Yet Another Sketchy Bitcoin Exchange Implodes

Goodbye, Mineral.

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May 15 2015, 6:20pm

Image: Flickr/Erik bij de Vaate

There's a good reason why cryptocurrency entrepreneur Josh Garza is most often described as "embattled" in the press. Not a month after PayBase, Garza's exchange for the cryptocurrency Paycoin, shut down unexpectedly amid allegations of scamming and fraud, another exchange associated with him has announced that it will close for good on May 22.

The message to users? Withdraw your coins now, or forfeit them.

Mineral, the exchange in question, was launched in April by a developer named Phil Vadala as a way for people to exchange Bitcoin for Paycoin and vice versa. After PayBase's sudden closing, Garza widely promoted Mineral as an alternative for customers, and called it the "evolution" of PayBase. Garza's company, GAW Miners, is currently the target of an ongoing investigation by the US Securities and Exchange Commission, which led some users on Reddit's /r/Bitcoin subreddit to speculate that Mineral was a scam aimed at making off with its users' coins.

"This guy is a complete cancer for cryptocurrency as a whole and now that he's abandoned his failed Paycoin scam, he's back to our turf to peddle another scam," one Reddit user wrote in April.

An email sent to users by Mineral, posted to /r/Bitcoin, implied that Garza's association with the exchange is the reason for the shutdown. "Due to unforeseen circumstances surrounding serious allegations and the on-going investigation and litigation with an internationally wanted individual associating them self [sic] with Mineral International we would like to advise that Mineral crypto-currency exchange and services will be shutting down," the email states. Mineral confirmed the shutdown on Twitter.

The user who posted the email speculated that an exit scam—when a cryptocurrency exchange or darknet market disappears with all of its customers' Bitcoin—may be underway. This seems unlikely at the moment, since Mineral users are being given a week to withdraw their coins, but exchanges disappearing overnight, along with everyone's funds, is an oft-retold tale in the world of Bitcoin.

In 2011, prominent Bitcoin exchange Mt. Gox shut down with users losing thousands of dollars in the process. Since then, a formal claims process for those who lost money has been instated. In the same year, a theft at MyBitcoin, an early wallet service, saw users collectively lose more than one million dollars.

Initially, Garza insisted that his only interest in Mineral was that it was a "a good place to refer paybase customers to," and that his main contribution to its development was "feedback." But a series of posts on the HashTalk forums (offline at the time of writing) by Garza and Vadala in May reveal the two had significant dealings related to Mineral, which may have contributed to its closing.

A post on May 4 by Garza states that GAW Miners provided Vadala with 15 Paycoin network nodes to start Mineral, and planned to give him a monetary loan. "This loan was to pay for the development of the platform and to bring these features to Paycoin holders," Garza wrote. In a response posted on May 5, Vadala confirmed that nodes were provided for the development of Mineral. But that's where the agreement between Garza and Valada ends.

According to Garza, Valada reneged on his agreement and has made off with the nodes from GAW Miners while abandoning Mineral. Posts on Mineral's forums indicate that the exchange was not working, and that users have been without support, since at least the beginning of May. According to Vadala, Garza himself didn't follow through on the promised monetary investment of $50,000 and development support, hence why he's claimed ownership of the network nodes.

Neither Garza nor Vadala have responded to Motherboard's request for comment. We will update this post if we hear from either of them.

UPDATE 05/15: Josh Garza has responded to Motherboard's request for comment on Mineral's closing via email: "Hi Jordan, I have not stayed up to date with what they are doing, so I can not comment."