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Publicly traded mining operation DigitalBTC claims it is already profitable

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As one of only a handful of publicly traded cryptocurrency businesses, Australian bitcoin mining company DigitalBTC is a glimpse at a possible, perhaps even likely, future for the digital currency industry. In its first quarterly report as a public company, DigitalBTC claimed that it was already turning a profit.

Considering the significant $4 million investment the company made earlier this year in BitFury miners, that’s no small feat. DigitalBTC Executive Chairman Zhenya Tsvetnenko told CoinDesk that the purchase “proved to be a wise decision,” and that they had already paid off their equipment costs. According to their quarterly report, the company made over $2.1 million in bitcoin sales this year.

DigitalBTC made headlines in the mainstream news earlier this year when it announced that its reverse-takeover of Macro Energy Limited, enabling the rebranded company to be listed on the Australian Securities Exchange (ASX). Although DigitalBTC does operate a small exchange, the company’s business model is still firmly rooted in bitcoin mining.

With “hashing center” mining on the rise, an increasing number of mining companies reaching a size where corporate models make logistical sense, and a growing interest in bitcoin mining in the corporate sector, the DigitalBTC story may soon have parallels outside of Australia.

Mysteriously low bitcoin difficulty growth projected, again

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On July 12, the bitcoin mining community was able to breathe easy for the first time in over a year. The all-important difficulty rate, which had been climbing by massive amounts since May of 2013, grew a measly 3.08%. While this didn’t mean that mining profits would be going up, at least the pressure to perpetually adding new hashing power in the mining arms race was off for another 2016 blocks.

The next difficulty increase is expected on Saturday, and while it may not be as small as the last one, current projections make it debatable if it will cross into double-digit territory. According to some projections, the difficulty increase might be as low as 9.1%, rising to 18,916,156,267.

As welcome as this news is, one lingering question remains: With all of the new, high-powered, low-cost ASICs hitting the market, and massive industrial mining infrastructure coming online in record amounts, why isn’t the difficulty growing more rapidly? The network hashrate is currently 126,584,248 GH/s, up nearly 2.5 PH/s from the last increase, and well worthy of a 9% increase in difficulty. But with new mining hardware in the 2 TH/s range currently hitting the market, why isn’t the hashrate exploding? Is this a reflection of hobby miner fears that newer rigs won’t pay for themselves, or is it more an indication that large amounts of less-efficient equipment are being replaced with smaller orders of more powerful machines?

As GHash tweets for miners to leave pool, P2Pool crosses 1 Petahash

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Yesterday, controversial mining pool GHash announced it would limit its share of the overall bitcoin hashrate to no more than 39.9%. It took less than a day to put that claim to the test, as GHash’s percentage began to steadily creep above 36% late last night. What was the mega-mining pool’s response to the very situation it had vowed to prevent?

It tweeted, asking miners to switch to another pool.

Dear users, we are approaching 39.99% of the BTC hashrate. Please, move your mining hardware to other pools. Thank you for understanding!

If that response seems a little lackluster to you, you’re not alone. Even GHash’s own Twitter followers mocked the move, which did nothing concrete to encourage miners to leave the admittedly profitable pool. Many suggested that GHash take actual action, perhaps implementing a graduated fee schedule based on the current hash rate.

GHash’s miners have little incentive to leave the pool under the current arrangement, as a large percentage of the hashing power virtually guarantees consistently high payouts. It’s widely suspected that GHash and its partner organizations (such as BitFury and MegaBigPower) directly control a huge amount of hashing power, and could easily point their own hardware at a different pool. To enforce their promise not to exceed 39% of the hashing power, they may have to do exactly that.

At the same time, it appears that many miners are now implementing the community-proposed solution to the 51% problem. Today, the P2Pool network crossed the 1 Petahash per second threshold, an important milestone for distributed mining system. Although still a small fraction of the overall 137 Ph/s network hashrate, P2Pool does offer a viable solution to the 51% issue without requiring any changes to the Bitcoin Core code. It’s not known why the P2Pool hashrate has surged upward in the last day, although one likely cause is mining collective PetaMine redirecting their machines at the network following a vote to leave GHash last month.

Bowing to pressure, GHash agrees to limit share of hashrate to 39.9%

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As a bitcoin miner, it’s hard not to have mixed feelings about GHash.io. On one hand, the pool’s massive amount of the total network hashrate means consistent and generally high payouts. The pool’s operators have clearly invested considerable resources in creating a powerful, easy-to-use dashboard and user experience. It’s a well-made, zero-fee system that works exactly as advertised.

On the other hand, the pool also blindly drove over the 51% cliff last month, crashing profits and making even non-miners worried about the security of the overall network from a true 51% attack. The 51% scenario could have been avoided easily simply by pointing some of the pool’s own miners elsewhere. GHash seemed to be asleep at the wheel, letting their own pool members take the hit when the price took a nose dive.

It’s hardly surprising that so many miners and smaller pools, like PetaMine, flee GHash in the hopes of keeping the network — and the exchange rate — stable.

GHash appears to have gotten the message. At a meeting of bitcoin mining bigwigs during Coinsummit London, the pool announced it would cap its operation to “not exceed more than 39.99% of the overall Bitcoin hashrate.” Although that’s still a huge amount of hashing power, and there’s no guarantee that GHash won’t effectively control far more simply by splitting up its hashrate among smaller pools, it is a start.

GHash, the Bitcoin Foundation and other related parties also committed to looking for a trustless, code-based solution to the 51% problem.

Industrial-scale bitcoin mining booming

Is bitcoin mining about to become big business? Until recently, the massive warehouses filled with thousands of ASICs and roaring fans struggling to cool them off seemed like the exception to the rule. Companies like MegaBigPower seemed more like the exception than the rule.

For most of bitcoin’s history, mining operations have been relatively small, both in terms of physical size and financial investment. Even a full-time professional miner might only have $20,000 or $30,000 worth of equipment.

In the last six months, however, large-scale bitcoin mining has become very serious business, with tens of millions of dollars being spent on creating massive new “hashing centers” across the country. According to a report on Data Center Knowledge, a trade publication for data center technology, the costs of converting a warehouse to a bitcoin mining facility is a fraction of the expense of building a Google or Facebook-like server farm.

“To build out one of these (warehouse) data centers isn’t as expensive,” Butterfly Labs COO Josh Zerlan told the publication. “You can put in $10 million instead of $100 million for this kind of facility.”

What’s more, although the power consumption can be quite high, with the proper cooling arrangement a hashing center can have an extremely dense and efficient layout.

Bitcoin mining servers can pack as much as 1 megawatt of equipment into 1,000 square feet of space, according to Eric Doricko, a veteran of Exodus Communications who now helps Bitcoin businesses find data center space. That’s a big change from the 8,000 to 12,000 square feet of space for 1 megawatt of traditional IT space.

Will this boom in industrial-level bitcoin mining squeeze out the hobbyist miner? Or will it encourage many of those miners to test out the cloud-based operations many of these data centers are experimenting with?

Miners breathe easy this week: 6% difficulty increase expected

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Image source: BitcoinWisdom

For most of 2014, miners have been faced with an unprecedented growth in the all-important difficulty setting. Six months ago, the hashing power of the entire bitcoin network was a mere 20 PH/s, meaning that a miner with a 1 TH/s rig had a fighting chance at making a decent profit in the daily game of roulette that is bitcoin mining. Since early March, however, a flood of newer, faster, cheaper ASICs and giant cloud-based mining companies have added around 110 PH/s to the network, resulting in dramatic and painful jumps in overall difficulty.

Since the difficulty increases every 2016 blocks (generally three times a month, for the non-miners), a mining set-up can go from a somewhat profitable venture to a money-losing operation in a matter of days. This point was driven home for many miners in late June, when the difficulty spiked, growing almost 25% from 13,462,580,115 to 16,818,461,371.

Even relatively well-equipped miners were suddenly facing a situation where their equipment might cost more to power and operate than it was likely to make back from block rewards.

But there is good news: For the first time since early 2013, the next difficulty increase is expected to be in the single digits. BitcoinWisdom is expecting a mere 5.8% increase on Sunday, giving miners a much-deserved break from their constant struggle for profitability.

It might not last long, however. With many mining hardware makers on the verge of releasing next-generation, high-powered ASICs, this might simply be the calm before the storm.

PetaMine shareholders vote to dump GHash for P2Pool

Few mining pools have provoked as much resentment and outright anger as GHash. When the CEX.io-owned pool crossed 51% of the total bitcoin network hashrate last month, it did more than crash the price — it made many in the bitcoin community realize that the dreaded “51% attack” scenario wasn’t as implausible as some experts had claimed.

With this in mind, shareholder-owned mining collective PetaMine decided it might be time to point their 1.2 PH/s of hashing power away from GHash. Last week, PetaMine’s administrators announced the results of a survey seeking shareholder input on moving towards decentralized mining pool P2Pool, selecting another pool to join, or staying with GHash.

The results couldn’t have been more clear. With 68% of unit holders responding, 96% voted in favor of switching to P2Pool. A mere 3% voted in favor of staying with GHash, even though staying with the larger pool would mean their profits would be substantially less erratic on a daily basis.

PetaMine has since moved forward with their P2Pool adoption, although a compatibility problem with BitFury systems has caused some delays.

MegaBigPower launches franchise program

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Inside MegaBigPower’s facility.

With over 5.16 PH/s at its command, MegaBigPower is easily one of the biggest direct mining operations in existence. The Washington-based company’s BitFury mining rigs fill a 20,000 square foot warehouse, earning millions of dollars worth of bitcoin and various alt-coins per month. As impressive as the operation is, it’s not quite enough for MegaBigPower. The company announced last week that it was launching a new franchise program that could add as much as 50 PH/s to the overall bitcoin hashing pool.

Speaking with CoinDesk, MegaBigPower owner Dave Carlson said that the move comes in anticipation of an oversupply of hardware on the market.

"I perceive that there is going to be a large surplus of manufactured hash power," Carlson said. "What I think is going to come of that is that the new commodity won’t be access to mining equipment. It’s access to power.”

If Carlson is right, his company will soon have a glut of cheap, powerful mining equipment, but limited space to operate it. Setting up a new facility and paying for power is too expensive for his current profit margin, prompting the idea of a franchise model for new locations. MegaBigPower supplies the mining rigs, software and expertise, franchisees provide the location and the electricity.

With a 50/50 split of mining revenue, the operation could prove to be hugely profitable for MegaBigPower. Success will, of course, depend on finding franchisees with easily cooled facilities and access to cheap electricity.

“What we want to do is build a large network presence,” Carlson told CoinDesk. “If we do it through this franchise network, we’ll do it faster and easier than if we were to build this power ourselves.”

Fine-print clauses KnCMiner’s Neptune-delay compensation agreement angers customers

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KnCMiner’s Neptune

In April, Swedish mining hardware maker KnCMiner decided to make a good-faith effort to appease customers who had pre-ordered their long-delayed Neptune bitcoin mining machine. Those who had ordered from batch one and two would be entitled to a free Neptune from the third batch. It was a popular move, as early adopters could count on doubling their hashing power if they were willing to be patient.

With the first batch of Neptunes preparing to ship next month, KnCMiner seems to have changed tactics, offering hosted mining services for those still waiting on their mining hardware. As CoinDesk reports, some customers have taken issue with the small print, which seems to renege on the April agreement.

“If the purchaser of the Products (referred to as the Customer) accepts KnCMiner’s offer and connects to KnCMiner’s Mining Services, the Customer automatically accepts that these General Terms shall apply for the provided Mining Services and that the Mining Services provided by KnCMiner shall constitute the Customer’s sole and only compensation due to the delay of the Products and shall supersede and extinguish all prior agreements relating to compensation for the delayed Products.”

Not surprisingly, many KnCMiner customers took to Reddit and other popular bitcoin forums to cry foul. Given that a new Neptune sells for $5,995, a maximum of six weeks of hosted mining at the same hashrate seems like a weak trade to many.

The company was quick to respond, and said it will allow users who have not yet redeemed their hosting offer to switch back to the previous agreement.

KnCMiner co-founder Sam Cole told CoinDesk: “It was never our intention to deceive people. … Really, it’s a lose-lose for us and either a little win or a big win for the customers.”

Mining hardware maker CoinTerra moves for out-of-court settlement in class-action suit

CoinTerra’s ill-fated TerraMiner IV

According to a new report by Ars Technica, bitcoin mining hardware maker CoinTerra’s dark days may be finally coming to a close. The company has been facing a class-action suit brought by disgruntled customers who purchased the TerraMiner IV on pre-order, only to wait through 10 months of development and shipping delays. With a courtroom battle expected to be slow and expensive, both parties now seem willing to consider a mediated solution.

According to the plaintiffs’ attorney, Edward Mullins:

“We hope to have it resolved sometime this summer,” Mullins said. “If it doesn’t work out then we will go forward [with the lawsuit.]”

With several similar cases plaguing other mining hardware makers, the CoinTerra case may offer an insight into how those cases will ultimately be resolved.

CoinTerra’s situation has become something of a cautionary tale in the mining hardware industry. Even with a highly experienced and well-funded team, the company still experienced huge delays. As Ars Technica explains:

The startup was founded by a team that appears to have extensive experience in the industry. The company’s CEO, Ravi Iyengar, was Lead CPU Architect at Samsung for two years and worked out of the Samsung Austin Research Center. The head of the company’s advisory board is Naveed Sherwani, an Intel veteran and current chair of the Global Semiconductor Association Technical Steering Committee. Sherwani literally wrote the book on very-large-scale integration (VLSI) semiconductor design and production.

But even they couldn’t seem to get their act together.

No date has yet been set for the CoinTerra mediation, but the company has formally asked the court for more time to allow for negotiations to take place.