Business 26 November 2018

Erik Gibbs

Bitmain faces class-action lawsuit over mining operations

Bitmain is yet again facing another bit of bad news. On top of having to deal with questions regarding its financial situation and a decline in market share, the cryptocurrency mining equipment manufacturer is facing a fresh lawsuit in California, CCN first reported.

The class-action suit asserts that Bitmain has, for some time now, intentionally used customers’ machines for its own crypto mining purposes while the customers were still configuring their rigs. Plaintiff Gor Gevorkyan asserts, “Until approximately 2 years ago, the machines started in low power mode…(and) there was no default account setting to which virtual currency mined during the setup process was directed and transferred.”

Gevorkyan, a resident of Los Angeles County, adds, “Recently, Bitmain modified the startup procedure for its ASIC devices such that the devices immediately start in full power high energy consumption mode before the customer’s account is linked to the device and stay in that mode until the setup process is complete. Moreover, the default account setting on the Bitmain ASIC devices is set to contribute to Bitmain’s own account on its own Antpool server.”

Configuring a new crypto miner can take a couple of hours or a couple of days, depending on what operations are to be run. Gevorkyan indicates that, during this time, “Bitmain’s ASIC [application-specific integrated circuit] devices are preconfigured to use its customers’ electricity to generate cryptocurrency for the benefit of Bitmain rather that its customers…and lay the substantial costs of operating the ASIC devices at the feet of its customers….(resulting in) out of pocket losses.”

The plaintiff further asserts that the case can legally be heard in California because Bitmain maintains an office in the state. This past July, the company opened an office in Silicon Valley.

Gevorkyan is seeking $5 million, which the lawsuit asserts is on behalf of all cryptocurrency miners. Companies that may have purchased large quantities of Bitmain’s equipment could have unknowingly been contributed to the company’s control of hash power at virtually no cost to Bitmain.

Nelson M. Rosario, addressed the lawsuit in a post last week. In a blog post on theblockcrypto.com called Crypto Caselaw Minute, the blockchain lawyer stated, “If these allegations are true (and we are not saying that they are) … that’s, that’s not good. Even under some sort of theory that customers agreed to this under the terms & conditions of their purchase, or something like that, this is not a good look regardless of its legality. With respect to its legality, the plaintiff is alleging unfair business practices, unjust enrichment (receiving a benefit at someone else’s expense), and conversion (basically stealing).”

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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