HashFlare on Why They Sell Mining Power, Most Profitable Investments Revealed

Recently ForkLog published a feature “HashCoins to Replace Multiple Passwords with One Blockchain” on HashCoins’ service dubbed Authorizer. After the publication, we received many questions from our readers on a different product by HashCoins, HashFlare, which is a cloud mining service. Some of those questions included accusations of scam. In order to sort out the situation and answer our readers’ questions, ForkLog’s editorial board contacted Vitaly Pavlov, manager at HashFlare.

FL: The community generally assumes that cloud mining providers are often dishonest. Is this opinion well-justified?

Vitaly Pavlov: Evidence suggests that most websites offering cloud mining solutions don’t deserve their customers’ trust for various reasons. Quite often, dishonest services look quite like honest ones, and inexperienced users may believe they all are similar and honest. If a user registers at a bad place that shuts down shortly afterwards, they get bitter experience, which spoils reputation for truly honest companies.

FL: According to Hashflare’s terms of service, it is HashCoins that renders cloud mining services, not HashFlare. Could you explain to our readers how those companies are connected, and is there any HashFlare as a legally incorporated entity?

V. P.: The answer is simple: HashFlare is a product by HashCoins. We never founded a company named HashFlare. By bying a contract at HashFlare, you conclude an agreement with HashCoins, which is stipulated in the terms.

FL: Recently ForkLog mentioned Authorizer, a service developed by HashCoins. The very same day, a user going by the name Perlover wrote a comment stating that your company is ‘scammers that deceived him and other users.’ In particular, he claimed that HashCoins deliberately fails to deliver mining equipment bought by users to offer HashFlare services instead. Additionally, Perlover noted that he received the ordered equipment after all, yet it had lesser hash power. Notably, he referenced the HashCoins English-language thread on bitcointalk where other users also wrote they hadn’t received the equipment they had paid for. How could you comment those statements?

V. P.: There was a time when HashCoins’ basic business model was about physical supply of equipment. We depended on component vendors. Unfortunately, some of them failed us when the number of orders was peaking. There were difficulties with hardware supplies, we had to ship equipment twice to some users clearing the expenses ourselves. Also, due to market changes, including the unwillingness of many people to tinker with equipment (shipment and adjustment) we refocused on cloud mining. Initially it was about remote administering of miners that gradually evolved into cloud mining enabling anyone to enter the world of cryptocurrency mining at minimum expenses. The basic reason behind that refocusing was the users’ desire to abandon the difficulties of miner setup and to let pros do it. That’s why we decided to undertake the lion’s share of the setup process.

Speaking of users who hadn’t received the ordered equipment, I may say that we offered them reimbursement with either different hardware items, or with a contract at HashFlare. We made repeated offers to some of them. Costs of all the offered and then provided reimbursements, including ones to the user in question, are either equal to or higher than the initial orders. We never waived our responsibilities before users, and settled problems with available means. If users have any complaints, we’re always willing to listen and help. They just have to contact us.

FL: In the Russian thread at bitcointalk, some users believe that HashFlare is nothing but a HYIP. For instance, January 20th this year, user airesp wrote the following: “It looks like a HYIP, a long-standing, paying and profitable, but still a HYIP. Unless there’s an option of manually specifying the pool or monitoring real capacities on the other side.” In a different post dated January 26th he notes that the project doesn’t get more trustworthy by ‘concealing the location of their data center, and not allowing to link equipment to an account.’ Indeed, you can’t see serial numbers of miners in your personal account. Are you willing to provide such an option to your users? Why can’t they specify a pool manually?

V. P.: There’s a part of an answer to this in my previous answer: our customers wanted simplicity. You have to know the difference between remote and cloud mining to see further into the matter. Here’s an analogy from the world of hosting services: if someone wants to put their website or product on a different company’s equipment, they may choose between dedicated and shared servers (aka cloud servers.)

Dedicated server hosting means that the customer gains remote control over the provider’s particular server. The customer may then administer the entire machine, including control over the entire operating system. A cloud server, on the other hand, isn’t a separate physical machine but a virtual one launched on the provider’s physical server. There may be several ones belonging to several owners on the same machine. Certainly, it would be unreasonable to grant one customer with full access to the entire machine.

As we now see, in case of a dedicated server, customers have better functionality and setup options, including OS level. HashFlare is a cloud mining service, so the machine capacity is distributed between users. That’s what allowed us to seriously cut the cost of a minimum contract in order to try mining for small investment. For that reason, a particular user can’t have control over miners.

We did our best to give our customers as many settings as possible in our system. The best example here is selection of pools: our capacities are divided into existing pools, and a customer may choose up to three pools for the same algorithm. We try to maintain only reliable and popular pools. If every customer (even owning capacities comparable to the actual capacity of a single miner) wanted to connect to the pool they had chosen, we’d have to run setup separately. I’d like to note that most customers are quite happy with the options they have today.

FL: Is cloud mining really profitable after bitcoin’s second halving?

V. P.: It is. We don’t post any data on the investment return rate online as the cryptocurrency market is too volatile: today the profit rate may be 160 per cent, and tomorrow 105 per cent, which certainly may confuse a rookie cryptocurrency enthusiast. However, all the information is available online, which includes profitability calculators. We always advise people to do a small research prior to investing anything in mining.

FL: What’s the average profitability of investment in your project? Has it changed after the halving? There are no particular figures to be found on your website, so it’s not that easy to make a decision if you’re a potential investor.

V. P.: As for average profitability at the moment, it’s going down due to USD/BTC exchange rate fluctuations in January. It’s a normal thing for cryptocurrency market, so there’s always an upsurge after a fall. The halving didn’t make a big effect on the average profitability: after a minor decline, it increased.

As some readers wouldn’t like to rely on our statements only, there’s a link to the annual report (in Russian) on HashFlare’s mining written by our customer who decided to share the results.

It’s important to remember that SHA-256 and Scrypt contracts have no time of expiration. Mining continues as long as profits outweigh servicing and power expenses. It has never happened before as we’re continuously working on enhancing our efficiency. Even if the payout time changes for the worse, the contract will sooner or later pay off, and become completely profitable.

FL: It might be a threadbare question, but still: if mining is still profitable, why should equipment owners share their profits with somebody else?

V. P.: On the one hand, the more people mine (and use) cryptocurrency, the bigger the market becomes, and the higher its popularity, which is, of course, good for us. On the other hand, we, as a company, have to continuously develop. A good example here is our new projects related to cryptocurrency technologies, not mining. Of course, we need money for everything. Cloud mining allows us to have our revenue at once without having to wait for several months when miners become profitable.

FL: Speaking of cloud mining as an investment, is it more profitable/safe than other cryptocurrency investments? Why shouldn’t one just buy the required amount of coins for the same money and keep them in cold storage until the next pump?

V. P.: Any investment tool has its inherent risks. As for cryptocurrencies, there are four basic investment areas that we see:

1. In cryptocurrencies, namely:

  • Short-term trading;
  • Long-term trading;
  • Storing in the hopes that ‘bitcoin will be worth a million in N months/years.’

2. In mining, namely:

  • Buying hardware and mining for yourself / hosting;
  • Remote mining;
  • Cloud mining.

3. Development of mining equipment.

4. Development of new products based on cryptocurrencies and blockchain technology.

I could write a story about each one, but, generally speaking, it’s the lower on the list, the more interesting it is.

Cryptocurrency trading is almost similar to trading any other assets. Short-term trading and scalping are more risky for an unprepared user than long-term storage. Cryptomarket price fluctuations are generally bigger than on other markets.

Mining also requires some expertise, yet cloud mining requires minimum knowledge, and relieves customers of the responsibility for choosing and ordering appropriate equipment and its shipment as customs are often unfriendly towards such hardware (especially in Russia,) as well as for setting it up.

Investing in development and manufacturing of equipment may generate enormous profit as this sort of equipment is continuously improving. However, in most cases the amount of investment is usually at least six-digit in USD, and not everyone is willing to welcome an ‘outside’ investor.

Creating new services and products on blockchain has reached unexpected scale during the last eighteen months. Now the research and development are carried out by nation states and financial organizations like banks, central banks, credit registers, and consortiums like R3, SWIFT, as well as NASDAQ and others. HashCoins still takes its part in consulting some central banks, governments, and credit entities in Europe. It also creates pilot projects for various ledgers.

Many private companies and allicances raise funds using cryptocurrencies. This method is known as ICO, which is similar to IPO in the common financial sense. Any person may become an investor of a project they like. Fundraising and payout of dividends are controlled by Ethereum-based smart contracts, which makes this method much more trustworthy, even though it’s based on cryptocurrencies.

By the by, HashCoins also has plans for a project of a dramatically innovative financial structure with a distributed database, which is also interested in fundraising via ICO. The basic idea of Polybius Bank is rendering a wide range of common financial services within a single structure with a single database, which is not found on the market today. However, the project’s innovative idea, in our opinion, is DigiPass, a distributed database we’re developing. It works on blockchain technology.

DigiPass allows for safely storing and transmitting information on a person or a company between Polybius structural parts and the partners connected to DigiPass. Such a structure makes it possible for a user to get identified just once to gain access to the services of Polybius Bank and all its partners around the globe.

We don’t limit ourselves to financial services as DigiPass also contains data on health, education, property, and so on. Users control transfer of said information, i.e. it’s the user who decides which entity receives which information in order to get the desired service.

FL: What do you do to maintain maximum transparency and dispel doubts of your potential customers? Which guarantees do you offer your customers? Are they able to abandon your services at any time without losing their investment (for instance, by selling their capacities)?

V. P.: Our chief guarantee is maximum stability of cryptocurrency mining with the capacity of the purchased contract. It means we guarantee that the contract will work 24/7 with the stipulated hashrate. One may always abandon the services by selling the capacities to another user.

FL: Do you have any limitations as to purchases of capacities?

V. P.: We always have redundant equipment, so generally there are no limitations. If there’s a request for a capacity that is higher than what we’ve got at our disposal, we personally agree the equipment’s time of commissioning with the customer.

FL: Could you justify your pricing? How do you form it (if possible, use a particular example like ETHASH)?

V. P.: As for ETHASH, the price for a hashrate unit includes the following:

  • The price of miner components (motherboards, CPU’s, RAM, video cards, power supply units, etc.)
  • The cost of rent, power, and internet access.
  • Equipment of premises (racks, cabling, cooling, HVAC, etc.)
  • Salaries of administrators and operating personnel.

FL: How many customers do you have now?

V. P.: Presently, there are 484,396 registered users and 456,932 contracts concluded with HashFlare.

FL: It’s not a secret that HashCoins is incorporated in Estonia. It’s quite a peculiar choice of corporate seat for a cryptocurrency project. Why did you opt for this jurisdiction? What are the country’s benefits for digital currency-related companies?

V. P.: We operate in Estonia, our headquarters are in Tallinn, and for that reason our company was first registered in Estonia. As for the benefits, there’s no revenue tax for legal entities in Estonia. Estonia is also internationally known as an advanced and IT-friendly nation. Estonia’s cryptocurrency scene is also worth mentioning: there are several companies (exchanges, payments processors, etc.), a cryptocurrency department of Estonia-based bank LHV that had developed its own colored-coin wallet, and Eesti Krüptorahade Liit (Estonian Cryptocurrency Union.)

FL: What should a user willing to rent mining capacities should pay attention to in the first place if they don’t want to deal with a dishonest company? What are the most obvious signs of scam in your industry?

V. P.: First of all, one should pay attention to the annual profit rate offered by regular mining. You may compare services easily with an online calculator for mining. There are some examples of hype services promising unrealistically high profits, which, however, doesn’t stop people from giving them money.

Second, there has to be technical support and topics at well-known cryptocurrency forums. Therein, you might easily check up whether the service pays out, how fast is their support team, if there are any problems, and so on.
Some history is always a big plus for a service: how long has it been active, who’s behind it? HashCoins is responsible for all its projects not only before users and regulators, but also before its own future as we still want to remain a competent and respectable technological company. The bar will only go higher as technologies are developing, and so are we.