Topic: The risk of NOT actually owning your mining hardware. (Read 618 times)

Been saying it forever! Own your hardware!

I have 5 S19 miners that I own and am looking to host.

Does anyone on this thread have any hosting locations that they could recommend?

I'd appreciate it. 

There is risk for everything, the thing to be concerned with is how much risk. And the risk of getting screwed by cloud mining is way way way larger than ending up with some flaky gear or getting stuck with hacked firmware.

Also, the risk from your two examples can be nearly eliminated with a few precautions.

If you buy used gear, reflash all of it with the latest firmware on an isolated network before putting it online.

As for defective chips etc., .... just don't buy Bitmain. Problem solved  .

Ok, that makes sense to some degree, but then even if we were to assume that the miner manufacturer would go that far to kill their own business, it still does not justify adding more risks to an already risky business model, it's like crossing the traffic light, even when it's green on your side, there is still a risk of hitting another car, that doesn't make it equally as bad as crossing a red light, the degree of risk of both cases is very different.

I think you are completely correct when you say there is risk in not actually owning your mining hardware. But I also think that same principle of risk goes for everything else which you do not completely own. Just look at what happens when you leave your Bitcoin on the wrong exchange and they close up shop and never give you your Bitcoin back. Furthermore when it comes to mining, you are depending on the people who sold you the miners not to have included some kind of malware or spyware in the miners. And that the people who built the miners did not use defective chip parts and so on...

So what can really be said for ownership? Is anything really "ours"? Or do we just decrease risks without ever getting rid of the risks themselves?

I think with the current rates of cryptos and increased electricity people will be backing off to start mining

So use a S-Corporation LLC ? play with openlaw.io a little bit ? Then let someone build the mining farm and go solo mine some shiii?

I saw a tweet (which was deleted later on ) by the company that compass owns the power bills to, long story short, Compass had a floating power rate with the supplier but they gave fixed rates to miners, they did not see the huge price increase of energy coming, I think their contract with the clients was in the 5 cents range, and recently the supplier charged them more like 10 cents per kWh, so they were paying more than they could afford, they have also spent a huge chunk of money which they received from clients on building a new facility rather than paying the power bills.

I don't think they planned to exit scam from the get-go, they just got greedy and took a very risky gamble which backfired on them, in their first failure they blamed the sanctions on Russia, now, all this mess is happening on the other side of the planet and war is a few thousand miles apart, just goes out to show how mining is bloody risky, and then you see someone brag about how a 2 year ROI on some gear is perfect and it's like no other business on planet earth, just spend 15k on a gear ran by a reckless host like Compass-mining and you will become rich in no time.

It's what i pay right now... there a few dingle berries on the bill but that's it.

The Simpsons said it so well: https://www.youtube.com/watch?v=0P2DwJuhIAE
Been poking around and it seems they stopped paying bills regularly when BTC started dropping from the ATH.
So either they did poor planning and could not make enough money to survive, or it was always setup to be a scam from the beginning.

Guess we will have to see if & how it plays out in court.

-Dave

This story sounds familiar to me because in my country some people are doing the same, electricity is very bad here and only very limited cities have stable power so people from the bad cities will buy asic miners and send it down to those in the good cities, they always give some percentage to the asic holders per month.

Something interesting in that scan, one of their facilities has failed to make any payments after February 1st. That's
- before the invasion of Ukraine and sanctions hitting
- the price was averaging 40k with 26T difficulty, so at least twice the revenue

If they've started losing money and were unable to pay in those conditions, what were they thinking in the first place?

Meanwhile:
https://www.coindesk.com/business/2022/06/28/compass-mining-ceo-and-cfo-resign-amid-setbacks-and-disappointments/


I know too well what this statement means, that you should grab every office supply you can get your hand on and run as you won't see any more paychecks from the "restructured" entity.

And it looks like they defaulted on some other stuff too:
https://twitter.com/DynamicsMining/status/1541262827096358912

It's going to be interesting to see how this all plays out since it's US based you can't just as easily vanish as in other parts of the world.
But, much like not your keys not your coins. How about not your miners not your hash.

-Dave

I understand the risk. I think ETH mining will probably exist for 6 more months or at least until a price downturn. If my video cards fall to 60% of MSRP, I would still end up making a profit over those six months after tax considerations. I would've earned more in mining profit than the after-tax loss in video card value.

I have done detailed research on index power pricing for Texas. The minimum load requirement is 50 kW for the day-ahead or realtime ERCOT index. Unless one gets to the 50 MW or so level like you said, there are no refunds for shutting down. That requires a private contract.

Without a private contract, the only benefit of shutting down is avoiding peak energy prices (> 15¢) during peak load for 1 hour every day. The less efficient the miners are, the lower power cost at which they pay for the power, so the more often they should be turned off.

With an efficiency of 40W/TH and 1MW of load, my calculations based on the past 12 months of data show that the most profitable scheme is 96% uptime. The all-in power price comes out to 5.1-5.5¢ in the ONCOR territory on primary service. The utility charges would be 1.5¢ while the energy price would average to 3.5-4¢. You can go as low as 3¢ for really old equipment, but uptime would be < 50%, so that's not profitable.

Mega-miners like Whitstone, who build farms near power plants or substations, can get 3-5¢ with their special deals of course. Building their own substation already cuts 0.5-1¢ off the tariff, then let's assume they get a 0.5¢ special discount. So it's not hard to see how they get below 4¢. But on the other hand, that electric equipment is expensive and the ROI might be longer than if they just bought more ASICs and paid a higher power rate.

I don't know, it's my personal bias, it's the bad experiences that people share around but when it comes to mining and mining companies it's always the story of the boy who cried wolf with a serious twist. Every time the villagers came there was no wolf but a wolf pack and when the boy finally yells fox it turns out to be not a fox but still a wolf in disguise. I simply can't erase all this experience that started with mining equipment producers that said one month delay in shipping when they actually were packing their bags as they had no miner, cloud mining companies, etc etc ...etc!

Yeah, they have the excuse, their partner as I understand it's either Bitriver or some subsidiary of them, but man, if that company is under sanctions and you can't deal with them anymore how is it that you can't take your gear out but you can still sell it to them and get money under sanctions! And the thing that pisses me off the most is that although I watch their Twitter account this one got nearly undetected, If it weren't for your topic I wouldn't have known but memes and investments advice and praising themselves how great they are, there is a ton each day.
Their tweets on the days the sanctions-hit bitriver:
https://twitter.com/compass_mining/status/1516457447984148484
https://twitter.com/compass_mining/status/1517195208538140672

To me is like taking a piss on your customers and laughing at why they are wet! /ending rant!

The worse part is that probably not that many will learn the lesson, people in Brazil will still buy IOU checks from a company in the US run by a guy who has Canadian citizenship that has a deal in Russia through a Switzerland intermediary, and when they ask what they can do to get their money...what a surprise!


Even if they put a GPS tracker on them I wouldn't touch such a contract, I remember a story (but I forgot their name), a company that hosted a few miners, allowed the people to visit the "data center" and suddenly the "partner" decided to load them on a truck and poff! 100 miners gone!
Not your keys locking doors to the miners on your property, not your miners!

In the US, odds are that unless you are contracting for over say at least 50MW - and are located very close to one - you are not going to find "private deals with a power plant"...

That said, yes there ARE several (but not many) states that have very very low rates with no 'special deals' needed as long as you meet minimum load requirements and possibly a restriction on your usage when there is a major weather-related event affecting the Grid (think Texas). The huge farms that are moving there throttle back when the power is needed elsewhere and in fact are paid by the Utilities when that happens. How much are they paid? Unknown, probably nowhere enough to make up for lost mining revenue but coupled with lower overall rates certainly enough to cushion the impact of temporarily cutting back their power usage.

Only problem with #3 that I see is logistics and folks being VERY unhappy about having to also pay duties on the miners when they arrive in their country.

All in all there is no clean & easy way out of the mess but then again for a myriad of reasons already covered here and in other threads I sure as hell would NEVER have used Compass -- or ANY other company like them where you have no solid proof of 'your' physical miner even existing. As Mikey has said it is far too easy for a company to contract out the hash rate = to your 'purchase'. A few companies have done that in the past and is a cert bet that others will do it again.

They paid a few extra thousands just to get their gears hosted by Compass, while the power rate was tempting in Russia, I am sure the price difference would pay the power bill at least for the first year (it was anywhere from 2k to 5k) depending on the gear price at that time, but well, sadly newbies have to pay the price twice for not doing enough research.


I can't accuse them of anything without solid proof, however, I can speculate as well. Another point is the fact that they could have delayed responding to the Sanctions, I mean come on! it's not like the U.S police were pointing a gun at Compass's owners telling them to end the deal with the Russian host right now, EU sanctioned everyone in Russia (most of them don't even matter) and they shut their eyes on the Gas companies because well, you can't hurt your own people this way, Compass could have saved those newbies if they wanted, the law isn't black and white, there is always a way to reduce damage if there is a will, but it could be that they intentionally used this excuse to force the clients to sell their gears for cheap, for all we know, the gears could still be mining to Compass "new address" after they bought them 'back' for dust, but we don't know, do we?



That's also a good possibility, Compass is known for having long delays.

What's even worse, many people paid for future orders, not sure how Compass is going to handle that, imagine selling a gear you never saw hashing for 4k or less after paying 10k or more for it, that would be more painful than having had the miner run for a few months at least.

Now this one is a mess, I can remember a lot of the topics in which people took the offers from compass mining as a basic starting point for setting their new mining adventure, this is going to hurt probably a lot. But I don't get this:


Why not 3, have the gear they've bought shipped to their homes?

F! the sanctions excuse, Compass could have simply pulled out all that gear, there are thousands of trucks still moving goods between Russia and the rest, no way they would be forced at gunpoint to sell it. Far more likely this is far worse than that and there was actually no real ownership over the miners, just bought hashrate from some farm in Russia, wouldn't be the first or the last.


And see your used cards drop to half the price and the income by 90% if Butterrin farts in his sleep and decides to push PoS tomorrow.

Is this a private deal with a power plant? I don't think you can get below 5 cents on publicly available tariffs in most states.

4.3 cents here in Oklahoma primarily wind and hydro. That why google is here and Northern Data is in the process of 250Mw facility.

There have been a lot of cloud mining scams in Russia, and so many companies have gone bust or their directors have been accused of fraud. In Russia, a lot of people know that cloud mining is a scam, because over time the company stops paying for various reasons, like the price of electricity has risen and so on.

Crazy story...

Not your hardware, not your hashes, am I right?

I get that when it comes to mining it's the low cost of electricity that dominates.  It is important to remember that more hands in the cookie jar is not always the best solution though.  When you use a company like Compass, they have to make money, their service providers need to make money, the equipment manufacturers need to make money, etc...  There are a lot more costs.  Sure, the cheaper electricity and less hassle might make it worth it, but there's also plenty more risk added with each person that has their hand out.  This is demonstrated well with this story. 

Are you talking about thermal power plants? Is it so easy for you to build an electric power plant?  Or can you buy electricity from this plant?
It is possible to do this in our country, but consumption should be at least a megawatt.

... so many people think "Wow Bitcoin Quick Money"

Delusion.

IDK how you can get 4¢ in PA unless you have a special deal with a power plant. The best-case scenario in the PECO service area with PJM index pricing, primary service and curtailment seems to be 6¢. Most places are 7-8.5¢. I spent days researching this. The other utilities (WestPenn/PPL/PenElec) charge more than PECO.

At least that's better than Joisey, where the lowest possible price (with PSE&G) is 7¢ while most small warehouses are 8-9¢. It might even be a cent higher this year with all the crappy ESG riders that were added to the tariff. I had to pay a ridiculous 11¢ in 2018 with JCP&L but thank god that was for GPU mining; I decided to pay the higher rate because that warehouse already had 1200A of power installed instead of 400A. Screw FirstEnergy. Of course, I called the utilities to verify these numbers.

Delaware is as bad as NJ, but at least there is no sales tax on power or equipment.

In northern Texas for ONCOR you can subtract 2¢ from the PA numbers. With ERCOT index energy, curtailment (96% uptime) and 500+ kW of primary service, the rate for the last 12 months was 5.1-5.5¢. I coded up a script to pull historical ERCOT prices and consulted with an energy broker to verify these numbers. Ultimately it was a no-go decision for other reasons, but TX seems to be the best place to start a farm for me.

We have the solar angle here in NJ which makes it decent.

We may build in nearby PA in carbondale as we can get 1 megawatt at 4 cents, but it is coal based power.

I think every country has its own problems. In Russia, you can find electricity for 1.5 cents, but you will not have guarantees for the safety of storing your equipment. Therefore, it is better to mine at home, but pay several times more.

I will never open a mining operation in New York for the same reason even though it's convenient for me! Yes, their electricity is cheap and the weather is colder, but is it worth fighting a bunch of old buereaucrats downstate who are alumni of Goldman/JPMorganChase/Citi who trash PoW as well as decentralized currencies? Hell no! Texas it is 🤠

I am USA based I can get a good deal in Canada and I won't do it because their PM is very anti BTC and the last thing I need to do is setup a 1 megawatt container in Canada subject to their wims and fancies.

If you lived in Russia, you would understand the risks that you need to consider when transferring mining equipment to other companies. Therefore, in Russia we mine in our homes or other safe places.

Usually, your miners will be pointed to your own pool, the host doesn't own a pool nor is responsible for that part, you provide them your main pool and two back up pools and they will set the miners up for you, depending on how well built the facility is, this could be done via basic methods like an email or an online portal which you use to set up your pools and then they use some sort of a script that would copy-paste your workers from that database to your miners, some hosts could give you direct access to your miner using some of the technologies available. Different hosts will have different ways of dealing with that, but the common thing is that every owner will decide the pool they want for their miners.

@mikeywith
Thank you for the explanation, it's a lot clearer now  I've not considered mining as yet, but if I do, I know what to avoid now..
I have one more question?
Do these hosting service pool the hashrate of the different mining gear contracted to them to gain an advantage in finding blocks, and then distribute the reward among all the available miners? Or is there a way for someone on the outside to verify this at all?

I met with another miner dude to consider starting a warehouse for hosting purposes. But after looking at the spreadsheets as well as the upfront cost required to upgrade a warehouse electric supply to 1MW, we realized it was an awful idea. Even if we charged customers 11 cents on a 12-month contract, making a profit would be very hard if the underlying power cost was 5-6 cents. It would take a year to pay off the initial $50-80k in startup costs. There would be no profit for 6-8 months as we would go through the long engineering process of getting a new transformer.

The only way to turn a profit quickly would be deceiving the customers, which was unacceptable. This is why I believe so many cloud mining / colocation farms cheat the customer. Both the host and the customer are locked into a certain wattage and cannot adjust efficiency or liquidate the equipment, even if they think the market will go down.

Better to go with GPU mining and invest all of that $50-80k into viiideoo cardz without having to rent a warehouse!

Personally I decided to focus on new business ideas instead of copying thousands of other miners with much deeper pockets.

First thing first, you should assume that the majority of those services are scams, so don't send your gears until you have done your research, however, the legal ones operate as follows.

They provide the infrastructure like internet, electricity, cooling, and all that's needed for mining gears to run, and then they will make you sign a contract to pay x amount per KwH your miner uses, an example:

Your miner is 1*S19 pro, it consumes 3kWh, and you pay them 10 cents per kWh, so you pay them 0.1*3*24 = 7.2$ daily, of course, they won't collect the fees daily, maybe monthly, maybe yearly, it all depends on their terms and conditions.

These folks supposedly pay less to the power company, so maybe 0.5 cents per kWh, so for every S19 they host, they make 3.6$ daily minus all the operation fees they have to handle, you as a client get your miner up and running by them, pointed to your pool, you make money, they make money, and everyone is happy until someone is not.

Compass on the other hand offers a sort of a modified version of the basic hosting, while the majority of other hosts will ask you to send your mining gears to them, with Compass you will have to buy the gear from them, by selling you an "overpriced" mining gear, they make some good money, and then again, more money for the hosting services.

There are many things that can go wrong with this business model, most hosts won't let you see your miners in person, they can just tell you "your miner is dead" and need fixing, send us $300 in fees, and if you decide to take your miner, they might ask you for another $300 for uninstallation and packing fees, it's doesn't matter how good the host is, they will have the upper hand in this mess.

With that said, there could be and probably are some honest and good hosts, and to get a good power rate, sometimes your place is not an option, so this hosting stuff might be your only option if you really want to mine, but then, it comes with an added risk.

Goodday mikeywith,
Please, can you explain what "hosted mining" is?
I did a quick Google search on it and it seems to be a sort of system where the service provider manage your mining gear for you rather than you dealing with the logistics. Most of the relevant search results I got were from companies that offer such service, so I am not sure if I should entirely trust it, as they would definitely market their service.

In hosted mining would I still provide the electricity?
What exact logistics does the company handle?

A few days ago, one of the largest host providers 'Compass Mining' was hit by U.S sanctions against Russia (this is not a political discussion, I will report any off-topic).

Compas is a U.S based company that sells mining gear with hosting services included, thousands of people overpaid (around 13k) for a miner, when the war started, they sent out emails telling their clients not to worry and don't rush to move their miners and that they "Compass" can handle the situation if needs handling.

A few days ago, they sent out emails telling their clients that the new sanctions require them to stop dealing with the Russian host and the clients have two options.

1-Pass ownership for their miners to Compass mining so that they can liquidate the gears in Russia on their behalf.
2-Contact the Russians directly and deal with your own problem (not recommended by them because of a high risk of losing the gears).

Today, someone reported that they will get 4.5k for the gear he bought for 13k (probably an S19 or M30) although that isn't likely because s19s brand new go for 7k range, these are used miners that MUST sell fast, and where? in a heavily sanctioned country, so only some Russian whale may buy them, so my guess is, not even 4.5k is possible.

The moral of the story: having someone else host your gear is very risky even if the company is based in your country and you think they can be highly trusted, it's not about Russia, it could be anywhere else, you can't control the outcome, you may never know when you might be forced to pass ownership of your miners and hope the host can sell your mining gears for whatever they can, and you won't be able to reject the offer regardless of how much your gear is actually worth.