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Comparing the Cryptocurrency Mining Industry Struggles of 2018 to the Future of 2019

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Crypto mining is one of the key aspects of the crypto space, and a driving force of blockchain technology. However, due to the bear market and other problems which the industry faced in 2018, a significant lack of popularity of this particular industry was noticed. Not only that, but even the existing miners decided to abandon mining farms and find some other way of making a profit through digital currencies.

GMO Loses $320 Million

According to last year’s reports, Japanese internet conglomerate, GMO, experienced huge losses in the last quarter of 2018. The loss was not expected, and the company itself admitted as much. As a result, they had to leave the mining business which they originally entered only several months earlier, in June.

At the time, the company wanted to become a competitor to the largest crypto mining firm in the world, Bitmain. They used 10% of their own resources and capital to start the mining business, after obtaining advanced technology and developing methods which would ensure lower power consumption. However, this was not enough, as the company did not fully consider the actual size of Bitmain operation.

At the time, Bitmain was seeking a valuation of more than $15 billion, while GMO valued at only 10% of that amount. Bitmain itself, on the other hand, knew what to expect, and they were more than ready to meet the challenger and squeeze the would-be rival out of the industry. This eventually occurred on December 25th, 2018, when GMO decided to call off the mining operation.

As a result, the company lost $320 million instantly, and they assessed that it would be difficult to sell mining gear at this point, which is to say that the losses cannot be compensated in such a way.

Bitmain Itself Had A Difficult 2018

While Bitmain was more than capable of handling some new competition, recent reports state that this company also experienced losses in previous years. At one point, Bitmain sold many of its miners, and it attempted to establish dominance over the industry by entering a price war which its competitors would not be able to afford.

It is important to mention that this happened before the second market crash, while Bitcoin’s price was between $6,400 and $7,000, which still allowed the company to make money, even if it made some risky moves in this period. The demand for mining was still relatively high at the time, and the company was not as worried about its losses.

The November market crash which eventually brought Bitcoin to the price of $3,200 marked a big turnaround, however and Bitmain experienced struggle as well, with a negative profit margin of over 11%, according to reports. The reports also mentioned that Bitmain might actually not be losing that much, as the costs of mining have likely dropped as well, but there is no doubt that the company is losing money instead of gaining it.

Other reports say that Bitmain had to lay off around 50% of its workers in Q4 2018, with one Bitmain employee confirming that the actual percentage is even higher. In fact, this individual stated that some departments would have to be let go entirely because of the market situation.

This is in sharp contrast to Bitmain’s announcements made earlier in the year, when the company stated that it plans to become a competitor to AMD, Intel, and nVidia. At this point, Bitmain still had a very successful crypto mining business to back up its expansion to completely new industries.

At the time, the company’s officials stated that there are numerous similarities between AI chips and chips used for BTC mining. Because of this, the company planned to enter the AI development industry by using its existing mining chips designs for powering the AI systems. The problem that Bitmain did not anticipate (which is quite common for companies that attempt to expand in this way) was too aggressive diversification of its products and services.

The firm attempted to expand beyond crypto mining without improving their business models and core products, which has been a downfall for many others as well.

It Is Not As Bad As It Seems

According to statistics provided by a crypto market data provider Blockchain, Bitcoin’s hash rate has seen a significant impact in Q4 2018, going from 61 exahash to only 44 exahash in the last several months. During the same period, crypto miners started leaving the market in greater numbers, as mining was no longer profitable. The low price of Bitcoin was not enough to cover the high costs of the mining process, and multiple mining farms had to shut down.

However, experts believe that the situation will take a turn for the better, and that “smart money” is waiting for this to happen, although it might not be a quick, overnight shift. In fact, many believe that Bitcoin has yet to find its bottom, with estimates that this might occur in February 2019.

Another thing worth mentioning is that the current “low” hash rate of Bitcoin (44 exahash) is still much larger than the one that was recorded in early 2018 when it was at 17 exahash. In other words, even after a severe drop, Bitcoin hashrate is still about 158% larger than it was a year ago.

Despite the fact that miners are leaving, large mining facilities are not likely to abandon the mining industry. If an individual cloud miner decides to exit the space, their losses would be small. However, if an entire mining center which has signed a long-term contract with electricity providers and has bought large amounts of expensive mining gear were to abandon the space, their losses would be devastating.

In addition, many agree that miners tend to have a long-term perspective. Otherwise, they would not go through the trouble of obtaining expensive equipment and entering deals with electricity providers.

Due to bright predictions regarding the future of mining, several tech giants such as Intel and Samsung are keeping an eye on the industry, with Intel even acquiring patents for high-performance energy-efficient BTC mining. As for Samsung, the company has reportedly started with the production of mining rigs and mining chips in Suwon, South Korea.

What Will Happen In 2019?

While it is not possible to accurately predict future trends and events, a lot of large-scale mining companies are expected to continue with their operations, despite losses. While they may be losing money now, the long-term strategy remains the same. A lot of it also depends on the prices of digital assets, which are still quite low.

However, while a recovery expected to start in 2019, there is no way to tell when it will arrive, or whether it will actually start, at all. For a while, at least, large corporations such as Bitmain can afford to mine while the prices are low, at least for a while longer. In other words, even though individual miners have left the mining industry due to the bear market, mining facilities will not follow, and the crypto industry should remain functional until the individual miners’ return.

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Russian Official: BRICS Countries Continue Unified Payments Systems Developing, No Plans for Bitcoin in Near Future

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Last week, the news that Russia is considering investing huge amount of money into Bitcoin as a means to invade US sanctions spread like fire.

Given the fact that Russia has been working on de-dollarization plans for a long time now while looking for an alternative reserve currency further put force behind this news. This got the crypto enthusiasts excited as this would have meant huge investment into the crypto market and that too directly from the government.

However, this might not be happening at least, any time soon, as the Russian news channel, Forklog, published an article quoting Elina Sidorenko, the chairperson of an interdepartmental working group of the State Duma for managing risks of cryptocurrency turnover, as saying,

“Under this statement, there is not a bit of common sense, much less ideas that would be considered in government circles. The Russian Federation, like any other country in the world, is simply not ready today to somehow combine its traditional financial system with cryptocurrencies. And to say that in Russia this idea can be implemented in the next at least 30 years is unlikely to be possible.”

She further pointed out that given the fact that there is lack of any legislative regulation of cryptocurrencies in the territory of the Russian Federation makes what Vladislav Ginko, a teacher at the Russian Academy of National Economy and Public Administration under the President of the Russian Federation, said sound absurd.

“Even if Russia wants to place its cryptocurrency assets now, it simply cannot do this, due to the fact that we do not have any mechanisms that would allow us to introduce a system, where these assets would be stored, which authorities would be responsible for it, which would be responsible for abuses and stuff. Such a model under the current criminal, financial and civil legislation, in general, does not fit. All over the world, a cryptocurrency is considered as a high-risk asset and a similar model, naturally, would not suit anyone.”

However, Sidorenko does note a different way to solve this issue which she states is the only way to use digital assets at the state level.

She says an interstate cryptocurrency can be created that would then become a unified system of payments between countries.

“A similar idea is already being considered within the framework of the EAEU, but the BRICS countries have moved closer to it. If a cryptocurrency unit had been invented, which allowed making payments only for energy, in fact, the Russian Federation could have made a long and long-term advance in the economy.”

Just recently, Russian Prime Minister Dmitry Medvedev talked about cryptocurrencies and their volatility being a cause for concern while acknowledging the fact that it has its own benefits that can’t be cast aside.

“But this, of course, is not a reason to bury them [cryptocurrencies]. Here […] there are both light sides and dark sides, as in any social phenomenon, in any economic institute. And we should just watch closely what happens to them.”
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This Just In, Europe is Bullish on Bitcoin According to Binance Seeing Massive Registrations in EU

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Binance has launched its European services only a day ago and the wave of registrations are already massive. With its new platform in Jersey and offering the British Pound (GBP) and Euro (EUR) trading pairs with Bitcoin (BTC), Binance has just seized a huge market. In less than 24 hours, the exchange’s European division is already full of new clients.

Changpeng “CZ” Zhao, the founder of Binance, has affirmed that the company is “overwhelmed” with so many people registering and that there is a backlog of Know Your Customer verifications that have to be made before whitelisting so many people.

He affirmed that they underestimated the market and did not believe that so many people would want to register so quickly, so the systems are running slightly slow for the moment.

Despite Bitcoin dropping around 80% in price in the last months, a lot of people are still interested in it and this is the ultimate proof of that. The efforts of companies like Binance which are in the process of continuous expansion, are actually paying off and are facilitating mainstream adoption little by little.

What is sure is that Binance will have a stiff competition in Europe. Many key players are already in the country, so it will be hard to carve out some space in this new market, but it looks like things are going smoothly, at least in the first 24 hours. Coinbase and Bitstampare two of the most important competitors that CZ will have to face in order to establish Binance in Europe as a winner.

According to the CFO of Binance, Wei Zhou, though, Binance’s expansion into Europe is good for the whole industry. He says that fiat to crypto “ramps” are critical for people to enter the market as new users will not buy crypto with crypto.

Because of this, Zhou believes that this will provide new important opportunities for both the company and the whole market as well and that they want to create a real channel for people in Europe to enter the crypto world just like a lot of people are doing in the U.S. and in Asia.

It is also important to notice that Binance really needs to up its game if it wants to be relevant in 2019. In 2018, Binance was the king of the market and companies like Coinbase had to watch it, but 2019 will be the year in which companies like Bakkt, the crypto exchange and liquidity provider created by the Intercontinental Exchange (ICE) will be in the field.

With large corporations from Wall Street entering the game to win, Binance has to evolve and grow or it may lose its place in the market and be left behind.

What To Expect From Europe?

While Europe already had a Bitcoin market way before Bitcoin exploded into the mainstream, its growth is somewhat slow when compared to Asian markets, for instance. According to data which was taken from CryptoCompare, the whole daily volume of Bitcoin in Europe is less than 4% of the world volume and the whole Europe ranks behind both the U. S. and Japan.

If Europe’s market will grow, 2019 is probably the year for it. During most of the year, the country had regulation problems and has seen a slow improvement in its crypto economy. Now, however, Binance is eyeing this market, so we may see some significant growth this year.

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Cryptocurrency Investors in India Are Fighting Back in the Name of Having Their Bank Accounts Closed

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India, the land of one of the oldest civilizations, has existed for thousands of years. To survive for so long, one needs great tenacity and a certain acceptance of fate. There is also an ability that is colloquially known as ‘jugaad,’ the closest English equivalent is a hack. So when Banks in India started to close the accounts of customers thought to be involved in crypto trading, people found simple jugaads to bypass the scrutiny.

Banks Caught In A Bind

While the Supreme court of India has yet again postponed the hearing of its case pertaining to Cryptos, Banks have gone ahead and implemented the central banks, the Reserve bank of India, directive. Compliance to the circular requires the banks to effect bans and deny services to customers or businesses that are found to be dealing in digital assets.

Thus banks are required to close accounts that might have made crypto related transactions. This means they are expected to carry massive sweeps on their customer base and check on how people are spending their own money.

To make things worse most people savvy with these things, have already found ways to circumvent the banks screening and workarounds to avoid account closures.

How Do The Users Avoid Account Closures?

According to Instashift, a local cryptocurrency exchange, banks are closing accounts based on a simple search of any cryptocurrency-related words in the transaction remarks. This means that when a customer’s bank account is being scrutinized by a banking official, they are looking for keywords such as crypto or bitcoin in the remarks. If found the account is most likely to be closed off.

As one would imagine, the solution is to just not leave such notations. As Nischal Shetty, the CEO of Wazirx explained,

“Majority of the people understand not to enter such terms in the remarks. So simply avoiding entering anything related to crypto in the payment remarks is more than enough to avoid any problems from banks.”

He went on to suggest that the banking system has no verifiable method to confirm if a P2P transaction was used for crypto or non-crypto purposes.

Echoing the exact sentiment many Indian twitteratis are posting similar suggestions. A user, Cryptomanic has suggested

“Use P2P without writing anything related to crypto in remarks. And don’t do heavy transactions.”

Another one, Vivekmacha, concurs and advised for making use of P2P, as it cant be tracked. He further repeated the importance of making sure no crypto- related terms are noted in the remarks, for any reason.

More Than Enough Options On Offer

A solution that has been gaining in popularity recently is P2P, exchange-escrowed peer-to-peer style of trading. The popularity is unsurprising, ever since the central bank initiated the ban on digital assets and more and more crypto exchanges in India are gravitating towards offering this type of trading.

Another simple solution offered is to open another account. An Instashift spokesperson suggested that if crypto users have their accounts closed, they can simply start “a fresh account in another bank.” With the new account, they merely need to be more cautious and ensure that if they are trading, they do so without using any crypto terms that might draw attention.

Since all bank accounts are created using a Permanent Account Number, Indias water-downed version of the US social security number, the same person opined

“It’s easy to open a new account for a person in India & banks also welcome people to open accounts.”

Rigorous Action By Multiple Banks

The closing of accounts is, unfortunately, not an isolated instance, with many people reporting problems with banks, big and small, closing accounts which shows any crypto activity. Kotak Mahindra Bank, the banking branch of a major Indian industrial family and Digibank, a bank backed by the powerful Asian financial group, DBS, recently made the news. They have been sending letters to their customers advising them of impending account closures. One person affected by this took to Twitter.

Indiancryptogirl posted letters she says were sent to her. The letter simply stated that it had found some transactions with brokers who dealt in virtual currencies. As India did not consider such transactions legal the bank was

“constrained to place a credit freeze in your account. Further as per the extant guidelines, we are required to exit such relationships where transactions with brokers/traders, dealing in virtual currencies are observed.”

The letter ended with the notification that

“Hence 30 days from the date of this communication your account will be closed by the bank.”

This is not an isolated incident of some bank targetting customers with an affiliation for cryptos, numerous such cases have come to light in the recent past. Telling a similar story is Pushpendra Singh, who banks with the smaller UCO bank, but claims that this same modus operandi was followed there as well. A similar complaint reverberated in the words of Bluecrypto on Twitter who said,

“the same happened to me and my HDFC account got closed.”

Not only that, but most Banks now also follow a similar policy like Standard Chartered bank which explicitly requires, those who are looking to open an account in India to specifically agree to not engage in any sort of dealings in digital assets.

The issue of banks deciding for their customers how they can spend their money is in the front and center of this story. However, as Yatharth Vashishth pointed out, that banks are not the sole bearers of this burden as they are only following RBI’s order.

“Bank is acting as per regulations by the RBI. All banks are instructed to shut accounts of all entities dealing in crypto. ”

It does appear that banks are hapless and forced to toe the line, set by the central banks and, many suspect, a government not trusting the technology. While one can hope that the nations notoriously lethargic judicial systems come to the rescue, it is already clear that the second most populated country on the planet is working on hacks to join the crypto marketand blockchain revolution.

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