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Paybase shuts down

The cryptocurrency exchange run by Josh Garza is closing its doors

by Kari Paul
Apr 3 2015, 3:46pm

​Hong Kong. Image: ​Laszlo Ilyes/Flickr

​​A couple weeks ago, customers of the digital currency platform PayBase, which provided a platform to trade the cryptocurrency Paycoin, started complaining that they couldn't get their money out of the site.

Despite assurances from PayBase's embattled CEO Josh Garza that the company was merely adjusting some security measures that had temporarily blocked withdrawals, speculation of a scam or pyramid scheme swirled in the company's forums, Twitter, and Reddit.

Now, PayBase—which served more than 10,000 customers, according to Garza—has announced it's shutting down completely on April 30, 2015.

Customers of PayBase reported that the following message appeared when they signed into their accounts this week:

Image: @TradesAce/Twitter

"We found we could do more for the currency by working with other companies and having them merge Paycoin into their forums," Garza told Motherboard when asked why the company shut down. "We never intended Paycoin to become its own world. We realize now it became that."

Some users are now reporting that they are able to withdraw their funds; others still say they are having trouble withdrawing balances from PayBase, which the company says will be forfeited 90 days from now if they are not withdrawn.

Meanwhile, PayBase's parent company, GAW Miners, is the target of an investigation by the Securities and Exchange Commission, fueling fears that customers and investors may not be fully refunded.

Motherboard obtained a copy of the letter sent from the SEC requiring GAW Miners to turn over information about the company's investors and customers who bought Paycoin.

Securities and Exchange Commission Subpoena of GAW Miners (Source: ​Coin Fire)

Garza did not comment on the ongoing investigation, but said it is "100 percent not related" to trouble withdrawing funds from the site and maintains that the company is aboveboard and committed to the cryptocurrency industry.

"We are still here," he told Motherboard. "Most scams involve an exit. You don't rob a bank and sit around to count your money while the alarm is going off. We are here because we want to make it happen."

What is Paycoin?

The paranoia of a cryptocurrency heist or collapse, which have become common with the rise of digital currencies, is not unfounded. There have been many examples of exchanges disappearing with users' money in the short history of cryptocurrency––the most well-known being the implosion of Mt. Gox, the most prominent Bitcoin exchange at the time. In 2011, a theft of around $1,1105,44 from MyBitcoin, a successful wallet service in the early days of the currency, led to its shutdown. A chronological list on BitcoinTalk.org counts at least 20 major heists since 2011.

Paycoin, which was introduced by Garza in a white paper in November 2014 and launched officially in December, is an alternative cryptocurrency or "altcoin." It is a version of peercoin, an early peer-to-peer currency inspired by Bitcoin and is based on a ​proof-of-stake system, meaning it is secured by users of the "shares" or coins, proving ownership of a certain amount of money.

Its launch was met by a lot of hype in the cryptocurrency world, sparking a speculative boom in altcoin trading, according to a CoinDesk report at the time. But as one detractor said, it "has yet to live up to the lofty expectations it has evoked among its supporters."

"A company as innovative and successful as GAW claims to be should take its time and reconcile the dishonest and antagonistic image it has earned for itself in the wider crypto community," he wrote.

Although Paybase is shutting down, Paycoin can be traded on several other exchanges, including Cryptsy, where it is traded at the highest volume according to CoinGecko, a cryptocurrency valuation website.

A growing notoriety

The fallout with PayBase isn't helping Garza's reputation.

One user made a list on the forum GetHashing of all the lies the company has supposedly told in the past, including promising a partnership with WalMart and Amazon, and the creation of a PayBase debit card. Another Twitter user noted GAW still never made good on its $20 Paycoin repurchase promise. At one point, animosity within the community became so much that in January, Garza was banned from the North American Bitcoin Conference in Miami after many said the allegations against him would damage the reputation of the Bitcoin community as a whole.

After PayBase announced it was shutting down, Garza began referring PayBase customers to a Hong Kong-based digital currency platform called Mineral that he says neither he nor GAW is affiliated with.

However, a Reddit user from Bitcoin exchange review site BitcoinX linked Mineral to Garza, pointing out that the it uses the same code base as Coin-Swap, an exchange recently acquired by Gaw Miners.

"Mineral is a clone of sorts, a re-branding of Coin-Swap to benefit Garza (obviously)," the user wrote.

"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 user wrote on Reddit.

"My God. He just doesn't give up scamming. Is he mentally deranged?" another user wrote. "He needs to be put away for a long time."

Garza had initially posted an announcement about Mineral's launch on GAW's Hashtalk forums, a statement he walked back in a followup post after users questioned his involved in Mineral's Hong Kong operations.

The exchange Garza is referring Paybase customers to is called Mineral.

"The only skin in the game GAW has is a good place to refer paybase customers to," he said in a post on Thursday.

"While Mineral announced itself, I choose to express my thoughts in a follow-up. I did this to both define some direction for Paybase customers and to create some viability for mineral. It seems that has been misinterpreted to mean more than what it did."

"I will no longer speak on half of other companies to prevent this confusion [sic]."

In a seeming contradiction, the next line is a reiteration of his support of Mineral. "So my feedback for mineral is a reference that you should give it a shot," he wrote. "I think you will be impressed with the development there."

When Motherboard first reported on the rumors that PayBase customers were unable to withdraw funds, Garza threatened litigation and posted Motherboard editor in chief Derek Mead's cell phone number on the company forum, requesting that users criticize the coverage.

Instead, Motherboard received information from two separate sources with knowledge of PayBase's operations alleging that PayBase parent company GAW Miners is under investigation by the Department of Justice in addition to the SEC.

When asked about a DOJ investigation, Garza gave a somewhat garbled reply.

"We have spoken to individuals that have previously worked at different departments, and have seen those accusations," he said in an email. "They have adamantly told us that the 'facts' being presented by these sources are fabricated and not reflective of the way these departments work."

He clarified in a later email that he believes there is no investigation by the DOJ.

Trouble with withdrawals from PayBase are due to security measures on the site that put accounts on hold depending on various factors, including changing IP addresses, to prevent fraud, Garza said.

"While it's kind of annoying, it's the reason we've never lost customers' coins," he told Motherboard. "We are a bit overprotective about letting people take coins out of the system. We'd rather it take longer than lose everyone's coins than be hasty and take out whatever they want to, than [let] someone's account be hacked."

Derek Mead contributed reporting.

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