Legal crypto mining using electricity at market rates is now
becoming increasingly unfeasible, even in places like Iceland,
which have exceptionally low electricity rates combined with
temperatures conducive for data centers filled with heat-generating
computers.
What, then, are the remaining mining business models? Let’s take
a closer look.
Crypto Mining Business Model #2: Subsidized Electricity
Mining
In Washington State, hydroelectric power generates far more
juice than locals can consume, thus attracting a booming business
in crypto mining. “The region’s five huge hydroelectric dams, all
owned by public utility districts, generate nearly six times as
much power as the region’s residents and businesses can use,”
https://www.politico.com/magazine/story/2018/03/09/bitcoin-mining-energy-prices-smalltown-feature-217230"
href="https://www.politico.com/magazine/story/2018/03/09/bitcoin-mining-energy-prices-smalltown-feature-217230"
rel="nofollow noopener noreferrer" target="_blank">explains
Politico journalist Paul Roberts. “Most of the surplus is
exported, at high prices, to markets like Seattle or Los Angeles,
which allows the utilities to sell power locally at well below its
cost of production.”
By 2015, however, the Washington Bitcoin mining craze had run
its course. “Margins grew so thin—and, in fact, occasionally went
negative—that miners had to spend their coins as soon as they mined
them to pay their power bills,” Roberts adds.
If not Washington, then, what about Iran? “I come across some
very interesting cases,”
https://www.atlanticcouncil.org/blogs/iransource/thanks-to-sanctions-iranians-are-turning-to-bitcoin-mining"
href="https://www.atlanticcouncil.org/blogs/iransource/thanks-to-sanctions-iranians-are-turning-to-bitcoin-mining"
rel="nofollow noopener noreferrer" target="_blank">notes Mohsen
Rajabi, an Iranian blockchain entrepreneur. “I recently set up a
rig for a middle-aged customer who was not tech-savvy at all and
had simply heard of mining and its potential profits. He wanted to
start with ten devices installed at his factory because it can
legally use extremely cheap industrial electricity.”
Crypto Mining Business Model #3: Steal
Electricity
Cutting electricity costs out of the equation entirely is an
obvious way to improve the profitability of crypto mining. In the
early days of Bitcoin, college kids would plug their rigs into dorm
room sockets, stealing a bit of juice from their alma maters.
Today, in contrast, stealing electricity is serious business. “A
Shanxi Datong [China] man named Xu Xinghua stole power from the
poles near the West Second Plant of the Kouquan Railway, which was
borrowed from November to December 2017,”
https://www.thepaper.cn/newsDetail_forward_2507253"
href="https://www.thepaper.cn/newsDetail_forward_2507253"
rel="nofollow noopener noreferrer" target="_blank">reports Liu
Yulin, writing in Chinese for The Paper (translation by
Google GOOGL +0.72%).
“The coin ‘mining machine’ and three electric fans were operated
for 24 hours,” she continues. “Xu Xinghua mined a total of 3.2
bitcoins, earning 120,000 yuan [$17,700], and the electricity
generated by the stolen electricity was 104,000 [$15,340]
yuan.”
What happened to the thief? “Xu Xinghua was sentenced to three
years and six months in prison for committing theft and was fined
100,000 yuan [$14,750],” she reports. He also had to reimburse the
electric company for the stolen power and forfeit his
equipment.
This story is one of many, notable merely for the fact that the
perpetrator was caught and the story appeared in the local paper.
Many more instances are sure to be out there, as yet
unreported.
Another popular, if potentially unintentional, way to steal
electricity: set up a mining operation, take the profits, and then
go out of business.
This is the story of one of the Washington State mining
companies. “U.S.-based bitcoin mining firm Giga Watt has declared
bankruptcy with millions still owed to creditors,”
https://www.coindesk.com/bitcoin-mining-firm-giga-watt-declares-bankruptcy-owing-millions"
href="https://www.coindesk.com/bitcoin-mining-firm-giga-watt-declares-bankruptcy-owing-millions"
rel="nofollow noopener noreferrer" target="_blank">writes Yogita
Khatri for Coindesk. “Creditors include the utilities provider in
its Douglas County [Washington] base, having a claim of over
$310,000, and electricity provider Neppel Electric, which is owed
almost half a million dollars.”
One silver lining: there may be a possibility these stiffed
utilities will eventually get some of their money back, as Giga
Watt raised about $22 million in its ICO – and it’s possible the
scammers were unable to spend or secret away all of the proceeds
before the bankruptcy shut them down.
Crypto Mining Business Model #4:
Cryptojacking
Illicit cryptomining, colloquially known as cryptojacking, has
surpassed ransomware as the most popular form of cybercrime
targeting enterprises. Cryptojacking means introducing crypto
mining software onto a target victim’s computer without their
knowledge, thus generating crypto for the hacker while stealing
processor cycles and electricity from the victim.
The cryptojacking problem, in fact, is much worse than it was
when I wrote my article
https://www.forbes.com/sites/jasonbloomberg/2018/03/04/top-cyberthreat-of-2018-illicit-cryptomining/"
href="https://www.forbes.com/sites/jasonbloomberg/2018/03/04/top-cyberthreat-of-2018-illicit-cryptomining/"
target="_self">Top Cyberthreat Of 2018: Illicit
Cryptomining in March 2018 – just as I had warned. “Despite
the volatility in the value of various cryptocurrencies, the trend
of illicit cryptocurrency mining activity among cybercriminals
shows no signs of abating,”
https://blog.talosintelligence.com/2018/08/rocke-champion-of-monero-miners.html"
href="https://blog.talosintelligence.com/2018/08/rocke-champion-of-monero-miners.html"
rel="nofollow noopener noreferrer" target="_blank">according to
David Liebenberg, senior threat analyst at Cisco Talos.
One of the reasons why the cryptojacking problem is getting
worse is because the malware is getting better. One such package:
Rocke. “Talos assesses with high confidence that Rocke will
continue to leverage Git repositories to download and execute
illicit mining onto victim machines,” continues Liebenberg.
Git repositories are where most of today’s enterprise software
developers store and manage their source code – but such
repositories are not Rocke’s creators’ only target. “It is
interesting to note that they are expanding their toolset to
include browser-based miners, difficult-to-detect trojans, and the
Cobalt Strike malware [malware that leverages Cobalt Strike
penetration testing software].”
Crypto Mining Business Model #5: Evading
Sanctions
Evading sanctions was one of the crypto transaction types I
discussed in yesterday’s article – but it is also a primary mining
business model as well.
For this story, I’m first turning to a pair of Iranian Bitcoin
miners. “At the time we bought the mining device, the rate of the
US dollar in Iran was still quite high, so we figured we would make
about $90 to $100 a month,”
https://www.atlanticcouncil.org/blogs/iransource/thanks-to-sanctions-iranians-are-turning-to-bitcoin-mining"
href="https://www.atlanticcouncil.org/blogs/iransource/thanks-to-sanctions-iranians-are-turning-to-bitcoin-mining"
rel="nofollow noopener noreferrer" target="_blank">explains Ali
Hosseini, an Iranian miner. “The cost of electricity is relatively
low in Iran, so the math seemed viable.”
Hosseini’s cousin also spoke up. “Foreign exchange rates and
Bitcoin prices have fallen and our profits have been slashed, but
we’re not seeing losses yet,” says Pedram Ghasemi, another Iranian
miner. “According to my calculations, the US dollar must drop below
110,000 Rials [about $2.60] and Bitcoin must be down to $2,000 for
us to really lose.”
I can’t mention Iran without also discussing North Korea.
Priscilla Moriuchi, a former top National Security Agency official
and now director of strategic threat development at Recorded
Future, estimates that North Korea may have earned up to $200
million in 2017 mining crypto.
How, then, would North Korea turn that crypto into hard
currency? “North Korea has such extensive criminal networks that
have been well-established for decades to facilitate illegal
activities,” Moriuchi
https://www.vox.com/world/2018/2/28/17055762/north-korea-sanctions-bitcoin-nuclear-weapons"
href="https://www.vox.com/world/2018/2/28/17055762/north-korea-sanctions-bitcoin-nuclear-weapons"
rel="nofollow noopener noreferrer" target="_blank">says. “If
Pyongyang were able to cash out into physical currency, it would be
relatively easy for them to move that currency back into North
Korea and to buy things with the physical currency. I would bet
that these coins are being turned into something — currency or
physical goods — that are supporting North Korea’s nuclear and
ballistic missile program.”
Crypto Mining Business Model #6: Mining at a
Loss
The final business model on my list goes contrary to common
sense: mining at a loss. Hardly a rational business model on its
face, of course – unless ensuring that crypto transactions can be
completed is your primary motivation.
In yesterday’s article, I explained how crypto is essential to
the operation of the Darknet. Massive organized crime syndicates
thus depend on the successful exchange of crypto to move their
contraband.
Should the value of Bitcoin or any other crypto drop to the
point that no one could make money mining it, then such syndicates
would likely step in to fill the void – mining at a loss to keep
the crypto running.
For all the crypto fanatics out there, therefore, there is a
reason to take heart – there’s no way crypto values will ever drop
far enough for mining to cease. Organized crime wouldn’t let that
happen.
Intellyx publishes the
https://intellyx.com/category/cortex-newsletter/"
href="https://intellyx.com/category/cortex-newsletter/"
rel="nofollow noopener noreferrer" target="_blank">biweekly
Cortex newsletter, advises companies on their digital
transformation initiatives, and helps vendors communicate their
agility stories. As of the time of writing, none of the
organizations mentioned in this article are Intellyx customers. The
author does not own, nor does he intend to own, any cryptocurrency
or other cryptotokens, neither long nor short. Image credit: Jason
Bloomberg.