Bitcoin Mining ASIC Company HashFast Granted Chapter 11 Bankruptcy

June 10, 2014 20:00 UTC

On June 7th, a US bankruptcy court granted HashFast a court ruling allowing it to enter Chapter 11 bankruptcy. HashFast had previously been faced with legal action and increasingly valid comparisons to fellow Bitcoin mining ASIC manufacturer Butterfly Labs (BFL). Just 3 months ago, I was standing at HashFast’s booth at the Texas Bitcoin Conference looking at a hashing machine, an honor many paying customers seem to have been denied. Things change in an expedited manner when it comes to the world of Bitcoin. In May, HashFast announced that it would “refocus” while letting nonessential (50% of total staff) employees go. This month, a court has now ordered that further restructuring is needed. As a result, HashFast is working with Katten Muchin Rosenman LLP for bankruptcy counsel and HashFast’s CEO Eduardo DeCastro has resigned. In the interim, Simon Barber is acting as both President and CTO, and Monica Hushen stays on as CFO. HashFast announced all this information via blog post earlier today. In it, they reassured creditors, customers, partners, and suppliers:


…Our focus is to reorganize the company in a way that provides added value to our creditors, versus a liquidation scenario that would be of less value…

…We will be sharing more specific information regarding our reorganization efforts over the coming days…

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[dropcap size=small]H/dropcap]ashFast is going down the road to bankruptcy due to demands for refunds from customers that began piling up once HashFast’s hardware started lagging severely behind that of the competition. Starting many months ago, many HashFast customers started demanding refunds under HashFast’s stated Terms of Service. HashFast and Hashfast customers disagreed on several points; namely, whether or not refunds would be issued in the payment currency and at what exchange rate. HashFast customers seeking refunds and those that have not received hardware yet are now officially creditors of HashFast. One company, LiquidBits, had a $6 million USD order with HashFast that it claims was never fulfilled. LiquidBits went to United States bankruptcy court to try and force HashFast to appoint a Chapter 7 trustee. Chapter 7 is a different type of bankruptcy proceeding than Chapter 11: The chief difference is the end goal of asset liquidation versus restructuring.

As one Bitcoin Forum member puts it:

Batch 1 and 2 at least receive something, but for batch 3-4 its really totally doomed.

Though some HashFast customers have gone as far as to accuse them of never intending to ship viable products, it is worth noting that some HashFast customers made money. A quick glance at the history books shows that even batch 1 (BFL) customers were able to make money. In the same way, the top layer of leeches in a pyramid scheme also usually see some return. HashFast’s financial troubles are finally calming down and hopefully restructuring will help reassemble the company and properly refund customers large and small. One could argue that HashFast might not be in such a precarious position today were the BTC/USD exchange rate as high as it was on November 5th, 2013. However, Bitcoin companies, especially, need to make conscious decisions to hedge against exchange rate risk: It’s just common sense. Companies that wish to raise funds using Bitcoin but aren’t prepared to properly handle Bitcoin, such as Mt. Gox, will wither away as closed chapters in the book of Bitcoin failures: a book that only has chapter 7’s, chapter 9’s, chapter 11’s, chapter 12’s, chapter 13’s, and chapter 15’s.

Last modified: June 10, 2014 20:33 UTC

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Caleb is a graduate of the University of Virginia where he studied Economics, East Asian Studies, and Mathematics. He is currently pursuing his MSc in Digital Currency at the University of Nicosia.