crypto crime The rise and fall of a green Bitcoin startup

A promising miner of eco-friendly cryptocurrency may have lost tens of millions to fraud. Now, investors are puzzling how to trace their cash.
You're unlikely to find a forgotten Bitcoin in your back pocket.

Envion was an eco-friendly cryptocurrency hopeful, a Swiss-German company that promised to use renewable energy to create Bitcoins. Now, its hapless managers are seeking answers, suing programmers and hunting for investors' cash. They had poured money into Envion's idea of generating Bitcoin using power from renewables. After all, creating Bitcoin is expected to use up to 140 TWh this year, or 0.6% of global power consumption. That's the same amount Argentina uses.

Envion's plan was to plant mobile shipping containers near solar and wind parks as well as other sources of renewable energy around the world. Computers in the containers would use surplus energy from the parks to create Bitcoin – or mine Bitcoin, as it's known in the industry. A new Envion cooling system for the containers would make them even leaner, meaner and greener.

The founders got startup financing from a Berlin backer and registered the company in Zug, Switzerland in October 2017 just as Bitcoin approached the $20,000 mark. Another company, Trado, was tasked with running the operation. A team of programmers, all t-shirts, sneakers and baseball hats, teamed up with the CEO, Matthias Woestmann, a former journalist with good contacts in the energy industry.

Envion doesn't know who bought 127 million of its Bitcoin tokens – and in fact, thought it only sold 103 million.

Now off the ground, Envion decided to sell its own brand of cryptocurrency to ramp up operations in what is known as an Initial Coin Offer. The Envion coins are administered via a blockchain similar to that of Bitcoins. ICOs resemble initial public offers but have very little regulation and investors generally don't get a stake in the company behind the coins.

Envion raised about $100 million (€86 million) quickly by selling what it thought were 103 million tokens at about $1 each — tokens that are now worth just $0.12. Unfortunately, the company actually sold 127 million tokens. But to whom? And who knew about the extra tokens?

Mr. Woestmann called for an independent investigation but no one could work out where the extra Envion tokens had gone. He is now suing the programmers but the lawsuit says the money went to “persons unknown.” According to the Envion blockchain, the tokens belong to several people in what might be a cover-up.

The investors, meanwhile, felt cheated, as the extra currency didn't land in their accounts and dilutes their holding. After the news emerged, Envion’s second advisory board stepped down. PWC, the accountant, backed away. And the programmers denied all knowledge of what happened. They blamed the boss, Mr. Woestmann. He, in turn, blames Michael Luckow, his partner who runs Trado. And Mr. Luckow says Mr. Woestmann and the shareholders took control of the company unlawfully after the CEO tried to raise some fresh capital. The legal wrangling goes on.

And all of this before the company was even up to speed. A worker said the company’s structures are amateurish, dysfunctional and absurd. Experts are calling it the first analog ICO hack. Netizens called it a "shit show." And insiders said it looked questionable from the get-go, as earning money by mining crypto-currency is now just one aspect of the Bitcoin business. To compete with bigger, more mature rivals, the company would have to do better than a teenage spat.

Felix Holtermann covers finance for Handelsblatt, and Sönke Iwersen leads the investigative team at Handelsblatt. To contact the authors: [email protected] and [email protected]