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Genesis Mining to End Unprofitable Crypto Contracts

Cloud mining service Genesis Mining is forcing some clients to upgrade to a five-year subscription or else lose services, it announced Thursday.

The Iceland-based startup said in a blog post that it will end open-ended contracts for customers who are not earning enough to cover maintenance fees in roughly two months due to the ongoing declining cryptocurrency market. Clients who wish to retain services must upgrade to a new premium account.

Mining is getting more complicated and energy-intensive, the company said, forcing it to reconsider its policies. Now, all users will have to switch to a five-year contract with no option for early termination. The fee for every trillion hashes per second (TH/s) will drop to $180 however, down from $285.

The company said:

“Unfortunately, bitcoin went into a downward trend around January. This trend combined with the heavily rising difficulty around April and May reduced mining outputs even further. As a result, some user contracts are now mining less than the daily maintenance fee requires to be covered, and thus they entered the 60 days grace period, after which open-ended contracts will get terminated.”

Nor is Genesis Mining the first firm to find mining for certain customers unprofitable – in June, Hashflare announced that it was shutting down its bitcoin mining operations and cancelling users’ contracts, because “the payouts were lower than maintenance for 28 consecutive days,” according to its official Facebook page.

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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HashFlare’s Exit and the Future of Cloud Mining

Cloud mining — a service that enables individual users to lease hashing power from dedicated cryptocurrency mining operations — came forth as professionalization and cartelization of the mining business began to drive out smaller and insufficiently equipped players from the scene.

Since there is no way to verify that the share of the mining rig you are supposedly leasing actually exists — even if returns on your investment seem to be flowing regularly at first — the scheme is widely regarded as a happy hunting ground for scammers. Perhaps the only way to steer clear of fraud is to rely on the reputation of the established cloud mining brands. But with the outbreak of the recent scandal around the cloud mining platform HashFlare, this option might also soon be off the table.

HashFlare, one of the leading names in the business, announced on July 20 that it has dropped its mining service of active SHA-256 Bitcoin contracts, pursuant to a clause of the platform’s terms of service reading the following: “The Mining process will stop if the Maintenance and Electricity Fees will become larger than the Payout. If mining remains unprofitable for 21 consecutive days the Service is permanently terminated.”

Citing the ongoing “difficult time for the cryptocurrency market,” the firm claimed that by July 18, the payouts were lower than the maintenance fees for 28 days in a row, which activated the clause allowing for the the conclusion of the contracts. The statement implied that HashFlare would be open to resume Bitcoin mining, should more favorable market conditions arise. Apparently, the cease only concerned Bitcoin contracts, as operations with other crypto assets available in the firm’s portfolio — such as Litecoin and Ethereum — proceeded as usual.

While this July has not been the brightest month ever for the crypto market, especially in comparison to December 2017, many users have rightfully questioned HashFlare’s reasoning. After briefly touching the floor at just above $6000 in the first days of the month, Bitcoin prices entered a steady upward trend, coming close to $8000 by the day that the contract termination was announced.

Additionally, the first week of the month saw the Bitcoin network’s hashrate drop massively as a result of heavy floods in the Sichuan province of China, home to a dense conglomeration of mining rigs. This should have led to a corresponding decrease in difficulty for the rest of the nodes. Even before the disaster, around the time when the mining platform’s dry season allegedly started in mid-June, the network’s hashrate plummeted to around 30 TH/s. As the HashFlare’s account of things seemed to stand in contrast with a widely accepted version of reality, the allegations of fraud began to pour out.

Stranger things

The cost structure for participating in the HashFlare enterprise consists of two types of payments: a one-off investment in the processing power itself, and recurring maintenance fees — normally covered from mining profits. One of the several poignant circumstances accompanying the announcement is that the cloud mining operator decided to terminate the contracts without reimbursing users for the remainder of the annual contract fees, which they had paid upfront.

BTC price and BTC hash rate over July 2018

The current mishap appears to be at least the second time on record when HashFlare unilaterally altered its contractual commitments. 11 months ago, the platform switched all SHA-256 and Scrypt contracts from lifetime to one-year, on the grounds of global mining hardware scarcity. Obviously, many cloud miners did not appreciate this development and there was even a petition on Change.org with some 2,500 signatures.

Coincidentally, those who held lifetime contracts before September 2017 can derive some satisfaction from the fact that, in the wake of the recent debacle, their losses were modest. Since the yearly contracts that relaunched 11 months ago were set to expire late August, these customers are only losing a month’s worth of shares of their yearly investment in hashing power. Compared to them, people who jumped in during the year are suffering a greater degree of damage, with the most recent investors finding themselves in the worst-case scenario.

Granted, infuriated cloud miners took to Twitter and Reddit right away. A sizeable group of people who suspected HashFlare of being a scam finally had the chance to savor their ‘I told you so’ moment. The Twitter user who goes by the moniker ‘Madoff wasn’t on the blockchain’ and specializes in exposing crypto fraud, gloated over what he considered evidence that HashFlare never really had actual mining facilities — despite boasting a brand new data center just a few months earlier. He also brought up a February interview with the firm’s customer relations manager Edgar Bers, pointing to numerous ‘red flags’ — inconsistencies that allegedly indicated the operation’s fraudulent nature.

While some users reported they were able to initiate the chargeback process for HashFlare payments with their credit card issuers, the less lucky ones said they were considering a class action lawsuit. The operator is based in Estonia, so strict European consumer protection laws could be potentially applicable to the case. However, some observers surveyed by Blockonomi noted that, by the time the claim makes it to court, the defendant could cease to exist or fight back by exposing the users’ personal data.

Another odd detail that plays right into the ‘scam’ argument is the new withdrawal regulations that HashFlare put in place just days before dropping the Bitcoin contracts. All of a sudden, the mining operator urged users to comply with a set of KYC procedures, severely restricting the ability of those who failed to comply to move their funds out of the platform. Assuming malicious intent, this move could serve at least two purposes: hindering the flight of capital upon the release of the news and getting some leverage over the disgruntled users who will make it to the courtroom.

Cloud mining’s dim future

Albeit there are many considerations that could point to malice, none of them look indisputable. In terminating the contracts, HashFlare followed the clause of their own terms of service, which every user had to sign upon registration. These terms were found to be unaltered since at least last year. The clause in question does not specify a particular entity that is supposed to certify that maintenance and electricity fees indeed exceeded the mining payouts. And. even if the evidence that those data centers actually exist is scarce, robust evidence that they do not exist is even scarcer. Hopefully, a trusted third party will soon enter the scene to shed some light on the true state of affairs.

Meanwhile, HashFlare’s competitors are doing just fine. Users on another major cloud mining platform — Genesis Mining — reported getting payouts on their contracts as usual. So did the customers of Minergate. HashFlare’s fluke might well provide a short-term PR boost to other major players in the field, as well as an influx of new users who will want to switch to a presumably more reliable operator. But, in the long run, the fallout from the demise of one of the most prominent cloud mining operations could prove a massive blow to the whole industry.

Cloud mining already has a reputation of a risky endeavor: While contracts are usually long-term and initial payments fixed, fluctuations of crypto prices render such investments a roulette. Especially with Bitcoin, massive crowds of new miners constantly enter the market, driving the hashrate up. A recent report by CoinJournal highlights the tremendous rate of its growth over the last several months. This is good news for the crypto industry at large, meaning that — despite the relatively unimpressive price dynamics of 2018 — more and more resources are pouring into the network. Yet, for mining enterprises, this primarily signals more competition, spelling death for those who come up short in the arms race.

Against such a backdrop, the lack of trust in service providers might become a deal-breaker. Why engage in an increasingly precarious activity that promises fewer payoffs, especially when you cannot be entirely sure that the platform facilitating your engagement is trustworthy? If HashFlare’s case entrenches in mass consciousness as a poster for cloud mining services, the model is unlikely to survive the ongoing hashrate rush.

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Cloud Mining Platform HashFlare Stops Services, Disables Equipment on SHA-256 Contracts

Cloud cryptocurrency mining service HashFlare announced July 20, that it is stopping mining services and shutting down hardware on current SHA-256 contracts due to difficulty generating revenue.

HashFlare is a cloud cryptocurrency mining platform founded in 2013. Cloud mining is a system where a user purchases a portion of the mining power of hardware hosted and owned by a cloud mining service provider. The service provider configures the hardware, maintains uptime and selects the most efficient and reliable pools.

The decision to discontinue mining maintenance is reportedly the result of difficulties for the company to turn a profit amid market fluctuations. According to the HashFlare’s statement, for over a month the amounts for contract payments were lower than service fees, resulting in zero accruals to users’ balances. As of July 18, payouts were lower than maintenance costs for 28 days in a row. The company stated:

“We have made every possible effort in order to resolve the problem that has arisen – for instance, we have considered a variety of technical solutions, which would have allowed us to lower expenses related to maintenance and electricity… As BTC mining continues to be unprofitable, we inform that on July 18, 2018, we had to start disabling SHA equipment, and today, on July 20, 2018, withhold the mining service for active SHA-256 contracts.”

Yesterday, HashFlare announced that users must now  “undergo the process of identity verification” in order to ensure compliance with Know-Your-Customer (KYC) and anti-money laundering (AML) standards, claiming that “verified users will enjoy increased daily and monthly withdrawal limits.”

Yesterday, Taiwan Semiconductor Manufacturing Co. (TSMC), decreased its annual revenue and capital expenditure estimates due to reduced growth in the smartphone and cryptocurrency mining fields. TSMC, who produces chips for tech giants like Nvidia Corp., Apple Inc., and Qualcomm Inc. cut its revenue growth forecast for the year from ten percent to “a high single digit percent.”

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Cloud Mining Contracts Are Securities, Says Philippines SEC

The Philippines securities watchdog warned that it will regulate cryptocurrency cloud mining contracts in the country under existing securities rules.

In a statement issued Tuesday, the country’s Securities and Exchange Commission (SEC) said that cloud mining contracts should be classified as securities, since, when the Howey test is applied, the process was determined to involve a money investment with the expectation of a return of profits.

Cloud mining is a process where investors do not deploy actual mining hardware to earn cryptocurrency, but instead take a stake the mining capacity of a remote facility through a contract, which can sometimes be further exchanged.

According to the Philippines SEC, the decision arose after it observed individuals and firms advertising and soliciting investors inside the country, which the agency is now treating as an unregistered issuance of securities.

As such, the regulator stated that any entity or individuals – including salesmen, brokers, promotors or recruiters – involved with offering cloud mining contracts in the country without registration may be prosecuted and penalized with a sentence of up to 21 years in prison.

The ruling follows the Philippines’ toughened stance on activities relating to cryptocurrencies in recent months.

While the securities regulator has been reportedly crafting laws to regulate initial coin offerings, it has also stepped its up efforts to scrutinize cryptocurrency projects that fall under the scope of existing securities rules.

Separately, the country’s lawmakers are also weighing in on proposals for tougher penalties on any crime that relates to cryptocurrency, according to a CoinDesk report in March.

Cryptocurrency miner image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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GMO Internet Eyes August Launch for Crypto Cloud Mining Service

GMO Internet, a publicly listed IT firm headquartered in Japan, has set August as the tentative launch date for its previously announced cloud mining service.

The company revealed last fall that it was devoting tens of millions of dollars to its mining venture, with the aim of building a site for pursuing the energy-intensive process by which new transactions are added to a blockchain and new coins are minted as a reward. With cloud mining, customers can purchase hashing power and receive the rewards of that process, minus any associated fees  – though the model has long been associated with fraud, including companies that sell more processing power than they actually possess.

In a Feb. 9 announcement, GMO said that it would, beginning in March, hold a series of events in order to drum up interest in the service, which will feature 2-year contracts at a whopping $5 million USD per contract. Though the exact location of the GMO mine isn’t publicly known, the facility is said to be based in northern Europe.

“We have already been receiving inquiries about our cloud mining service, so from March 2018, GMO Internet will hold the information session in 9 cities to meet the needs of the companies or businesses worldwide who have announced their intention to participate in the cloud mining,” the company said.

GMO described the August launch timeline as “tentative.”

Notably, the firm will use some of the tokens mined at the facility for its GMO Coin exchange “in order to “contribute to an increase in diversity and liquidity of the cryptocurrency market.”

The Tokyo-based company has made a number of announcements related to the technology in recent months. These notably include a bitcoin-based payroll system, which it said would be made available to its own employees. GMO has also unveiled services built around know-your-customer and anti-money laundering tools.

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The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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ViaBTC Increases Cloud Mining Fee Citing China's Mining Resource Scarcity

China’s cryptocurrency mining pool ViaBTC has revealed a plan to adjust its cloud mining maintenance fee, a move that may appear to be affected by a reportedly tightened regulation in the country.

In an online statement published on Jan. 11, ViaBTC said it will temporarily increase the maintenance fee ratio for the AntMiner S9 cloud mining contract from the previous 6 percent to 50 percent. The mining pool currently accounts for 13.8 percent of the global computing power, data shows.

Effective since 8:00 UTC on Jan. 12, such change is said to be a result of the scarcity of mining resources now available in China driven by recent events, according to the statement.

“Recently, due to policy changes, some of our long-term hosting partners are facing a crisis of farm closure as mining resources in Mainland China become more scarce, leading to rocketing costs of our cloud mining operation.”

Such notice came just a few days after the company announced to shut down its cryptocurrency mining contract marketplace on Jan. 8. At the time, reports indicated that Chinese regulators are taking steps to reduce tax, electricity and land benefits for cryptocurrency mining companies, an effort to curb their operations.

Upon inquires, ViaBTC didn’t wish to give further comment or clarification on such notice.

While the company didn’t specify how long this temporary change will be in effect, according to the statement, users have the option to apply for terminating their AntMiner S9 cloud mining contracts before Jan. 18.

Meanwhile the statement said the maintenance fee ratio for AntMiner D3 or L3 contracts remains unchanged at 6 percent but they are not yet available for termination.

China flag image from CoinDesk’s archive.

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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ViaBTC Increases Cloud Mining Fee Citing China's Mining Resource Scarcity

China’s cryptocurrency mining pool ViaBTC has revealed a plan to adjust its cloud mining maintenance fee, a move that appears to be affected by a reportedly tightened regulation in the country.

In an online statement published on Jan. 11, ViaBTC said it will temporarily increase the maintenance fee ratio for the AntMiner S9 cloud mining contract from the previous 6 percent to 50 percent. The mining pool currently accounts for 13.8 percent of the global computing power, data shows.

Effective since 8:00 UTC on Jan. 12, such change is said to be a result of the scarcity of mining resources now available in China driven by recent events, according to the statement.

“Recently, due to policy changes, some of our long-term hosting partners are facing a crisis of farm closure as mining resources in Mainland China become more scarce, leading to rocketing costs of our cloud mining operation.”

Such notice came just a few days after the company announced to shut down its cryptocurrency mining contract marketplace on Jan. 8. At the time, reports indicated that Chinese regulators are taking steps to reduce tax, electricity and land benefits for cryptocurrency mining companies, an effort to curb their operations.

Upon inquires, ViaBTC didn’t wish to give further comment or clarification on such notice.

While the company didn’t specify how long this temporary change will be in effect, according to the statement, users have the option to apply for terminating their AntMiner S9 cloud mining contracts before Jan. 18.

Meanwhile the statement said the maintenance fee ratio for AntMiner D3 or L3 contracts remains unchanged at 6 percent but they are not yet available for termination.

China flag image from CoinDesk’s archive.

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.