The analogy below is a snippet from an explosive, outraged Reddit post about cryptocurrency popular exchange Cryptsy by user ProHashing. He is a representative of the company by the same name as his username, which is based in State College, Pennsylvania, United States and owned by the brothers Chris and Steve Sokolowski.
…imagine that you walk into a hardware store and see that there is a sale on a type of screw. […] Since they are so cheap, you say that you’re even willing to pay 1.1 times the sale price. […] You buy 10,000 of these 5 cent screws to use in building your new home. The cashier tells you that paying more than the sale price isn’t necessary, and that the store will just charge the normal price, so you give the cashier a credit card. The card rings through at the agreed price, and you leave. After a long day […] [you] log onto your bank’s website to balance your budget. You discover that, instead of paying $500.00 for all the screws, you were actually charged a half million dollars for a few dozen boxes of fasteners.
What makes ProHashing unique is that they allow the user to mine in or to be paid in any cryptocurrency – presumably any coin being traded at Cryptsy. “Choose to be paid in Bitcoins, Litecoins, Dogecoins and over 80 other coins, or have fractions of your income distributed across several payout coins,” advertises their rather professionally designed website.
His post details a recent trade incident his company had involving a BTC to MEC (Megacoin) transaction. In the post, he claims to have had to cover, out of his personal account, about $70 in losses suffered by his customers. To many, $70 may seem nominal, but when you’re a start-up, every penny counts, so it is easy enough to understand the frustration. However, according to the post, it is not the amount that matters (it is the customer service or lack thereof).
A Simple Matter of Automated Trading
To stay factual, what happened was that a user initiated a sale order of Megacoin at just seven satoshis, far beneath the 30-day average, and this price seemed to stick for far longer than the size of that sale order, and so, as you can imagine, a number of opportunistic traders began placing buy orders at this price. Why would a user do this? Ease of use, since Cryptsy’s system is supposed to sell and buy at the best possible price for the user. The problem for these users was that there were no such Megacoins available for sale. Not at that price, anyway. Cryptsy chose not to honor these prices and charged the users for the actual sale prices of the MEC they had ordered rather than refunding, reversing the orders, or otherwise affecting the people who were selling their MEC.
Again, the total in USD that is claimed to have been lost in this debacle is $70USD. Not $700 or $7000 (or far more) as some folks lost when Mt. Gox went down. (And the name Mt. Gox was certainly invoked in the comments on the Reddit post.) Perusing the comments on Sokolowski’s Reddit post, it sounds as if Cryptsy is a giant scam! To whit:
Don’t use Cryptsy. There have been constant problems and reports of fraud. End of story. Anyone reading this should use another exchange. –Reddit user wserd
The above comment received almost fifty +1’s or “ups” within 24 hours of the posting, which is considerable in such a flood of information as Reddit.
This reporter reached out to Cryptsy and received a quick response, the gist of which is that Cryptsy is covered by their terms and conditions in this instance, being that they did not design nor do they endorse the software that was used to make these automated trades.
In this users [sic] case his trading software pulled an erroneous order which happens from time to time on all exchanges, and placed trades against it. […] We do not endorse, nor will we be responsible for anything where 3rd party software is used. […] Users should build in a good series of checks for bad orders when automating trading. […] I highly recommend building checks into trading software for any exchange to validate the data before it places trades.
Yet, the Reddit post is almost apocalyptic in tone, and the comment feed seems to contradict itself in more ways than one. On the one hand you’ve got users claiming that it is a sort of sheep mentality that keeps big bad Cryptsy alive, and on the other you’ve got them piling on the bandwagon without asking some of the more obvious questions at hand. For instance, what assurances does Mr. Sokolowski have that the same sort of thing wouldn’t happen at Poloniex, too? Why did his software not build in some sort of check against other exchanges to detect off-the-wall prices – in most cases to benefit the sellers of coins, who wouldn’t want to sell for less than coins were truly worth?
Blame Where Blame is Due
The ProHashing complaint wraps up nicely with some hearty speculation:
The number one problem we have to deal with every day is customers who refuse to do business with us not because we have ever cheated them, but because every other mining company they have dealt with has ripped them off.
How does Mr. Sokolowski know that this is necessarily why people are not choosing to do business with him and his brother? Can he really blame the whole rest of the industry for slow business? Seems unfair, if not untrue.
The statement from Cryptsy finishes on a heartening note, however:
We are currently working with the user who created that post to find a suitable resolution to his specific problem.
This reporter assumes this to mean that ProHashing, a presumably large account for Cryptsy, will be satisfied by some means or other. The old adage might just apply: the squeaky wheel gets the grease.
In a statement made to CCN at 7:13PM CST on Sunday, Sokolowski denied that things were improving with the situation:
When we made our Reddit post on Saturday November 22 describing the situation and this support ticket, BitJohn replied to the Reddit post saying he would like to resolve the issue and wanted to get in contact with me. I sent him an email early this morning looking to resolve the issue, but I have not yet heard back from him.
Do hiccups in software like this shake your trust in exchanges like Cryptsy? Is Sokolowski crying wolf or raising a legitimate alarm for the rest of the community? Comment below!
The author has a Cryptsy account but is in no other way associated with the exchange, its owners, or any affiliates thereof.
Images courtesy of Pixabay, Pro Hashing and P. H. Madore.