Even though 2015 is right around the corner, some might say that bitcoin was still in its ‘Wild West’ days throughout the course of this year.
While it’s easy to appreciate all of bitcoin’s best qualities – it’s cheap, fast and reliable, to name a few – it’s harder to ignore that bitcoin has also been associated with less desirable parts of life – like crime and scandal.
As the digital currency’s use cases are still being discovered each day and regulators from around the world strategize how best to approach the disruptive technology, it’s inevitable that something will go wrong as bitcoin goes through growing pains.
Unfortunately, there’s bound to be bad actors in any industry and in any country, and when these bad actors are operating in a sector with considerable legal ambiguities like the bitcoin space, things can go awry pretty quickly.
Whether it was bankruptcy, allegations of fraud or clashes with the government, companies and individuals in the bitcoin industry faced a fair share of scandal in 2014.
As we approach the new year, let’s all hope the community can learn from some of these people’s mistakes, but first let’s reflect on the seven biggest crypto scandals of 2014:
1. Mt Gox goes bankrupt
As far as scandal goes, 2014 started out with a bang for bitcoin. In hindsight, the writing was on the wall in the months leading up to the collapse of Mt Gox, once the biggest bitcoin exchange on the market.
Throughout January and February users reported having trouble making withdrawals from their Mt Gox accounts, and it wasn’t long before the Japanese exchange’s CEO Mark Karpeles began receiving scrutiny for what many perceived to be poor management. The exchange filed for bankruptcy in April after admitting it had lost more than 700,000 of its users’ bitcoins, and it’s safe to say the impacts of Mt Gox’s collapse can still be felt in the industry today.
2. Ross Ulbricht’s ongoing trial
One of the biggest stories in bitcoin last year was the FBI’s seizure of online black marketplace Silk Road in October 2013. In the aftermath of the site’s seizure, Ross Ulbricht was identified by law enforcement as Silk Road’s operator.
As a result of the FBI’s investigation, Ulbricht was arrested and charged with a number of crimes including money laundering and distributing controlled substances. Ulbricht was indicted in February of this year and faces a life sentence in prison, pending a trial that was recently delayed to next month. Though he’s been in prison all year, Ulbricht has continued to make his mark on the bitcoin industry; the US government sold 50,000 of his personal bitcoins in a public auction earlier this month.
3. Neo & Bee collapses amid allegations of fraud
Not long after its launch, things started to go awry. The company suspended trading of shares by the end of March, and less than two weeks later the Cyprian government issued an arrest warrant for Neo & Bee’s CEO Danny Brewster. Further statements from Neo & Bee employees corroborated many people’s skepticism and allegations of fraud, and it appears that Brewster may still be on the run.
4. Charlie Shrem’s public arrest and two-year prison sentencing
In a strangely high-profile arrest in January, Shrem was taken by law enforcement at a New York City airport as he returned home from a business trip. He was later indicted on federal money laundering charges for supplying bitcoins to Silk Road users and was placed on 24-hour house arrest until late May.
Shrem later forfeited nearly $1m to the government and reportedly hoped to ‘walk free’ as part of a plea bargain. Just this week Shrem went to court for his sentencing, where he was sentenced to two years after pleading guilty to aiding and abetting the operation of an unlicensed money transmitting business.
5. Moolah shuts down as its CEO is suspected of fraud
A failed relaunch of altcoin exchange MintPal in October may very well have been the impetus for one of this year’s biggest crypto scandals.
In the weeks following MintPal’s relaunch, Moolah – its owner – came under fire for allegations of fraud and theft. MintPal employees went as far as threatening legal action against Moolah CEO Alex Green (pictured above) in attempt to recover lost funds that were estimated to be as much as 4,000 BTC. Moolah has since announced its plans for bankruptcy.
6. The Bitcoin Foundation faces extensive leadership changes
The Bitcoin Foundation is one of the most high-profile organizations in the industry, and with its (previous) mission to be the unified voice to advocate for bitcoin, it’s also one of the most scrutinized.
After former board members Mark Karpeles and Charlie Shrem resigned from their roles at the Foundation (as a result of their aforementioned scandals), public voting began in an effort to elect new board members. The election itself was marred by controversy, and leadership changes continued throughout the year, marked most recently by executive director Jon Matonis’ resignation at the end of October. A recent pivot and new executive director may finally be what the Foundation needs to move forward steadily.
7. Chinese government tries to censor media coverage of bitcoin
The Chinese government’s ambiguous stance on digital currencies was made a bit more clear this year, when media outlets in China were ordered by government authorities not to cover the Beijing-based Global Bitcoin Summit in May.
The censorship orders were not restricted just to coverage of the conference, though. The government instructed the country’s media outlets that “all reporting on bitcoins must henceforth accord with the specifications of financial regulatory agencies”. The government’s imposing arm must have struck a chord with at least some entrepreneurs: five Chinese bitcoin exchange CEOs pulled out of their scheduled appearances at the Global Bitcoin Summit prior to its 10th May kickoff.
Cyber crime image via Shutterstock