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FTC orders shut down of bitcoin-mining firm Butterfly Labs

A bitcoin-related company accused of falsely marketing specialised computers to mine the cryptocurrency has been shut down by the US Federal Trade Commission (FTC).

Filing a complaint earlier this month, the FTC claimed that Butterfly Labs promised computers capable of producing bitcoins, but often provided outdated hardware or failed to deliver the machines at all.

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Jessica Rich, director of the FTC's Bureau of Consumer Protection, said that it was common for scammers to exploit a new and little-understood opportunity like bitcoin.

"We're pleased the court granted our request to halt this operation, and we look forward to putting the company's ill-gotten gains back in the hands of consumers."

Bitcoin, which has gained prominence as an anonymous, untraceable and unregulated form of currency, can be obtained by purchasing it, accepting it as payment, or by a process known as "mining." This involves solving complex mathematical equations, which require greater computational effort as the number of possible solutions decreases. The amount of possible bitcoins is capped at 21 million, with 13.3 million already in existence.

Butterfly Labs marketed a cutting edge computer called BitForce, priced at $29,899 (£18,000). The FTC alleges that more than 20,000 orders of this device, alongside many others of a follow-up computer called Monarch, have not been fulfilled.

The FTC also said that the devices that were delivered were useless for their intended purpose, claiming that a company representative had labelled them as effective as a "room heater."

Butterfly has responded to the FTC lawsuit with disappointment at the "heavy-handed actions" of the commission, which it claims "has acted as judge, jury and executioner."

The company has hit back by claiming that it has fulfilled $33 million in orders and granted refunds of approximately $17 million to customers who cancelled their shipment.

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While agreeing to cooperate with the FTC's temporary shut-down order, the firm has scheduled a court hearing for 29 September where it has vowed to "defend our business and our nascent and promising industry."

Barclay has been writing about technology for a decade, starting out as a freelancer with IT Pro Portal covering everything from London’s start-up scene to comparisons of the best cloud storage services.  After that, he spent some time as the managing editor of an online outlet focusing on cloud computing, furthering his interest in virtualization, Big Data, and the Internet of Things.