The Dogecoin community is one of the friendliest around when it comes to cryptocurrencies, and I have yet to find a cryptocommunity that is as helpful to newcomers and as entertaining to veterans. So whenever anything bad happens there, it seems to feel that much worse. As many of you may know, there is a bit of drama brewing on the dogecoin subreddit.
What happened?
Considering that this is a rather recent development, I’ll do my best to provide a dispassionate account of what seems to have transpired without much speculation on motives and causation. Full disclosure: I am also affected by this, as many others are. However as any losses I’ve suffered due are fairly low and I feel that I can stay true to remaining unbiased in presentation of the known facts.
Dogetipbot appears to be dead, at least in its current form. News came as its creator submitted a lengthy post on /r/dogecoin outlining the situation. The balance of the hot wallet -the one that facilitates sending and storing coins of active users- was wiped. This means that anyone who had any Doge in their dogetipbot account has lost those coins. Its creator did say that they have recorded all account balances, though this does not change the fact that users do not have access to their funds.
How did we get here?
Dogetipbot’s creator made it clear that this was no hack. In fact, the hot wallet has not been hacked in the entirety of its existence apparently outside of individual compromised accounts. Due to a poorly performing business and a lack of new investment, dogetipbot’s creator made the decision to cash out the cold storage of the bot in 2015, the funds of account holders. All in all, between a $140,000 and $1.4 million worth of Doge was taken out.
The plan appeared to be using this funding to encourage new investment into the dogetipbot venture, then once they had secured that new funding the company would be able to purchase the coins back. Unsurprisingly, they were unable to secure the funding necessary to purchase and return to withdrawn Dogecoin.
By investing personal capital and credit into their business, dogetipbot’s creators apparently incurred an insurmountable level of debt. These circumstances -either in full or in part- contributed to the tipbot being insolvent. The company chose to file a Chapter 7 Bankruptcy, which can eliminate most personal consumer debts, while a Chapter 11 would have been more appropriate if it were the business that had incurred the losses.
So how was this running for 2 years after withdrawing from the Cold Wallet?
The creator and maintainer of dogetipbot said that they had continued to transfer every crypto asset that they had into the hot wallet so that people could still withdraw their balances. This can be seen as a kind of vaporware, not so dissimilar from fractional reserve banking. Finally dogetipbot’s creator seemed unable and/or unwilling to continue this practice, and we find ourselves where we are now.
Such Sad, Very RIP
So the fun and friendly cryptocurrency no longer has a quick and easy way to give each other coins over the internet. For me, this is particularly sad because I believe that reciprocity is the best way to grow communities and engender relationships. While some are saying they may try to come up with an alternative tipbot, we all may just be a bit burnt. Let’s hope this event has not exhausted all the trust of this great community. Any future tipbot would have to be far more decentralized.
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