This is the story of a website that offered a service. The service started out being rather good, it later turned shitty, and now there seems to be no earthly way the the continued operation of this site is not a scam. Let's look at the most recent public statement by the site's operator:
Important update on status of payouts:
We realize many of you are panicking and I am here to update everyone on the current status of payouts and hopefully ease some tensions.1
As you know,2 about one month we realized investments were calculating the wrong profit amounts. While fixing this issue over the next two weeks, the large number of cash out requests while this was on going quickly tapped out the small amount of BTC kept in our hot wallets.
What you do not know, is when we went to recover the majority of site funds from the thousands of addresses in cold storage, we were unable to recover the wallet files.3 In hindsight, it was a bad idea to not let everyone know about this at the time, but we did not want everyone to think their BTC was gone forever.4
Over the past few weeks we worked on recovering the wallets hoping that this problem could resolve itself quickly. Days and weeks went by and we were still unsuccessful and users became much more impatient waiting for their payouts. However, I am happy to announce that we have now recovered one wallet, and it looks like we will be able to recover all of them.5
Payouts will now be resuming and as more BTC is recovered all pending bets and investments will be sent out.6 We will be going through the list of missing payouts, or you can PM us the info and we will make sure it is processed asap.
BitcoinSports never was, is, or ever will be a scam.7 We will never run with your funds.8 We would not continue to update everyone if we did not have every intention of making good.9 We will continue to keep everyone updated about this at a much more frequent rate.10 We apologize for the lack of communication, it has been a stressful time for our users and our staff while we resolved this and we thank you for your patience.
The first thing to get out of the way is that being unable to pay obligations whether due to technical ineptitude, theft, or you just decided you wanted to keep the coins is a scam in the Bitcoin space. The footnotes interspersed throughout the quoted posting establish why BitcoinSports.eu is now a scam. Let us get back to the story of how they got there.
Back in early 2013, when I was new to Bitcoin and rather naive I had seen the glory of accountless gambling sites as exemplified by Satoshi Dice and BitBet. With BitBet I discovered I really like betting on event outcomes, and though it would be sweet if they offered a lot more sporting events to bet on, but they didn't. Being younger and more naive I thought if I could find accountless sports betting books to play my Bitcoin on I'd have a blast. At the time I found exactly two accountless Bitcoin sports books.
The first and older of the accountless sites went by the name BlockBet.net and closed up shop after a whopping three months in operation. They took bets on sporting events from January 12th, 2013 through April 20th 2013 and closed up shop on April 20st after someone won 172.1 BTC and seemed to have broke their bank. The way their site was structured this outcome seemed inevitable. They nominally had a maximum limit of a 10 BTC bet, but when the procedure for entering a bet is send Bitcoin to this address to bet on this outcome at these odds enforcing such limits is an impossible task. Other structural problems exist with their format that would have made this eventual outcome seemingly inevitable. When the effort you expend as the house is simple to publish a betting line and an address and then pay the winners after the event, you deny yourself the opportunity to manicure lines to attract even money on both sides. Fixed odds are a recipe for disaster and force the house to become even more the gambler than their patrons are.11
In contrast the other accountless site BitcoinSports.eu introduced things like Betting Slips,12 reasonably low betting limits, and odds that updated throughout the day before the event creating the impression that they were getting bets matched. For the first few months I used their service rather enthusiastically. It worked as promised. Payouts were very timely. After a few months though the payments started slowing. As they started slowing I started using them less. By June and July I'd reduced my use to odd bets I couldn't find other places. Before the end of the summer I'd begun recommending people against using it.13
Then on August 20th BitcoinSports.eu introduce the "Invest" "Feature" explained below.
Investing in BitcoinSports bankroll is now available!
- Invest and receive a share of the site's profits (or losses) from each bet, based on your investment's percentage of the entire bankroll
- 15% commission charged on net profits when your investment is cashed out, or each Sunday at 11:59 PM EST, whichever comes sooner
- The max profit of each bet is 1% of the site's bankroll
- Detailed statistics are available including total invested, wagered, profit, and number of bets
- A list of all graded bets will be made available
How to invest:
- Click "Invest" on the Invest menu
- Send your investment to the given address within 2 minutes
More detailed information will be available here and on the website very soon!
Other ventures in Bitcoin have adopted similar backing measures to varying degrees of success. The ventures that have had some sort of success with this backing structure like Just-Dice and MPOE bonds is that the successful things don't have this mechanic tacked on to a service which had been slowly declining in quality for months.
As soon as BitcoinSports.eu started taking "investment" the quality of service they offered to gamblers dropped even further. What were delays in payment of winning bets that only occasionally stretched to a full 24 hours became standardized multi day delays. Against my better judgment I'd placed a couple of minimum bets and when they won waited an agonizing 3 to 4 days for payment.15 I started feeling really uncomfortable about the couple futures bets I made in July, and removed BitcoinSports.eu from my betting workflow for the most part forgetting it was a thing. I kept tabs on their solvency until December when my last outstanding futures bet there was a loss. An earlier prototype of this post was actually drafted for the contingency that I would have won on that betting slip. Their forum thread is full of complaints similar to what that post would have been though.
- For a number of people the panicking began on August 20th, 2013 when they began taking investments to back their bankroll. From that day forward their payouts on bets had slowed considerably and marks the time I stopped considering them as a provider for my betting desires. It was also about a month before this blog started so I couldn't make a timely post. Instead of the timely post though you now get a postmortem. [↩]
- This is a poor use of language. More correct would have been something along the lines of "As we stated earlier." No one knew in the sense of having information that they could confirm conformed to reality. All that was out there previously was an announcement from an operator who had been becoming increasingly unreliable for months. Such things aren't the sort of knowledge that can be known and the pretense of unreliable operators to suggest anything to the contrary implies malice that is greater than mere non-payment implies as it suggests they still view their operation as one that people should keep feeding Bitcoin into. [↩]
- In the fiat world people implement backup schemes without practicing restoration from backup all of the time to great pain. One would think that in Bitcoin where data in the form of private keys represents the right to spend corresponding money a person would make sure that they could actually recover backups before staking other people's money on their "expertise" but even they most charitable reading of the excuse they want to sell for their insolvency ought to make it such that no one should continue business with them. [↩]
- If it isn't clear from the other footnotes, any outcome other than gone forever should still necessarily include no longer continuing to fund or patronize this venture. [↩]
- Recovering a cold storage wallet is not and should not be some forensic adventure spanning weeks for the person who should have control of the wallet. Weeks should be an inappropriate measure of time for this task unless physical security measures like placing your hard drive in a landfill for storage are what is forcing weeks. [↩]
- In the time between this quoted forum posting and this blog posting, a span which can be measured in weeks it does not appear that they have actually been paying things. [↩]
- It's non-payment makes it a scam, because that is just how things work in the Bitcoin space. [↩]
- All things considered, them having ran with the funds is the most likely reason for their non-payment. [↩]
- It has been noted that this would not be the first time a scammer had continued providing sporadic updates on their money disappearing service for the simple reason that continuing to communicate increases the likely hood that suckers will continue to reward them for their delinquency. [↩]
- Once again this was their last communication in weeks, plural. [↩]
- This is in stark contrast to mutual betting as exemplified by BitBet where the pot of money on both sides defines the odds. Line betting to work requires a house with a healthy vig and bankroll along with adjustments to the new lines offered to new bettors on the event so that the hour can protect its vig and bankroll. Someone who hosts line betting without all of these per-requisites is not the House in any sense of the term. What they actually are is a problem gambler. [↩]
- So you would have a receipt for bets you placed. This also mean instead of everybody betting to the same address every bet got its own address. [↩]
- For the record the site I use now for bets I can't find on BitBet is BitBook.biz which shares many of the same hazards as the line betting sites mentioned in this post. It is a site with accounts where users can keep running balances though, which introduces the hazard by which they could be operating a fractional reserve scheme for some time which could go unnoticed until they become incapable of covering withdrawals. Just because I'm comfortably playing small amounts of Bitcoin there doesn't mean you should be too. Read more and learn what sort of risk you are comfortable taking on and learn how to price it for yourself. [↩]
- Link removed because scam [↩]
- The agony comes not from the potential loss of value so much as from the potential outcome of having further strengthened a scam. [↩]