no… not the TA kind.
Another day, another fun filled piece of OK Coin drama. Luckily we are just reporting on the actual events taking place, because we couldn’t make this shit up if we tried. When we left off, OKC had fired the last shot – presenting their research from Ben McGinnes to the public. We tried to give OKC the benefit of the doubt with this, knowing that the hole they won’t stop digging will eventually cave in. But as Vitalik Buterin quickly pointed out, their attempt to sweep the issue under the rug, has significant flaws:
My primary technical concern with the report: I am highly skeptical of this idea that it is “not possible” to manipulate timestamps. Particularly, the way I would do it is by shutting off internet access, maybe switching to a fresh linux installation, and setting the system time to whatever I want before making the document. Maybe not grandma, but uncle Bob could certainly do it; very few technical chops required except to realize that the steps are necessary in the first place. Why would that strategy fail?
As CZ later states:
The fact that OKCoin paid $20,000 USD for this “analysis” demonstrates the level of quality in their “proof” or “evidence”. It may also show a sign of desperation and/or stupidity. I am not sure which.
A few hours ago, CZ came forward with a full statement on Reddit. CZ’s post pastebin is here, in case that is deleted. Although he has interjected intermittently, CZ has chiefly remained silent on the issue (the only person at OKC to act like an adult, and he isn’t even working there anymore). We don’t blame him for coming forward today though, especially after his personal reputation was dragged into this as he was accused of forgery (a very serious crime).
CZ starts off by admitting a slight misstep on his part, something OKC has never done throughout this situation.
I made the mistake of using a simple gentleman’s agreement as the contract. Roger and I are friends. We have enough respect and trust for each other that we both thought a simple gentleman’s agreement would suffice. I did not expect OKCoin will delay or default on payments of $10k in size. For this I apologize. I also did not expect OKCoin would not pay my salary for the time I spent there.
This answers some of the questions that Reddit users had posted, as the contract did not specify venue, or have other legal nuances that a typical contract will include. Regardless, a contract is a contract, and should be honored under any circumstances.
CZ makes claims that OKC forged his signature on bank documents after his departure and hacked/gained access to his QQ, but these are unsubstantiated as of now. The following claims have also been made by CZ, and we feel that they are important for the bitcoin community to take in. We still don’t know if these claims are 100% true, but coming from a former employee (and others), smart traders should be able to form their own opinion. It is interesting how CZ refers to the database admin as “funding”, inferring that OKC may have some financial inconsistencies. The “fake volumes” portion is no surprise to most bitcoiners, these allegations have been ongoing for over a year.
Bots
I can confirm OKCoin runs bots on their exchanges, under instructions from Star Xu. These bots are managed by Chen (business and operations), Yu (programming), Wang (database admin, “funding”). Many employees and ex-employees of OKCoin are aware of these bots. I will not name them all here.
Fake Volumes
I can confirm some of the above bots are designed to pump up volumes. During certain periods, these bots have also been used in a manner to create orders that will only trade against themselves, not with user orders. This mode of operations was strongly resisted by even Chen and Liu (programming, matching engine), but Star Xu insisted on executing it.
Fake Proof-of-Reserve
I can confirm OKCoin removed a number of accounts (used by OKCoin bots) to pass the Proof-of-Reserve audit in Aug 2014. In essence, these bots trade on fractional (or fictional) reserves. Stephan Thomas was lied to during the audit. This is an unfortunate limitation of the proof-of-reserves method.
As a side note, Stephan Thomas specifically did not want any compensation for his audit efforts. Before the audit, OKCoin offered to make a donation in his name to a charity of his choice. He named a charity. After the audit was carried out, OKCoin never made that donation. Zane is aware of this. In fact, Zane followed up with Star several times after the fact, Star refused.
What the fuck is so difficult about OKC providing us with SOME proof of reserves? All they keep referring to is this shitty blog post (more on this later), which proves NOTHING. Let’s take a look at Kraken’s policies? Their extremely thorough policies are outlined, in detail, and even shortcomings are presented to their customers. And what is this about future audits being performed in a manner that should satisfy their customers?
We intend to perform regular audits on an ongoing basis. Since there is no universally trusted auditor, we may use a different auditor, or multiple auditors each time. This satisfies those who may doubt the credentials of a particular individual auditor.
They then walk through the steps to verify your individual account balance. As they note themselves, their audit isn’t perfect, but its pretty damn close. BRB while we go find Star’s mom to verify the OKC cold storage.
There have been unsubstantiated claims on Reddit that OKC never actually received the investments that they claim. Again, these rumors have NOT been proven true (yet), but a person can start to put the pieces together themselves if they wish. Pastebin of those rumors is here.
Edit: It has been confirmed that some of the above rumors are false. Mandra, Ce Yuan and VenturesLab have made investments in OKCoin.
And from CZ’s post today:
Opaque Financials
As the 2nd largest individual shareholder in the company at the time, I was never allowed to see a bank statement, even though my name is associated with several bank accounts of the company. In Jan, I asked strongly to see the bank statement where the VC investment money transfer was received, I was denied. I left shortly afterwards.
As many were curious before, this is the meaning of “different directions”. I could go on for a while. But will stop here. I feel sad we had to come to this.
We knew that a post from OKC would soon follow (in their typical fashion). Not long after, one popped up: OK Coin’s post (presumably Star) is here, in case that is deleted. This post appeared only 5 hours after CZ’s, and contains a considerable amount of text. One would guess that OKC began this post almost immediately after they saw what CZ had posted, and then released it to the world (and edited it). Let’s think about this for a second. The “leading global bitcoin exchange” should probably have their PR people write anything which represents the company, which should be sent to their legal department (which should be fluent in both English and Chinese) and then it should be approved for posting. That is, of course, assuming that its proper business etiquette to take anything like this into the public forum. Wouldn’t it be more appropriate to have an OKC lawyer post something if they felt the need to address the situation publicly?
The first part of OKC’s post is their same bullshit before about the video. Guys, no one cares. Next, they start attacking CZ and his skill set. Let me get this right OKC, you are telling us that a guy who has been using PGP to sign his e-mails since 1998 has no technical know how?
OKC mentions the following:
OKCoin has always had suspicions that CZ betrayed the company. Would you write a contract where the other side could cancel the agreement at anytime while you could only stop the contract after 5 years? Would you put yourself in a position where you provide resources to develop the website to only be taken away by Roger at anytime?
Given the conduct of the company throughout this matter, it wouldn’t be surprising if OKC knowingly entered the contract. They clearly don’t have their shit together management wise, and the first half of this post where they unprofessionally attack CZ as OKC is just more evidence of that (and how childish they are). Regardless of what an individual says, a company must take the high road.
On to OKC’s responses of CZ’s allegations:
OKCoin even offers a paid service to help high frequency traders by setting up co-location for our customers.
WOAH. MAJOR RED FLAG. As if the situation they already put themselves in with this contract isn’t enough, why the fuck would anyone trade on this exchange knowing this information? For more information on co-location:
This practice is known as collocation, and it’s employed by nearly every exchange in the U.S. For a fee, trading firms are allowed to place their trading computers in the same data centers that house an exchange’s computer servers. With sophisticated models built into these trading computers and little oversight on the exchange itself, the computers are almost guaranteed to be the first on any order should they choose to act on.
Wall Street Journal – Colocation: The Root of All High-Frequency Trading Evil?
HFT’s big advantage is co-location or speed which helps keep their bids and offers at the front of the order queue.
Fobes – High Frequency Trading: Is It A Dark Force Against Ordinary Human Traders And Investors?
This week, New York Attorney General Eric Schneiderman is expanding efforts to “shine a light on unseemly practices that cater to high frequency traders at the expense of other investors.”
Among them is the practice of allowing high frequency traders to co-locate their machinery in the exchanges, giving them a latency advantage over other firms outside those datacenter walls.
…
Schneiderman detailed several of the products and services that high frequency traders use to gain competitive advantage. These include early access to proprietary data feeds, which are faster and more accurate than what is publicly available, as well as co-location practices that allow firms to house their servers inside the exchanges.
Enterprisetech – NY Attorney General Cracks Down On HFT Exchange Co-Location
OKC claims that they do not use any “bots” of their own, but what is the wood chipper then? Do they pay some tweaked out Chinese guy to sit there and click the mouse really fast to clear margin calls?
CZ does not understand what an audit is? Well then, as a C level exec of the company, shouldn’t he be clued in? Sounds like OKC doesn’t know what an audit is, because they haven’t actually shown us anything since August 2014 (with no evidence). Take some notes from Kraken’s audit process above guys.
Regarding the cold wallet, WHY do you keep pointing us to that pos blog post? Words mean nothing, show us the public key. This is one of the three questions from shitcoin that OKC has still not answered.
After the recent BFX hack, users were able to track this wallet and this wallet to their cold storage. That is over 200,000 bitcoins, where are yours?
Moving on:
OKCoin is currently withholding CZ’s January 2015 and February 2015 salary due to the following reasons:
a) We are currently still in the process of transferring CZ’s ownership of our international entities. Once CZ has been removed from all documents, we can release the rest of CZ’s salary.
b) CZ until now, has not returned company property including the MacBook he was given.
c) CZ has not explained his forgery of the v8 contract.
…
However, since OKCoin pushed CZ out, OKCoin still agreed to pay his wage for January 2015 and February 2015
OKC admits to withholding CZ’s salary, and admits that they agreed to pay it.
a) One of your international entities? What, like the one in Singapore that doesn’t exist? This brings up another one of the 3 questions that shitcoin has for OKC which has not been answered yet. Can you please outline your corporate structure.
b) Maybe he isn’t giving back the company property until you pay him? You owe him $40,000 USD, that’s more than most American’s make in a year.
c) This just sounds like you are asking for ransom now.
Finally, OKC addresses something we have been inquiring about (kind of, they don’t answer any questions though).
OKCoin’s lawyer Li Ya Jun’s contact information can be seen on our website.
Heading over to the OKC website, he is now mentioned:
But why are we going to take their word for it. As we have seen with OKC, it’s always best to check sources. A quick use of the old Google machine brings up the following law firm: http://www.jingzelaw.com/index.aspx
Heading over to the partners tab, WHERE IS HE!!!
We wish that it just ended here and we found out that OKC is lying, but the actual truth is much more humorous. Some more searching lead us to this page – http://www.jingzecn.com/page/369.shtml
which appears to be some kind of mirror of the other site. Li Yajun can be found on this site, but we’ll get to that in a second. From the firm’s about us:
Our firm is made up by a group of expert-style lawyers
Excellent, a group of expert “style” lawyers. We know this is just nit-picking at a language difficulty, but we can’t help but laugh.
Finally, we come across Li Yajun. Yes, he is a partner… but look at his expertise and prior work experience. Quite the resume, but not who you would expect to represent “the leading global bitcoin exchange”, which should be considered a financial institution.
It is clear that Li Yajun does exist, and that he is a lawyer, but this just opens OKC up to more easy bashing. If you are the “leading global bitcoin exchange”, wouldn’t you go out of your way to find a legal team who is well versed in cryptocurrency? Roger, as an individual, did so. I would hope that the “leading global bitcoin exchange” would have more resources dedicated to legal and compliance than an individual.
So, in the end, we still have 3 questions for OKC which haven’t been answered:
1. Can you show us your cold storage wallet and proof of BTC(XBT) reserves?
2. Do you have an English speaking lawyer that is interfacing with US authorities, to ensure that OKC is in compliance with US regulations?
3. Can you please outline your corporate structure for the community.
To all OKC traders who aren’t reading the writing on the wall. We are sorry for your future loss.