The Great Robocoin Rip-off: How We Lost $25,000 Buying a Robocoin ATM
docs.google.com
docs.google.com
Call your bank - most of them have a trade finance desk, or Google the term. A slightly cheaper way of doing it is to have a lawyer draft a terms of trade or supply agreement with either the funds in escrow with the firm or a bank guarantee.
Having your bank finance the trade is worthwhile as interest rates are so low at the moment. Common terms are 60, 90 or 120 day delivery with FED/LIBOR + x% (where x is the risk profile of your business - shop around to get prices) cost over the term.
The agreement would contain delivery timetables, warranties, customs clearance, liabilities, indemnities, guarantees, who pays what, etc. and you are protected legally without handing over tens of thousands of dollars or more upfront. These contracts are protected by law in almost all jurisdictions.
You don't finalize the transaction and pay for it until all conditions have been met and you have the goods in hand and have verified. The seller is trusting an international bank or a law firm escrow, and they should also have a lawyer or bank on their end (a trusted seller can receive the cash upfront for a fee with the bank picking up the risk, although I doubt any bank would finance a bitcoin atm without verified trade volume and a lower risk profile).
Talk to your lawyer and talk to your bank, having expensive items delivered without risking the full cost is a solved problem as old as finance itself and trillions of dollars annually are traded in this way. The extra $1k or so you'd pay on a $25k deal are worth it for the guarantee. If you ship goods regularly the costs are amortized as you can use the same contracts and finance suppliers. Don't deal with anybody shipping $20k+ valued products that doesn't deal with a bank trade finance desk or law firm and is instead asking for a bank transfer.
This is how most high cost goods are traded - from oil and other commodity supply contracts through to companies like Boeing and Airbus supplying planes, or GE supplying turbines for a power plant. Most people without experience lead into it thinking that buying something that costs $25k, $100k or millions of dollars is just the same as purchasing something at your local store just with bigger numbers. It isn't.
Bitcoin multisig transactions, or m of n transactions are also worth investigating as they cut the costs - although there is currently a lack of escrow/intermediaries who are as trusted as major law firms or an international bank. There is a huge opportunity in cutting the costs and fees associated with trade finance with bitcoin.
Why is there an opportunity with bitcoin? Aren't the costs and fees paying for the legal agreements, risk management, arbitration and things like that? Bitcoin might possibly reduce the cost of moving the dollars around but I suspect this is a very small fraction of the cost of this type of service.
An m-of-n transaction with a decent and trusted intermediary (or multiple less trusted intermediaries) could also replace bank guarantees, which is the simplest form of trade finance. There are also other opportunities in using bitcoin as proof of ownership or proof that you hold a product.
So let's replace banks with... banks?
The overhead costs that bitcoin will save are just the wire transfer fees. Beyond that, there's still lawyer time, intermediary escrow fees, etc. Those will not change.
Dealing with arbitration services rather than with escrow makes this much simpler, drops the entry/operational costs to nearly nothing and does not even require a lawyer to assist you with the process. This lowers the barriers of entry significantly and allows to create a competitive market for arbitration services in a way that's simply not possible when an escrow is required, leading to reduced end-user costs and improved service quality.
Source: I'm the founder of Bitrated [1], a service that enables exactly those kinds of arbitration services, and received extensive legal advice on this matter from my attorney. Do note, however, that this is a new and somewhat gray territory that can be interpreted in multiple ways (and of course, IANAL/TINLA apply - ask your own lawyer before doing anything.)
(P.S. Bitrated v2, a complete rewrite I've been working on for the past 6 months, which now includes an identity & reputation management system, is about to be shortly released. If anyone is interested, you can follow @bitrated on twitter for updates. </shameless-promotion>)
That is just to replace the trust element of a bank, not the financial function. At the moment it is nearly impossible to split trust across more than one institution - which means there is a single point of failure in the trust chain and if 2008 repeats again x% of people will lose funds. m-of-n allows you to distribute that trust, even if its just more banks signing the transactions to begin with.
Further, there are other ways to do proof of reserve with bitcoin that don't involve m-of-n.
In terms of the financing and risk assessment element, you could carve that out in tranches and sell out it on auction. At the moment the $2 trillion p.a trade finance market is limited in entry to only those who have a banking license, hence the thick fees and profits in it. You could open up the financing and terms to an open market, just like crowdsourced venture funding or project funding, or have smaller institutions that specialize in certain types of risk that they better understand (it is crazy that there are a half-dozen major banks who pretend to be able to understand and price every time of import / export finance situation anywhere in the world).
Structured trade finance is a whole other matter, that is where you have bespoke instruments and teams working on deals - usually with businesses that see $50M+ p.a in deal flow.
In either case I mentioned in my post that having a lawyer do a terms of trade or supply agreement is cheaper at the low end.
There's a working Robocoin ATM at Hacker Dojo in Mountain View, CA. Nobody uses it. Nor should they. 15% bid/ask spread, 5% fee.
Incidentally, the retail price for an ordinary ATM machine is $2,000 to $4,500, depending on the features ordered. A standard through-the-wall bank ATM is about $9,500. Even if you order every option from cash deposit through biometrics, they don't cost $25,000.
I've found you get what you pay for in the ATM world when it comes to hardware. Software is another story altogether, but there's no cheap and easy solution for physical security. The bad thing about Bitcoin ATMs is that they have the same physical security problems but an extra set of information security problems, with none of the established and well tested solutions that have existed in the banking world for 30 years.
Forget Bitcoin ATMs for consumers - if you want to actually make money you should build a regular banking ATM network that uses Bitcoin/altcoins in the background for transaction processing. That would actually disrupt the industry and allow you to undercut the other networks' pricing models.
How exactly is this cost-based "disruption" supposed to work when Bitcoin and friends are outrageously expensive per transaction?
One of the funniest things about the entire Bitcoin movement is the way that self-styled experts babble on and on about how amazing a technical revolution cryptocurrency is, despite clearly not understanding the first thing about cryptocurrency technology. Bitcoin is an experimental attempt to solve the classic Byzantine Generals' Problem, which can be boiled down to "how can a public transaction ledger maintained by its own users (with no central authority) be resistant to attack by bad actors". The Bitcoin "solution" to this problem is, in essence, for each node on the network to provably waste energy in an exceedingly flagrant way, in hopes that the costs of taking over the network are too high for any individual bad actor.
Well guess what, my friend? That means Bitcoin ends up chewing ridiculous amounts of energy doing no useful work on the desired end product of the system -- the ledger of transactions. Trust-based systems (you know, the kind deployed by, say, a bank, which would like to believe it can run its own system) do not need to waste energy, because they aren't built on deliberately wasting energy.
Bitcoin only makes sense if you are fanatically dedicated to the notion that Gibsonian dystopias (wherein the collapse of public institutions requires development of cryptocurrency) are either inevitable or desirable. It certainly isn't going to disrupt the existing system by being more cost- or energy-efficient. It isn't, it can't be, and that's by design. (Since Nakamoto couldn't figure out a less-bad way of solving Byzantine Generals.)
This is like saying, "The traditional banking 'solution' is to have a bunch of lawyers and government agencies waste time, paper, and ink drafting up and verifying documents, in hopes that the costs of taking over the system are too high for any individual bad actor." Obviously it's not perfect, but neither is any other financial system. They both serve a purpose: addressing problems that haven't been solved any other way, so it's not a waste.
I'm not even as rabid of a Bitcoin fan as some others, but it's just silly to read "OMG, mining costs energy!" when so does any other activity. At least put out some numbers to show how much more wasteful mining is than other systems, in your opinion. And who appointed you to decide which uses of energy are dumb/immoral/wasteful? Why do you care if miners are willing to buy electricity and electric companies are willing to sell it?
Hell, why aren't people paying the smaller ATM companies to make custom ones? It's not like banks don't already get custom-shaped ATMs made for them.
You can use the same hardware, but when you're buying 10s instead of 1000s of them, it'll probably cost you a lot more per unit. At least that's how it works for most manufactured goods.
But, but.... those banks know nothing about bitcoin, it's the future...
And of course, the markup is moot, because you didn't get the product.
Judging from the replies, it seems to have backfired probably because he did not acknowledge the errors on his side (shipping a lemon, unresponsive over email and not having provided a refund yet).
Worse, he doesn't seem to realise that the name-and-shame was a result of his and ultimately RoboCoin's actions.
Edit: The correct response would have been to issue a refund immediately, acknowledge and apologise for the issue, highlight the trouble area (upstream supplier issues or whatever lead to this), and commit to solving or already having solved this problem for future clients + internal review of this mishap.
After spending so much time reading the materials and forming an opinion, I emailed him. I suspect he thought not many people would actually email.
I'll make sure to comment if I get more details beyond these materials or even get a response.
I've heard this from smaller retailers of all kinds of products and, as pointed out in Andrew's reply, it's complete bullshit. The company that took your money is the company you formed a contract with. Any nonsense about "yeah, but the manufacturer..." is a smokescreen designed to dodge responsibility.
(Wimpy disclaimer: this isn't legal advice and maybe it's not true if you live in Yemen or something, I dunno)
It's just a sign of naiveté among many new entrepreneurs.
In their case, they dodged providing any at all.
Orders ship within 2-3 weeks. Shipping to Canada is no problem, customs is no problem. Assembly is in Portland, Oregon, so it's a quick ship to Vancouver. We've shipped hundreds of units.
Setup is completely on the owner's end. Owners don't need the company to configure the unit, and the company doesn't need to run servers for them. Skyhook ATMs use blockchain.com for the wallets (using accounts the owner creates independently), and the exchange price source is the owner's choice, all controlled through the interface. This isn't to avoid having a setup phase - it's to allow owners to have complete control over their money, because then it's a trustless system (the source code to the ATMs is open and auditable: https://github.com/projectskyhook).
I'm astounded at the prices on some of these ATMs. For $25,000 they could have ordered 24 Skyhooks (a little padding for shipping, which I believe can be palleted to save money). Bitcoin ATMs shouldn't cost the down payment on a house, IMHO.
Skyhook is also completely bootstrapped by the founders (no VCs) and a result of that (and careful burn rate management) is now profitable, despite the low price point. The cofounders have been using some of the money (and their free time) to help clean up and build out a new hacker/makerspace in Portland that's going to be awesome. Easily the best group of people I've ever had the privilege to work with.
I wish more people approached startups this way. There's a real pride to making companies on your terms that you control, and succeeding at it. Startups shouldn't be about overvaluing your company and having Kid Rock do a rock concert in your back yard.
Small/cheap units like this also don't support industry standard features like Mas locks or other one-time-combination locks to allow third party security and cash replenishment organizations to service them. [0] A used Mas lock (or its equivalent) will run you at least $500 and newer units are easily over $1,000 [1]
I'm speaking as a former ATM technician.
0 - http://www.kaba-mas.com/kaba-brand/products/366024/cencon.ht... 1 - http://www.jmacsupply.com/Kaba_Mas_X09SRD00FZJEZ1A_p/KABA-MA...
Instead of making the entire unit expensively heavy, we opted to provide a way to bolt the unit onto something else, via 4 thick screws on the bottom of the unit with a heavy mounting plate, and supply that with purchase. That way, the ATM is either portable (a lot of people like to take them to Bitcoin meetups or swaps), or you can optionally secure it to something very difficult to steal. That way, you get a choice.
If the unit is removed from the wall, the unit detects that it has been powered off and locks the system, requiring the operator password to unlock it. It's not perfect security, but it's pretty good.
Skyhooks don't have protection from Denial of Service attacks from God yet though, unfortunately: http://www.coindesk.com/arizonas-first-bitcoin-atm-struck-li...
hash_pbkdf2('sha256', $password, $salt, self::ITERATIONS, $saltSize, true);
where self::ITERATIONS is 500. That's extremely low.
Furthermore, they're using CBC mode encryption for the 'config' file rather than an authenticated cipher. The only 'authentication' there is is whether the file inflates. Because the IV is in the encrypted file (and I can pick any password), I can make the first block decrypt as anything. Depending on when gzinflate throws an error, I could potentially make the decrypt succeed with just control over the first block.
Neither of the issues is (in this case, because it's 'just' the config file encryption) probably anything to especially worry about, but it does show that other, more critical, parts of the codebase might not be up to snuff.
I have the feeling that Jordan knows exactly what he's doing. The amount of $20,000 is a lot but it's not that much once you start to hire lawyers and file a suit or go into arbitration. Sounds like he's stringing them along waiting to see how much more cash they're willing to invest to recoup that $20,000.
Even worse Jordan might be setting himself up for a settlement of less than $20,000 where he keeps some of the money but knows it's a better offer for Andrew and Rajiv than hiring lawyers.
Been there. Done that. I'll never look at a purchase or legal document the same again. Jordan's got the upper hand here.
I'd say they are just on the verge of bankruptcy and probably have similar experiences with other customers and just attempting to string them along enough that they can keep going.
Not to excuse him, but this sounds exactly like a business noob who doesn't know what he's doing. He started on dreams and bluster, somehow got people to send him lots of money up front, and now is discovering that starting a company is actually hard.
The first test most businesses face is being able to talk a good line. But that's not the last test, so it's pretty easy for fast talkers with no real skills to get in over their heads. And I think they really don't know what idiots they are, because they've grown up being able to talk their way out of their problems. Turns out actual customers (and the Reddit rabble) are not as forgiving as their moms.
When customers are treated unfairly and dicked around, they post stories on HN and Reddit. Good luck trying to manage your reputation from there.
Andrew: has no money
Jordan: has all the money
Which side were you saying is losing again?
His investors.
Not if someone breaks his hand first with a baseball bat.
That being said, it doesn't really surprise me that people with that poor of a user experience have poor customer service.
What is it about the bitcoin market that seems to attract less-than-ideal business practices?
Really, this story does totally suck for you guys but there should be absolutely zero trust or respect for anyone selling anything related to bitcoin at the moment. You're just begging to be ripped off.
out of interest, what was the expected ROI? I mean, you sunk $25K into it. even if you were charging 5% fees - you would need half a million in transactions to break even, and that isn't including the monthly rental fee for the location.
is there really that big of a demand for BTC in a pub?
As a side note, I just realized BTC may become a really good existence proof for Piketty's r > g proposition, though one probably can't extend that idea out to economics in general because bitcoin is so weird.
I have no idea why one would buy a Robocoin machine when there are a number of evidently superior alternatives.
When Butterfly Labs was scamming people over so long a period, it was difficult to mention them without a flurry of negative personal anecdotes coming your way. Is this also the case with Robocoin, or is this an isolated incident?
The existence of positive reviews and relative lack of negative reviews.
> We’re prepared to take legal action, but we figured we’d give Jordan a taste of internet justice first.
IANAL but, I don't think you're helping your case by seeking internet justice.
Second, applying public pressure to get his refund is much better than going to litigious way, unless he seeks damages too (which I believe he doesn't - just wants his refund back).
If Robocoin is still making money, this bad PR might go against them for just a bit, but their "success" with others will pass on via word of mouth.
If acting like kids on the Internet has worked well for others in order to get their own back, someone should write up a pretty medium article outlining a proper way to do this for any company.
There isn't enough punishment when it's all based on false information. In fact, there's none. If I was the target, I would be personally ruining the lives of the people that started it. It would be my moral imperative.
look at what happened with notch and minecraft. Silly children that couldn't get their own way decided to get the masses sending him shitty and hateful messages, which eventually led to his quitting/selling to microsoft.
If I purchase this with my credit card and don't get the product before the price goes down, I have the option to cancel the order or get the lower price. If the product gets stuck in RMA or support is not as promised, I can chargeback.
The 'advantage' of bitcoin is that now I have to deal directly with the vendor, who is not my advocate.
Updates are issued but they are typically on CD-ROMs from the software vendor, and unless the tech servicing company is going out on a monthly basis the machines are not patched or current. It was not uncommon to tack on 6 different upgrade disks to a maintenance call because that machine hadn't been patched since last year.
(It actually reminds me of how mobile customer service call centers repeatedly, obnoxiously apologize, to the point where they seriously degrade the service. I would much rather a person help me than waste time apologizing to me.)
It's the repeated false promises and claims he makes in his e-mails that create this impression, for example the quick refund. A serious businessman only promises this if he can make absolutely sure that the customer will get it (and it doesn't matter that he wrote "we hope to ...", it's a clear message). I've also read Jordan's reddit posts, sounds fishy as hell.
https://www.dollarvigilante.com/blog/2013/5/2/my-official-wi...
It's not going to be government regulations that kill Bitcoin, its the associations with illicit drugs, child pornography, and dishonesty of vendors like Robocoin.
Unfortunately, Bitcoin has attracted more than its fair share of scammers -- in part because the core community was at one time pretty naive -- but it's also full of honest people who are attracted to Bitcoin for ideological reasons, and fellow technophiles who are happy to engage in honest commerce with other people.
For people who are attracted to Bitcoin for ideological or technological reasons, mass adoption would be nice, but it's not as important to us as it is to the massive wave of "to the moon!" speculators who came in last fall.
It seems to me though, that due to bitcoin's relative newness and grey market status, you're going to see a lot of scammers and bad businessmen related to it. It's high risk in that sense, and you need to do your research. Give it time, and the bad business practices will be weeded out, and stability will come. This is the pain of early adoption.
It's just a matter of people realizing that fact, and re-acting accordingly. Be more cautious, perhaps come up with some sort of novel organization to fill this need, even.
http://www.ftc.gov/news-events/press-releases/2014/09/ftcs-r...
(Butterfly Labs)
"Hey [omitted], http://www.reddit.com/r/Bitcoin/comments/2jakg4/the_great_ro...
It was really poorly handled. I take full accountability." -Jordan
http://www.reddit.com/r/Bitcoin/comments/2jakg4/the_great_ro...
Sorry kid, but by you letting the situation escalate to this point shows me that you have no place in the business world. I really hope your company sees how poorly you've handled this situation and removes you from it.
Would that all of theme were this blatant and easy to identify.
But let this be a reminder that you should never pay the full amount up front.
Hope you will get in court with that smarmy Jordan Kelley.
That guy Jordan deserves to be brought in Justice.
2. Expecting to pay $25k and pressing a button and then making $2k per month for eternity is NOT wise.
Robocoin didn't do what they promised they would do, or did it badly. Therefore, A&R are not required to uphold their end of the deal - in fact, if they are willing to take the matter to court, they are also entitled to get a compensation for all the extra money they lost.
So even though the contract specifies "no refunds", that contract was broken by Robocoin, and therefore A&R should indeed get their money back.