What are the pitfalls of buying mining machines?

Cryptocurrency mining began with Bitcoin. In 2013, ASIC mining machines were introduced, and mining gradually evolved into an industry.

Every industry is a world of its own. Wherever there is a world of its own, there are evil people and swords and sabers. When you are in the world of sabers, you will inevitably get stabbed. Many big miners have also been stabbed many times and stepped into many pits along the way.

The mining industry has only a 10-year history. As an emerging industry, miners not only have to deal with various misunderstandings such as wasting electricity resources, but also have to deal with various pitfalls in the grassroots industry. Many people have paid a heavy price for this.

Taking stock of typical pitfalls in the mining industry may be one of the most effective ways to reduce the pitfalls of miners . To this end, Zhikuang University launched a column called " Guide to Preventing Mining Pitfalls ".

With the development of the industry, some of the previous "pitfalls" may no longer exist, or the routines have been upgraded. We retain such cases because they can still arouse vigilance and thinking.

There are many pitfalls in the process of purchasing mining machines. Today, let’s start with the pitfalls of purchasing mining machines.

01 Mining machine dealers run away

In the early days of the industry, mining-related services were not as developed as they are today. The sellers were a mixed bag, with conscientious sellers who sincerely wanted to build a good reputation, and charlatans who wanted to make a quick buck and run away. The seller's character was very uncertain to buyers. In this situation of information asymmetry, buyers had to hope that the seller was not a liar.

At the just concluded Chengdu World Mining Conference, veteran miner Li Peicai shared an interesting story. It was in 2014, one morning a foreigner suddenly sent him a private message asking about a mining machine. The foreigner directly sent him 300 bitcoins, which was converted into more than 1.5 million RMB at the time. Later, the mining machine was indeed sent to the foreigner normally.

In this case, whether the buyer can get the mining machine depends largely on the seller. If the seller does not deliver the goods, the buyer may really have no way out. In the face of huge temptations, it is very challenging and unreliable to rely on the seller to keep his word . There are very few good stories like Mr. Li who keeps his word. At that time, there were more stories about paying money but not getting the mining machine. Searching for "being cheated when buying a mining machine" on Baidu, nearly 900,000 results came out.

At that time, perhaps 30% of the mining machine trading market was honest and 70% was fraud. With the development of the mining industry, the industry has become more and more formal and transparent. It is easier for people to find formal channels to buy mining machines, and such incidents have become less common.

02
"Schrödinger" Futures Mining Machine

Due to the production capacity of mining machines and the sales strategies of mining machine manufacturers, mining machine futures trading is very common. Miners can order mining machines from mining machine manufacturers or mining machine dealers and agree to deliver them within a certain period of time in the future.

It is also difficult for small miners to book futures directly from mining machine manufacturers. Moreover, because large mining machine dealers have scale advantages, it is even cheaper for small miners to book futures mining machines from dealers than from mining machine manufacturers. Therefore, many small miners can only book futures mining machines from mining machine dealers.

Some mining machine dealers are experts in "quantum physics" and have learned the true teachings of Schrödinger. After receiving the user's money, these mining machine dealers can perform various tricks.

For example, dealers collect money from users and predict that the price of mining machines will fall, so they do not place orders with mining machine manufacturers. If the price of mining machines really falls as they wish, they will buy mining machines at this time and tell users that they bought them at the previous price, making a profit from the price difference. If the price of mining machines rises, they will tell users who paid before that they have not ordered this batch of mining machines, and then return the money to the customers, or tell users that they have to pay more and buy mining machines at the current price.

Have these mining machine dealers placed orders with mining machine manufacturers to reserve mining machines? Before the delivery price is determined, mining machine dealers are in a state of placing orders and not placing orders.

When the price of the mining machine is determined when it is delivered, this superposition state will collapse to a fixed state. If the price drops, the dealer will say that he has ordered the mining machine, and if the price rises, he will tell the user that he has not ordered it .

As the price of coins rises, the profit effect of mining machines is immediately reflected, and the price of mining machines naturally rises. The moral integrity of many mining machine dealers has shown a fragile side in the face of huge profits. Even large miners with large scale and certain influence in the industry are no exception.

A well-known example is that a mining pool previously sold cloud computing power, but was sued and then closed down because the mining farm it selected was not compliant. When the cloud computing power was sold, the price of S9 was 13,500 yuan, and when the mining farm was closed down, the price was around 30,000 yuan. The mining pool "followed the trend" and refunded all users at the original price and compensated 2% interest. This batch of mining machines was transferred to other mining farms within a week to continue operating, but at this time, all the mining machines and computing power became the mining pool's.

There are ways to avoid this pitfall. Find a regular mining machine dealer and sign a formal agreement. It is better to sign an agreement with a company than with an individual. Make the responsibilities and rights of both parties clear . By using the agreement to constrain the behavior of the mining machine dealer, you will have evidence if you really want to defend your rights afterwards.

There are various pitfalls in mining machine futures trading. We will publish a separate article on the pitfalls of mining machine futures trading later, so stay tuned.

03
The pitfalls of prepayment for mining machines

Mining machine futures trading is not only a "Schrödinger" trap. The prepayment link may also be cheated by dealers. Mining machine trading has been a seller's market for a long time. With the development of the industry and the rise of many mining machine manufacturers, the original rule that mining machine dealers had to pay the full amount for booking futures mining machines has gradually evolved into some mining machine manufacturers accepting a partial prepayment first and then the balance upon delivery. At present, several major mining machine manufacturers basically follow this model.

However, some mining machine dealers require users to pay the full amount at one time. In disguise, they overcharge customers’ advance payments . If you encounter the dealer’s “Schrödinger” operation when you get the mining machine, not only will your funds be occupied by the dealer, but you will not get any benefits from the increase in the price of the mining machine. If the price of the mining machine drops, you will become the buyer.

It is relatively more difficult to avoid this pitfall. It is difficult for others to know the prepayment ratio between mining machine manufacturers and mining machine dealers. You can refer to the previous case to avoid the "Schrödinger" futures operation of mining machine dealers.

04 Substituting inferior goods for good ones

The number of people who fall into the trap is strongly correlated with the money-making effect. When the industry's money-making effect is obvious, it is also the time when new miners are eager to enter the market, and it is also the time when scammers are rampant.

It is difficult for new miners to buy mining machines directly through the official channels of mining machine manufacturers. They usually buy mining machines from mining machine dealers. Some mining machine dealers take advantage of the fact that new miners are ignorant and greedy for cheap things, and dig a trap for them to jump into .

Novice miners are the targets of fraud by unscrupulous mining machine dealers who rip off the original labels of cheap mining machines, put on the labels of expensive mining machines, and sell them to novices at high prices.

How is this done? Some different models of mining machines look almost the same, but their computing power and energy efficiency vary greatly. If you tear off the label, you can't tell them apart with the naked eye. In this case, a novice miner may spend the money for a 60T mining machine but only buy 40T of goods.

How to avoid this pitfall? This requires the mining machine buyer to have a concept of computing power. The price of the mining machine is strongly related to its computing power and energy efficiency ratio. If this concept is known, when buying a mining machine, the price of the single T computing power of other mining machines will be compared horizontally. Of course, the constraints on dealers must ultimately be implemented in the agreement. A formal agreement must be signed with the dealer that includes important factors such as guaranteed computing power and warranty period.

05
The pitfalls of second-hand mining machines

With the development of the industry, the proportion of second-hand mining machine transactions has gradually increased. Some miners will choose to buy second-hand mining machines in order to pursue cost-effectiveness and cheapness. Compared with new mining machines, second-hand mining machine transactions have more tricks, and buyers need to have more industry (pitfall) experience . Second-hand mining machines are basically out of warranty, and the condition of the mining machines is not guaranteed. It is normal for faults such as dropped boards, dropped chips, and insufficient computing power to occur on second-hand mining machines.

Inexperienced miners may not think of these situations and buy mining machines for cheap. Afterwards, they find that there are constant failures and insufficient computing power. It is difficult to hold them accountable and they can only suffer in silence. Experienced old miners usually sign a computing power guarantee agreement when buying second-hand mining machines to constrain the seller's obligations and responsibilities and avoid disputes afterwards. If the computing power does not meet the standard, you can ask the other party for a refund or other compensation . The way to avoid pitfalls is ultimately implemented in the agreement.

Compared with new mining machines, the information asymmetry between buyers and sellers is even worse in the transaction of second-hand mining machines. In order to avoid being tricked by sellers, buyers must be knowledgeable and clearly know where sellers may be creating information asymmetry, and then restrict this part through agreements.

Signing an agreement provides strong legal protection for after-sales rights protection. More importantly, it is a process of screening and identifying sellers. Some unscrupulous sellers may not do business with you if they see that you are knowledgeable .

06 "Pie" becomes "trap"

The cases of falling into pitfalls when buying mining machines mentioned above are mainly new miners. However, old miners are not naturally immune to falling into pitfalls . Lao Luo (pseudonym), an old miner who entered the mining circle in 2015, fell into a big pit in 2017.

Luo bought more than 1,000 new L3+ mining machines on Bitcoin Mainland. L3+ mining machines are not all-in-one machines. The machine and power supply are separate. Users can buy the mining machine or power supply separately. At that time, the official power supply price was 680 yuan each, and the official power supply was one-to-one, that is, one power supply can carry one mining machine.

At this time, Luo also found out that someone was selling unofficial power supplies for only 380 yuan each, and they were one-to-two, that is, one power supply could power two mining machines. Based on 1,000 mining machines, buying unofficial power supplies could save nearly 400,000 yuan compared to official power supplies, so Luo chose unofficial power supplies. At that time, Luo was very fortunate that he met the right person at the right time, which saved him 400,000 yuan .

Luo was not happy for a few days, because the cheap non-official power supplies started to cause trouble. The failure rate of this batch of power supplies was very high. Without power supplies, there would be no profit for the mining machine. Poor quality power supplies not only delayed making money, but also posed huge safety hazards. Some power supplies would suddenly explode during operation, which could cause a fire in the mine.

It was impossible to return this batch of inferior power supplies. He couldn't bear to scrap them, as they were all money. In the end, Lao Luo had to use them with trepidation and buy some official power supplies as backup. In the end, the money spent on buying official power supplies and the time wasted was far more than 400,000 yuan, but at that time, it was like cutting flesh with a blunt knife, and he was numb. Fortunately, this batch of power supplies did not cause other accidents.

Finally, Lao Luo lamented that he was considered an old miner, but he was not familiar with the potential pitfalls of the modules and still could not avoid them. What seemed like a good thing at first turned out to be a trap to lure him into the pit .

To avoid such pitfalls, you should be aware that there is no such thing as a free lunch . If someone sends a free lunch to you, you should be alert.

07
Summarize

It is difficult to list all the cases of people falling into traps when buying mining machines. The materials we have obtained are limited, and there must be other typical traps in this category that we have not listed.