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3 Facts That Show The ‘Dark Side’ of Bitmain Before Its IPO

Bitmain is the most important company in the mining industry and one of the most succesful companies in the crypto-ecosystem . Jihan Wu’s company has contributed so much to the development of the crypto-verse that many believe no other private business can compare to it.

However, despite these facts, Bitmain’s image is negative within the ecosystem. Last year, Coindesk listed Jihan Wu as one of the ten most influential figures of the Crypto-verse, describing him as “The Villain.

Bitmain recently announced its plans for an IPO, a decision that could further increase its financial value, but after disclosing some facts about its business scheme, the debate about the company quickly reignited.

Here are a 3 interesting facts that show the dark side of Bitmain:

1. ‘Unethical’ Mining Practices

The mining company known for promoting Bitcoin Cash, does so not merely out of love for the advantages of that crypto, but for the ease with which it can dominate most of the mining power.

Bitmain produces most of the mining equipment available on the marketAccording to Trustnodes, Bitmain is very close to owning 51% of BCH’s hashing power. Some sources place the current figure at about 49.64%

Likewise, Bitmain is facing some accusations of secret mining, a practice through which they use their own ASICs to mine crypto before releasing them to the market. This would give Bitmain a substantial competitive advantage over other miners as this would increase hashing power with little competition, ensuring a significant profit. After this practice, they start selling their devices.

Bitmain denies these accusations:

“In the end, Bitmain values transparency and fair competition. We therefore remain opposed to this practice [secret mining] and maintain our long-held zero-tolerance policy regarding same”.

However, in the information they provide on the occasion of the IPO, Bitmain omitted some details about their mining activities.

Recently, SiaCoin’s development team revealed that Bitmain was secretly mining its token before making its ASICs available to the market. Salva Herrera, creator of SiaStats explains:

“The oldest block we can track of Antpool is #132204, dated on November 17th, what means that Bitmain mined Siacoins in secret for exactly 2 months …

 According to some estimations, the development of the A3 costed Bitmain $10 million. If they planned the trades carefully, this means they could have recovered the whole cost of the ASIC development just by secret mining during those 2 months. This, of course, on top of the $74 million in sales profit just from the first 2 batches ($2300 per unit and 33,000 units as we explained above).”

Courtesy: siastats.info

2. The Reasons Behind Their BCH-Pumping Strategies

Bitmain promotes BCH, but this crypto has already caused it at least $500 million in losses.

A leaked prospectus of Bitmain’s IPO shows that Bitmain owns about 1 million BCH; an amount that would be difficult for them to capitalize on given the small market for that altcoin when compared to Bitcoin.

In fact, according to information provided by Trustnodes, the company invested in the altcoin when the token’s price was around $900, so Bitmain’s BCH investments have represented a loss of roughly $500 million.

An increase in the adoption of such token would imply an increment in the budget of Bitmain and other large BCH advocates.

3. The Interest of Large Financial Firms May Not Be As Real As Many Think (or wish)

Some time ago, there was news about the interest of large business firms in participating in Bitmain’s IPO. According to information published by QQ News, an important Chinese news portal, companies such as Tencent, Softbank, and China Gold Investment are interested in investing large sums of money in Bitmain.

However, after telephone contact between Cointelegraph and Kenichi Yuasa of SoftBank Group Corp’s Corporate Communication Office, this information was revealed to be false. In Mr. Kenichi’s words:

Neither the SoftBank Group Corp. nor the SoftBank Vision Fund were in any way involved in the deal.”

Also, Coindesk confirmed that a spokesperson for Tencent Inc. commented via email that the company also claims such rumors to be false

“[Tencent Inc.] is not involved in this investment … The news is not true.”

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Rising Hashrates Amidst Shaky Crypto Market — “They’re Happy To Accumulate”

Since the start of 2018, Bitcoin has fallen by over 65%, leading some to guess that mining activity fell in correlation with declining prices. However, it has become apparent that this hasn’t been the case, with hashrates across multiple networks consistently seeing higher lows (and higher highs) amidst an overall market downtrend. Where’s the proof? You may ask.

Well, as seen by the following chart from Blockchain’s information and statistics service, the seven-day hashrate average has nearly quadrupled since the start of the year, even as Bitcoin underwent serious ‘dives’ downwards. This was also seen across other networks, albeit not as bad, with Ethereum seeing a doubling in hashrate, and Litecoin’s hashrate nearly tripling.

Taking hashrate statistics into account, one would assume that mining is still profitable for all parties involved. But according to a recent Bloomberg article, it may not be that simple. Over the past months, the likes of Fundstrat’s Tom Lee and Brian Kelly have claimed that the break-even cost of mining has been well above today’s prices. But hashrates continue to rise, up and up, with miners seemingly giving zero regards to the total fees of mining (electricity, maintenance, hardware etc.) postulated by market analysts.

According to Marco Streng, the CEO of Genesis Mining, larger corporate miners are edging out the in-home, consumer miners, with firms like his still making “major expansions.” He elaborated, stating:

“There are still major expansions happening, especially from more efficient miners. The expansion is so big that it compensated for the drop-out of not-so-efficient miners.”

The previous statement alludes to the fact that operations like his — data centers that span tens of thousands of square feet and consume many megawatts of electricity — have grown so much that they have forced retail users out of the market, while also driving up hashrates near-exponentially.

In theory, as continually noted by Tom Lee, an increasing hashrate (and a subsequent increase in mining cost), should lead to higher cryptocurrency prices, as the break-even level has been seen as an unofficial bottom by some analysts. Therefore, many believe that the opposite is true, but as computational power and operational costs move downwards, it becomes evident that there are other factors behind networks undertaking a growing miner population.

David Sapper, the chief operating officer (COO) at the Blockbid crypto exchange, noted:

“The increased hash rate means people are here for the long-term because they’re happy to just accumulate what they have, potentially even run at a loss. At the same time, At the same time, they do sometimes have to clear house and dump (though).”

This brings up a very interesting point, where miners, who are operating at equilibrium or a slight/medium-loss are only keeping their machines on to accumulate crypto for the long-haul. This move suggests that while some firms may need to sell some crypto to cover costs, that this longer-term ‘HODL’ approach may indicate a sentiment of the success of the market for years to come.

While some data centers may be operating at a loss, as the aforementioned Genesis Mining CEO points out, it varies from firm to firm as specific farms are subject to an array of factors that drive costs up or down. Genesis Mining, while recently making a move to shut down unprofitable mining contracts, has still expanded its centers, buying new hardware that can keep up with the rising hashrates. Additionally, there are firms like Bitmain, which manufacture ASICs and uses these machines to mine itself, making the Chinese firm relatively profitable in the process.

Although ASICs may continue to ramp up in power, power efficiency, and manufacturability, it still remains to be seen whether hashrates will rise exponentially into the future.

Image Courtesy of Marco Verch

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Kodak ‘KashMiner’ Deemed A Scam By Critics And The SEC

One of the world’s foremost news sources, the British Broadcasting Company, recently reported that a Kodak-branded “Bitcoin miner” has been found to be a scam by critics and experts on the matter.

According to the BBC article, in January, a Kodak ‘KashMiner’ mysteriously appeared on Kodak’s official stand at the CES technology event held in Las Vegas. The appearance of the miner came amidst rumors that Kodak would be starting the so-called ‘KodakCoin’ cryptocurrency, which the camera manufacturer would implement into its services.

However, it was later revealed that the mining machine, which looks just like a rebranded ASIC (Bitmain ASIC), was actually the product of a firm named Spotlite USA, who licenses Kodak branding to put on its products.

At the CES event, Spotlite told the BBC that it planned to let people rent out the machines for an upfront fee of $3,400, and claimed for the product to make $375 every month for two years. If the advertised profits were achievable, they would total to $9,000 and would result in a $5,600 profit for the renters of the machine.

However, it quickly apparent that the advertised profits were unachievable, as it is near impossible for a cryptocurrency miner to maintain profits for 24 months consecutively. Despite blowback from critics, Spotlite’s chief executive Halston Mikali still stated that the firm will be going forward with installing hundreds of KashMiners in the New York State-based Kodak headquarters.

However, in an odd turn of events, a spokesperson from Kodak flat-out denied the existence of a license for the KashMiner and pointed out that KashMiners were not installed in the Kodak headquarters, stating:

While you saw units at CES from our licensee Spotlite, the KashMiner is not a Kodak brand licensed product. Units were not installed at our headquarters.

KashMiner Critics Speak Up

Many critics were quick to call the Kodak-associated ‘KashMiner’ as a “scam,” due to the questionable nature of the appearance and the unachievable profits.

David Gerard, a writer, and skeptic of the project called the scheme a “crypto-currency folly,” pointing out that the KashMiner website had not even been fully developed, resulting in an unprofessional looking webpage.

Saifedean Ammous, an economist with ties to Bitcoin and other cryptocurrencies, addressed the miner, stating:

There is no way your magical Kodak miner will make the same $375 every month.

Ammous also stated that anyone who made an investment into a miner would have lost money on their investment.

Not only did third-party skeptics criticize the mining move, but so did one of the most influential regulatory bodies in the world, the U.S. Securities and Exchange Commission.

According to the BBC, Spotlite’s Halston Mikali said that the SEC has put restrictions on the firm from moving forward with the project, possibly indicating that regulators saw it as a scam.

However, this has not deterred the Kodak licensee. with the firm stating that it still plans to privately run its mining operation in Iceland, instead of renting out the machine to consumers.

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