Butterfly Labs mined Bitcoins on customers’ boxes before shipping | Hacker News Reader

Butterfly Labs mined Bitcoins on customers’ boxes before shipping

arstechnica.com

59 pointssuprgeek41 comments

As someone heavily involved in the bitcoin mining scene, this is not news.

Reports of dusty, obviously used machines were shipped to many a a BFL sucker.

It's a legal grey area at best... companies should indeed test their products before shipping them to consumers.

The problem here is that BFL tested them for "too long" before they arrived in the consumer's hands according to some, but not according to butterfly labs.

If they wanted to test they should have mined on testnet.

Why? Using "real" net a manufacturer can test their equipment and make some money at the same time. That on it's own doesn't seem unethical or shady to me. The potentially shady part is using the machines for straight mining before shipping them to customers.

You don't see anything unethical about competing with your own customers when you promised them that you wouldn't? Cause that's exactly what happened.

Honest question here: did they promise that they wouldn't?

I am having a hard time finding this declaration now, but I am sure that some BFL employees representing the company made these declarations on the company forums. "I'm sure I saw it" -- maybe naïvely inferred from discussions I read that they were actually saying it. I went back through the web.archive.org pages on butterflylabs.com/faq and I can find no such statements, refutations, or denials now.

The closest I've found so far is this person[1] Transisto asserting that they specifically said this. I remember hearing it and I have no reason to doubt Transisto; he is clearly a person you can trust (and at least in this forum thread, nobody came and said he was wrong.)

[1]: https://bitcointalk.org/index.php?topic=110290.msg1202262#ms...

Ok, good to know, thanks!

Here is at least one statement to this effect, directly from the main BFL employee who represents them in the forums, BFL_Josh:

https://forums.butterflylabs.com/archive/index.php/t-52.html

It is linked in the pre-sales FAQ in the archive, post is only two years old (number 13):

https://forums.butterflylabs.com/archive/index.php/f-4.html

This is not the promise I remember, there was a much stronger statement issued at some point that I remember where they stated that they would _never_ be in the mining business for themselves, but I can't find it. Still, this is pretty clear, he says 24 hours and testnet. Not two weeks and "into our pockets."

I don't know why you are being down-voted. I think we can agree the issue isn't that they were mining BTC with customer devices but rather that they swore they weren't. Had they not released statements saying they would not be getting into the mining business and that they tested the devices on the test net then there wouldn't be nearly as much of an issue.

Yes people would still be mad they tested them for 2 days when 15min would have been enough (especially when they were so late in shipping), but the big issue is they lied to everyone who bought one of these devices.

A better solution imho would have been to ask for the customer's Bitcoin address and do their testing with the client reaping the rewards of mining early.

The biggest mistake BFL made was basically ensuring that everybody lost money. They were too greedy. If they had even made their customers 5% ROI I doubt they would be in the situation currently.

If their boxes were true money printing machines, it's confusing to me why they'd bother selling them at all.

It wasn't their money. Customers pre-ordered the machines months in advance.

They built the boxes using their customers' money.

Quickest means to high starting capital. They had to get as many machines as possible up and running before everyone else did, so they used customers' money like an investment.

That's what I've heard. It just seems weird that given the glut of VC money these days, they'd have to resort to skulduggery to raise capital for a Sure Thing™.

VC money might cost more.

Clearly VCs don't believe that Bitcoin hardware is a "sure thing" if none of them were willing to invest in it.

Raising capital from a VC for a real Sure Thing would generally be scamming yourself - it would be cheaper to raise a loan in almost all Sure Thing situations. Obviously Bitcoin is a bit different since it's not the kind of real thing you could get a loan for.

Anyway, I don't think it's weird at all. Pre-order suckers grant money on much more favorable terms than even a loan, much less a VC. Doubly so if you're scamming them the whole time.

Working capital for hardware production. The estimate often quoted is that a production run of ASICs costs $1 million and people who can green light them will accept a variety of payment methods like a) a wire paid in advance and b) see a.

Many companies which previously sold ASICs, particularly those in China (which is slightly advantageous for developing a close relationship with the supply chain necessary to build ASICs to order), have squirreled away their profits from selling boxes wholesale/retail, done this math, stopped selling boxes, and now do entire production runs and operate them for their own benefit.

This is one of the primary things driving the network's hash rate through the roof. A data center of consistent hardware operated by experts absolutely ROFLstomps (on any efficiency metric) versus making consumerized versions of that hardware, losing 50% to the wholesale/retail discount, and then having that consumerized hardware get operated as a cloud made manifest in enthusiasts' spare bedrooms.

They're selling an option for bitcoins denominated in electricity. It can potentially make sense for them to let someone else take that risk, and still make sense for someone else - in a different situation - to take it. Which isn't to say that is necessarily the situation here.

What people don't understand is that when BFL mined with the hardware they sold, they effectively made the difficulty of the block chain rise stupidly fast, thus lowering the value of the system. Any advantage customers (like me) would have had was thrown out the door.

It is essentially the equivalent of a car dealer selling you a car claiming it is new when in fact they drove it 150,000 miles.

I was told by a BFL employee that my order would have been shipped before the end of july 2013... I didn't get my units till 11/4/2013

During that time I watched what could have been my returns fly out the door.

To read the one skype chat log makes me sick

Again and gain, Bitcoin doesn't seem to attract the purest minds...

A friendly warning to all! Don't say anything negative about Bitcoin here or on /r/Bitcoin as you'll get gang-downvoted. A lot of people have a lot of built-up aggression by the ever-declining Bitcoin price and want you to pay for their loss in some sick weird way!

I downvoted this comment because it is completely pointless.

I almost downvoted your first comment because (setting aside the problems with the very idea of "purest minds") there basically isn't any human activity that manages to only attract said "pure minds".

I don't own bitcoin and fairly regularly post antagonistic comments about it here. They usually get no votes, or maybe one or two upvotes.

Pointless how? As we're all data nerds here, try posting negative comments when price is going up (maybe they are too busy doing what I mention later) - you won't see much downvotes unlike when it's going down. I'm sorry, but the Bitcoin community is just disgusting! With "VIPs" like Charlie Shrem, Mark Karpeles, and the likes, it's doomed to fail! When PayPal announcement temporarily spiked the price, you can read comments like "I just jizzed in my pants" over at CoinDesk. This is the kinda human material that's building the Bitcoin community, unfortunately! Computer scientists made Bitcoin possible, but it's all in the wrong hands now, so, we should rather embrace things like Stellar now (I was a fan of Ripple, first, as a great piece of technology, but Stellar doesn't have much of the Ripple baggage)!

Phew, how fortunate that the dollar does ;)

Well, Bitcoin now is what the dollar was during the Wild West, so, Bitcoin is centuries in the past - all kinds of outlaws and corrupt sheriffs and deputies. Even bounty hunters as people now offer bounties to find the Mt.Gox thieves!

I don't see a problem with this burn-in process. EMC sells harddrives which they ran for two weeks in both a freezer and hot room (based on a company tour I took ages ago). They just want to make sure the hardware components they ship won't fail under heavy long-endurance load. I see that as a service to the customer.

You might think that, having never been a customer of BFL, but I can tell you I bought BFL hardware on pre-order at a point when they were telling their customers they would never be a mining company, but only a hardware company, and they were not ever going to mine bitcoins with customer equipment.

It's not a service to the customer. The most valuable time spent mining with new mining hardware is the first week to two weeks. The next two weeks are going to be at an average of 10-20% reduced efficiency as the difficulty increases every two weeks or less. The next two weeks after that will have reduced efficiency by a similar amount again, until you reach the "break-even point" where each watt-hour of electricity you buy and pump through the mining equipment is going to yield an amount of bitcoins equivalent in value to the energy you put in. And then, you hope, the price of the coins increases or at least remains stable, and the difficulty levels off.

(Protip[0]: it doesn't seem to be leveling off yet, and my first-gen ASIC hardware is already well underwater.)

[0] https://bitcoinwisdom.com/bitcoin/difficulty

Additionally the FTC argues there is a specific network for testing that does not incentivise prolonged "burn-in".

Yes. I can confirm they did tell us customers they would use the testnet and not the live net. There is no excuse for this. For anyone who is not "in-the-know" of Bitcoin, that testnet is absolutely a thing and reversing their position on that promise is absolutely a violation of trust.

As a customer of a company that sells mining equipment, you don't ever want your supplier to be in the mining game. When you own 1st-gen equipment, you'd like it if the 2nd-gen equipment is delayed as long as possible because when it comes out, your equipment is almost immediately going to be made irrelevant as new investors have 10x equipment with significantly reduced marginal (electricity) cost. Some manufacturers I'm sure are forthright about their conflict of interest because they do mine (openly, like I believe KnC does), so their customers shouldn't be shocked to find out.

If they tell you they won't, that's a benefit to you because you, the fulfilled customer, are usually incentivized to give up some of your profits to get the next generation of hardware, to protect yourself from irrelevancy in the coming years. You are trusting that your order will be delivered in the order of purchase and that the company does not have incentives to delay your shipment.

Owning 2nd-gen hardware, I always knew that the arrival of the 3rd-gen (28nm Monarch) would signal the end of my operation if I couldn't secure one. After the horrible experience of waiting for my 2nd-gen hardware to arrive, I was not biting again. It's been clear to anyone with a stake in the game that there has been something fishy at BFL and that most people were getting screwed, even when their equipment was finally delivered.

When I heard that Vleisides was involved in a "multi-million dollar lottery scam" pyramid scheme before, pled guilty to mail fraud, and was barred by court-imposed restrictions from any business that "solicited funds through pre-order"[1], I knew it was time to start getting the popcorn ready.

[1]: http://arstechnica.com/tech-policy/2014/04/digging-for-answe...

You're right. I forgot how unbelievable up-to-date one must be with the latest hardware.

For the whole article I couldn't figure out what the actual harm done to the customer was. Thanks for explaining.

Interestingly enough, the graph I linked (and didn't look closely at before posting) shows this week that hashes and possibly also difficulty seem to have begun to take the first slight nose-dive in a long time.

It looks like the difficulty might even go down this time, in about 10 days when it's recalculated. Some people (more than the opposing numbers) are apparently turning off their machines now (ostensibly it's not profitable to start/continue mining at this time.)

For a long time, people "in-the-know" have been honestly telling folks that it's much cheaper and less risky to go out and buy bitcoins directly than it is to try and get involved in mining. I'll leave it for you to sort out all the additional potential conflicts of interest added there.

A 2 day burn-in is appropriate, mining for the company instead of the customer or on the test-net most certainly is not.

It'd be a rediculous waste of resources both for the company and the customers to burn in these units on the test network. The earnings should have been passed onto the customers though. They also should have done as they promised (not use the live network) or at least informed the customers.

Agreed. I would be more skeptical of a company that claims to go against its own interests by using testnet.

They did claim that, and everyone really was skeptical. Turns out they (you) were right.

It's not a waste of resources, and the most egregious issue is not just that it's a violation of trust to the customers left waiting for their orders, but that it's a violation of trust to the already fulfilled customers. Each hash that gets submitted to the live network "takes a percentage" of the output of the mining pool and of the overall network output. BFL (the maker, and their upstream vendors for that matter) have privileged access to the newest hardware on the planet at the time when it's going to be most valuable.

Customers whose orders have been fulfilled have an expectation that BFL (I'll grant even, only because they promised so) is not actively working with the money provided by new customers to devalue the good provided to their old customers by the hardware that is their existing sunk cost. The community rallied behind them, in part because they promised to leave that job to the new customers.

You may see it as a waste, but I don't think the FTC will agree with you. The ridiculous pre-order delivery delays could have been excused only if BFL does not really have a stake in seeing that delay grow longer. It's more obvious now that they did have a very real stake in prolonging that delay.

Read the article. They weren't doing two day burn-in, they were burning in new units until there were enough more new units to replace them in the test facility. That's some bad faith action right there.

Oh yes I did read that and most of the comments available. I hope the FTC hits them very hard. My comment is only specifically about using the test network vs the live one.

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