Something is Rotten in the State of OKCoin

May kind of closed out as another “mensis horriblis” for the Bitcoin ecosystem. The Silk Road founder Ross Ulbricht was sentenced to life in prison for running a billion dollar anonymous black market for drugs. The other blockchain shaking news was the eruption of the scandal regarding OKCoin, the China-based exchange that we were all led to believe had the largest volume.

The OKCoin soap opera emerged when leading Bitcoin evangelist Roger Ver called out OKCoin for deception. He publically revealed that his signature on the eighth version of a contract with OKCoin for the Chinese run exchange’s stewardship of the Bitcoin.com domain was forged. Ver provided “mathematical” evidence that he had not signed that particular version of the contract. Cointelegraph had a great interview with him.

The agreement allowed OKCoin to license the Bitcoin.com domain name for a fee of US$10,000 per month for a contract period of 55 months. OKCoin’s plan was to simply run advertising on the domain.

However, OKCoin was either having trouble selling the ad space on Bitcoin.com or was having some financial problems, as they were not paying Roger Ver what they owed him on a monthly basis.

Provided by Ver, here is an email chain of communications between Ver and OKCoin regarding the fact that OKCoin was not paying the licensing fee for the Bitcoin.com domain. https://imgur.com/a/DabzS

Since February 2015, Ver was trying to get OKCoin to pay for the licensing of Bitcoin.com. If you look at the correspondence, you will note that he is quite patient and cordial with them, but not having much success. The email exchange would be amusing if Ver weren’t out of pocket. Ironically, Ver had been a big supporter of OKCoin, even using an account with the Chinese exchange to buy bitcoins.

For Ver, I think the correspondence went from frustrating to mind-boggling. By mid-May, OKCoin CEO claimed in the email exchange that the latest contract with Ver’s signature on it gave them the right to terminate the agreement with six months’ notice. In response, Ver provided cryptographic evidence that his signature on that particular version of the contract was forged.

Then in the exchange, Xu accuses former OKCoin CTO Zhao Changpeng of creating the forgery. Zhao is close friends with Ver and left OKCoin suddenly in early 2015 along with the rest of the international team.

Zhao responded by not only denying this but hammering Xu and OKCoin with a list of unethical practices including running bots on the exchanges to pump of volumes and removing accounts used by the OKCoin bots to pass a Proof-of-Reserve audit in August 2014. Zhao also implied that OKCoin’s cold wallet security was pathetic (private key’s held by non-technical family members), OKCoin employees were encouraged to trade on the exchange, and OKCoin’s true financials were kept from him, even though he was the second largest shareholder. Zhao’s public statement describing the dodgy behavior is here on Reddit http://www.reddit.com/r/Bitcoin/comments/37u6ca/okcoins_response_to_czs_lies_and_desperate/

Xu/OKCoin fired back by accusing Zhao of forging the version 8 of the agreement with Ver, falsifying his “Internet technology” experience, leaving Blockchain.info – his previous employer – over differences with its CEO, and lying about a potential agreement with another large Chinese bitcoin exchange – BTC China. That response was posted on Reddit here: http://www.reddit.com/r/Bitcoin/comments/37tm1b/czs_statement_regarding_the_dispute_between/

When these types of disputes spill out into the public, it does none of the parties good. If Zhao knew about OKCoin’s unethical and unprofessional practices, he should have come publically forward right away but maybe that is why he left.

On the other hand, Xu’s behavior, if true, just seems juvenile and disingenuous at the least. If you read the email exchange, Xu and his staff seem to try anything to avoid paying the $10,000 a month and the $550,000 value of the contract. For months, they don’t say anything about a termination clause. Their tactics included just not paying, demanding a contract re-negotiation, claiming they were not OKCoin (It is just a brand so contract means nothing?), using the Ripple fine (What the hell does this have to do with paying for licensing a domain?), and then using a forged contract. Based on all this, you have to wonder how sound OKCoin really is, how much volume they are really producing, and whether you should trust your money or assets with them.

The bottom line is that it is not good for the Bitcoin space as it is just the cowboy, Ponzi-like, shady practices that will turn the mainstream off.