Bitmain Faces New Accusations Of Secret Mining

Bitmain appears to have been definitively caught in a lie said by their CEO regarding whether or not it operates “secret mining pools” using its own ASIC hardware prior to selling them.

The proof (as should now be said in general going forward) was in the blockchain. After all, one of the benefits of having a publicly viewable immutable ledger is the transparency of the network. It is difficult to lie about the blocks mined when who mines them can be traced.

This comes at an extremely awkward time for Bitmain and their CEO Jihan Wu. Industry insiders have speculated that Bitmain is seeking an initial public offering (IPO) in the near future. This has come as the notoriously camera-shy Wu has increasingly given statements and interviews to the media.

In June, Jihan Wu categorically denied operating secret mining pools in an interview with Fortune, saying, “No, it never happened. We have a small-scale test. We don’t do that. That is not our strategy.”

In the same interview, Wu doubled down on his claim, saying, “If we develop hardware, we just release and sell it on the market. Right after we have sample machines working, we start sales to the market. We don’t have such kinds of advantages.”

Now, however, a prominent blockchain developer named Hakkane (who is a prominent voice in the community around Siacoin, and also operates his own site, siastats.info, which purports to offer real-time statistics and analytical tools for the Siacoin blockchain) has provided hard data that Bitmain has blatantly lied.

In his original medium post, Hakkane cited a number of points to prove the existence of the pools. His original post was highly thorough (albeit very technical) but worth it for our readers to grasp every detail.

Some of the most important points made included that, “on the same release day of the A3, AntPool, (the mining pool of Bitmain) opened a branch on the Sia network, becoming the sixth known pool of Sia. On the first days of the pool’s existence, their API showed a very small number of workers (<100) and hashrates that comprised around 5% of the network.”

By March, however, the number of workers had grown to several thousand and the hashrate to around 20% of the network, remaining in that level until the present date.” This apparent gradual grow of their hashrate, if true, would have been compatible with their vision against secret mining, as the pool only got organic grow after their batch 1 was delivered.

Nevertheless, it has to be noted that the Sia community detected during November and December sudden spikes of the network’s hashrate. This was accompanied by bursts of blocks mined by unknown pools, which collectively represented almost 25% of the total blocks mined.

Previously, the rate of these unknown pools had remained under 5%. While some at the time suggested the new mining pools could be Bitmain or Baikal (an ASIC manufacturer and Bitmain competitor), Hakkane provided definitive evidence that Bitmain was the culprit.

This evidence consisted of:

1. There was no signature on the mined blocks coming from these unknown pools.

2. Most of the mining pools on the Sia blockchain use a single payout address for the block reward as well as a standard message on the arbitrary data field of the block they have mined.

Hakkane elaborated upon this by stating, “these two variables allow blockchain explorers to identify without a doubt the pool that mined the block.

Antpool instead has used so far more than 2600 different addresses and the arbitrary data of their blocks is an encrypted string, different each time. This prevents the independent validation of who mined the block.”

3. In the absence of a block signature, block explorers must trust whatever Antpool claims they have mined on its website.

4. Antpool has only claimed 687 blocks. Furthermore, their list of claimed blocks includes multiple gaps of several thousands of blocks.

5. Considering that Antpool’s hashrate comprised around 20% of the network, these gaps are impossible statistically, meaning that Antpool is refusing to report many of the blocks that they have mined.

6. Antpool claims fake blocks. Their list of claimed blocks also include blocks owned without doubts by other pools.

Hakkane elaborates that, “For example, blocks 155407 and 152847 are actually blocks of F2pool, and we can be sure of this because the block reward is being paid to the publicly known mining address of F2pool `dc0cb4f6…`”

7. Antpool reported fake hashrates.

Hakkane’s website has records of what the average reported hashrate of each pool in a daily fashion is. He does this by scoring what their websites/APIs indicate every 30 minutes.

His website also keeps records of the % of mined blocks mined by each pool. He makes the point that “even if we assume that all the blocks mined by “Unknown” pools are Antpool’s, even the aggregated % of blocks mined does not match the hashrate reported by them. ”

Since the end of March, Bitmain has reported contributing roughly 19% of the hashrate of Siacoin. But the combined blocks of Antpool plus the unknown mining pools represent only 14%. That according to Hakkane is impossible. He says that Bitmain is lying about their real hashrate. According to his statistics, it’s in actuality inflated by more than 35%.

8. Higher hashrates drive both more consistent and importantly larger payouts for miners contributing them.

9. In practice, this means that Bitmain is directly profiting by lying. Since by deceiving other miners and making them believe they will be paid more than they actually can mathematically they also drive larger sales of their own hardware.

By using an automated script, Hakkane found over 2100 new blocks that were mined by Antpool, despite Antpool itself rejecting having claimed them. In total, Hakkane disclosed that 550 blocks were mined in secret during the 2 months previous to the Antminer A3 launch announcement by Bitmain. This represented a grand total of 85 million Siacoins in block rewards.

According to CoinMarketCap, the maximal historic value of Siacoin was reached on January 6th, 11 days before the official Bitmain announcement. Depending on the moment they sold their earnings, Bitmain could have obtained around $9 million from this secret mining operation.

According to industry sources, the development of the A3 miner cost Bitmain around $10 million. If they planned the trades intelligently, this means that Bitmain could have recovered the entire cost of their ASIC development just by secretly mining Siacoin using their own hardware during the last 2 months before the announcement.

Despite the promise of “radical transparency” from Bitmain, the objective reality of the situation is that Antpool is acting as the most opaque and dishonest mining pool on the Sia mining scene, in addition to lying to their customers about the return they can realistically generate from the purchase of Bitmain hardware.

Featured image courtesy of Shutterstock.