Filecoin mining machine agent: How did I sell millions of "fake mining machines"?

Author: Huang Xuejiao, Source: Odaily Planet Daily (ID: o-daily) Original title: "In 2020, the capital circle bets on Filecoin mining"

Recently, there are two things about Filecoin that have attracted much attention. One is the official sale of hard drives, and the other is the exposure of the "unlimited token issuance vulnerability" on the test network.

Whether good or bad, it is sending a strong signal to people: compared with the "snail-speed" progress of the previous two years, Filecoin has now entered a period of rapid improvement of the ecological chain: from testing code, to launching multiple versions of clients, to the market, and then to multiple wallets such as Coinbase supporting its token FIL, and multiple cryptocurrency projects and funds have announced their entry into Filecoin mining.

In short, Filecoin has become popular. In addition to its own "competitiveness", many people also say that it is because of the lack of hot spots this year (essentially the lack of money-making effect).

In the primary market, people haven’t seen high-quality new projects raising funds for a long time. Occasionally, some projects have been listed/IEO, but they are no longer as legendary as they used to be. In the secondary market, Bitcoin’s “halving effect” has been repeatedly hyped, and many people have used full leverage to “welcome the bull market”, but they were first washed out by the big crash. As for the mining circle, under the strong pressure of multiple rounds of plummeting prices, halving of block rewards, and the continuous increase in flood computing power, many miners are already on the verge of losses.

People are constantly looking for new wealth-making machines. Investing heavily in Ethereum 2.0 is one, and exploring Filecoin, once the top cryptocurrency, is another.

Compared with the "pioneers" who rushed to buy Filecoin mining machines in 2018, the investors who entered the market this year came late, but are smarter.

Two years ago, the Filecoin mining machine market was full of fakes and Ponzi schemes were rampant. Investors who entered the market at the wrong time were bound to become cannon fodder.

In 2020, the capital circle competes for Filecoin

Filecoin mining is undoubtedly a hot topic in the capital circle recently.

In April 2020, Filecoin mining solution provider "1475" announced that it had received investment from HashKey Capital, Distributed Capital, and Yimer Capital, with a post-investment valuation of RMB 400 million.

By the end of May, Odaily Planet Daily learned that Keystore, an enterprise-level encrypted asset service provider that had previously received tens of millions of dollars in investment from Jianyuan Fund and Distributed Capital, has also entered the market in a low-key manner and is also positioned as a Filecoin mining solution provider.

According to Bryce (pseudonym), a partner of a cryptocurrency fund, the fund plans to invest tens of millions of dollars to test Filecoin mining and is currently investigating leading miners.

Canaan Blockchain General Manager Shao Jianliang publicly stated at an event at the end of May that PoW has entered a stage with relatively high barriers to entry, and distributed storage has opened up a new battlefield beyond (hash) computing power. Canaan is paying attention to the development of IPFS and Filecoin mining.

On May 29, Yang Xiao, co-founder of Panda Miner, a leading graphics card mining machine manufacturer, said that the company will focus on the Filecoin mining track this year...

Since 2017, Filecoin, a shining new star, has attracted countless scammers because the project tokens and mining machines have been in the "air stage" for a long time, making the traditional currency and mining circles stop mining Filecoin.

Today, Filecoin has not yet been implemented, but people's understanding of and willingness to participate in Filecoin mining has quietly changed.

It all started 6 years ago.

In 2014, Juan Benet, a graduate of Stanford University, led a group of top students to create a protocol designed to replace HTTP - IPFS (Interplanetary File System).

HTTP is the most widely used network transmission protocol on the Internet. IPFS can be understood as a distributed version of HTTP. Its workflow is "fragment and encrypt the file - upload it to distributed nodes to complete data storage - then retrieve, synthesize, and decrypt it from the distributed nodes to the demand node - complete data reading."

Similar to blockchain, "distributed, censorship-resistant, and more open" is the biggest selling point of IPFS.

In order to promote the application of this open source protocol, in June 2017, the Juan team (also known as Protocol Labs) released a new distributed storage protocol Filecoin, hoping to improve the implementation/adoption of distributed storage by adding an economic incentive system.

This project, which had great potential and had both the right timing (the period of ICO craze) and the right people, raised US$57 million from nine well-known investment institutions as soon as it was launched, including Sequoia Capital, Union Square Ventures, Andreessen Horowitz Fund, Winklevoss Capital, etc.

In the subsequent public offering, although Filecoin only raised funds on the compliant financing platform Coinlist and targeted qualified investors (annual income of more than US$200,000), shutting out countless retail investors, it still raised US$205 million in one month, becoming the largest 1CO in history at the time.

The team, hard-core investors, hot fundraising and strong financial resources have made Filecoin popular before it goes online.

Those who failed to participate in 1CO thought of making money through FIL futures and mining machines.

Gate.io, LBank and other exchanges have listed FIL futures, and the price soared by 1.5 times during the bull market.

In the hardware market, physical mining machines of the "air project" Filecoin have also been launched one after another.

The total number of Filecoin is 2 billion, of which 70% is allocated to miners, 15% to the development team, 10% to investors, and the remaining 5% to the Filecoin Foundation. A total of 20% of the team and fund tokens will be unlocked linearly over 6 years, and 10% of investors will have an unlocking period ranging from 6 months to 3 years. Therefore, the early circulating tokens will be mainly obtained through mining.

Filecoin's mining algorithm is a unique PoC mechanism, which means that the right to record and storage fees are competed by investing storage capacity. PoC consists of two parts:

• Proof of Replication (PoRep), which verifies that miners have stored files as required;

• Proof of Spacetime (PoSt), which continuously generates proof of replication to prove that the miner has been storing the file.

Miners who complete these two steps will be able to compete for the right to produce blocks.

For Filecoin mining machines, the test is their ability to store and transfer data, such as the total amount of storage, retrieval speed, transmission bandwidth, latency, etc. Filecoin mining machine components usually include CPU, GPU, motherboard and hard disk, which is similar to a high-end computer with a hard disk. Unlike Bitcoin's ASIC mining machine, it does not require customized chips. However, the cost and efficiency of different hardware are different, so how to configure a highly available mining machine is still a science.

This gave rise to mining machine manufacturers.

The first to smell the business opportunity were the computer assemblers in Huaqiangbei.

Elsewhere, different trades are like different mountains, and one cannot do a job without the right tools. But for the people in Huaqiangbei who have accurately stepped on every wave of hardware, from the early copycat phones of mobile Internet to the mining machines in the 2017 cryptocurrency bull market, there is no hardware that they do not "tinker with".

The Filecoin project is popular and there is a market demand for Filecoin mining machines. After experiencing the huge profits from trading mining machines, businessmen in Huaqiangbei hope that Filecoin can achieve greater success.

What’s even better is that when they distribute Bitcoin mining machines, they can only make money as a middleman, but when it comes to producing and selling Filecoin mining machines, they can make money from two links.

Thus, the upstream supply chain and some manufacturers were born. They didn’t even care whether they were producing mining machines or scrap metal, or whether they could mine coins.

Since 2018, hundreds of Filecoin mining machines have emerged one after another. Now there are more than a dozen well-known companies, and many more are secretly sold in "private domain traffic".

The figure below shows the manufacturers and mining machines counted by "Chao Ge Blockchain Learning Notes" in mid-2018.

Screenshot from: Chaoge Blockchain Learning Notes

There is no doubt that most of these are fake Filecoin mining machines.

The chief architect of 6block Pomegranate Mining Pool, “Li Bai in the Coin Circle”, made his judgment from two aspects.

Logically speaking, Filecoin officials only started submitting code on Github in June 2018, and the mining plan was not finalized until June of this year. "So how can the mining machines that were randomly configured two years ago work normally?"

Furthermore, judging from the hardware configuration required by the current mainnet, an ordinary Filecoin mining machine needs to be equipped with at least an AMD CPU, a 1TB SSD (solid state drive), and 128GB of memory. The cost of these accessories alone is no less than 6,000 yuan. In contrast, the above-mentioned mining machines are priced between 2,000 and 6,000 yuan. How do they achieve the basic configuration?

In response, an employee of Star Continent, which is still in operation, said that none of these machines can mine alone, and can only participate in a cluster and act as a storage node. In addition, "the product didn't sell well and was taken off the shelves a long time ago."

At that time, there were some mining machines on the market priced between 5,000 and 10,000 yuan, but a person in charge of a Filecoin mining machine manufacturer pointed out that their availability was also questionable.

The person in charge said that most of these mining machines are home network storage devices (i.e. NAS machines) that use ARM architecture, have low configuration and are insufficient to support algorithm operation; stability is not guaranteed when building a cluster, and they are not suitable for mining Filecoin.

If you buy these mining machines, you may think that it doesn’t matter if the performance is a little worse, at most you can mine less.

However, according to "Li Bai in the Coin Circle", low-configuration mining machines will lead to low mining efficiency and slow calculations, and the official has set a minimum threshold for mining speed. The three stages of mining must be completed in one day, otherwise it will not be able to be used as effective computing power by the system and compete for blocks.

But these ridiculously fake mining machines were once all the rage and made a lot of money.

Taking the "Snail Miner", the only model investigated by the police, as an example, according to China Business News, from October 2018 to February 2019, the company sold nearly 300,000 "Snail Interstellar Servers" to thousands of people in the name of Filecoin mining machines, and defrauded 2 billion yuan in just 5 months.

The "Snail Miner" is just the tip of the iceberg. With the launch of the Filecoin mainnet, more fake mining machines will be exposed.

Some people may ask, mining does not seem to be a regular and easy-to-understand investment project, so how can fake mining machines make so much money?

How did I sell millions of “fake mining machines”?

The problem lies in the “newness” of Filecoin. The traders in the trading circle take advantage of people’s information/cognition gap in professional fields, advocating that star projects will bring rich returns, attracting investors in the cryptocurrency circle or the trading circle.

Abiang is the agent of one of the mining machines (also known as "city node"). He has been making a living by "investing in projects" for many years. In 2017, he made some money in the ICO wave during the bull market in the cryptocurrency circle, but unfortunately he did not catch up with the top project Filecoin.

Therefore, when Abiang discovered that he could participate in Filecoin by buying and selling mining machines and running machines, he determined that this was an opportunity to get on board.

After studying and comparing the fundamentals of various mining machine manufacturers, Abiang decided to invest all his assets, hundreds of thousands of yuan, to purchase 40 mining machines from a certain manufacturer, obtain the qualification of a first-level dealer, and get the lowest purchase price.

For Abiang, the attraction of this manufacturer lies in the fact that there are physical companies and products available for inspection, and the marketing and operation models are very mature.

On the one hand, the manufacturer will take agents to visit the company and provide training and lectures; on the other hand, it will publish soft articles and machine-playing videos online to build the brand, and offline, it will help agents with sales by holding regular sales meetings.

Filecoin mining machine classic copywriting

The most extreme brand promotion is to pay celebrities to endorse the project. For example, the Snail Miner invited Hurun, the founder of the "Hurun List", to a sales meeting, saying that they would cooperate to create the CAI Rich List to indirectly endorse the project.

CAI can be understood as a Filecoin imitation chain made by the Snail Miner team. By purchasing a Snail Miner, you can "mine both CAI and FIL on one machine".

The picture shows Hurun attending the CAI event

One machine dual mining is also a classic marketing strategy, and its logic is smooth (mine a small currency before FIL goes online to maximize profits), but the tokens created to sell mining machines, you can imagine how the K-line will trend. Even if the tokens are not issued by mining machine manufacturers, but are Filecoin-like PoC project tokens, there are no relatively high-quality projects from fundamentals to token prices.

But the buyers of mining machines believed all the "tricks" seriously.

According to Abiang's observation, most of the customers who come through online and offline channels are elderly people, and many of them have previously invested in Internet projects, or speculated in cryptocurrencies, or simply played in trading projects.

"Although people don't understand what files and data storage are, Filecoin has a natural advantage in that the project team and investors are very reliable, and its information is everywhere on the Internet. Unlike those real and fake projects, it is much easier to promote it than to promote a brand new small project," said Abiang.

Abiang found that they, like himself, had no good projects to invest in.

“Everyone believes in the myth of doubling their money and getting rich quickly, so they definitely don’t look down on investment opportunities in the big market, such as stocks, funds, and financial management. When they see Filecoin and are able to participate, they feel that their good luck is about to come.”

When asked whether he had informed these newcomers of risks such as the delay of the project's mainnet and the failure to deliver mining machines, Abiang waved his hands repeatedly.

“You don’t know. When selling this, you should try to avoid mentioning the risks. You have to talk about the benefits, and you have to promote high benefits.”

Including Abiang himself, he was also attracted by the benefits of "city nodes".

After becoming a "node", a mining machine with a purchase price of several thousand yuan can be sold for about 10,000 yuan, which is a high profit. This is a one-time benefit of the hardware; the second benefit is the share of mining. Due to the professionalism of mining itself, ordinary customers can hardly operate and maintain the mining machine by themselves after purchasing it, so manufacturers mostly provide one-stop services from production to mining. As for the fees, they are mainly charged a certain percentage of the tokens produced by the customer's mining.

After three months of operation, according to Abiang, the price of mining machines even increased by two to three thousand. Of course, this has nothing to do with cost, it is just a "marketing method".

"It's not good if the price drops, because it means your asset is depreciating. The more it rises, the better. So our prices will be adjusted upwards in a step-shaped manner. The goods are still the same batch."

Raising prices can also create the illusion that the cost of entering the market first is lower than that of entering the market later. According to All-Weather Technology, one of the marketing strategies of Snail Miner is to issue a price adjustment notice, "each mining machine will increase by 3,000 yuan", which caused many investors to hoard machines in large quantities on the eve of the price increase.

According to Abiang's observation, 2018 was the best year for Filecoin sales.

“There are many similar sales meetings, and many people come. They often visit several manufacturers in a row for inspection. It feels completely different from the cryptocurrency circle where the price of coins is falling.”

“I can’t stay in this business anymore”

If a business is sustained mainly by poor perception and lack of transparency, it is unlikely to last long as information flows.

Competition among peers will inevitably lead to mutual criticism, and with the attention from the outside world, there are more and more voices openly questioning Filecoin mining machines.

At the same time, the traffic of this project, which has been sweeping the cryptocurrency and trading circles for a year, seems to have peaked. "There are fewer and fewer people who believe in it, unlike before when we could convert several customers in every event."

As of February 2019, the expected launch of the mainnet was postponed for the second time (Filecoin's original plan was to launch the mainnet in June 2018, the same as EOS), which also dealt a heavy blow to many agents and investors.

It was from then on that Abiang began to doubt whether there was something wrong with the project.

“When I first started, I was skeptical. These mining machines are like money printing machines, and the high returns seem unrealistic. But since I chose to sell it, I convinced myself that it was true. If I think about it in a bad way, the gap is unacceptable.”

But now, thinking that no one can guarantee that the next launch date will not be "delayed" (if the main network is not launched, the custody income cannot be cashed), as well as the risks warned by the Snail Miner and the "peak of the industry dividend", Abiang's belief began to waver.

After several months of backing down, Abiang officially retired from the circle.

"Customers are not buying, the profit is thin, I have no confidence in this product, and if I'm not careful, something might go wrong. I can't stay here any longer."

Subsequently, several of Abiang’s agents at the same level and half of his subordinate agents also left the market. Dozens of his once active peers also gradually disappeared.

Even most of the “top ten mining machine brands” mentioned above that are well-known in the Filecoin world have disappeared.

Odaily Planet Daily checked their official websites one by one and found that most of the websites could no longer be opened. Among the websites that could be opened, only Star Continent continued to sell Filecoin mining machines. Another "Maya Mining Machine" official website has switched to selling "Ethereum Mining Machines", but no official personnel could be contacted through the official accounts and WeChat accounts left behind.

Screenshot from: Maya Miner official website

Just as a number of capital groups were scattering, the Filecoin project made gratifying progress.

With the entry of new players, can “good money” drive out “bad money”?

On December 11, 2019, Filecoin opened its testnet, and miners finally had a real testing ground. Although the tokens mined on the testnet have no value, mining machine manufacturers such as 1475 still participated in the test to find bugs and improve the Filecoin network.

By the time the second phase of testing was launched on May 15, Filecoin's replication proof mining speed had increased by 2 times, and the feasibility of various codes had been verified. The official estimate is that if there are no accidents, the main network will be launched between the end of July and mid-August this year.

From being postponed for two years to being just around the corner, Filecoin has not only received more and more attention, but people's arguments have also begun to shift, and wallets such as Trustwalle have announced their support for FIL with practical actions.

"Li Bai in the Coin Circle" clearly remembers that at that time, the team was at the end of developing the HandShake (HNS) ASIC mining machine, and some technical teams researching zk-SNARK zero-knowledge proof suddenly appeared in the market. It turned out that these people were Filecoin mining machine manufacturers.

In the Filecoin project, the effect that zk-SNARKs can achieve is that the verifier can determine whether the miner has honestly copied and saved the user's files based solely on the proof results of zk-SNARKs without viewing the specific files stored by the miner, thereby saving costs and protecting user privacy.

Therefore, effectively running the zk-SNARKs part of the proof (mining) process is a basic requirement for Filecoin mining software and hardware.

However, since cryptography technology is too advanced and few people are familiar with it, many teams are almost "learning and using" it.

"Li Bai in the Coin Circle" and his team had previously developed a Layer 2 privacy protocol and were familiar with zk-SNARKs. Therefore, after completing the research and development of HNS mining machines, they decisively entered the manufacturing of Filecoin mining machines.

Of course, doing what they are good at is only a small part of the reason. The bigger opportunity that Li Bai's team sees is that Filecoin carries a hope of subverting tradition. After three years of dedicated research and development, it has finally entered the eve of the formation and explosion of the ecological chain. Although there are risks, it is worth taking a gamble for such a king-level project.

Another company that decided to try out mining is Keystore. This company, whose core business is the secure storage of private keys, has been studying how to better provide information protection, data privacy, and secure storage.

"The decision to join is not only because Filecoin is directly coupled with our business plan, but more importantly, we saw the broad market demand." Keystore Marketing Director Jia Xudong told Odaily Planet Daily.

From January to now, the Keystore team has contacted many institutional users who want to mine Filecoin. They can be roughly divided into two categories:

One category is Filecoin's public/private investors. They are still optimistic about Filecoin, and mining is a way to obtain FIL at a lower cost, so mining Filecoin can be understood as continuing to increase positions.

The other category is a small number of large Bitcoin miners.

Note the qualifier "minority". Most Bitcoin miners will reject Filecoin for various reasons. The biggest reason is that Bitcoin miners hardly mine other currencies, and Filecoin mining was once known for being a Ponzi scheme, which made many miners disdain it. There are also those who do not reject new currencies, but are skeptical about Filecoin's distributed storage business, believing that it may be suppressed by regulators like TON. There are also conservative miners who are discouraged by the lack of a reliable investment return model in the early days of Filecoin mining.

But there are always risk-seeking miners who will use a small portion of their assets to "invest in trends."

In fact, smart miners should have realized that at a time when block production is decreasing and the price of the currency is flat for a long time, but participants continue to increase their bets, Bitcoin mining also has a ceiling. If you are not careful, you may fall into losses, which may be no different from investing in Filecoin mining.

During an interview, Odaily Planet Daily saw a mining farm that has invested over 100 million yuan and is preparing to put 10% of its funds into Filecoin mining. This scale of funds is not small for the current Filecoin mining market, and it is currently negotiating cooperation with the leading mining machine manufacturers.

The influx of new institutional miners and new miners will undoubtedly bring positive promotion to the previously chaotic Filecoin mining market, with the “good money driving out bad money” effect.

Take Pomegranate Mining Pool as an example. It started to participate in mining when the second test was launched. With less than 10 mining machines, it rushed into the 9th place in the Filecoin computing power list. Among them, the daily cumulative computing power of a single mining machine can reach 300GB, which has a certain efficiency advantage compared to some mining machines on the computing power list with a computing power of only 200GB.

On May 21, Pomegranate Mining Pool suddenly made its hardware solution public, which attracted the attention of the community.

As mentioned earlier, Filecoin manufacturers have started selling various types of mining machines since 2018. Because they are futures, Filecoin mining machines are as unknown to investors as a black box.

The original intention of Shiliu Mining Pool to release the hardware solution is to provide reference for ordinary investors and some less professional manufacturers. Just as the open source of mining pool software can stimulate the birth of more mining pools and promote the decentralization of computing power, the hardware solution that Filecoin miners have kept hidden for two years has been made public, which will undoubtedly bring more benefits than disadvantages to the industry.

Producing and developing machines is the way for mining machine manufacturers to make money. Now that the solution has been open source, everyone will compete on the availability and maturity of software and operation and maintenance services, thereby stimulating the in-depth development of the industry.

It's a pity that Abiang and his clients, who rushed into the market, were unable to catch such a good opportunity.

Before quitting, Abiang calculated his gains from participating in the industry for a year. "Not counting the future revenue share from hosting, I made some money from selling hardware alone, but those dozens of mining machines have not started to produce coins or been sold, so after working hard for a year, I only made a profit that was 'locked in'."

The Filecoin mainnet is about to be launched, and he is unsure whether his mining machine can mine FIL. "At worst, I can sell the hardware at 40% off," Abiang thought.

However, it is still unknown whether the manufacturer can deliver the mining machines. Whether the funds collected two years ago were used to purchase mining machines, whether there were operating losses and overselling, are all risk points.

It is conceivable that the launch of Filecoin will lead to a number of "snail mining machine" scams. At that time, the "get-rich-quick train" that investors have embarked on will head towards the cliff.

Abiang is both a pyramid schemer and a victim, and he has many feelings. But he has no hope of defending his rights.

"It's written in the sales contract that this machine cannot be returned unless it can't mine coins. If the manufacturer buys a small amount of coins on the secondary market and sends them to you, they will say that they were mined by the machine, and you can't do anything about it."

Many more platforms have been shut down, and the project owners have been out of touch for a long time, such as the Maya mining machine mentioned above. Moreover, it has been two years since the fraud occurred. Did the users consciously keep the evidence? If we really want to protect our rights, these situations are not optimistic.

Finally, Abiang advises investors who are looking for opportunities to enter the market to never go all in on such high-risk projects, but to act within their means. Moreover, if they wait until the project goes online before joining, they will still be early investors. Don’t worry about missing out, and don’t have “faith” easily.

"Investment is investment. You need to look at the returns and control the risks."