Open letter from the former BITMINE AG management.
We are sorry to announce that on the 20th of May 2015 at 9:00, BITMINE AG has been officially declared bankrupt from the local competent court of Bellinzona.
It was publicly known that BITMINE AG was in a difficult situation from several months, but despite our biggest attempts to save the company by restructuring its product and services and seeking for new investments, all without success, left us no other chance than the road to bankruptcy. The accounts, assets and all company documents are now in hands of the Swiss justice and will be under inspection and investigation.
We all, both as former directors of the company and as individuals, make our deepest apologies to the many customers and suppliers that were patiently waiting for a refund or a compensation. As BITMINE AG’s board, we have always acted in our best good faith, within the limits of our skills and in the interests of the company and, therefore, its customers.
We also want to take the opportunity to make clear with everybody that the accusations on the forums are false, we as first have lost all the company’s share capital and several hundreds bitcoins in loans to the company ourselves. This is fully documented on the company registers and is now available to the relevant authorities for inspection.
Why did BITMINE AG go illiquid and eventually bankrupt? The answer to this question can be, in our opinion, divided in the three major issues that affected BITMINE AG:
- Bitcoin value and mining difficulty. Everybody knew and was aware that there was a significant risk associated with Bitcoin mining. We have to be honest and face it: if Bitcoin was still valued at well over $1000 like it was in the beginning of 2014, nobody would have tried to cancel his orders and we would all be rich. Unfortunately, the BTC value collapsed constantly since Mt.Gox’s bust and mining difficulty exploded to values that nobody was able to predict at the time we were selling our products. Today, the bitcoin mining market is completely dead and in the hands of a tiny group of major players and the bankruptcy of most of our former competitors is the brightest demonstration that this market collapsed.
- Innosilicon. The company that we engaged for the development of our A1 CoinCraft chip ended up in being BITMINE’s biggest failure. We engaged this company with a regular contract and entitled them to develop our 28nm ASIC based on our know-how and instructions, along with the full turnkey process of creating the mask, wafers and IC packaging. We had signed a contract that was expecting to guarantee us a one year exclusivity on the chip, however at a later stage we received proof that Innosilicon was plainly violating the contract from day zero and selling our own A1 chips to whoever inquired them directly. Once we pointed this out, they simply stopped answering our enquiries and disappeared, putting us in obvious panic because we had an extremely tight schedule and obligation to deliver the miners on time and they knew that perfectly. So, once they knew how attractive the market we were into was, they forced us into signing an amendment to the contract where we allowed them to sell the A1 chips to third parties. Additionally, they even forced us to write formal excuse letters for the “false” accusations under the threat that if we hadn’t signed them, they would just delay the supply of the A1 chips so long that they would be worthless.
Once the first production lot of chips, with a delay of nearly two months and a performance 50% worse than promised was delivered to us, the issue of “yield” popped up. Innosilicon repeatedly delivered us broken chips or “junk grade” ones as part of the purchased (and paid for) lots, forcing us to place ever bigger and bigger orders in order to fulfill our customers’ orders and eventually draining out most of the company’s money. Out of all the ordered chips, a huge part of them were simply not working and could only be thrown away in the garbage bin. Here you will see for yourself the pictures of the piles of tens of thousands of worthless junk grade chips still sealed in their original packages. When asked about clarifications, they claimed this was “normal production yield” but failed to provide any relevant document that could certify it. It is also worth mentioning that while we were struggling with thousands of junk chips, the A-grade ones could at all time be purchased in Hong Kong directly from their Chinese resellers, at some point even at lower prices than what we ourselves paid for.
At the end of this horrific experience, we had paid to Innosilicon in 2013 and 2014 a total of more than 8 million CHF but received only a small amount of usable A1 chips, causing us a huge financial loss. Therefore, we enquired two different lawyers in order to evaluate legal actions against them, but ended up with answers that more or less said that the chances of getting our rights respected from a Chinese court against a local Chinese company were close to zero. We only later found out this is a common practice from Chinese companies, regardless of the written agreements you make with them. (http://en.wikipedia.org/wiki/Intellectual_property_in_China)
- Engineering difficulties. There were some difficulties on the engineering side as well. The technical design of the “CoinCraft Rig” was flawed due to its 24V power supply design. Several engineers were hired to counter the issue but this model was production ready only so late that in the meantime we had already replaced most of the Rig orders with Desks. We had also suffered from electrical components’ shortages (DCDC controllers, organic polymers capacitors, MOSFETs, etc.) and where therefore repeatedly forced in delaying our production lots.
The most often asked question is: where is my money gone? Why weren’t you simply able to pay back everybody?
Let us expose the financial figures to answer this question. BITMINE AG has sold in 2013 and 2014 a gross total of 12.1M CHF of products in various currencies and forms (Fiat and Bitcoin). Below is a summary of where this money has been paid to and is taken as an excerpt from the company’s official balance sheets and financial records, hence fully documented (the numbers are rounded for reading convenience).
- 8M paid to Innosilicon for development, masking and production lots of CoinCraft A1 chips.
- 2.1M paid to major suppliers of electronic components, heatsinks and casings (like Digi-key, Future Electronics, etc.).
- 0.7M paid for logistics (UPS, DHL, etc.).
- 0.7M paid to IceMine for the hosting fees of our cloud mining service.
- 0.6M paid as salaries to the production, management, engineering and support staff (totaling 18 people).
- 0.4M lost in Mt.Gox’s bankruptcy.
- 1.4M refunded to customers.
- 0.5M other running expenses such as rentals, travel expenses, legal expenditures, accounting, marketing and advertising, fuel, etc.
With a grand total of 14.4M CHF you may be wondering why this is actually higher than the above-mentioned sales volume. Just remember to add 1M share capital, 0.8M of loans with third parties and 0.6M of self-mined bitcoins in our operations in Iceland. If this last number may seem low to you, please remember that most of the miners in Iceland were offered as compensations to former customers through bitmine.io, leaving us only the smallest part of profits for our own operation.
The second most asked question is whether we were a scam or not. We were not because we have actually delivered a significant amount of our products. Despite all the above mentioned problems, out of the 3500 units that we sold and we got prepaid for, we have delivered to our customers more than 2000 units, all produced in our facilities. There is a full photographic documentation of our production facility, happy customers picking up their miners and pallets full of miners being picked up by the freight company for shipping.
We acknowledge that this will not bring back your money, but hopefully it will give you an honest view on the reasons why it had been lost.
The BITMINE AG board of directors