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Venture-Backed Bitcoin Miner Startup Can't Deliver On Time, Gets Sued
mpicpp (3454017) points out this story illustrating the problem of betting on the differential between the price of deliverable bitcoin-mining hardware and the price of bitcoin itself: Yet another Bitcoin miner manufacturer, CoinTerra, now faces legal action for not fulfilling an order when it originally promised to. CoinTerra is the third Bitcoin-related startup to face litigation for breach of contract and/or fraud in recent months. The CoinTerra lawsuit was filed in late April 2014 by an Oakland, California-based man seeking to be the lead plaintiff in a proposed class-action lawsuit. Lautaro Cline, the suit alleges, purchased a TerraMiner IV in October 2013 for delivery by January 2014. The company promised, he claims, that this miner would operate at two terahashes per second and would consume 1,200 watts of power. It did neither. However, Cline's suit also claims that CoinTerra did not deliver the miner until February 2014, and it "operated well below the speed advertised and consumed significantly more power than CoinTerra represented, causing Plaintiff to suffer significant lost profits and opportunities."
"Your honor, the free money generation machine the plaintiff promised me did not generate NEARLY enough free money! Now since I have you here, I'd like to sue Money Tree, Inc. whose shrubbery is also performing woefully."
According to the article, the TerraMiner IV had a pricetag of $13,999, which the filer of the lawsuit clearly paid. A single bitcoin is (and correct me if I'm wrong here) around $500. For this guy to break even, not counting the power that thing drains, he would need to mine at least 28 BTC. From what I understand, mining that kind of BTC, even with an extremely high-powered miner, is not an easy task. It seems like he would've lost money even if the machine had performed at the specifications listed by the company.
It's a bit like those crystal ball con artists. Know the kind? That tells you the lotto numbers of next week?
I always wonder the same that I wonder in this case: If that actually worked, why do they tell you (or, in this case, build it for you) instead of simply using it themselves? It's not like you need to invest a lot of work or have to have intimate know-how that the maker of the item doesn't have to mine bitcoins. It's basically "pump electricity in, take hashes out". If I could build such a "miner" that produces more bitcoins than it costs in electricity, why would I be so stupid and sell it to you instead of renting a rack somewhere and let it do it for me?
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Correction, the filer apparently only paid around $6,300 for it. Still, that's 12.6 BTC, which is probably still rather difficult to mine, just to break even.
The real profit to be found are with the people selling these ASICs. The best analogy I've seen compares it to people selling shovels during the gold rush.
Buyers should ask themselves why anyone would sell a money printing machine. If it was profitable they're going to use it for themselves, or use it until the bitcoin difficulty gets just to the point where it's marginal and sell it.
Real programmers use "copy con program.exe"
I think a better analogy for comparing bitcoin mining to gold mining would be: Imagine if I were to sell you an automated power shovel and promised it would dig 10 tons of dirt per hour with fuel consumption of 50 gallons per hour. If my device didn't live up to those advertised specs, you would have a valid complaint. Reasonable damages would be derrived from difference between what you made and could have made. If in actuality you were able to shovel 5 tons of dirt per hour while still consuming 50 gallons per hour, then it's likely reasonable that you should have found twice the amount of gold you actually did.
I think this is a very valid case (assuming the device was used in accordance with specifications, and other factors have been ruled out)
I'm not sure how this is different from any major IT project I've been involved in.
Over budget, under-performing, and not nearly as good as the sales guy made it out to be. :-P
Lost at C:>. Found at C.
You mean there are venture capitalists who can't do basic risk assessment?
That's how these miner manufacturers operate. It is relatively low and well-understood risk to sell physical goods. We have X orders, and can produce Y units each month. The reason they don't mine bitcoins themselves is that they don't want to take that risk. They sell the machine, and they get their money. They sell more machines, they get more money. It's simple, it's safe.
For the people who purchase them, they are assuming the risks of mining. They take the risk that their machine will underperform, that their miners won't find any blocks, and that the value of the bitcoin will stay stable or increase. The people actually mining have much higher risk than the people just selling the equipment.
"Your honor, the free money generation machine the plaintiff promised me did not generate NEARLY enough free money!
Every investment is, in one way or another, a "money generation machine". This is exactly how an investor thinks about their investment, minus the "free" part because they subtract the opportunity cost of investing in that thing instead of in something else.
Don't waste your vote! Vote for whoever you want, unless you live in a swing state it won't matter anyways
The real profit to be found are with the people selling these ASICs. The best analogy I've seen compares it to people selling shovels during the gold rush.
The fun part is that a lot of these miracle mining rig builders are suspected of using those new rigs themselves for awhile before finally delivering them. So it's kind of like people selling used outdated beat-up shovels during the gold rush. The scam seems to be:
Just another pyramid scheme and there are still suckers falling for it.
Thanks to the War on Drugs, it's easier to buy meth than it is to buy cold medicine!
At current difficulty, (13.4Bil) a 2TH miner consuming even 1500W, would generate about 0.0747BTC/24 hours. Even at 15.4Bil (~15% increase?) you're still looking at 0.0650BTC/24 hours. Back in January, the market was more like ~2Bil difficulty, which the same device would have brought in ~0.5029 BTC/day. (or a ~2 week ROI!) Now I don't agree with the guy really, Feb was up to ~2.5-3Bil, which at the worse end was still ~0.3353 BTC/day. (still only ~31 days break-even!)
At the next current difficulty, and assuming you're expecting the price of BTC to stay the same, (and at current prices, $6300 is ~10.5BTC) you're looking at ~161 days to break even. This is going to be extended every ~two weeks as difficulty goes up, but will likely still hit break-even around ~350-400 days. (assuming ~1500W@10cents/W)
ALL this assumes you're buying it to mine on till break even. Most people mine the profitable period, then sell the hardware for 90% of the purchase price. Mine for 2-4 weeks, make ~1-2BTC, then unload the hardware for $5500, buy out ~9 - 9.25 BTC with the proceeds, and now suddenly you're up to ~11.25BTC on a 10.5BTC investment. ~7% doesn't sound too bad to most people!