Topic: [Havelock][KCIM] Korb Investments – Establishing my Investment Firm, part 1 - page 2. (Read 30925 times)

Important Update

Noted below is a culmination of several weeks of thought. I've been trying to figure out what the best course of action is in such a turbulent, and slowly centralizing, mining environment. What I've put together represents my thoughts on where we stand and my concerns going forward, but more importantly I'd like to hear from the community.

Formatted PDF Version (including working links): https://drive.google.com/file/d/0BxnW49twNMNbZlVRN3Y1WGZXYTQ/edit?usp=sharing


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Abstract
Korb and Co. Investments, DBA Korb Enterprises, is looking to liquidate all mining gear and cease operations as a Bitcoin mining organization.

Overview
To many of you who have kept apprised of the changing Bitcoin environment, I’m sure this comes as no surprise.

The past two months have been difficult as we’ve been operating at a net loss. While I was aware this was going to happen, I didn’t plan for such a drastic decrease in the BTC/USD exchange rate. This drop greatly effected both our ability to reasonably cover expenses and our ability to purchase new hardware, all using Bitcoin of course. With no new hardware coming online, coupled with an increase in BTC expenses (when converted from USD) and an increase in network difficulty, it’s becoming infeasible to continue for very much longer.

All net losses have to be reconciled somewhere in order to pay dividends, and in this case it has been pulling from the leftover funding I set aside for dividends under the old KCIM model in 2012. As planned, this source of funding is coming to a close, and it was never intended to be anything other than a crutch during slower months.

In order to maintain the previous dividend model (paying 0.000025 Bitcoins per share after expenses, per two week period, 26 periods total) KCIM needs to operate roughly 0.006% of the network at any given time. During the early months (December 2013 – February 2014) this was fairly easy (very minor net losses and gains over the period), but unfortunately also very short lived as hardware delays mounted and our overall purchasing power decreased.

As it stands right now we are still operational, but given our current circumstances I voice these three concerns:

Mining Difficulty, Public/Private Interests
The most daunting challenge in Bitcoin Mining is predicting where the network is headed. The number of variables that can go into such an equation are often numerous and volatile; factors such as the BTC/USD rate, current difficulty, energy costs per kWh, past difficulty increases (averages per 2016 blocks), number of ASIC device manufacturers, and cost per device should all be considered.

When considering the number of public manufacturers currently (including “supposedly”) working on development and shipping, there are several prominent companies in the industry. Serious companies to consider are: KnCMiner, ASICMiner, BitMain, Spondoolies Tech, BitFury, Bitmine, and CoinTerra. Other contenders (including dodgy companies at this point) are: BlackArrow, Buttefly Labs, Avalon, Hashfast, Dragon, and several others.

Combined, we start to see a picture of what they’ll be shipping, spawning threads like these in their wake: https://bitcointalksearch.org/topic/estimate-of-asic-pre-orders-13-to-15-phs-diff-18b-to-21b-by-end-of-2013-283820 and https://bitcointalksearch.org/topic/total-hashrate-forecast-q1-q2-2014-community-work-387533

Most of the well-known developers have numerous Petahashes worth of hardware on order, including news from ASICMiner that put their current on-order wafers at 100PH/s, with possible expansion into the Exahash range (1,000PH/s) over time.

Aside from publicly disclosed details, we’re also encountering a substantial amount of private and semi-private interest in Mining. GHash.io / CEX.io is the most prominent known example of this, but Cloudhashing.com, MegaBigPower.com, KnC Miner’s datacenter, CoinTerra’s datacenter, BitMain Tech’s operations, and ASICMiner also come to mind.

So long as there is money to be made, organizations with the knowledge and resources will look to take advantage of that fact, ultimately reaping the benefits sooner than anyone purchasing retail devices, putting smaller mining organizations at a disadvantage. This isn’t uncommon, however, and it is a trend that will continue so long as the Bitcoin economy continues to grow.

As it stands right now, all of our equipment is still marginally profitable, which is why liquidating now is beneficial; the devices still have market value.

Lack of Resources
While we do have some dedicated space in our datacenter (limited, but flexible), we do not have the capital required to continually purchase hardware to store there. Ultimately, we are unable to purchase any meaningful amount of hardware to achieve and maintain a 0.006% share of the Bitcoin network, especially as it continues to grow exponentially.

These issues have led to a gap in our incoming orders, and soon a decline in our share of the network. The larger the gap, the harder it will become to catch up to our minimum requirement.

This is not for lacking of trying, however. With our purchasing power based solely in Bitcoins, and hardware based primarily in USD (a few companies notwithstanding), we have to contend with an ever changing BTC/USD exchange rate. As it stands in this moment, no hardware purchased using Bitcoins at today’s prices (~$450-470 via Coinbase, May 18th) will ever recoup the original cost to purchase said hardware (in Bitcoins). Continuation requires a vast increase in price that my not come soon enough.

Between January 1st, 2010 and May 12th, 2014, the network difficulty has increased an average of 20.34% per 2016 blocks. Using a BitMain AntMiner S2 (1TH/s) as an example (as stock is on hand and ready to ship), at the time of writing they’re priced at $2,424 (5.51 Bitcoins, May 13th 2014). At this continued rate (and including energy costs @$0.15/kWh), the device would be mining at a loss when network difficulty reaches approximately 60 billion, bringing in a total net income of 2.69 Bitcoins by that point: goo.gl/QYI0N9

It’s easy to assume such an exponential trend cannot continue indefinitely. As such, calculations at even half that increase (per 2016 blocks) still yields disappointing results; the miner has only earned 4.91 Bitcoins during the time it took to reach a difficulty of 60 billion: goo.gl/moIGKE
United States Regulatory Concerns
When this venture officially started at the end of October 2012, Bitcoin-denominated Securities presented a legal ‘gray’ area, to the point where I even wrote a brief, though dated, analysis on the subject after consulting with a local Securities lawyer.

Since then, the Securities and currency regulators in the United States have become more aware of what Bitcoin is and what it can be used for. 2013 marked the year when FinCEN and the Securities Exchange Commission stepped in to voice their position on the virtual currency, as well as the Federal Court ruling in August of that year that Bitcoin was money. In 2014 so far, we’ve seen an update from FinCEN regarding Money Transmitter laws and an IRS ruling on how gains and losses in Bitcoin should be taxed.

What that leaves us with, however, is an outdated list of rules we should be abiding by. Unfortunately, I no longer have the time, knowledge, or financial capability to properly bring this organization up to current standards, leaving us unable to adhere to the rulings presented over the past 12 months.

While this is something that solely lies with me, it is still a concern (both in the present and future), and certainly something I must acknowledge. With that, I want to make it perfectly clear that I have NOT received any notification or contact from the United States Securities and Exchange Commission, Financial Crimes Enforcement Network, Internal Revenue Service, or any State or Federal Court Circuits regarding a cease and desist for current operations. While this may not presently be the case, it is better to be proactive and open about the situation.

At this point in 2014, any individual or organization based in the United States who is looking to build a crowdfunded mining farm will have trouble proceeding legitimately, I have no doubt about that. Be wary of these investments.

Afterword
I’ve always been a ‘one man’ operation, and I’ve always been as forthcoming as I could about what I know and don’t know. Along the way, community members have pointed out my mistakes and offered criticisms, but at the same time they’ve also offered solutions, strategies, and praises. For that, I couldn’t be more grateful for what I’ve learned over the years, and I’m proud to be a part of such an intelligent community.

Along with this, I’m also quite impressed with how far Bitcoin has come over these past few years, from media attention and network growth, to general value and applications. I certainly imagined some growth when this project begin, but nothing as epic, turbulent, and stunning as what we, as a Bitcoin mining organization, have gone through.

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I'd love to hear what others think on this matter. Any comments, questions, concerns, or general opinions are more than welcome, and I plan on being around for much of today and tomorrow to address each one as I can. I'm also on FreeNode IRC, #HavelockInvestments

Roger that I looks forward to a nice surprise
Anyways look forward to voting for something and learning what the new updates are.

Hello Everyone!

Trading will be temporarily halted tomorrow (May 23rd) at 12:00PM EDT prior to some new updates I'll be releasing. We'll be going over where we are so far this year, what's to come (potentially), and go over some voting.

The freeze will last seven days, and trading will resume on May 30th, 12:00PM EDT. There won't be any effect on mining or dividends during this time.

Received our second unit at the beginning of the month, and got it situated in the datacenter on the 2nd (I apologize for the lack of update here!). We're currently hashing at ~3.9TH/s total so far.

Anything new with CoinTerra delivery?

I can't say there's been too much going on, at least nothing too interesting. Still awaiting the CoinTerra gear for the April batch.

One of our KnC Jupiter boards died late last week, bringing our rate down on the unit from 550GH/s to ~420GH/s. I had it RMA'd without too much of a hassle, which was nice, but I did pay for shipping out of pocket to get the board back to them as soon as possible. I installed the replacement board on Monday and all is well...except now another board has died. I can't tell if I'm just unlucky, or if the boards degrade over time...

Other than that, I've been trying to piece together a plan of action going forward...one that accounts for a lower BTC/USD rate like we're seeing now, and it's certainly a challenge. Since the vast majority of equipment is based in USD, and coupled with the low BTC/USD rate, there's been a fairly high probability (~90%+) that the purchased mining rig (regardless of manufacturer) will never make back the BTC spent to purchase it. This, of course, is based on a fairly substantial difficulty increase over the next 6 months as companies ship their equipment, as well as a low (but steady) monthly difficulty increase after that (similar to what we saw during the GPU phase, pre-ASICs), and also accounts for a delay in shipping (such as ordering a unit that ships in June, July, etc).

Going back to the Ghost of BFL I noticed that a lawsuit is finally occurring and if it will result in anything, but we will see the test cases are 2013 BFL orders go back to 2012.
https://bitcointalksearch.org/topic/m.6137302
http://www.coindesk.com/butterfly-labs-faces-class-action-suit-pre-pay-orders/

Class Action: Started

http://www.woodlaw.com/sites/default/files/casedocs/2014-04-04%20Complaint.pdf

Feels Kind of Like a Time Machine remembers my quote from 2013 about the same time these customers bought their preorders.

Time Machine

Not so bad looking back only had a few scams from the new miners

That aside any interesting news or updates since last month.

Quick updates:

-- Purchased an additional AntMiner S1 this afternoon, which hopefully will be shipped out soon. Another 180GH/s will be nice!
-- Moved away from BitMinter and back to BTCGuild. Keeping with the spirit of Bitcoin, I always enjoy supporting smaller pools, but the bad luck we've been experiencing hasn't helped us. I'm sure the switch to a larger pool will result in a much more stable income.
-- Cashed out all Namecoins earned on BitMinter to BTC-e, a total of 60.52944775. Converted those coins @ BTC0.00542 each (as of 9:33pm EDT). After a 0.2% fee, the resulting Bitcoins were BTC0.32741346, which has been added to our mining address for the upcoming dividend.

Ah. Like your rank though! Thanks

Indeed, seems we're in a stretch of bad luck :: https://bitminter.com/livestats/big

1 day, 10.5 hours since the last block.

Are we still at 1EYUhR7cJSacH9URg85H2DqzCDtujKWiEg for mining income? Haven't seen any deposits in a few days.

whoa someone just bought up all the sell orders up to 0.004..
600 shares total

Thanks for the update. Seems you've got it well thought-out.

We qualify for the 15% discount, but it comes down to whether or not we'll want to use it since that means purchasing more gear from CoinTerra. Based on what I've experienced so far, placing another purchase doesn't seem likely (unless they get their act together).

As for their new GSX card, the problem is I have no idea how the card would be set up (aside from building a PC solely for mining), where it would be set up, or any additional costs associated with running it. Not to mention it won't be shipping for another 5 months (making it nearly obsolete by that time).

What I would appreciate, however, is a TerraMiner II if they A) start selling them again and B) can figure out how to get it into a 2U space ...at half the price and speed, it should come with half the problems

Disappointing that the TerraMiner IV is flawed. They should certainly be willing to compensate us for that, they were offering 15% discount coupons to customers who got the less-than-advertised early releases.

Perhaps you suggest they throw in a GSX I card with the next TerraMiner IV delivery since the 400 GH the card supplies is even less than the short fall on your current IV.

Awesome!

I've got quite an update for this evening.

1) A coworker of mine has been interested in Bitcoin ever since I introduced them to it last September. Since I needed to move the old BFL Singles out of our datacenter, he offered to purchase them from us for BTC1.7, to which I've agreed. Given how the network is beginning to ramp up with the new hardware being shipped, I figured this was a fair price, and my coworker didn't mind. Payment will be added directly to our 'hardware reinvestment' address.

2) Our January CoinTerra order has arrived! I spent quite a bit of time today rearranging our portion of the rack to accommodate the size. Here's the unboxing album.
For those of you wondering, you can change the power stepping on the rig from 1 (the minimum power usage) to 9 (the maximum). At the minimum, the rig uses a bit over 1000W and runs at 800-850GH/s. I've been slowly stepping up the power to make sure I don't cause any unneeded disturbances / fluctuations. As of right now, I've set the stepping to '5', and we're running stable at 1.1-1.2TH/s.

You can see us on the BitMinter Live Stats page for once, though I'm positive our tenure there will be short.

Our combined rate is currently 1.8-1.9TH/s.

EDIT: I've moved the power settings up to 7-8, but had no discernible impact on our hashing speed other than just using more energy. Apparently this is a known issue, at least according to the CoinTerra thread. For now, I've set it back to '5' (1.1TH/s) until I hear back from CoinTerra on a ticket I opened with them.

Brief update for everyone:

We've sold one of the Singles for BTC0.55, which I've considered a fair market price.
For those of you wondering, I price hardware based on:
A) What currently available hardware there is out on the market.
B) The efficiency of both the equipment I'm selling and the equipment on the market.
C) What new hardware is coming to market over the next few months.
D) Difficulty projections.

I *Do Not* go by the ridiculous prices I see on eBay.
I aim for a breakeven period of 60-days. After escrow and shipping fees, approximately BTC0.5 will be added to our hardware reinvestment address.

On another note, we received our BitMain AntMiner S1 today, an order I placed just 1 week ago. Everything seems to be up and running quite well so far at ~180GH/s.

Overall, we've seen a net gain of 120GH/s for this month (lost 60GH/s for the sold Single, but gained 180GH/s from the AntMiner). It certainly helps, but not as much as seeing our CoinTerra gear arrive.

I'm a fan of KnC equipment, but the uncertainty behind the Neptune is really what's holding me back from considering a purchase. A "Q2" ship date and unconfirmed specs are my primary causes for hesitation, especially given what I've seen with CoinTerra so far. Hopefully new info comes out soon so I'll be in a better position to make a decision.

Hey Korbman,

Thanks for the newsletter.

What are your thoughts on the second batch Neptune from KcNMiner? Not sure what's available in the "kitty" for additional equipment purchases, and then there's the energy cost, etc. Just wondering.