Crypto Mining Giant Bitmain Sued for Commandeering Customer Machines

A class action suit against the world’s largest cryptocurrency mining equipment maker and cryptomining conglomerate, Bitmain, has been filed in Northern California.

The suit will test rumours circulating in crypto circles for some time that allege Bitmain used customers’ newly-purchased machines to mine crypto at full power while those customers were setting up (configuring) their machines.

Plaintiff Gor Gevorkyan of Los Angeles County, alleges:

“Until approximately 2 years ago, the machines started in low power mode…(and) there was no default account setting to which virtual currency mined during the setup process was directed and transferred.”

However:

“Recently, Bitmain modified the startup procedure for its ASIC devices such that the devices immediately start in full power high energy consumption mode before the customer’s account is linked to the device and stay in that mode until the setup process is complete. Moreover, the default account setting on the Bitmain ASIC devices is set to contribute to Bitmain’s own account on its own Antpool server.”

The setup process, Gevorkyan alleges, can take anywhere from a few hours to a few days, during which time:

“Bitmain’s ASIC devices are preconfigured to use its customers’ electricity to generate crypotocurrency for the benefit of Bitmain rather that its customers…and lay the substantial costs of operating the ASIC devices at the feet of its customers….(resulting in) out of pocket losses.”

Gevorkyan says he purchased Bitmain ASIC devices, including the Antminer 9, in January 2018.

The plaintiff also argues that courts in Northern California have jurisdiction in the case because, in addition to offices in Beijing, China, Bitmain maintains offices in Santa Clara, California.

Mining cryptocurrency profitably has become much more difficult in the past few years due to the strategic establishment of massive mining entities that are simply outgunning smaller firms.

Background provided in the Gevorkyan/Class complaint states:

“It has been reproted that the cost to mine virtual currency increased tenfold between 2016 and 2017 alone.”

Bitmain quickly established itself as the leader in global crypto mining after it was founded in China in 2013. Associated Bitmain farms regularly mine close to 50% of all bitcoins produced, maybe more.

According to the Gevorkyan/Class filing:

“(Bitmain is) the largest single miner of cryptocurrency in the world…and largest single competitor to each of its ASIC device customers because it maintains its own virtual currency mining accounts…(and runs) virtual currency mining “farms” in locations where electricity costs are extremely low, including Russia and inner Mongolia.”

If the allegations are true, mining on a customer device would unfairly contribute to Bitmain’s dominance in the sector.

The case alleges Bitmain made, “… 3-4 billion in operating profits in 2018.”

Bitmain recently filed for an initial public offering (IPO) on the Hong Kong Exchange. Rumours that company fortunes were on the wane swirled around the offering, and Bitcoiners like Jimmy Song alleged the company was essentially doing a buyout after most of its profitability had already occurred.

Just last week, rival crypto miner Canaan let its application to IPO in Hong Kong lapse leading to speculation that Bitmain may do the same.

This year has been a bad one for crypto miners, especially small ones and new ones.

First, markets for all coins contracted substantially in 2018, and regulators and law enforcement, in the US at least, are circling closely, looking for manipulation and illegal activity in the sector.

This could mean that allegedly unfair activity used to drive fake demand for crypto is being curtailed.

As coins shut down, mining too, will contract, producing a lack of demand for new Bitmain miners as a surfeit of used machines go up for resale.

Industry watchers have also speculated publicly about whether Bitmain co-founder Jihan Wu damaged his personal wealth last year by backing a fork of Bitcoin called Bitcoin cash.

Lawyers for Gevorkyan are asking for a jury trial in their case against Bitmain.

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