Wednesday, August 20, 2014

Reinvestment of Crowdsale Donations (AngelShares AGS Part 2)

Last week I wrote about the AngleShares AGS Campaign.  A 200 day pre-sale where every day 0.25% of the tokens were handed out based on that days bitcoin (BTC) donations.  A similar sale was conducted in what were initially called ProtoShares (PTS), resulting in a 50/50 split between protoshares patrons and bitcoin patrons.  One interesting finding was that the "buy daily from one wallet" purchasing pattern was evident in the transaction structures.

Reinvesting Shares

This week I present what I think is the most relevant finding: individuals who received compensation from the campaign used that compensation to re-buy into AngleShares.  Sometimes one specific payout went entirely into the reinvestment.  I was introduced to this concern by reading this post on bitsharestalk.org while researching the original crowdsales.  This forum is kind of the bitcointalk.org for AngleShares, ProtoShares, and BitSharesX. You should read the whole thread before or after this blog post.  It's a fun one.

In that thread only one direct re-buy was posted. In my analysis of the blockchain I discovered 5 distinct distributions that resulted in bitcoin being re-donated to the campaign.  There were a lot more transaction paths between the two, but once a transaction chain goes through a tumbler it takes a bit more analysis to prove that either side of the connection could have been possible, and then more analysis to determine how likely that connection is.  And all but these 5 connections didn't pass a simple eyeball test because the excluded paths were tenuously connected by a small BTC transaction interior to a tumbler network.  I also stopped examining connections that were more than 9 transactions deep.  At that point I felt the likelihood they were no longer controlled by the initial receiver was too high to warrant analysis.

Syncad/Keyhotee

The first connected transaction I found was the most obvious.  SynaptiCAD, who according to the spreadsheets were the contractors responsible for a piece of software called Keyhotee, took their March payment and after a couple of months started buying angelshares with it.
Keyhotee 12 Mar 2014 distribution
This graph shows only the first two buys.  There were a total of about 12 single bitcoin buys in this buy daily chain, and about 41BTC remains unspent at the bottom of the chain from their last buy on 6 Jun 2014.  This one is the most directly connected buy.

Hypertas

The four other reinvestments came through a company called Hypertas, which according to the bitsharestalk thread is a company responsible for the payroll and payments for some of the operational expenses.  They have posted a spreadsheet detailing the individual withdraws, which proved invaluable in validating my analysis.

The first connected payment occurred on 24 March 2014.
Angelshares 24 Mar 2014 Distribution Partial Graph
Hypertas controlled and split the bitcoin until a retainer was paid to Stan on 2 May 2014.  Stan then proceeded to reinvest most of the payment.  On 7 May there was a transaction that sent 4 BTC to some other transaction that I am fairly confident was not related to an angelshares buy, but a total of 5.93 BTC was reinvested.

On 11 May a second connected payment started, and it involved two separate accounts according to the spreadsheet.
Angelshares 11 May 2014 Distribution Partial Graph
The left branch starting with the 7f86af transaction was attributed to a "admin retainer".  The branch on the right ultimately was payed out to Stan.  The transactions highlighted in blue include inputs not from this payout.  I'll come back to this later.  Stan also payed out 8.03 from this transaction to another developer working on infrastructure and services for BitSharesX.  Although it's not clear why it came from Stan's coins.

On 31 May a third connected payment started.  This contains the transactions in question in the bitsharestalk forum.
Angleshares 31 May 2014 Distribution partial graph
This graph had two external inputs as well.  The 686d96 transaction had input from what I appears to be a tumbler/mixer of some sort, such as SharedCoin.  The 40ee80 transaction includes about a half a bitcoin from the previous graph, attributable to Stan.  Again this graph shows multiple operations payouts. The left belonging to the admin retainer accout (which has coins mixed from Stan at 40ee80).  The second belongs to Cason, who invests their entire payment over three days.

The final connected transaction discovered is from 24 Jun 2014.
Angleshares 24 Jun 2014 Distribution partial graph
This graph is very simple compared to the previous two.  Stan received a distribution with which he re-invested the entire amount over 7 days.  There were no external inputs or outputs.

It's All Connected

The kicker for all of this, of course, is that it is all connected. If we load all the hypertas graphs together we get one large map of Angelshares buys where the sources come almost exclusively from Angleshares distributions, with two small inputs form a daily buy tree that originated from a tumbler output.  Some of the reinvested buy trees combine BTC from multiple distributions.

Composite Angleshares/Hypertas reinvestment graph
If you read the bitshares thread you will see, after wading through a legal story, metaphor, and a picture of a greek ship, that there is an important public statement form Stan:
As for recycling of AGS, we have said we would not do that.  Period.  We have also said that once we pay employees or vendors for their services, the money is theirs to do with what they please.  It does not surprise us that people working in this industry would want to donate some or all of their earnings to the cause and we have publicly encouraged this from the very beginning. [https://bitsharestalk.org/index.php?topic=4958.msg65351#msg65351]
These graphs support the claim that it is the employees and vendors were the ones paying for the shares.  Stan did not come out and say that he himself had repurchased in the past and that he expected to repurchase in the future. But it should be noted that the transactions in the forum post were not related to any of Stan's purchases but belongs to Cason.  There is also no indication of how much external bitcoin the employees brought in either (the 0bb534 transaction indicates at least Stan brought in external bitcoin).  There is nothing necessarily illegal or unethical in these behaviors, it can be viewed using your salary to buy stock on the open market for the company you for.  Since this was an unregulated sale there were no requirements for aggressive reporting on purchases like this.

Conclusion

By analyzing the transitions in the bitcoin blockchain and combining that with publicly shared ledgers we were able to validate a claim made on a message board that reinvestment into a public crowd funding campaign was occurring.  The reinvestment appeared to be consistent with claims by the management that employees paying with bitcoin that was their salary or other compensation were responsible for the reinvestment.  One of the reinvesting employees, however, turned out to be the manager/officer making that claim.

There are also two points that need further clarification: what is the admin retainer account, and what happened with the 6b32ef transaction on 1 Jun 2014 where Stan payed for an expense attributed to Hypertas.  These seem benign, but are worthy of explanation from Stan and Hypertas.  [Edited to add: in the comments Stan clarified that the admin retainer goes to his wife for admin tasks performed, and the 6b32ef was Stan paying out of his own pocket while hypertas bitcoin wallet issues were being resolved, and he was later reimbursed.]

For my next post we will dive into college football and follow up on one of the entertaining stories from bitcoin's ride at the top of the market.