Tag: mining

Seven Stories about Miners and Crypto Dealers that were Sent to Jail

This article is about people that were sent to jail for crimes with crypto in different countries, from China and Japan to the US and Sweden. Everyone knows the story of the Japanese crypto exchange Mt. Gox and its CEO Mark Karpelès. Mt. Gox was once the biggest Bitcoin exchange in the world, but in 2014 it became insolvent after losing 850,000 BTC. Its CEO Mark Karpelès, Bitcoin’s Biggest Villain, as he is sometimes called, was charged with embezzlement and data manipulation and spent several months in jail. This text is not about Bitcoin’s Biggest Villains. We’ll focus on more ordinary people whose mistakes (and sometimes, something more serious than mistakes) cost them freedom for several months or years. 3.5 Years in Jail for Stealing Train Power in China China, which is now not so friendly to crypto traders and miners, does not tolerate even small violations and punishes for them severely. This September, a local named Xu Xinghua was sentenced to 3.5 years in jail for stealing electricity from one of the factories at Kouquan Railway. He needed the power to fuel his BTC operations: he had 50 Bitcoin miners and 3 electric fans. Xinghua was also fined $14,500 and ordered to cover the cost of electricity charges. His mining equipment was confiscated. According to local media, China wants miners to make an “orderly exit” from the country. $9 million of Fine for Crypto Ponzi Scheme The US authorities take a milder approach. In 2014 – 2015, four companies owned by Josh Garza sold investors the rights and access to cryptocurrency mining operations. Investors were also given rights to a portion of the profits from the mining operations. The operations seemed legal, although Garza gave guarantees that should have raised red flags: for example, he promised to prop the price of the cryptocurrency. As a result, investors lost $9 million. Garza was sentenced to 21 months in prison, followed by six months of house arrest, and was ordered to pay the investors restitution of $9.18 million. Lifetime Ban from Finance for Defrauding Investors In 2017, crypto trader Joseph Kim (Arizona) lost on BTC operations more than $1 million – it was bad luck. He tried to rectify those trades and went into debt, which increased his loss. It was the money of his firm and clients, mostly funds. Trading losses do happen, but then Kim did something strange: he illegally transferred some money from the accounts of his firms to his personal accounts and informed investors that he had left the firm to set up his own trading business. The result is a $1.1 million fine from the US Commodities and Futures Trading Commission (CFTC), 15 months in jail for cryptocurrency fraud and a lifetime ban form finance. A Geek and a Mackerel Case Charlie Shrem is a geek who launched BitInstant to make the purchasing of bitcoin faster and more accessible. BitInstant targeted consumers who wanted to buy about $300-500 of bitcoin and charged them a small fee for every transaction. Although there was no other advertising than grapevine, the business grew at the rate of 1.5x per month. At one point its turnover was $1 million a day. The popularity of BitInstant business can be proved by the fact that its seed funding was led by the Winklevoss twins. However, in 2013 it lost its license due to regulation enhancement, and Shrem had to shut BitInstant down. Several months later, when Shrem was returning to New York from a conference in Amsterdam, he was arrested in the JFK airport. It turned out that he facilitated transactions to a re-seller, Robert Faiella, whose customers were using the Silk Road. Shrem did not deny it, and in 2014 he (aged 26) and Faiella were sent to prison. For the record, US prisoners are not allowed to possess cash, and smoking is prohibited in prisons (and the cigarette pack is no longer ‘the gold standard’). The prison economy ran on bartering mackerels. Fish differed depending on the size and expiry date, and one day the guard provoked ‘hyperinflation’ when the confiscated a large number of mackerel and left them for any prisoner to take. It would be a good idea to digitize the prison economy and put it on the blockchain, Shrem thought: then prisoners would have a real-time record of all transactions and the guards will not have the power over the value of the mackerel. Japan Gives Jail Sentence for Using Remote Mining Tool A 24-year-old unemployed in the city of Amagasaki was sentenced to a year in prison for using a remote crypto mining tool. His name is not disclosed, but according to the local media, this is the first case of mining abuse in Japan. The tool in question is called Coinhive, and the man was using it to mine cryptocurrency on other people’s computers without their consent. Coinhive was used in an online game cheat tool, instead of one installed on a website. The police have arrested three more people who are suspected of the same violations. Seven Years in Jail for Crypto Exchange Bombing Attempt Michael Salonen, 43, who lives in Stockholm, in 2017 used to send threats to lawmakers. His letters contained a white power, which was inoffensive. One of such letters was received by the Prime Minister of Sweden, Stefan Lofven. Then Salonen went even further. In August 2017 he sent two packages to the London crypto exchange Cryptopay. The packages were addressed to the Cryptopay’s employees and contained two pipe bomb devices. Fortunately, they did not explode, and the UK police managed to link the case to Salonen using DNA samples. Salonen was convicted to seven years in prison. A Year and a Day in Jail for Selling too Much Bitcoins to Federal Agents Eldon Stone Ross, 24 (Pennsylvania) was used to making bitcoin-to-cash and cash-to-bitcoin transactions. His biography was not crystal clear: in 2014 he was convicted of trafficking heroin, but he was not afraid of being robbed by strangers when trading bitcoin. But now he is going to prison for selling $1.5 million in bitcoin to undercover federal agents. Ross got into trouble with bitcoin because he ignores several rules: he did not ask for any identifying information from the agents, he was not licensed and he did not report transactions to the regulator. (All transactions over $10,000 in cash should be reported to the US Treasury Department). Ross was sentenced to spending a year and a day in federal prison.

Articles/December 13, 2018
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China: The World’s Biggest Blockchain and Mining Hub

China, the Asian fintech giant, has been through a real ‘crypto whirlwind’ since 2013. Judging by the fact that Chinese regulators banned ICOs and cryptocurrency exchanges last year, many now think of the country as rather unfriendly to blockchain tech. However, that’s easy to contradict. Today we’ll shed some light on China’s attitude to crypto, particularly to cryptocurrency mining, and its future plans in relation to it.  ‘Ambiguity’ is China’s middle name. In 2013 the People’s Bank of China issued a warning notice on the risks of Bitcoin and prohibited financial institutions from engaging in crypto-related activities. Three years later however the Chinese government apparently forgot about this and added blockchain to its five-year technology plan instead.  Then, a real ‘hardcore’ crackdown began in 2017. In September, the Chinese government imposed regulation banning all ICOs and crypto-to-fiat exchanges. Three months later, in January 2018, China imposed regulations banning P2P sales and over-the-counter markets. Later, China finished crypto enthusiasts off by blocking access to foreign crypto exchanges and ICO websites. Despite the fact that the country’s government did not manage to eliminate crypto-related operations for good, its crackdowns made the community skeptical about China’s environment. Before the aforementioned bans were enacted, crypto mining in China had been flourishing and had attracted dozens of giant players from all over the world who wished to locate their facilities in the ‘red superpower’. China was and, perhaps surprisingly, still is home to the world’s largest mining manufacturers, including Bitmain, Canaan, Ebang, to name a few.  To prove how vital the country’s role in the mining market has been, at its peak China accounted for three quarters of the world’s Bitcoin mining operations and over 95% of the Bitcoin trading volume.  Two years ago China was the obvious, if not the only, choice for mining enthusiasts. Low electricity costs were the true temptation for miners, along with an accessible, low-cost and high-efficiency mining hardware. Provincial governments are happy to welcome crypto-based entrepreneurs as they use excessive electricity, meaning more revenue for the local grid. However, recent statistics show that mining in China indeed requires too much electricity (to compare, it requires the equivalent of the power of three nuclear reactors). When the government’s attitude toward crypto became hostile, several large mining entities unsurprisingly began to look elsewhere for places to base their operations. One of those is Bitmain, a somewhat notorious mining company, which decided to expand its activity to Europe, North America and the Middle East in order not to be affected by a possible request to make an ‘orderly exit’ from the country.  Nevertheless, many still remain bullish on blockchain and crypto in China, based on recent statements made by the country’s President, Xi Jinping. In late May, he mentioned blockchain as a “new generation” technology: “The new generation of information technology represented by artificial intelligence, quantum information, mobile communication, internet of things, and blockchain is accelerating breakthroughs in its range of applications.” Following this statement, on June 4, the country's leading state-run broadcaster - China Central Television (CCTV) - issued an hour-long special about the ledger. During the show, it was said that blockchain is "10 times more than that of the internet" in terms of economic value.   Now it’s time to stop here and ask ourselves: How on earth do these severe crypto-bans coincide with a truly supportive attitude to blockchain? That can be easily explained. China's policies suggest a “Blockchain > Crypto” attitude. In other words, the government is much more interested in the underlying technology rather than in cryptocurrencies themselves.  China sees the enormous potential of blockchain, as it always does when it comes to the adoption of innovative new technology. Dominating the blockchain development industry can bring a lot of economic wealth to the region.  And this process has already begun. For instance, Hangzhou, the home city of Alibaba, has committed $1.6 billion to blockchain company investments. Plus, the People’s Bank of China (PBoC) is currently developing a blockchain-based digital currency. 'Decentralized' power in the hands of centralized giants is a hell of an idea - a terrifying idea. If such a blockchain-based digital currency were to be adopted, the PBoC could easily access all kinds of information about the economic activity of its citizens, thus becoming not a decentralized financial institution, but a veritable dictator.  Blockchain is still a unique and unprecedentedly traceable instrument which can allow the financial authorities of all countries to monitor small-scale transactions and reduce fraud, counterfeiting, and money laundering. By all accounts, we should expect China to be one of the leaders of a new blockchain-based economy in the nearest future. Photo by Henry & Co. on Unsplash

Articles/November 29, 2018
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Iran: Crypto Comes to the Fore as ‘Economic Siege’ is Gaining Momentum

What do we know about the Iranian economy? Having survived through turbulent recent decades, Iran is currently facing an unprecedentedly isolated economic situation. Following the US withdrawal from the Joint Comprehensive Plan of Action agreement and the subsequent announcement of new sanctions on November 4, the Iranian rial (national currency) hit a historic low of 138,000 against the US dollar. According to recent calculations, the rial is expected to lose 57 percent of its value by the end of this year due to hyperinflation. Today we are going to examine how the current economic situation affects the cryptocurrency market and crypto-related businesses within the country. Let’s get started.  Firstly, let’s back up a few months. Facing a new set of US-led sanctions, the nation’s financial authorities came up with an ingenious idea – to create their own state-backed cryptocurrency in order to circumvent heavy sanctions. The Central Bank of Iran revealed details of the "indigenous cryptocurrency", stating that the national cryptocurrency could be a solution for the country that’s cut off from international payments networks. Azari Jahromi, the Iranian IT Minister who has frequently made clear his crypto-supportive intentions, told local media:  “A new attitude that has been created in the government is that the digital money does not necessarily pose a security threat and can create opportunities for the country” Additionally, at the beginning of September, the Secretary of Iran's Supreme Cyberspace Council revealed that various ministries of the country’s government have accepted crypto mining as a legitimate industry. IBENA, an Iranian news agency affiliated with the country's central bank, reported as follows: “Secretary of Iran’s Supreme Council of Cyberspace stressed that cryptocurrencies mining like Bitcoin has been accepted as an industry in the government and all related organizations to the mining such as Ministry of Communications and Information Technology, Central Bank, Ministry of Industry, Mining and Trade, Ministry of Energy, as well as Ministry of Economic Affairs and Finance have agreed with it, but the final policy for legislating it hasn’t been declared yet” The Cyberspace Council’s secretary Abolhassan Firoozabadi however, stated that there was not currently an appropriate legal framework for crypto mining. The Iranian National Cyberspace Center has since begun the development of a platform for crypto mining regulation. Let’s stop and make an intermediate conclusion here. It can safely be said that until November, Iran’s crypto market was not flourishing, but stable. This in itself is quite impressive. In the context of the threat of economic sanctions and the lack of financial recognition, the crypto market was one of few sectors in the country that was evolving.  It was, until the US sanctions entered into the force. These sanctions are wide-ranging in their impact and will prevent many from using any of Iran’s major resources, including oil, shipping, and gas market. The financial sector was also affected, which in turn led many crypto-related companies to quit the country. One of the first was Binance, the world’s biggest cryptoasset exchange. The company stated that it will continue complying with US regulations. Recently it emailed the following message to all Binance users from Iran: “If you have an account with Binance and fall into that [sanctions] category, please withdraw your assets from Binance as soon as possible” However, Nima Dehqan - an Iranian researcher - believes that such a move won’t have a dramatic impact on Iran’s crypto community because Iranian users are mostly ‘HODLers’ and miners, not traders.  At the beginning of November the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT) announced it was cutting off Iran from its financial messaging system.  The disconnection of Iranian banks from SWIFT has put the country in a tough spot, as it is not able to conduct banking services outside its borders. So, what moves should we expect from the Iranian government? Now it seems that there are no traditional economic activities Iran can undertake to evade its current issues. The only way out therefore is not to consider launching a national crypto, but to actually do it. The sooner Iran’s government realises that crypto has become a necessity, the faster the economic life in the country will be right back on track. Photo by Arman Taherian on Unsplash

Articles/November 22, 2018
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The US: Mining Superpower or Land of Ambiguity?

With over thousand of different ever-expanding interpretations of uses for blockchain and cryptocurrency, it’s not surprising that many governments are showing a keen focus to the digital currencies and associated operations. Today we are going to take a broad look at cryptomining in the US – one of the most discussed tech pioneer in the world. So, it’s time to ‘Make Americans Mine Again’!   In March 2018, the United States Joint Economic Committee issued a report which officially endorses cryptocurrency and blockchain. However, for a layman miner, the US is one of the most complicated countries for getting involved in crypto mining. As we’ve already mentioned in our recent post, the US is mired in the ambiguity of legal system. It means that each of the state has its own ‘crypto legislation’. Literally, give an inch here – your mining process flourishes, give an inch there – it’s feasible and forbidden. Thus, it cannot be said whether the process is completely dead in the country or not. It depends on the state one is going to deal with crypto in.  To show the difference in the attitudes, let’s review several states. For instance, according to the variety of sources and rates, the most appropriate state for mining cryptocurrency in the US is Louisiana. Sandwiched between Mississippi and Texas, Louisiana has never been considered to be a safe haven for crypto miners, or indeed for anyone from the fintech sector.  Nevertheless, Louisiana has the cheapest energy rates in the entire country, when compared to other attractive regions including Idaho, Washington, Tennessee, and Arkansas. Unfortunately, a fertile environment for mining makes many people lose their heads. Recently, Louisiana Attorney General Jeff Landry opened a criminal investigation into his own office's information technology department, including its recently ousted director, amid allegations that former staffers tapped state resources to mine Bitcoin. Among the terminated employees were a systems administrator, a help desk manager, a litigation support coordinator and a human resources employee. Despite the above, crypto still has a legal status in the state. However, not every ‘Louisiana-like region’ in the US takes advantage of cheap energy rates. For example, Plattsburgh, New York, has become the first city in the US to ban cryptocurrency mining. A city council unanimously voted to impose the 18-month moratorium on Bitcoin mining to prevent miners from using the city’s cheap electricity. With accordance to Plattsburgh mayor’s words, Plattsburgh has the “cheapest electricity in the world” where residents pay only 4.5 cents per kilowatt-hour. For the sake of comparison, the US average is a little over 10 cents per kilowatt-hour. Industrial enterprises, including mining companies, pay even less - just 2 cents per kilowatt-hour. Nevertheless, the US attracts many large players on the mining market. The best evidence of this is the fact that 2 out of 5 largest mining facilities in the world are located in the US. Among them are $65-million Bcause LLC and Washington State-based Giga Watt mining facilities. The latter has more than 20k GPUs hosted. Noteworthy, team at Giga Watt designed so-called Giga Pods, a groundbreaking solution which takes advantage of mining hardware’s extremely high power density, avoids active cooling consumption, and saves power for high-efficiency computing. The US legal framework is far from ‘united’ when it comes to crypto regulation. It’s true: while some ban, others endorse, and there’s no common logic about it. One thing is clear: the harmonization and unification of regulations across the country would create a stable and conducive environment for private users and crypto-related businesses. That’s what the US government needs to focus on.  Next time we’ll take a closer look at the country’s most powerful rival in the mining market – China. Stay tuned for that!

Articles/November 13, 2018
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To Mine or not to Mine: Top 3 European Countries for Potential Miners

Crypto mining is a hot trend that has been gaining traction throughout the past few years, and is seen by many as a great opportunity to obtain their preferred digital currency. The purchase, and setup, of a mining rig is considered to be a quick and easy way to begin to generate passive income that does not require special skills and in-depth knowledge. That’s why it should come as no surprise that the total profitability of mining over the past year reached a figure of $4 billion (according to Blockchain.info).   Mining profitability is affected by a number of external factors – the so-called 4 pillars of mining - including energy costs, the machinery used, internet connectivity and the regulatory climate. Of course, many of these factors also depend on the region where the mining process is going to be conducted.  As you’ve likely already guessed, this article is devoted to our beloved crypto-mining. As confusion related to crypto regulation in China reached boiling point, many crypto miners decided to move into smaller, more lucrative regions. Today we’ll review the top-3 countries with the most appropriate environments for mining cryptocurrency. Georgia (The Ex-Soviet country, not the US state) Many laud Georgia as the ‘second most active crypto mining country in the world’.  With a population of fewer than 4 million people, Georgia is positioning itself as one of the most attractive countries for mining.  A lot of crypto-based companies and individuals have also begun mining operations in Georgia, the first of which was BitFury - a US-based full-service blockchain technology company.  The following shows how influential the company is. In 2016, its officials inked a deal with the Georgian government to develop a system for registering land titles using the blockchain. Pretty nice for a mining company.  Georgia also boasts an attractive tax policy and favorable regulatory climate for crypto miners. Plus, Georgia boasts relatively low electricity costs when compared to other countries in Eastern Europe. Electricity is heavily subsidized here, making it easier to mine.  In recognition of such factors, Georgia was chosen as a host country for the World Digital Mining Summit 2018. Held at the end of September, this conference attracted hundreds of mining specialists from Vietnam, Japan, Russia, United States, United Kingdom and China. Sweden Sweden is one of the strongest, most stable countries in Europe when it comes to the financial and economic sectors. Unsurprinsingly, the ‘crypto boom’ hasn’t been ignored by Sweden’s government. The Swedish Financial Supervisory Authority recently legalized cryptocurrency in Sweden, thereby legimitizing it as a possible means of payment. Sweden is a country that it would be fair to call a ‘cool avenue to generate revenue’. And we say ‘cool’ not only because of the country’s supportive approaches to fintech innovations, but because of its natural climate. Located in Northern Europe, Sweden is an ideal place for mining rig owners because it allows equipment to remain cool and operate stably. Considering both its financial and natural climate, the cheap supply of electricity and access to renewable energy, it's likely only a matter of time before mining companies start moving to Sweden. Iceland We’ve saved the best until last. For all its remoteness, Iceland is in the midst of a ‘crypto mining rush’. Firstly, one of the main beneficial features of the country is the way that electricity is distributed. Iceland can boast cheap electricity due to a large amount of hydroelectric and geothermal sources.  To illustrate this further, in the US only about 15% of energy is generated from renewable resources, while in Iceland these rates reach nearly 100%. A further interesting, if slightly unrelated, fact: volcanoes are a major source of heat and energy in Iceland. Their geothermal heating keeps homes warm and heats water in approximately 87% of houses in Iceland. As you know, most mining rigs require expensive cooling technology. In Iceland however that isn't an issue. Thanks to the country’s naturally cool climate, miners aren’t required to spend heavily on cooling systems.  What’s next? Icelandic businessman Johan Snorri Sigurbergsson of the energy company Hitaveita Sudurnesja predicts a doubling of the country’s cryptocurrency mining energy consumption to 100 megawatts this year, more energy than the 340,000 residents of Iceland will consume for personal use in that time. Despite the fact that the mining market isn't flourishing as it has in the past, mining remains relevant. Everybody’s waiting for the moment when the market will become hot again, and the GPUs or ASICs they've purchased begin to generate the income that they did last year. We are currently witnessing the calm before the storm, which will certainly occur with mining market once again. Next week we’ll focus again on the mining market, particularly on the biggest players, such as China and the US.  Stay tuned!

Articles/November 1, 2018
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