The collapse of Gbitx exposed the huge pitfalls in the cryptocurrency mining industry

Author: Kyle

Editor | Wen Dao

Within one day, LTG plummeted by more than 60% , the Gigabit Mining Pool client was unable to log in, and the news that the actual controller of the two projects , " Mr. Lei ", was detained spread widely in the circle.

Over the past year, Gbit Mining Pool, which claims to have "government resources in Kyrgyzstan" and has built its own mining farm, has been attracting investors to pledge their assets and mine BTC and LTG with the promise of "shared mining". For a time, Gbit Mining was involved in both mining and currency trading.

In the early stage, users need to deposit BTC into the centralized client developed by the company as collateral, pay the mining machine rental fee and then conduct "cloud mining". Although the management has repeatedly stated that users are welcome to visit the site at any time, for most users, it is unrealistic to visit Kyrgyzstan.  

At the end of last year, the token LTG, the "world's first distributed storage public chain" also created by "Lei Zong", landed on the secondary market and then entered the mining system of the Gigabit mining pool. Users can pledge LTG for mining. During the crazy period, LTG increased 267 times compared to the issue price, and users gave it the name "Latiao Brother".  

Now, Latiaoge’s share price has fallen by 85.57% in one month. LTG, which is supported solely by concepts, has caused many investors to lose money.  

The Gigabit Mining Pool, which shared mining and issued concept coins, attracted investors with gorgeous packaging. Its sudden collapse also exposed the big pitfalls of cloud mining projects and sounded the alarm for investors who invested in similar mining coins.

On June 30, a sudden drop caused panic among users of the Gigabit mining pool. On that day, LTG, a token deeply bound to the mining pool, plummeted from a high of $3.54 to $1.38, with the largest intraday drop of 61%. Since then, LTG has continued to fall. On July 6, LTG was quoted at $0.76 on the BiKi exchange, a drop of 78.5% from a week ago.

At the same time, some users of the Gigabit Mining Pool reported that they were unable to log in to the mining pool APP, and the system kept prompting "The operation is too frequent, please operate after 5 seconds."  

Users reported that they could not log in to the Gigabit mining pool  

On the afternoon of June 30, the official Jibit Mining Pool released a system upgrade and maintenance announcement, but did not announce the end time of the maintenance. On July 1, the Jibit Mining Pool community administrator said that Jibit was hacked, causing the APP to be unable to log in normally, and the technology is processing it. As of July 6, users reported that they still could not log in to the Jibit Mining Pool client. This means that the coins they stored in the client cannot be withdrawn.  

In line with the coin price plunge and the inability to log in to the client, the news that the founder of Gbit Mining Pool, Mr. Lei, has lost contact. On July 1, the community administrator of Gbit Mining Pool revealed that because some members reported that Gbit did not meet the domestic business qualifications, the relevant person in charge of the company was sentenced to 15 days of administrative detention. "Don't panic, wait for the leaders to get Mr. Lei out quickly, and we will win."

According to the official information of Gbit Mining Pool, the mining pool mainly adopts the "shared mining" model. It was established in Kyrgyzstan in 2017. The company's founder is Lei Taiguo, who is from China. The mining pool claims to have received support from the Kyrgyz government and "owns its own power company and has established multiple mining farms" in the local area.

The so-called "shared mining" refers to pledge mining, that is, users do not need to buy mining machines, but pledge BTC and pay mining machine rental fees for cloud mining. In the official community, administrators occasionally post videos of the mine to prove that the mine and the mining machine really exist. But for players, they can only connect to a centralized client and the "digital mining machine" on it every day. Whether it is pledge mining or profit withdrawal, it must be completed through this APP.

At the end of 2019, Gigabit Mining Pool made a "big move". LTG, the token known as the world's first distributed storage open source public chain, was officially issued and soon embedded in the mining system of Gigabit Mining Pool. Users can buy LTG in the secondary market and pledge LTG to mine BTC; or simply buy LTG and deposit it into the destruction address to obtain virtual computing power mining rights to mine LTG.  

According to official data, LTG is a public chain project developed by the Kyrgyzstan LTG Foundation and the American blockchain team, and is a strategic partner of Gbit. However, judging from the official publicity in the community, whether it is LTG or Gbit, the person standing in the foreground is Lei Taiguo, the "General Lei".  

Since its release, LTG has been listed on exchanges such as BiDui, ZB, and BiKi, and its price has been rising steadily, from an initial price of $0.028 to a maximum of $7.5, a 267-fold increase. However, since the beginning of June, LTG has begun to go downhill and has continued to fall for a month. After "Mr. Lei" lost contact, the price of LTG plummeted.

Although it is positioned as a distributed storage public chain, LTG's application has been lackluster for a long time, and staking mining is its most widely used use.

After the sudden change, some users came to their senses and thought they were deceived by the carefully packaged Jibit team. An official group for long-term communication has been disbanded. The administrator’s excuse was that "due to malicious reports from peers, the company was investigated, WeChat and member groups were monitored, and for safety reasons, the group will be re-established after a while." Once the group was disbanded, users who held LTG and had assets stored on the Jibit APP lost direct contact with official personnel.

Seeing the LTG price plummet and the client unable to open, some users who entered the market later suffered heavy losses. "I bought LTG at a high point for staking mining, but I haven't made my money back yet, and my deposit is almost gone," a user of the Gbit mining pool complained to Fengchao Finance.  

Starting from July 1, many exchanges that listed LTG issued announcements stating that due to LTG wallet maintenance, deposits and withdrawals were temporarily closed. This means that even if users have coins, they cannot deposit them to the secondary market to sell them for cash. "The coins are stuck in my hands. This is really a ruthless way to cut the leeks." A user said angrily.  

Looking back, Gbitx detonated the minefield of the mining industry’s currency model. Whether it is shared mining or the issuance of the concept currency LTG, there is a problem of broken capital chain caused by debt risks.

Shared mining and the once popular cloud computing mining in the industry share the same information black hole - users do not purchase physical mining machines for mining, but instead mine by renting mining machines online or purchasing cloud computing power, which is equivalent to handing over money or coins to a third-party company, which then returns the profits regularly according to the agreement.

The risk of this operating model is that users cannot see the physical mining machines and cannot be sure whether the platform really has the mining machines to mine for the users. Even if there are mining machines to support it, if the third-party company refuses to return the profits and refund the deposit due to uncertainty, the users will also suffer losses.  

A user of the Gigabit Mining Pool revealed to Fengchao Finance that the external packaging of the Gigabit Mining Pool is very attractive. The administrator often publishes pictures and videos of company leaders inspecting the mine. Some pictures also have banners with the words "Gigabit Mine". The administrator said that you can come to inspect at any time, which seems very credible.

However, since Gbit Mining Pool has always claimed that its main mining farm is in Kyrgyzstan, it is very difficult for most users to conduct on-site inspections. Without being able to see the actual mining machine or verify the real situation, information asymmetry is the first mine in the Gbit Mining Pool model.  

Whether it is mortgage mining or purchasing cloud computing power mining, users need to pay the centralized company first, which is equivalent to investing the principal and then slowly getting the principal back. However, most users know very little about the Gbit mining pool. Is there a real person behind the "Lei"? Where does the team work? Many users are unaware of this and blindly invest money based on propaganda, which also lays the groundwork for subsequent losses.

As the number of members of the Gigabit Mining Pool continues to increase, LTG, with the concept of "the world's first distributed storage public chain", was born. The essence of "mortgage mining" is still coin financing. The income supporting LTG seems to be supported by the Gigabit Mining Pool, but when the authenticity of the mining machine is in doubt, LTG still cannot escape the essence of air currency.  

At the same time, Gigabit Mining Pool launched the game of mortgage LTG mining, attracting users to buy LTG at high prices from the secondary market to mine BTC or LTG. Once the LTG price plummets, users will bear double losses. This is also the second mine buried by Gigabit Mining Pool.  

According to data from Feixiaohao, in the past month, LTG has fallen 85.57% from its peak, and users who purchased it from the secondary market or mined it have suffered heavy losses.

LTG has continued to fall in the past month  

The sudden collapse of the Gigabit mining pool revealed the pitfalls of mining and currency. Generally speaking, whether it is a mining machine manufacturer or a mining farm, the business model is relatively simple, and they are afraid to avoid issuing coins, but the Gigabit mining pool is deeply bound to the LTG issued by itself. Under multiple risks, the thunderstorm became the final outcome.

Some people in the mining industry have reminded that market investors should be wary of cloud computing mining, mortgage mining and other models, and not speculate rashly without knowing whether the mining machines really exist. "Especially for projects involving coins, the BTC mining industry itself is a high-investment, high-risk industry. Issuing coins through this is undoubtedly a debt leverage for the project party. Once problems arise, the project will run away and investors will lose all their money."