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Venture-Backed Bitcoin Miner Startup Can't Deliver On Time, Gets Sued

timothy posted about 3 months ago | from the but-you-promised-me-free-money dept.

Bitcoin 120

mpicpp (3454017) points out this story illustrating the problem of betting on the differential between the price of deliverable bitcoin-mining hardware and the price of bitcoin itself: Yet another Bitcoin miner manufacturer, CoinTerra, now faces legal action for not fulfilling an order when it originally promised to. CoinTerra is the third Bitcoin-related startup to face litigation for breach of contract and/or fraud in recent months. The CoinTerra lawsuit was filed in late April 2014 by an Oakland, California-based man seeking to be the lead plaintiff in a proposed class-action lawsuit. Lautaro Cline, the suit alleges, purchased a TerraMiner IV in October 2013 for delivery by January 2014. The company promised, he claims, that this miner would operate at two terahashes per second and would consume 1,200 watts of power. It did neither. However, Cline's suit also claims that CoinTerra did not deliver the miner until February 2014, and it "operated well below the speed advertised and consumed significantly more power than CoinTerra represented, causing Plaintiff to suffer significant lost profits and opportunities."

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First! (-1)

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Best Lawsuit Ever. (5, Funny)

AuralityKev (1356747) | about 3 months ago | (#47306931)

"Your honor, the free money generation machine the plaintiff promised me did not generate NEARLY enough free money! Now since I have you here, I'd like to sue Money Tree, Inc. whose shrubbery is also performing woefully."

Re:Best Lawsuit Ever. (4, Interesting)

CanHasDIY (1672858) | about 3 months ago | (#47306959)

Right.

Kinda like how if I promised to build you a fence for X dollars by Y date, and fail to meet the agreed upon pricing and schedule, well, that's your fault for trusting me, now isn't it?

Re:Best Lawsuit Ever. (4, Insightful)

AuralityKev (1356747) | about 3 months ago | (#47307023)

I'm not saying his case is without actual merit. I just think it's hilarious. I do doubt, however, that beyond being made whole for the purchase price that the plaintiff will be able to demonstrate any actual damages. Mining is speculation, whether it be gold or Bitcoins. You can't attach a price tag to "if only."

Re:Best Lawsuit Ever. (1)

ClintJCL (264898) | about 3 months ago | (#47307085)

It is absolutely not speculation, and is governed by mathematically laws. Furthermore, there will be existing data for the delta between delivery date and now; data on network difficulty, which gets harder and harder. You literally make all your money in the first month or 2 of buying a mining rig. It is worthless 6 months later, and won't provide ROI even 1 month late.

But, y'know, keep pretending things you haven't investigated the details on are speculation, if that's an easier way for you to understand our world.

Re:Best Lawsuit Ever. (1)

Anonymous Coward | about 3 months ago | (#47307203)

It is speculation because the price of bitcoins jumps around massively. Gold is nowhere near as volatile as bitcoins.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47307299)

The amount of Bitcoin generated is not speculation. The value of said amount in dollars could probably be called speculation. But their promises were made in TH/s and delivery date, which directly translates to an amount of Bitcoin. An interesting question, if this guy wins, is how the damage will be valued, I suppose.

Re:Best Lawsuit Ever. (1)

Anonymous Coward | about 3 months ago | (#47307331)

The speed at which bitcoins are generated literally varies based upon the number of active miners. It is speculation.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47309535)

No, no it doesn't. That's what the network difficulty is there for, to regulate the speed.

Re:Best Lawsuit Ever. (1)

almitydave (2452422) | about 3 months ago | (#47310537)

Although if it is a class-action suit, then presumably there were a large number of people that also didn't get their X GH/s miners by Y date, all of whom could have generated Z bitcoins.

But wait! If they had all been mining that whole time, then the difficulty would have changed, since they would have constituted a non-zero addition to the global mining capability. So the amount that they "missed out" would be lower.

Anyone have any idea what % of global hashing power the miners in question should have been? Enough to have an effect?

Re:Best Lawsuit Ever. (5, Informative)

sexconker (1179573) | about 3 months ago | (#47307399)

It is speculation because the price of bitcoins jumps around massively. Gold is nowhere near as volatile as bitcoins.

It is not speculation. You can look up the difficulty and show what the man would have been able to mine had he gotten the device on time and as advertised.
The price of bitcoins doesn't matter - you order CoinTerra to pay those lost bitcoins.
CoinTerra won't have the bitcoins on hand to pay up, so lawyers will then bitch and fight over how to value those bitcoins in USD based on market rates at various times between the promised delivery date and now. It doesn't matter though - they won't have the cash to pay up either.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47307491)

That is a foolish tactic. The amount of bitcoins he "could" have mined will be far, far smaller than the amount he paid for the ASIC. He'll end up suing for like $590 if he takes that route.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47307593)

Well then it sounds like he made a bad business decision. It's not the fault of the guy supplying the ASIC if the end user can't do the math correctly. It is the fault of the ASIC supplier if the ASIC can't meet its promised spec.

Re:Best Lawsuit Ever. (1)

pla (258480) | about 3 months ago | (#47309119)

That is a foolish tactic. The amount of bitcoins he "could" have mined will be far, far smaller than the amount he paid for the ASIC. He'll end up suing for like $590 if he takes that route.

He paid $14k for the rig. At the current mining difficulty, he would have only made $8k in the six months since then. Sounds like a net loss, right?

In January alone, he would have made $12,000; In February, $9,500; in March, $6,000; in April, $2,500; in May, $2,000. And one last $1,200 for this month gives us a total of $33,200 just over the past six months (and admittedly, it would have stopped paying for just the power to run it within the next month or two), or a return of around 240% in a mere six months.

That doesn't involve the least bit of speculation except insofar as he believed that the manufacturer would deliver as described. Unless the defense lawyer manages to fill the trial with BS cyrpto-anarchist herp-derp-FUD, I expect he will at the very least get his money back - Or rather, his share of what remains after they throw in the towel and liquidate what little assets they have.

Re: Best Lawsuit Ever. (1)

um... Lucas (13147) | about 3 months ago | (#47310361)

You're not factoring the effect all of the other cointerra miners would have had on the difficulty. The effect is not insignificant.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47310807)

It is likely the judge will award damages to the plaintiffs in Flooz.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47308407)

The whole reason it's called bitcoin "mining" is that it's a statistical search. You start testing hashes, and it might be that the first one you test is a new bitcoin. Maybe even the first five in a row. Over a large enough number of samples you should be able to predict approximately the number of bitcoins you'll find, but it is still speculative.

No judge in his right mind would order a company to produce the number of bitcoins their device should theoretically have generated if it had performed to specification. No manufacturer in its right mind would have guaranteed to find a specific number of bitcoins per hour.

The mfg did state that their device would test a specific number of hashes per hour, and to the extent it failed to meet that specification, they are liable. If it only performed half as fast as advertised, maybe they're liable for half the purchase price. Maybe its performance was impeded by operator misuse. The manufacturer isn't liable for the customer's lost business, unless the manufacturer made some warrant of success or profit, and I'm willing to bet, without checking their literature, that they did no such thing.

Re:Best Lawsuit Ever. (1)

mysidia (191772) | about 3 months ago | (#47308495)

CoinTerra won't have the bitcoins on hand to pay up, so lawyers will then bitch and fight over how to value those bitcoins in USD

Since they can be obtained on the open market; the court can order CoinTerra to buy the coins, and deliver the coins, and give them a 2 week deadline for doing so.

Re:Best Lawsuit Ever. (1)

sexconker (1179573) | about 3 months ago | (#47309045)

CoinTerra won't have the bitcoins on hand to pay up, so lawyers will then bitch and fight over how to value those bitcoins in USD

Since they can be obtained on the open market; the court can order CoinTerra to buy the coins, and deliver the coins, and give them a 2 week deadline for doing so.

And the defense will say that those bitcoins aren't the same as the bitcoins he would have mined.
Valuation is determined at the time of the loss, not at the time of the suit.
The prosecution will say that this loss is ongoing, while the defense will say the plaintiff had a duty to minimize losses as he became aware of them.
That is, as soon as you had this thing in your hands and it ran at X hashrate for Y power draw, you knew not to count the coins you hadn't mined yet, and your losses were thus limited to actual over drawn power (versus the advertised draw) and actual difference in bitcoins mined from the point of promised delivery to the point of "Hey, WTF this thing isn't what I paid for!".
The prosecution would then argue that CoinTerra is responsible for those actual losses as well as losses from the point of "Hey, WTF this thing isn't what I paid for!" up until the plaintiff would have been able to get a comparable miner from somewhere else. Since these things are always backordered, rarely actually ship, and the few that do end up in the hands of end users all run at different hashrates and power draws, it'll be a bitch to figure that out. Court could go for a easy 30 day period past the point of "WTF", or the court could cut if off at the point of "WTF", or the court could just limit it to the cost of the unit and say "Durr, bitcoins internet idunno too bad".

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47309211)

Small thing, but: it is a civil trial. The party bringing the suit is the plaintiff, not the prosecution.

Re: Best Lawsuit Ever. (1)

um... Lucas (13147) | about 3 months ago | (#47309301)

No, you can only look up and guess what he would have made. You also have to figure in the results of all the other delayed cointerra orders coming online a couple months earlier. Those 2 TH wouldn't generate nearly as much if 2 PH of other hashing powe came on in December, followed by 4 PH in jan and 8 in feb.

Miners face many risks. The value of bitcoin. The number of other machines coming online. And the likelihood of receiving their machine, which is often only in the planning stage when they order it.

In the real workd there is no such thing as risk free. When you buy a stock at X there's no one to sue if it goes to W instead of Y. And people investing in miners face new risks. The adage don't invest what you can't afford to lose is just as relevant. And the courts shouldn't be the refuge of people who simply bet wrong. And Thad's what it was , betting that Cointerra could produce what they said they would when they said they would with no prior experience doing so, just a guy who worked for many years in the semiconductor field.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47310017)

BitCoins are the definition of speculation. Just because you don't understand the definition of a word doesn't mean it doesn't mean that anymore.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47308075)

So ask for compensation in bitcoins.

Re:Best Lawsuit Ever. (1)

Mike Buddha (10734) | about 3 months ago | (#47310825)

It's speculation because it is possible to spend outrageous amounts of money on equipment and there is no guarantee that you'll see any return. There is no payout for "best effort". It's not like a job where you turn on the machine and you get paid for the number of hours that the machine runs. It's a race in which you have no way of accurately knowing who you're racing against.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47307225)

It absolutely is speculation. The price of said product is not governed by anything other than pure speculation. Without speculation, bitcoin is worth roughly $0. It's the same as the futures market on the stock market, and that's pretty much the definition of speculation based investing. I guess more closely, it's the currency exchange market, but again, speculation based.

Re:Best Lawsuit Ever. (1)

aaarrrgggh (9205) | about 3 months ago | (#47307979)

As long as the purchaser was looking at the ratio of NPV of the future Bitcoin earnings to the cost to purchase and operate in $ to justify his purchase then there is no problem with asking for a refund. The exchange risk on the ratio of Bitcoin to USD is all on the buyer though.

Re:Best Lawsuit Ever. (1)

Mike Buddha (10734) | about 3 months ago | (#47310803)

Yeah, just like betting on a coin toss is governed by "mathematically laws".

Re:Best Lawsuit Ever. (2)

CanHasDIY (1672858) | about 3 months ago | (#47307137)

Actually, I was expanding on your original post, since "well, we have your money now, so you're screwed" appears to be growing in popularity as an excuse for poor customer service.

But yea, he's going to be hard-pressed to show actual damages; I mean, I guess he could bring up the price differential of Bitcoins between Month A and Month B, and show how much income he could have made if his rig had arrived on time and functioned as advertised...

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47307345)

If you sell a "gold mining machine" and promises it finds THIS much gold per day, then no, it is no longer speculation. Same for this bitcoin machine. There were specs, but the machine didn't deliver. So he sued.

Re:Best Lawsuit Ever. (1)

mysidia (191772) | about 3 months ago | (#47308465)

I'm not saying his case is without actual merit. I just think it's hilarious. I do doubt, however, that beyond being made whole for the purchase price that the plaintiff will be able to demonstrate any actual damages.

Since mining is to produce Bitcoins; he might pursue specific performance --- in the form of requiring that they deliver to him an amount of actual Bitcoins he would have mined with timely delivery of a unit meeting specifications, which is easy to calculate; instead of liquidated damages. Since Bitcoin value is highly volatile; it is almost impossible to calculate liquidated damages, since it is highly dependant on the exact time of sale.

But if he just wants it ordered that the bitcoins be delivered to him, instead of a number of dollars equivalent to those bitcoins, then it's easy to figure out, since 1 Bitcoin is always worth exactly 1 Bitcoin; this is not speculative in the least.

a fence that would print money .... (0)

Anonymous Coward | about 3 months ago | (#47307405)

If you promise the impossible ....

Re:a fence that would print money .... (0)

Anonymous Coward | about 3 months ago | (#47310875)

... you win a gift certificate of Dinner For Two at the Restaurant at the End of the Universe!

Re:Best Lawsuit Ever. (1)

mysidia (191772) | about 3 months ago | (#47308427)

Kinda like how if I promised to build you a fence for X dollars by Y date, and fail to meet the agreed upon pricing and schedule, well, that's your fault for trusting me, now isn't it?

Kind of. If you didn't do your DD. In practice, the most you would be liable for would be the X dollars I paid you upfront to build the fence, plus perhaps some miniscule extra amount in interest and costs required to find another fencebuilder.

It doesn't matter if I had a profit-making idea that would have made me millions most likely, which was ruined by your failure to timely build the fence, unless our contract states you agree to pay a penalty, then you don't owe me squat in terms of extra payments for lost theorized income, unless I can prove actual damages.

Also, if you partially constructed the fence, then unless our contract says otherwise ---- you are still entitled to payment for what you did build, even if it's now worthless to me, because it was not completed on time: I won't be able to recover the full amount I paid you, in court, only (perhaps) a portion.

Re:Best Lawsuit Ever. (1)

Splab (574204) | about 3 months ago | (#47308865)

Depends on how well you write your contracts, back when I did programming as a contractor, the contract dealt specifically with liability and damages - basically boiled down to, the customer could sue, but would never be able to get more than actual damages and never more than the module / sub routine cost to have developed. Granted, this wasn't in the US, so liability laws and statuary damages etc. are vastly different here.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47306985)

Except that it's not free money. They whole point about the power requirements is explicitly because mining bitcoins costs a lot of dollars in power consumption.

Re:Best Lawsuit Ever. (1)

jellomizer (103300) | about 3 months ago | (#47307035)

Well if you were to mine for gold, vs bit coins what is the difference.

Gold is just a piece of medal, while has some nice properties to it, its value is that it is a rare element. Bit Coins are from a unique hash combination which are rare to generate and is getting harder and harder to find. It is just the same thing.

The issue is mining isn't free, it takes labor and power to crunch the data, so if they told people with you 100,000 USD investment I can get you 200 bit-coins valued at 120,000 USD. However what they ended up doing is with that 100,000 USD investment the return say equates to 100,100 USD. So the investors are suing as they were expecting a 20% margin while they are getting a 0.1% margin and they could have put their money in something better.

Re:Best Lawsuit Ever. (2)

Registered Coward v2 (447531) | about 3 months ago | (#47307099)

Well if you were to mine for gold, vs bit coins what is the difference.

Gold is just a piece of medal, while has some nice properties to it, its value is that it is a rare element.

Actually, it is not that rare, it's just more expensive to extract at the current value so much is left unextracted. It's value is that people accept it as a liquid store of value; so they are willing to exchange cash for gold.

Bitcoin is reaching the cost / value crossover; its volatility and lack of liquidity raise questions about it's value and wetehr people will accept it as a store of value.

That's a risk you take investing (1)

Sycraft-fu (314770) | about 3 months ago | (#47307321)

Ever have a look at your bank's investment notices? "Investment and insurance products: Are Not FDIC Insured, Are Not Bank Guaranteed, May Lose Value, Are Not Deposits, Are Not Insured by Any Federal Government Agency, Are Not a Condition to Any Banking Service or Activity." Investment carries a risk of lack of return. When you invest you may lose your money, including your principal.

Now, the people you invest with have a duty to do what they say, they can't just take your money and spend it on hookers and blow. However if they make a good faith effort and fail, well then sucks to be you. That is the risk you take. You can't get angry and sue them because they should have done it better.

So if you invested in bitcoin mining hardware and the company did indeed deliver said hardware, it just didn't end up being as good as you or they hoped, well you really don't have a case.

Re:That's a risk you take investing (1)

OhPlz (168413) | about 3 months ago | (#47307509)

If you order a processing system to spec and it doesn't meet the spec and/or doesn't arrive on the contractually bound delivery date, you absolutely have a case. The real question is if they can leverage its intended use to argue for damages above the cost of the equipment.

Re:That's a risk you take investing (1)

Sycraft-fu (314770) | about 3 months ago | (#47307877)

Only if there's some kind of spec guarantee. If we have a contract where I promise to deliver a system of X spec to you for Y dollars then yes, I have to do that, or refund your money. However if I say "I'm trying to make a new system, here's the specs we are aiming for, want to invest?" You can't then get mad if it falls short, not everything ends up being the same from design to implementation (ask Intel with regards to NetBurst).

Re:That's a risk you take investing (1)

evilbessie (873633) | about 3 months ago | (#47310189)

Bad analogy. Say I buy a freezer, which the manufacturer advertises as being -20C using 10W but it's only a -10C freezer and uses 20W. I would be entitled to my money back if I notify them I am not happy with the goods within a reasonable time, or after a period a part refund as I have had some use of the device.

It's just trade descriptions and sale of goods not investment. That the device is a magic money machine isn't actually relevant at all, someone sold a device saying it could do X, purchaser has found it does less and X, purchaser should be entitled to a refund for the cost of X not for the lost magic money the purchased device could have made if it has been to spec.

I doubt America has anything as sensible as the Sale of Goods Act or the Trade Descriptions Act.

The issue is fundamentally the sale of hardware, unless you can show this caused you material harm (not enough gain is not harm) you should not be entitled to compensation.

Re:Best Lawsuit Ever. (1)

Anonymous Coward | about 3 months ago | (#47307067)

They sold the machine for delivery in December, for $12,000. Then delayed to January (with customer agreement), then didn't actually deliver until February/March. In march they lowered their price to $2,000... which was a reasonable and competitive price for that date.

Re:Best Lawsuit Ever. (2)

evilbessie (873633) | about 3 months ago | (#47310211)

So they failed to deliver more than 30 days from the purchase date and after a prearranged time. A full refund is what they should be entitled to. Distance Selling Regulations for the win (in the UK/EU at least).

Re:Best Lawsuit Ever. (1)

ClintJCL (264898) | about 3 months ago | (#47307069)

While it may be funny, it's perfectly valid.

Breach of Contract (3, Interesting)

Darth Muffin (781947) | about 3 months ago | (#47307143)

They had a contract with the buyer and did not fulfill their half. Of course the buyer's recourse in this should probably be limited to the price of the machine, not any "missed opportunities".

Buyers should ask themselves why anyone would sell a money printing machine. If it was profitable they're going to use it for themselves, or use it until the bitcoin difficulty gets just to the point where it's marginal and sell it.

Re:Breach of Contract (4, Informative)

Qzukk (229616) | about 3 months ago | (#47307193)

Why would anyone sell shovels? If it was profitable, they'd dig everything themselves.

Actually, the real profit is in licensing the shovels with a per-scoop fee.

Re:Breach of Contract (1)

mythosaz (572040) | about 3 months ago | (#47307395)

Why would anyone sell shovels? If it was profitable, they'd dig everything themselves.

Actually, the real profit is in licensing the shovels with a per-scoop fee.

It's about balancing risk. Some people prefer taking a shot at mining. Some people prefer selling shovels. Some people probably do both.

Re:Breach of Contract (1)

infinitelink (963279) | about 3 months ago | (#47310735)

Why would anyone sell shovels? If it was profitable, they'd dig everything themselves. Actually, the real profit is in licensing the shovels with a per-scoop fee.

It's about balancing risk. Some people prefer taking a shot at mining. Some people prefer selling shovels. Some people probably do both.

Actually, it's about capital. If you lack access to it then once you're done making the money printer you don't have enough left to run it. So you sell the damn thing at a slight profit and build yet more, relying on the prior aggregation and assembly of capital in a useable form to produce something of value (more capital).

At some point it becomes about risk if you can afford to no longer sell them, but then someone else who can afford to print on their own but continues to sell them because of structuring their factors of production (including capital) which includes revenues from sales can give them an edge may mean you take a whole other level of risk on by relying on only one source of income.

Better get all the revenue possible, specializing, and out-innovate the other guy though, by doing this you may simply lose your skills edge to run and wield the thing you yourself are producing better than your buyers: suddenly we have a symbiotic relationship of maker and user and neither has the edge over the other in terms of the other's particular discipline and scope!

And of course, each have separate kinds of capital so even if you know how to mine better, they may have better conditions and contracts and equipment and environmental conditions and.... :)~

(Gotzta love deh economicz.)

Re:Breach of Contract (0)

Anonymous Coward | about 3 months ago | (#47309339)

Because bitcoin mining is not a devoted job with physical work. When the gold or uranium rush was going on in the US. You physically had to pick your ass up and move to the west. Spend countless hours living and surviving in the untamed and relatively unknown area. You had to setup up camp and mine all day and barter what you found. There were REAL consequences.

With bitcoin mining you buy the equipment, plug in turn it on and go about your business. Simiar effort to buying a new watch. Nothing at all like digging a hole compared to selling the shovels to do it.

Re:Breach of Contract (1)

ultranova (717540) | about 3 months ago | (#47307285)

Buyers should ask themselves why anyone would sell a money printing machine. If it was profitable they're going to use it for themselves, or use it until the bitcoin difficulty gets just to the point where it's marginal and sell it.

The problem is, there's nothing to limit this logic to Bitcoin. So either the logic is faulty, or trade - and, by extension, economy - is inherently bad since it means one party is always getting screwed. Which very well might be the case, but the implications go well beyond Bitcoin.

Re:Breach of Contract (0)

Anonymous Coward | about 3 months ago | (#47307481)

Why does any hardware component manufacturer sell hardware components, and not just build all the final products themselves?

Re:Breach of Contract (1)

BitZtream (692029) | about 3 months ago | (#47308827)

Buyers should ask themselves why anyone would sell a money printing machine.

Some people are better at making the machines than running a business based on the output of the machine.

Its the same reason Catepiller makes mining equipment but doesn't mine gold, they know how to make heavy equipment. Building the equipment is different than running a successful business using the equipment.

Know where your expertise lies.

Re:Breach of Contract (0)

Anonymous Coward | about 3 months ago | (#47309621)

Of course it is profitable. But it is also risky. They dump money into a limited run of hardware and let the buyer take the risk on the returns while they make a set amount of money. They're still raking in the dollars.

Re:Best Lawsuit Ever. (4, Funny)

Virtucon (127420) | about 3 months ago | (#47307283)

Is it a nice shrubbery? Not too high is it?

It's an investment (3, Insightful)

penguinoid (724646) | about 3 months ago | (#47307541)

"Your honor, the free money generation machine the plaintiff promised me did not generate NEARLY enough free money!

Every investment is, in one way or another, a "money generation machine". This is exactly how an investor thinks about their investment, minus the "free" part because they subtract the opportunity cost of investing in that thing instead of in something else.

Re:It's an investment (0)

Anonymous Coward | about 3 months ago | (#47309367)

That's the speculator thinks about their speculation.

An investor does not count on anything free, Investment counts on a business plan, usually involving productive work to produce an increase in value. Investment takes more attention than speculation, and IMHO deserves a reward where speculation does not.

Re:Best Lawsuit Ever. (1)

alexhs (877055) | about 3 months ago | (#47308187)

Well, if Lautaro Cline paid them in bitcoins, maybe CoinTerra didn't get what they expected either...

Re:Best Lawsuit Ever. (1)

mysidia (191772) | about 3 months ago | (#47308327)

"Your honor, the free money generation machine the plaintiff promised me did not generate NEARLY enough free money!"

Except the "free money generation machine" was very far from free; it cost both significant upfront payment to buy the machine, and very significant costs of energy to operate the machine.

Not to mention significant network risks; due to Bitcoin variable difficulty.

The risk in buying a miner is much higher than when a bank lends someone money to buy a house. The expect ROI must compensate for the risk.

The possibility of suing for your principal back from a profitable counterparty, is a mitigation of risk ---- but in practice, it is very difficult.

I would be shocked if CoinTerra's lawyers hadn't required the buyer to acknowledge that delivery might not be timely, and specifications might vary.

Re:Best Lawsuit Ever. (0)

Anonymous Coward | about 3 months ago | (#47309079)

"Your honor, the free money generation machine the plaintiff promised me did not generate NEARLY enough free money! Now since I have you here, I'd like to sue Money Tree, Inc. whose shrubbery is also performing woefully."

I would have gone for fake money, but free was an okay choice as well.

How did he ever hope to make all that money back? (3, Interesting)

Joe Gillian (3683399) | about 3 months ago | (#47306945)

According to the article, the TerraMiner IV had a pricetag of $13,999, which the filer of the lawsuit clearly paid. A single bitcoin is (and correct me if I'm wrong here) around $500. For this guy to break even, not counting the power that thing drains, he would need to mine at least 28 BTC. From what I understand, mining that kind of BTC, even with an extremely high-powered miner, is not an easy task. It seems like he would've lost money even if the machine had performed at the specifications listed by the company.

Re:How did he ever hope to make all that money bac (2)

Joe Gillian (3683399) | about 3 months ago | (#47306975)

Correction, the filer apparently only paid around $6,300 for it. Still, that's 12.6 BTC, which is probably still rather difficult to mine, just to break even.

Re:How did he ever hope to make all that money bac (1)

wisnoskij (1206448) | about 3 months ago | (#47307065)

Well "difficult to mine" sort of goes hand in hand with 20K custom miners now doesn't it?

Re:How did he ever hope to make all that money bac (3, Interesting)

Anonymous Coward | about 3 months ago | (#47307685)

At current difficulty, (13.4Bil) a 2TH miner consuming even 1500W, would generate about 0.0747BTC/24 hours. Even at 15.4Bil (~15% increase?) you're still looking at 0.0650BTC/24 hours. Back in January, the market was more like ~2Bil difficulty, which the same device would have brought in ~0.5029 BTC/day. (or a ~2 week ROI!) Now I don't agree with the guy really, Feb was up to ~2.5-3Bil, which at the worse end was still ~0.3353 BTC/day. (still only ~31 days break-even!)

At the next current difficulty, and assuming you're expecting the price of BTC to stay the same, (and at current prices, $6300 is ~10.5BTC) you're looking at ~161 days to break even. This is going to be extended every ~two weeks as difficulty goes up, but will likely still hit break-even around ~350-400 days. (assuming ~1500W@10cents/W)

ALL this assumes you're buying it to mine on till break even. Most people mine the profitable period, then sell the hardware for 90% of the purchase price. Mine for 2-4 weeks, make ~1-2BTC, then unload the hardware for $5500, buy out ~9 - 9.25 BTC with the proceeds, and now suddenly you're up to ~11.25BTC on a 10.5BTC investment. ~7% doesn't sound too bad to most people!

Re:How did he ever hope to make all that money bac (2, Insightful)

Anonymous Coward | about 3 months ago | (#47306995)

The real profit to be found are with the people selling these ASICs. The best analogy I've seen compares it to people selling shovels during the gold rush.

Re:How did he ever hope to make all that money bac (4, Interesting)

ShaunC (203807) | about 3 months ago | (#47307641)

The real profit to be found are with the people selling these ASICs. The best analogy I've seen compares it to people selling shovels during the gold rush.

The fun part is that a lot of these miracle mining rig builders are suspected of using those new rigs themselves for awhile before finally delivering them. So it's kind of like people selling used outdated beat-up shovels during the gold rush. The scam seems to be:

  • Pre-sell insanely powerful mining rigs
  • Use pre-sale money to order hardware and build rigs
  • Mine for a month or two with awesome rigs while delaying delivery to buyers
  • !!!PROFIT!!!
  • Newer, faster hardware becomes available
  • Pre-sell rigs built with this month's even better hardware
  • Finally ship last month's batch to the buyers
  • Repeat

Just another pyramid scheme and there are still suckers falling for it.

Re:How did he ever hope to make all that money bac (0)

Anonymous Coward | about 3 months ago | (#47308615)

The real profit to be found are with the people selling these ASICs. The best analogy I've seen compares it to people selling shovels during the gold rush.

The fun part is that a lot of these miracle mining rig builders are suspected of using those new rigs themselves for awhile before finally delivering them.

Just part of the industry standard best practice 24 hour^H bitcoin burn in test to make sure you get the best tested product!

Re:How did he ever hope to make all that money bac (1)

wsanders (114993) | about 3 months ago | (#47308711)

You misspelled "shovels that are useless after two weeks!"

Re:How did he ever hope to make all that money bac (1)

Lennie (16154) | about 3 months ago | (#47307083)

Probably seemed like a nice investment in October. :-)

Why do people believe that? (4, Insightful)

Opportunist (166417) | about 3 months ago | (#47306947)

It's a bit like those crystal ball con artists. Know the kind? That tells you the lotto numbers of next week?

I always wonder the same that I wonder in this case: If that actually worked, why do they tell you (or, in this case, build it for you) instead of simply using it themselves? It's not like you need to invest a lot of work or have to have intimate know-how that the maker of the item doesn't have to mine bitcoins. It's basically "pump electricity in, take hashes out". If I could build such a "miner" that produces more bitcoins than it costs in electricity, why would I be so stupid and sell it to you instead of renting a rack somewhere and let it do it for me?

Re:Why do people believe that? (1)

jythie (914043) | about 3 months ago | (#47307021)

Specialization and supply chain. People who build rigs get their profit up front and can pour the money strait back into facilities, equipment, parts, etc. It is a pretty solid strategy for growing a business and would likely work better then running the rigs themselves.

Re:Why do people believe that? (2)

Lennie (16154) | about 3 months ago | (#47307109)

Also: the customer bares the risk of the fluctuations in the Bitcoin market.

Re:Why do people believe that? (0)

Anonymous Coward | about 3 months ago | (#47307027)

Most likely this is what many of these ASIC startups are actually doing - make enough hardware to mine for themselves and ship it once the hardware is obsolete.

Re:Why do people believe that? (0)

Anonymous Coward | about 3 months ago | (#47307087)

Because they're different markets. No one guarantees an ROI by mining on these devices. Obviously miners who buy it believe they'll make ROI within some timeframe, depending on the market; while manufacturers would rather make ROI immediately, independently of the volatile exchange rates.

Re:Why do people believe that? (3, Interesting)

ClintJCL (264898) | about 3 months ago | (#47307101)

Why do you think it came late? They probably had it running by the promised date, realized they'd make more money keeping it, kept it, then tried to sell it once it couldn't provide ROI. Of course they deserve to be sued.

Re:Why do people believe that? (1)

pla (258480) | about 3 months ago | (#47309243)

Why do you think it came late? They probably had it running by the promised date, realized they'd make more money keeping it, kept it, then tried to sell it once it couldn't provide ROI. Of course they deserve to be sued.

Well, except for the part where it didn't meet the spec'd peformance goals and sucked down more power than expected as a bonus...

Re:Why do people believe that? (4, Insightful)

wisnoskij (1206448) | about 3 months ago | (#47307127)

Because it is a risk. The company making the machines gets an upfront sale with a good profit margin. The risk taker is hoping that bitcoins stay above some value and hydro does not go up, and he does not spill coffee on his server, and, and, and.

Theoretically, both ventures had (could of had) a good profit margin and were worth undertaking, and the people who undertook the machine building had machine building skills and most likely more aversion to risk, while the miner had skills more suited to that and more propensity for risk.

Re:Why do people believe that? (1)

ultranova (717540) | about 3 months ago | (#47307453)

Theoretically, both ventures had (could of had) a good profit margin and were worth undertaking, and the people who undertook the machine building had machine building skills and most likely more aversion to risk, while the miner had skills more suited to that and more propensity for risk.

Let's not forget the small matter of capital. If you sell machines, and require payment upfront, you can then use that payment to pay for the components. That way you can cash in on the Bitcoin boom without a large amount of initial capital. Sure, you might have made more by owning the machines yourself, but then again it's almost always true that the more money you have, the easier it is to make more.

Re:Why do people believe that? (1)

i kan reed (749298) | about 3 months ago | (#47307135)

Of course, those cons make all sorts of claims to help the gullible along. Being a conman just requires no compunction against lying.

"Oh, didn't you know? It's against state law for psychics to play the lottery. I'm kinda breaking the rules by telling you the numbers. So keep it quiet."

Why do people believe that? (1)

Anonymous Coward | about 3 months ago | (#47307191)

For the same reason that a bank is willing to loan you money to start a business! Why would they be so stupid as to do that, when they could just keep the money and start the business themselves? And for the same reason that some companies will sell meatspace-mining equipment that digs real iron ore out of mountains, instead of actually buying mountains and using the equipment themselves?

The mining-rig-producer knows for a fact that they can produce rigs for $X and sell them for $Y > $X. They pocket the difference, and go home happy that they've made a profit.

The buyer is making a bet, that the coins mined are worth more than $Y plus $CostOfElectricty (plus a time value of money factor, since he's getting the coins later and paying the $Y now, plus maybe some additional speculation because he can hold the bitcoins for a while in hopes that they will rise further). Whether this bet pays off depends on the eventual value of bitcoins, whether electricity prices go up, and how he values money tomorrow compared to money today.

The producer may or may not want to make that bet for all sorts of reasons -- maybe the cost of electricity is different where the producer is (it varies wildly through the US, and even more wildly across the world!), making it a guaranteed bad bet. Maybe they have a different risk tolerance than the buyer (some people like gambling, some prefer a guaranteed income), Maybe they need money now, so prefer getting the guaranteed $Y today to a higher $Z tomorrow (see that time-value-of-money factor!).

Re:Why do people believe that? (1)

Opportunist (166417) | about 3 months ago | (#47309171)

Business means I have to invest my time and know-how. What time and know-how is necessary to run a bitcoin miner?

Re:Why do people believe that? (0)

Anonymous Coward | about 3 months ago | (#47307595)

I always wonder the same that I wonder in this case: If that actually worked, why do they tell you (or, in this case, build it for you) instead of simply using it themselves?

From what I understand, ALL the mining ASIC manufacturers are being accused of using the machines for a good while before shipping them out, which is what is causing the prevalent shipping delays.

Re:Why do people believe that? (1)

CaptnZilog (33073) | about 3 months ago | (#47308291)

I always wonder the same that I wonder in this case: If that actually worked, why do they tell you (or, in this case, build it for you) instead of simply using it themselves?

From what I understand, ALL the mining ASIC manufacturers are being accused of using the machines for a good while before shipping them out, which is what is causing the prevalent shipping delays.

Well, they have to do some "quality assurance" testing to ensure they work properly, right?

Re:Why do people believe that? (0)

Anonymous Coward | about 3 months ago | (#47307689)

Why would anyone sell picks and shovels, when they can just go up into the hills and get the gold themselves? Why do I streamline this claims process, instead of just taking over the insurance billing and claims payment, finally becoming the competitor who puts my employer out of business?

Re:Why do people believe that? (1)

Opportunist (166417) | about 3 months ago | (#47309219)

Because it takes time and is hard work to dig through the ground for gold.

Where's that time and hard work involved with running a bitcoin miner?

Re:Why do people believe that? (2)

westlake (615356) | about 3 months ago | (#47307751)

It's a bit like those crystal ball con artists.

Remember Levi and his jeans?

Mining the miners has always been more profitable in the long run than working a mine.

Re:Why do people believe that? (0)

Anonymous Coward | about 3 months ago | (#47309385)

If I could build such a "miner" that produces more bitcoins than it costs in electricity, why would I be so stupid and sell it to you instead of renting a rack somewhere and let it do it for me?

Say you could sell the devices for $6,000 and make $5,000 of it. Then say that you know you have a market for 10,000 of these things, and you could sell them all in 1 month. Now, which would you rather have: a sure thing of 10,000 * $5,000 = $50,000,000 profit in cash one month, or a speculative 85,470+ bitcoins (@ today's price of $585 ~= $50,000,000), minus the cost to run 10,000 units (power, rent, people to deploy, configure and maintain said units, and probably a ton of things I'm forgetting) over how many months it would take for your devices to make the bitcoins? For something which you have very little control of (yea if the price of a bitcoin shoots back up to $1,000, boo if the price drops to $1 or even $100)?

Re:Why do people believe that? (1)

PRMan (959735) | about 3 months ago | (#47310479)

They DO use it themselves. That's why they are constantly shipping them late.

Meh (0)

tha_toadman (1266560) | about 3 months ago | (#47306969)

Par for the course at this point.

Perpetual Motion... (0)

gatfirls (1315141) | about 3 months ago | (#47307117)

...Machines, get yours here at the low price of $45k. Don't bother asking for any proof of concept or supporting data.

I wonder if the guy paid in bitcoin.

I hope they make the company pay the fine in Bitco (0)

Anonymous Coward | about 3 months ago | (#47307215)

(they can use their own hardware, if they like...)

better analogy (2, Insightful)

Anonymous Coward | about 3 months ago | (#47307235)

I think a better analogy for comparing bitcoin mining to gold mining would be: Imagine if I were to sell you an automated power shovel and promised it would dig 10 tons of dirt per hour with fuel consumption of 50 gallons per hour. If my device didn't live up to those advertised specs, you would have a valid complaint. Reasonable damages would be derrived from difference between what you made and could have made. If in actuality you were able to shovel 5 tons of dirt per hour while still consuming 50 gallons per hour, then it's likely reasonable that you should have found twice the amount of gold you actually did.

I think this is a very valid case (assuming the device was used in accordance with specifications, and other factors have been ruled out)

Re:better analogy (1)

TheCarp (96830) | about 3 months ago | (#47307661)

Not only that but, think of it from a gamer perspective, what makes more sense.... to ask for as much as you can reasonably justify and let the court tell you they need to knock a few items off or bring them down because they don't think you are entitled to THAT much..... or ask for exactly what you think they might give you, and see that whittled down? IANAL but it seems unlikely that a court would award you more than you claimed your damages were, even if it appeared justified.

So it makes perfect sense to ask for as much as you feel comortable justifying up front.

Everything about bitcoin is a sham (0)

Anonymous Coward | about 3 months ago | (#47307447)

Reason #2324256393 why everything about bitcoin is a sham, and nothing more than another way for paulbot libertarians to feel smug and superior.

Hmmm .... (5, Funny)

gstoddart (321705) | about 3 months ago | (#47307459)

I'm not sure how this is different from any major IT project I've been involved in.

Over budget, under-performing, and not nearly as good as the sales guy made it out to be. :-P

Hmmm .... (0)

Anonymous Coward | about 3 months ago | (#47309899)

Over budget, under-performing, and not nearly as good as the sales guy made it out to be.

That sums up life pretty well actually.

I was wondering when we would get ... (1)

UnknownSoldier (67820) | about 3 months ago | (#47307521)

... the weekly Tuesday BitCoin article.

Risk Assessment (2)

tyggna (1405643) | about 3 months ago | (#47307537)

You mean there are venture capitalists who can't do basic risk assessment?

That's how these miner manufacturers operate. It is relatively low and well-understood risk to sell physical goods. We have X orders, and can produce Y units each month. The reason they don't mine bitcoins themselves is that they don't want to take that risk. They sell the machine, and they get their money. They sell more machines, they get more money. It's simple, it's safe.

For the people who purchase them, they are assuming the risks of mining. They take the risk that their machine will underperform, that their miners won't find any blocks, and that the value of the bitcoin will stay stable or increase. The people actually mining have much higher risk than the people just selling the equipment.

I'll wager (1)

Drunkulus (920976) | about 3 months ago | (#47307985)

200 quatloos on the newcomer.
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