In January, Bitmain introduced the ASIC miner for Siacoin "without warning.” "ASICs and increased hashrate are good for the Sia network. We previously wrote a blog post detailing the benefits of ASICs. In short, ASIC mining means that Sia is protected from 51 percent attacks—even if mining is relatively centralized among a small number of pools and manufacturers," wrote Sia vice president of operations Zach Herbert on Medium, noting that Sia was worried not by the appearance of ASIC itself but by the invasion of Bitmain, followed by a sheath of monopolization, interference in development, and attempts to influence projects to benefit their own interests. "We consider Bitmain a bad actor in the cryptocurrency space," Herbert wrote.
Herbert is vice president of operations not only in Sia but also in Obelisk, a company that produces mining equipment and competes with Bitmain. One of the stages of this struggle has already been lost, however, and the severity of losses, both financial and reputational, can still increase significantly.
The fact is that Obelisk was "a little bit" and quite unexpectedly late with the delivery of the first batch of its own ASICs, the Obelisk SC1, which was scheduled for June 30. The company still adhered to such terms in early May, and a year ago, the founder of Sia (and Obelisk) David Vorick promised that in June 2018 the "last delivery" will take place, but the company believes "The target is to ship several months earlier than that,” as early as February. At the same time, during the presales of its equipment, Obelisk earned $22 million and has already closed the presales for all five batches. Thus, the danger is in for Sia not only from the external "bad actor” Bitmain but also from within, as at the moment the company is threatened with at least two lawsuits because of the failure to fulfill the terms of the transaction, that is, the failure to meet the delivery deadlines.
See You in Court
One of the claims was filed by the developer under the nickname RBZL, who was previously responsible for maintaining Siacoin related sites and web tools. Recently, he stopped working with the project, saying that the conflict around Obelisk has stalled the development of the platform. RBZL claims that the company knew that it could not meet the schedule of deliveries. He called Obelisk "a proud and arrogant" company, saying that its behavior was a "slap in the face" to its customers.
A year ago, in a discussion on Reddit, Vorick not only claimed that "June 2018 is the most pessimistic forecast,” but promised "full reimbursement" of funds in the event that equipment is not delivered within the specified time. "That comment may be enough to kill us in court," said Vorick in a recent conversation with CoinDesk.
"I have no interest in seeing the Sia project go under, but they've done a good job of setting themselves up for that possibility," RBZL commented. He also provided CoinDesk with screenshots of his personal correspondence with Vorick, in which he confesses that Obelisk cannot compensate for the losses due to a lack of funds. Fully sponsored with presales of ASICs, Obelisk has already spent all the funds raised for production. "I feel like we were pretty clear that we wouldn't be able to survive refund requests.”
In a conversation with Coindesk, Vorick confirmed the authenticity of the correspondence, but noted that he was "speaking on a personal level and sharing [his] own fears with a community moderator and leader." He said that these messages should not be interpreted as an official position or statement.
Another user of Siacoin under the nickname Bloqtwits also contacted CoinDesk, stating that he represents a group of plaintiffs who purchased Obelisk miners and are trying to file a class action lawsuit. According to the latest information, the group already has 27 people, and the total amount of compensation they demand is $150,000.
Obelisk's position is exacerbated by the fact that the prosecution of the company may affect the Nebulous startup, which engages core developers for the Siacoin protocol. In the correspondence provided by RBZL, Vorick acknowledges that "Obelisk and Nebulous are not entirely independent," and warns that in case of prosecution, "it's likely the court would order Nebulous to refund damages as well which we don't have money for either."
And If We Find Any?
Some claimants are sure that both companies have the means to pay compensations. As a developer of Siacoin, Nebulous also manages the storage of the so-called "Sia funds,” the share of the Siacoin smart contract, which was designed to stimulate the development of the project.
Trader Scott Bell estimated that the volume of the fund is approximately $56 million (or equal at some point in 2018). "I believe these folks [the plaintiffs] are not actually seeking justice, but instead see a legal pathway to the Nebulous and Sia funds in a class action," Bell said in a conversation with CoinDesk.
Elimination of a Competitor
Nevertheless, the company plans to deal with Bitmain in a "classical" way as Monero and Ethereum already planned to by simply changing the protocol and making its mining algorithm incompatible with Bitmain's algorithm. Thus, only ASIC miners of Obelisk will remain on the network.
This proposal was put forward last week by the developers of Siacoin led by Vorick. "Second, we will release the SC1 alternative Blake2b algorithm in the coming weeks. This will give the Sia community the ability to fork and could invalidate all non-Obelisk Siacoin ASIC miners on the forked chain," Obelisk wrote in an email to customers, noting that "As of today, all Nebulous (the company employing Sia's core developers) and Obelisk employees are supportive of a fork."
Not all the members of the community agree with this decision, however, and the other day, one of the users of Reddit published a post called "Siacoin Obelisk Fork is no better than Ethereum DAO Fork,” referring to the major schism that occurred in the Ethereum community after the hacker attacks on the project The DAO which eventually led to a fork, which resulted in the emergence of Ethereum Classic.
Meanwhile, Scott Bell heads that part of the Siacoin community that promotes "a user-activated soft fork." He must transfer the right to make changes in the protocol from the hands of the corporate enterprise to the users themselves. In addition, this proposal is designed to protect the project from an avalanche of lawsuits, which, according to Bell, are an attack on the Siacoin network. He believes that the Nebulous is vital for Siacoin, and if Nebulous also suffers in the lawsuit against Obelisk, it can severely damage the network. "There won't be any devs on it anymore, the vision will be bankrupted and will have to go away, and everything we put our efforts behind will go up in smoke," he told CoinDesk.
Bell's proposal, published two weeks ago, suggests that when the mining equipment is released, Obelisk should give the miners the exclusive right to extract the blocks within three months, after which other miners will be able to return to the network, and this will be a kind of compensation for the delayed shipments. "Unfortunately, the only thing we could arrive at is a pretty messy way of solving the problem, and that's essentially paying off the people who are threatening legal action. I hate to say it, but that’s it," Bell said.
Obviously, the decision made by the core developers together with the founder of the project is a priority when making changes to the protocol. Last week, the team of Sia promised to consider the offer of the trader and will soon give an official answer.
In this conversation with CoinDesk, Vorick already expressed his position on Bell's proposal, namely: he does not agree with the temporary nature of the "isolation" of the network. "If we are going to take proactive measures to curate our mining community, the goal is going to be to set up a healthy, decentralized, open mining ecosystem," said Vorick.
The Mechanism Is Running
At the moment, Obelisk announced the beginning of deliveries, which are carried out since August 17, and the company intends to send "hundreds" of miners this week. "We are still planning to deliver all the miners of the first batch by the end of August," the company wrote in the Discord messenger last week.
In the same email to its customers, Obelisk outlines the policy of returns, but, in fact, it remains vague and does not mean that the company is firmly on its feet. "We will compensate all Batch One customers with the mining revenue that you would have received between June 30 and the day your order ships. As of today, this is approximately $90 for each SC1 unit," the company said, also noting that this policy will be extended to batches two through five if they are delayed.
It sounds good, and Obelisk explains further: "Depending on Obelisk's financial position after delivering Batch Five, it may take several months or more to compensate all customers." In this case, even if this payment occurs, its terms are not the most attractive. We will begin sending out this compensation to customers sometime after Batch Five ships. Obelisk will calculate your expected mining revenue based on a hashrate of 800 GH/s for SC1 and 1,500 GH/s for DCR1. Compensation will be in USD, and will assume that you exchanged your mined coins for USD on a daily basis and that your electricity cost is $0."
In a conversation with CoinDesk, Vorick acknowledged the complexity of the situation and the uncertainty of its outcome: "Things are very chaotic right now, and the situation is complex. We're trying to do the right thing, but it's not obvious to us what the best way forward is from here," he said, also noting the importance of a gradual and deliberate decision making. At the moment, Vorick is focused on the supply of equipment, because "Something as significant as a fork should never be rushed."