Norton Rose Fulbright: The FTC & Bitcoin Mining Computers

By Susan Ross

On September 18, 2014, a federal trial court in Missouri granted the Federal Trade Commission’s ex parte motion for a temporary restraining order, asset freeze, and appointment of a receiver for Butterfly Labs.  Butterfly Labs made claims on its web site and on social media that its computers enabled consumers to “mine” a type of cryptocurrency known as Bitcoins.  According to the court order, Butterfly Labs charged consumers between $149 and $29,899—payable upfront via PayPal, wire transfer and, yes, Bitcoins—for these computers but never delivered them or else delayed delivery so substantially as to render the computers obsolete for the purposes of “mining” Bitcoins.

By way of background, cryptocurrencies, sometimes called digital currencies or virtual currencies, do not exist in tangible form, but rather are purely digital.  Users transfer them from an encrypted computer file known as a “wallet” either directly to merchants and other third parties, or by way of third party exchanges.  Virtual currencies are not issued or backed by any government.  Their value is determined from online exchanges and can fluctuate significantly.  The best known example of a cryptocurrency is called a Bitcoin, which was created in 2009.  Bitcoins are “mined” by individuals solving computational puzzles and, once verified, the Bitcoin network awards a specific number of Bitcoins to the successful “miners.”

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