The FTC just had a court shut down Butterfly Labs, the specialised manufacturer of Bitcoin mining equipment. It turns out the company has repeatedly failed to deliver on the massively powerful — and massively expensive — computers it sold consumers.
The FTC alleges that Butterfly Labs basically operates like a scam. In fairness, you would probably feel ripped off if you paid thousands of dollars for an absurdly powerful Bitcoin miner, and then only received the computer after it was no longer powerful enough to keep up with the competition. According to the release announcing the complaint.
A company representative said that the passage of time rendered some of their machines as effective as a "room heater."
In fact, many of the machines weren't ever delivered at all.
Bitcoin mining is the computationally intensive process by which different users attempt to get new units of the digital currency from the system. It pits one ultra-powerful army of machines against another in a race to solve what's essentially a puzzle. There's some luck involved, but ultimately it comes down to who has the faster computers. That's the guy who gets the Bitcoins.
Butterfly Labs' computers had specifications that would make them some of the most powerful in the world. Or it would have. It turns out that in successive generations, the company promised miners with outrageous performance, only to stall on deliveries, if machines were delivered at all.
Besides failing to deliver Bitcoin miners, Butterfly Labs is also accused of selling phony "Bitcoin mining services," by which users would basically pay the company up front for Bitcoin in the future. Butterfly apparently never delivered a single Bitcoin to consumers who bought it.
The FTC complaint seemingly confirms what some disgruntled customers have been saying for some time. Butterfly Labs' tech has been rumoured to be non-existent for over a year. Though the complaint certainly isn't proof of a crime, there's definitely something fishy about Butterfly Labs. A scam? In Bitcoin? What a surprise. [FTC via The Verge]
Update: Butterfly Labs sent us a statement in which it condemns the FTC. From the statement:
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.