that it appears that some of the pre-orders were never filled.

To make matters worse, if you dig into the company a little, a number of unsavory details come to light. The co-founder and CEO of BFL, (more recently, the “innovation officer”) Sonny Vleisides, has a criminal record of fraud in the United States — to be specific, he was convicted of running a mail scam, duping the elderly into purchasing tickets in a lottery which did not, in fact, exist.

Following the year-long melodrama surrounding the ASIC miners, a number of unhappy people did what unhappy people often do, and expressed their frustration in the form of lawsuits, filed against BFL in a number of lower courts. Some of the lawsuits merely accuse BFL of failing to provide hardware that was paid for, or repeatedly and intentionally misrepresenting the ship date of that hardware. One goes further, and alleges that BFL actually held hardware back from their customers, and used it to mine for their own profit, delivering the hardware only once it was obsolete.

In a recent parole hearing for his original offense, a judge came down hard on Vleisides, finding his participation in BFL without permission was a violation of his parole. During that case, it also came out that Vleisides had used company funds to buy a house and an expensive car. During the same hearing, BFL employees called as witnesses also revealed that BFL ran a for-profit mining pool internally, supposedly to “burn test” the hardware they were developing, potentially confirming the accusations of mining fraud. The judge, as can best be judged from the text of her statement, was unhappy.

“Now, there is a stench coming from Butterfly Labs. It’s a strong smell. It’s not enough to send you to prison today, because, to be quite honest with you, if it was, we’d be talking about 24 months in prison. It’s not—I think it’s too close. I think [defense witness] Mr. Bourne did a very good job of testifying, and it assisted your defense greatly. But if I find out that there is this fraud word involved in this part, you know, Mr. Vleisides, as we say here at the courthouse, you need to get your toothbrush and get your things in order, because fraud will not be tolerated, you understand that? So I would work very hard to make these consumers happy consumers who you’ve dealt with.”

Over the course of the last eighteen months, the Federal Trade Commission received more than 500 complaints about BFL. To make a long story short, what we’re getting at is that, if anyone is in need of reputation management, it’s BFL, possibly the second most-loathed company in the Bitcoin space, after Mt. Gox.

The Ballad of ButtCoin 

So what’s up with the alleged ButtCoin.org purchase?

Take a look at this image, courtesy of TechCrunch:

Subtle.

This is the before and after of an article published on ButtCoin.org, before and after the domain was acquired by a man alleged to work for BFL. A few other alterations were made, including revising a post entitled “ButterFly Labs demo is literally just hot air” to a simpler “ButterFly Labs demo is hot.” The text of that post has been revised to remove the later paragraphs which indicate that the crowds at a booth are employees, and that the hardware being demonstrated does not, in fact, work.

The former owner of ButtCoin.org (“borderpatrol” or “Evan”) took to Reddit to tell his side of the story, claiming that he had been tricked by what he believes to be a BFL employee who called himself Jeff (possibly Jeff Ownby, VP of marketing) into selling him ButtCoin.org under false pretenses (including a promise that he would continue to write for the site for several months, and a general failure to disclose what the site would be used for). The site was purchased for an undisclosed figure between $10,000 and $30,000, and Evan claims to have been immediately blocked from editing the site.

The purchase appears to have been an attempt to whitewash the first page of Google search results for the company, as the revised article pictured is one of the top-ranked results for “ButterFly Labs.” However, it seems difficult to imagine that this is actually a good idea. People discovering Bitcoin for the first time are unlikely to blow thousands of dollars on a piece of mining hardware. People who have been involved in Bitcoin for a while will have heard about ButterFly, and this kind of transparent attempt to manipulate the company’s public image only makes it look shadier.

Evan, for his part, is philosophical:

“I think it’s hilarious. With so many scams and hacks and thefts this really was the only way this could have gone down. Someone actually buying the site and honoring their agreement? No way in hell that would happen if it’s related to bitcoin. There just had to be some sort of gotcha at the end. […] The bitcoiners on Reddit are trying to use it against me as if I’m some sort of shill and that my reputation has been damaged. I ran a website with a giant butt on the logo, how much worse can my reputation get?”