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Author Topic: Bitfloor CrowdSource Recovery Proposal: 224 1k Investors  (Read 3895 times)
BCB
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September 22, 2012, 05:11:13 PM
 #1

In the best interests of the bitcoin economy and my support bitcoin in general and Bitfloor specifically, I'd be willing to invest 1K for the repayment/recovery of Bitfloor if :

1.  Other members also contribute 1k ( or a pro rata share) to equal the total loss.

2.  Bitfloor provides verified  proof of loss.

2.  Bitfloor Provides a realistic repayment schedule with interest payments on the loan(s)

4.  Bitfloor provides a third party audit/verification of its new security features.

3. TangibleCryptology agrees to handle repayments (with an agreed upon commission for his service).

I have no interest in TangibleCryptology or Bitfloor others then I use both of their services and consider them as individuals and their business as adding  valuable services to the bitcoin economy.

I'm also curious to see if a decentralized, p2p community can come together in support of everyone's best interests to continue creating a robust economy and community.

Thanks.

BCB

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September 23, 2012, 12:07:24 AM
 #2

cash or coin? 1k? i am with you on providing support for quality members that serve a purpose to enhance the community in general.
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September 23, 2012, 08:55:23 AM
 #3

cash or coin? 1k? i am with you on providing support for quality members that serve a purpose to enhance the community in general.

As it was $224,000 lost, it's easy to deduce he means 224 $1,000 investors
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September 23, 2012, 10:58:20 AM
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September 23, 2012, 11:10:11 AM
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What's the ROI for this?
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September 23, 2012, 12:39:01 PM
Last edit: September 23, 2012, 12:51:23 PM by elux
 #6

What's the ROI for this?

A back-of-the-envelope estimate:

Bitfloor had a pre-hack monthly profit of on the order of $1000, IIRC.

Thus, Bitfloor would need to pay investors at least 100% of the pre-hack
monthly EBIT for 224 months to bring the prospective investors of this proposal back up to zero.

(This is assuming fixed profits, which is clearly unrealistic, but doesn't affect the conclusion of our analysis.)

Realistically, your ROI is very close to minus 100%. The $1000 you invest have already have been lost.

You could do this for charity. But bailing out Bitcoin businesses that fail hard on security is... BAD.
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September 23, 2012, 06:16:16 PM
 #7

Tangible handled the repayment of TheBitMan's creditors because he had no low cost mechanism to convert USD to BTC and repay creditors.  The Bitfloor, Inc doesn't have that problem so I don't think Bitfloor, Inc needs our assistance in handling repayment.  I did (acting individually unrelated to Tangible Cryptography LLC) offer to provide some capital towards a restart if certain conditions were met.   So far Roman has not accepted that offer.  I only have to assume he has either secured other investors at more favorable terms or intends to handle repayment himself and thus avoid dilution.

I do hope Roman realizes that to restore confidence in the market there are a couple of thing he can do:
1) The creditors deserve to know the exact amount (down to the Saotshi) owed.  This is useful in projecting repayment and considering offers.

2) There should be a mechanism for the debt to be traded.  As an insolvent debtor Bitfloor, Inc doesn't have the right to not assist its creditors.  Bitfloor can certainly charge a fee for its time and can put conditions on the transfer of debt but it needs to be transferable.  All parties benefit from open markets (even in debt).  Some creditors are unwilling to wait and by making it impossible to sell that obligation Bitfloor inadvertently makes their only recourse legal action.  This is counter productive and expensive and can be avoided because there are others who are willing to purchase debt and thus become voluntary creditors of Bitfloor.  Bitfloor also benefits from an open market because it allows price discovery and give Bitfloor the option to repurchase its own debt in a fair and transparent manner.

3) Bitfloor likely needs more outside capital however raising $224K USD to simply pay $224K in debts isn't really an investment strategy.  It leaves the company in the exact same situation it was prior to the hack.  Bitfloor needs to be capitalized and thus have the working capital and funds for capital expenditures that allow it to ignore short term profitability and work on growing revenues in a sustainable manner.  I am not saying Bitfloor shouldn't repay creditors but repayment in full upfront simply doesn't make economic sense.  However if hypothetically Bitfloor raised say $150K to $200K in capital it could make a one time payment of 30% of face value of the debt and use the rest to pay for salary, datecenter space, etc.

4) Bitfloor should attempt to get creditors to voluntarily sign to new terms.   Before someone freaks out notice the "V" world in the prior sentence.  The unknown status and terms of debt is a legal risk (and one reason I made this a condition for any investment).  By offering creditors the option to agree to repayment terms the debt would no longer be in default.  The upfront payment in #3 could be used a carrot and likely most creditors would sign to the new terms.  This puts Bitfloor on a more stable legal and financial footing and makes it more attractive to outside capital.  The terms could specify the repayment schedule, even if the repayment is based on net profits it could contain certain provisions which guarantee a minimum repayment and at the same time protect new investors.  For example if repayment was "done once a month based on 50% of the net profits from the prior capped at 5% per month with a guaranteed minimum of 1% per month" that would provide creditors with some assurances and allow better price discover of the debt.   Investors would be more confident in the success of Bitfloor investment as it limits the cash drain from the company.  The terms could also put a min & max exchange rate which caps the debt in USD terms (say $5 and $20 USD:BTC) protecting both parties from extreme changes in value.

Anyways just my ramblings on the subject.

TL/DR:
Roman,
Transparency, liquidity, and defined terms (voluntarily accepted) can only improve the outlook for all parties (bitfloor, potential investors, and existing creditors).
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September 25, 2012, 08:04:13 AM
 #8

One more reason for glbse to go legit is that companies like bitfloor can re capitalise.

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September 25, 2012, 08:11:32 AM
 #9

You could do this for charity. But bailing out Bitcoin businesses that fail hard on security is... BAD.
BF is pretty much bailing itself out by taking a forced 0% interest loan on people who have coins "on hold" there.

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September 25, 2012, 08:26:31 AM
 #10

You could do this for charity. But bailing out Bitcoin businesses that fail hard on security is... BAD.
BF is pretty much bailing itself out by taking a forced 0% interest loan on people who have coins "on hold" there.

So... They're holding funds hostage AND reopening for business WHILE being technically bankrupt?

I don't know what can be intelligently said about that. Except that it can't possibly be legal anywhere.

*sigh*
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September 25, 2012, 08:29:40 AM
 #11

You could do this for charity. But bailing out Bitcoin businesses that fail hard on security is... BAD.
BF is pretty much bailing itself out by taking a forced 0% interest loan on people who have coins "on hold" there.

So... They're holding funds hostage AND reopening for business WHILE being technically bankrupt?

I don't know what can be intelligently said about that. Except that it can't possibly be legal anywhere.

*sigh*
Well, apparently BF customers seem happy about it.

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September 25, 2012, 09:11:23 AM
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You could do this for charity. But bailing out Bitcoin businesses that fail hard on security is... BAD.
BF is pretty much bailing itself out by taking a forced 0% interest loan on people who have coins "on hold" there.

So... They're holding funds hostage AND reopening for business WHILE being technically bankrupt?

I don't know what can be intelligently said about that. Except that it can't possibly be legal anywhere.

*sigh*
Well, apparently BF customers seem happy about it.

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September 28, 2012, 09:21:09 AM
Last edit: September 28, 2012, 09:46:11 AM by BlackHeartFund
 #13

You could do this for charity. But bailing out Bitcoin businesses that fail hard on security is... BAD.
BF is pretty much bailing itself out by taking a forced 0% interest loan on people who have coins "on hold" there.

So... They're holding funds hostage AND reopening for business WHILE being technically bankrupt?

I don't know what can be intelligently said about that. Except that it can't possibly be legal anywhere.

*sigh*


I have no direct financial interest in this situation... but I have to say, from the available information, I share your concerns. How good the platform was seems irrelevant. A company that was admittedly netting under $3000 USD/month loses $250k USD overnight... hands 100% of that loss to users... and then is re-capitalized by the same people who took the loss? It doesn't make a lot of sense, unless the investors are privy to private information, or have some reason to believe the operators of the company will be able to make profits grow exponentially in spite of the bad publicity and lost users stemming from the theft.  

No small online business is worth more than a few years' profit, so if investors do cover a loss this size, I suppose they must be doing it because either they:

   a) calculate that the platform surviving will add enough value (prevent enough loss) to the BTC community to make up for the investment.

   b) anticipate that a $1-2000 USD (each) shot in the arm to bitfloor will give them a window to recoup a significant amount of the BTC they lost personally.

   c) have a personal or significant business relationship with the company's management and believe (or at least really hope) that there really was an outside hack and theft, and honestly believe this is not that big an issue. .

I hope this has a happy ending and business goes on... I would even consider trusting money with bitfloor in the future if say, they go a year without another incident, pay back all BTC lost by their incompetence, and undergo a massive security upgrade... including proper training of all employes who have any kind of access to wallets (or customer data for that matter). Not simply changing to a dedicated server and adding a passcode.

If I had BTC in this I would not get my hopes up that this will end well. The way it has been explained publicly leaves a lot to be desired. Is there any evidence at all that bitfloors servers were compromised? All we have is one wallet file, under the control of bitfloor, totally cleaned out. They have admitted that they left the file unencrypted... but the immediate statements about 'moving on' and 'looking forward' are huge red flags. Certainly figuring out the next steps must be their priority... but who decided that aggressively attempting to identify the criminal and/or recover the lost BTC should not be one of those first steps? Are they even 100% sure that the wallet accidentally left unencrypted was the method through which the theft occurred... or are they just assuming this because it is likely? Not exactly a tight ship.


If my 2 bits are worth anything, before interested parties and potential investors make any quick decisions, they should have lot of questions answered. Not the least of which would be; What is the New York State police report number? Certainly you reported a crime of this scale to the police. Next, do you have professionals forensically analyzing the compromised server? Not to mention any PC or device which may have had access to the stolen wallet? Will you be updating those who are out money on the status of both of these investigations? I have never seen anyone be so nonchalant about losing 10x their company's annual net income. They were very quick to seek another $220,000+ USD in funding, no so quick to share real information about the alleged hack with those who actually did the losing out.

If their wallets fill up again, anticipate another failure and a quick vamoose of all corporate officers. We have these markets set up poorly. Bitfloors managers now have two options, no matter what happened with the first theft. They can scrape by on the margins with their cut of the fees, paying back the money they owe on on their 40 year plan. Or... they can wait until they're holding a million bucks, post a 5 paragraph post about the evil, unstoppable hacker who will inevitably take the rest of your money and that will be that. There is one born every minute, so I'm sure some people will happily line up to use this service again before this issue is even close to being resolved. People are going to deposit new money on top of their old "frozen" (read: nonexistent) funds? That is simply amazing to me.

One man's analysis of this situation: Very smart move by those who got out yesterday at 60-70%. If you're lucky enough to get 40% today, take it and run. Unfortunately your only choice is to dump your Bitfloor Inc debt for whatever you can get for it, before it becomes a "Satoshi stock".

To everyone who had an honest motive going in and lost out; peace, love, empathy, and good luck in the future. To whoever robbed the money... you're just a lowlife scumbag, stealing hard earned money from retires and you'll get yours eventually.

My analysis is based simply on my investigating into and understanding of the recent events involving Bitfloor, and my complete inability to predict any viable way in which they will be able to return this company to profitability. If they prove me wrong, pay everyone back and are a solvent, legitimate company 12 months from now, I will admit my poor judgement and donate 200BTC to Bitfloor Inc's favorite charity (Up to a maximum value of $7500 USD). I really hope that happens for the sake of the currency, it would be nice to see one of these big "lost money" operators finally make good, but it would be a first.
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September 28, 2012, 09:34:31 AM
 #14

Bottom line : Bitfloor already has all the investors it needs, except they don't get either equity, or interest, but only a promise to "maybe" get repaid.
In other words : they take the risk and don't get any kind of compensation for it.

Clever stunt!

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September 28, 2012, 01:39:48 PM
 #15

Full Disclosure:  With the additional downtime yesterday and the continued lack of transparency, I just cashed out of bitfloor.

I think the questions asked in this thread are important ones.  If only service providers would provide some of this info and if only the community would ask these kinds of questions before we trust our bitcoins and fiat with the likes of Bitcoinica, Pirate, PPT's, (Intersango).


Here a second question:

Who in the community would service providers trust enough and who does the community trust enough to reasonably vet these service providers?  I certainly don't mean regulation but a "web of trust" or "stamp of approval" that:

1.  The operators of the services are legitimate and traceable in the event that is necessary.
2. The system we are entrusting our wealth to has as least some agreed upon level of "best practices" for redundancy, data security, reserve funding, cold storage etc.
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September 28, 2012, 03:34:57 PM
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My analysis is based simply on my investigating into and understanding of the recent events involving Bitfloor, and my complete inability to predict any viable way in which they will be able to return this company to profitability
...
it would be nice to see one of these big "lost money" operators finally make good, but it would be a first.

Post count of 13? Who are you and why should we care? What "investigation" did you actually do?
Also, this wouldn't be a first. Or second. MtGox in July 2011 was the first. Bitomat was the second. Everyone who lost money in those two cases was made whole.

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September 28, 2012, 04:18:23 PM
Last edit: September 28, 2012, 04:41:24 PM by elux
 #17

Post count of 13? Who are you and why should we care?

Uhm, post count is worse than useless when it comes to the validity of an argument.

If anything, post count on Bitcointalk often seems to be somehow inversely related to common sense, intelligence, and verbal ability.

Therefore, the more you post, the dumber you get. (I'm mostly joking. Mostly.) Wink

Also, this wouldn't be a first. Or second. MtGox in July 2011 was the first. Bitomat was the second. Everyone who lost money in those two cases was made whole.

MtGox had the more than enough revenue to make everyone whole. Bitomat was bought out by MtGox as an act of good faith.

Bitfloor doesn't have nearly enough revenue, and MtGox is not going to buy them out.

It seems to me that your objection is quite irrelevant to Bitfloor hostage situation.
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September 28, 2012, 05:20:07 PM
 #18

It just seemed like a pretty grandiose statement from someone who's only other contribution to this topic was to claim that yesterday's website troubles were proof that they were in the process of running away with everyone's money https://bitcointalk.org/index.php?topic=113535.msg1227820#msg1227820 (Bitfloor is back BTW, and I traded $200 for BTC this morning, and pulled the BTC out). Then there are claims of doing investigations (If that consisted of "I read the forum threads," just say so), totally missing the fact that Bitfloor has very strong competitive advantages over MtGox, especially for US users, and their $2,000 a month can easily increase considerably over the course of the year, asking for a NY State police number when Roman said he reported this to the FBI, not police (what was investigated), etc.
Also, there was no indication that anyone would invest in, or buy, Bitomat when it went down. There's no final say on what will happen to Bitfloor yet, either.
Yes, there are a lot of users with high post counts who are not very bright, but it's probably about 5 to 1 that those with low numbers are SA goons and others who have read about Bitcoin on their own biased cluster*ck of a forum, came to their own totally erroneous conclusions, and then come here pretending then know better than those actually involved, just to warn us about how stupid the Bitcoin system is, how it's so prone to scams, and how we're all dumb for trusting whoever they pick as their target.
BlackHeartFund dues have some good points, but only a few, and it's just a heck of a speech from yet another newbie we don't know anything about.

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September 29, 2012, 07:05:08 PM
Last edit: September 30, 2012, 12:15:05 AM by BlackHeartFund
 #19

Hey guys I'm sorry if my post sounded as if I was presenting anything more than my personal assessment of the situation based on public information and talking with people. I am new to this forum and working with BTC, and I'm not trying to claim to be an expert or have any inside information. I am not verified yet and I only know a few people, but I am not trying to claim otherwise. I have had what I consider a successful career in other industries, and I hope my experience will help me in the bitcoin market. My post was so long because I was not trying to simply bash the company or anyone personally, I was trying to fully lay out the situation as I see it. I do not want anyone to take my word for anything. I was trying to explain myself clearly, and I am a bit long winded.

I just wanted to let people know what I thought of the situation... one person not invested either way trying to make a clear and fair assessment of what is going on, and requesting details on anything I got wrong. People invested in this clusterfuck can look at the facts and make a decision on their own. Anyone one making serious financial moves based simply on one person's message board post is quite simply incompetent, no matter what the post count. People have to take a serious look at this situation and make a rational decision.

Do you think a company this small will ever pay back half a quarter million dollars to people who are not demanding it or taking legal action? Not to mention continuing to use the service. If not, then selling the debt now for 30-40% is a huge gain. TangibleCryptography is clearly the one of the brightest people in bitcoin today, and he wisely cash out asap for 70%. I can't see anyone getting anywhere near that again. I wouldn't buy it for 5%.

I certainly do not want to harm the BTC market, quite the opposite in fact. I own BTC and am investing serious money for me in a few start ups that will not succeed unless bitcoin does. I am betting my retirement on BTC instead of continuing in the industry I came from, which i major life altering decision for me, and certainly not the easy or safe route. I am fully supportive of BTC and think it has the potential to be an explosive industry. I suppose that is what a troll attempting to do the opposite would say too, and you are totally correct, I am an anonymous person at the moment, and anyone who doesn't know me would be insane to trust me or take my word for anything. All I want to do is call attention to this situation, because I think it is extremely serious and could end up being detrimental to BTC.

To me, this situation is quite clear. The fact that the BTC community appears to be welcoming this company back after it cost people $250,000 is extremely disheartening to me. Even if the money wasn't stolen by someone at the company (unlikely), it sets a horrible precedent. The next guy can set up an exchange and do the exact same thing, knowing that not only will he not be investigated and labeled a scammer and sued... he will be welcomed back with open arms and allowed to start up holding people's funds again? This is honestly one of the craziest things I have even seen in business and in my opinion everyone with money involved anywhere with BTC should watch this situation extremely carefully. It's an invitation to con artists, and reveals a serious flaw in our current market.

Like I said in my first post, this is nothing but one man's opinion. There is no way Bitfloor is going to pay back the money they are responsible for, ever. People using a service run by people this incompetent and/or criminal is unusual, any way you look at it. The money is gone, and absolutely no one has been held responsible, including the person who admits to giving the wallet away. Oops, half a million gone, keep trusting us with your money. We have a pass phrase now and no longer use VPS to host. It's mind boggling.

I hope I'm wrong, and I would love it if someone could explain how I am.

I promise in the future I will keep my posts to under 10,000 words lol. Just trying to be very clear.
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September 29, 2012, 07:13:35 PM
 #20

Full Disclosure:  With the additional downtime yesterday and the continued lack of transparency, I just cashed out of bitfloor.

I think the questions asked in this thread are important ones.  If only service providers would provide some of this info and if only the community would ask these kinds of questions before we trust our bitcoins and fiat with the likes of Bitcoinica, Pirate, PPT's, (Intersango).


Here a second question:

Who in the community would service providers trust enough and who does the community trust enough to reasonably vet these service providers?  I certainly don't mean regulation but a "web of trust" or "stamp of approval" that:

1.  The operators of the services are legitimate and traceable in the event that is necessary.
2. The system we are entrusting our wealth to has as least some agreed upon level of "best practices" for redundancy, data security, reserve funding, cold storage etc.

Very good question, and smart to cash out quick. Do you mind sharing what % you got for it, and possibly also the approximate amount you traded? Are there people currently purchasing bitfloor debt for 50%+?
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