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Investors want money back from alleged $33 million crypto fraud



Another alleged crypto trading scam is in the books. This one involves a stock trader, a financial advisor, a surgeon, and an enterprise called Q3 I LP.

Michael Ackerman, a former broker with the New York Stock Exchange (NYSE), was charged in February with stealing substantial funds from the more than $33 million raised from over 100 investors. Now, aggrieved investors have formed a legal representing body known as the Q3 Investment Recovery Vehicle to hold him and his alleged partners, former Wells Fargo Advisors employee James Seijas and Florida surgeon Quan Tran, financially accountable for their losses.

Q3 allegedly lured investors into the scam with the promise of a high-returns trading algorithm via Facebook groups such as the Physician Dads’ Group. Ackerman was the alleged developer of an investment algorithm that lured investors to the group; he claimed to have used it in the past to trade stocks, but that it was just as successful when used for trading crypto.

According to a Securities and Exchange Commission (SEC) complaint from February, however, “Ackerman invested no more than $10 million of the $33 milion raised from investors in cryptocurrencies and the profits generated by the Algorithm were minimal, at best.

Instead, Ackerman allegedly purchased five properties between 2018 and 2019 with investors’ money, including a 150+ acre plot in Montana and a $3 million beach house in Florida. He also allegedly spent funds on new cars and jewelry.

The SEC further stated that the company—which at the time, was operating under the name Q3 Holdings LLC—had charged its customers licensing fees to give them access to Ackerman’s trading algorithm. This resulted in another $4 million in payments, but the SEC says he failed to notify their limited partners of these payments. Moreover, Ackerman allegedly falsified account information to show 15% returns.

These and other financial discrepancies were initially discovered by Tran and Seijas late last year, according to an unsealed affidavit filed by Homeland Security Investigations’ special agent John Rodriguez. Upon visiting Ackerman in Ohio following a hospital stay, Tran and Seijas apparently gained access to his computer and discovered what Tran referred to as a big difference between the assets that Ackerman “had been reporting to us and the balance in the trading account.”

Upon confronting Ackerman about what appeared to be missing money, Ackerman allegedly told Tran and Seijas that he had moved it to a more secure trading account but refused to tell them anything more. Tran later notified the SEC about the situation, and federal prosecutors have charged Ackerman with wire fraud and money laundering.

While Tran and Seijas are not facing criminal charges, the Recovery Group is attempting to hold them accountable for their purported lack of judgement regarding Ackerman’s dealings. Both are alleged to have simply passed along whatever documents Ackerman manufactured to limited partners without question.

Furthermore, the company did not have a fund administrator like most other hedge funds, and both men allegedly forwarded screenshots from Ackerman’s cellphone as performance updates to limited partners—a strange way to roll considering Seijas has a background in finance.

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Why the PayPal Rally Isn’t What It Seems, and Why That’s OK




The bigger you are, the bigger the splash when you jump in the water. And when it comes to mainstream payments companies, there are few bigger than PayPal.

In case you’ve been totally avoiding the headlines over the past few days (and who could blame you), PayPal (NASDAQ: PYPL) this week confirmed its entry into the crypto asset industry with the announcement that it was enabling the buying, selling and holding of cryptocurrencies on its platform. Within the next few weeks, users in the U.S. will be able to trade bitcoin (BTC), ether (ETH), litecoin (LTC) and bitcoin cash (BCH) using their PayPal accounts. The service will be rolled out to Venmo, a PayPal company, and to other geographical areas in the first half of next year. Users will also be able to use these cryptocurrencies to purchase goods at 26 million merchants within the PayPal network.

The market took it as good news, evidenced by the almost 15% increase in the BTC price (at time of writing) since the announcement was made. The other cryptocurrencies supported by PayPal also saw weekly returns of 10-15%.


A cheerful rally is generally good news, and this one seems to have energized a market that had been slipping into sentiment doldrums. Indeed, the PayPal news is positive for the industry as a whole. But the news is not the boost to the fundamental outlook for bitcoin and peers that many market observers seem to think. 

Looking beyond the numbers

First, the news is not a surprise. We reported on this a few months ago, later adding that the actual cryptocurrency trading would be handled by Paxos.

What’s more, the details that have been added to our reporting are disappointing. 

PayPal does bring over 340 million users to the crypto table. For context, Bitcoin currently has 32 million non-zero addresses (only 5 million of which are active), according to data firm Glassnode. But PayPal’s crypto users would not necessarily add to the address count, as they would not have access to their own private keys. What’s more, users will not be able to transfer their crypto holdings out of their PayPal account, nor will they be able to send crypto to other PayPal users. In other words, PayPal more or less dictates what users can do with their cryptocurrencies, and could presumably freeze accounts if they see fit, at least for now – not exactly in line with the industry’s origin and ethos.   

Another aspect that has many excited is the network of 26 million merchants at which users will be able to spend their cryptocurrencies, with PayPal handling the fiat-crypto conversion. Over the years, however, the “buying stuff with crypto” use case has attracted relatively little attention, as the investment use case became more predominant. Why would people spend an investment asset, forgoing any potential gain? True, in some countries it might be easier to pay via PayPal using bitcoin, for instance, than dollars. But just because the service is now available does not mean that people will use it in significant numbers.  

Got the blues

On top of the disappointing details, the rally burst into life amid relatively bearish sentiment. For context, it helps to compare this week’s rally with the sharp price spike at the end of July of this year, when BTC rose almost 30% over 10 days. 

In the weeks prior to the July rally, the transaction count on the Bitcoin network had been rising, indicating growing activity. In the weeks preceding this rally, the transaction count was sloping down.


In a similar vein, the number of active addresses on the Bitcoin network was increasing into the July rally, but was decreasing at the time of this week’s jump.


Both metrics hint at declining network activity, perhaps a result of dwindling trader and investor interest given the relatively narrow band in which the price had been hovering.

The derivatives markets also indicated some bearish sentiment, with the funding rate for bitcoin perpetual futures turning negative at the beginning of September. A negative funding rate implies more short positions than long ones. In contrast, the funding rate had been mostly positive since early summer when the July rally began, indicating a more positive outlook for the market on the part of traders and investors. 


Tailwinds accumulating

However, crypto markets react quickly, and the above metrics are adjusting as we speak. As we have seen, sentiment can turn on a dime, totally changing market indicators in a FOMO-fueled frenzy of catching up. The different “mood” heading into this rally could in part explain the rapid rise of asset prices as traders caught unawares scrambled to adjust positions. It could also mean that the rally could be short-lived, as the PayPal novelty wears off and the bearish sentiment returns. 

The nature of the bearish sentiment, though, and the bigger implications of PayPal’s announcement, indicate otherwise.

The waning interest of the past few weeks seems to have been more a result of boring price action than negative fundamentals. Indeed, the case for investment in bitcoin has been gaining momentum with inflation concerns encouraging not just traditional fund managers but also corporate treasurers to hedge against fiat debasement. 

In the derivatives markets, institutional activity has been steadily building. The Chicago Mercantile Exchange (CME), the largest U.S.-regulated crypto derivatives venue and often taken as a proxy for institutional involvement, now boasts the second-highest amount of open interest in BTC futures in the market – just three months ago, it was fourth.


And the number of non-zero addresses on the Bitcoin network, an indicator of adoption, continues to reach all-time highs.


Now the important part

Perhaps even more significant than these and other market indicators that point to a quiet accumulation of interest is the message that the PayPal news sends.

It’s not so much that a company which a few years ago froze accounts dealing in cryptocurrency is now wholeheartedly embracing the concept. PayPal is far from the only corporation to realize that it was wrong. It’s more that a member of the Fortune 500 is publicly endorsing the concept of cryptocurrency. It’s also that the move puts bitcoin in mainstream headlines without the words “hack,” “ransomware” or “money laundering.” This is big-time public validation from a household name. 

Yet the underlying message is even bigger, and this is the part that I find most intriguing:  PayPal is signaling that a digital currency world is inevitable. 

The functionality of its cryptocurrency service may be limited for now – but it is not necessarily going to stay that way. PayPal has authorization to transact in cryptocurrency on behalf of its clients in 49 states, but there are no doubt many more regulatory hoops to jump through before the service can comply with KYC/AML rules on a global basis. We can assume it is working on these. We can also assume that it will iterate its service in response to customer feedback and actual revenue figures. And the company is apparently exploring the acquisition of other crypto companies, presumably to diversify and support its activity in the crypto space.

Beyond that, it seems that what PayPal is really getting ready for is a financial system that has to juggle not only fiat but also central bank digital currencies (CBDCs). In this, it is not alone. 

This week, Japan’s LINE Corporation, best known for its eponymous popular messaging app, revealed that it was working on a platform to support CBDC development. In September, Mastercard (NYSE: MA) announced something similar with a CBDC testing platform. In July, Visa (NYSE: V) hinted that it also was working with global organizations and policy makers to help shape the evolution of CBDCs, which – whatever form they take – will need access to the target users. 

This raises an interesting question: Is bitcoin an onramp for CBDCs? I confess I had assumed it would be the other way around. I thought that citizens having to manage blockchain wallets in order to transact in the digital currencies issued by their government would open up new markets for decentralized cryptocurrencies and tokens. PayPal could be signaling that, first, users need to get used to the idea. 

Either way, this week’s big announcement feels significant not just for the jolt of energy it has given a lackluster market. It is important for what it hints about what’s coming. Signals from other financial infrastructure and social reach companies are saying the same thing. It’s not the inflow into crypto markets that’s the big deal here.

It’s that finance is changing in front of our very eyes. Fast.

(Note: We use Bitcoin with uppercase when talking about the network, and bitcoin with lowercase, or BTC, when referring to the asset.)

Anyone know what’s going on yet?

In a week of lackluster market moves amid U.S. election concerns, the lack of a stimulus package and an uncertain Q3 reporting season, bitcoin totally shone. 


A potential break from traditional market correlation shackles was no doubt partly due to PayPal’s wholehearted embrace of cryptocurrencies. It was also probably the result of a quiet build-up of macro factors that position bitcoin a wise hedge against inflation rather than a risky bet on technology.  


Pioneer hedge fund manager Paul Tudor Jones II said in an interview on CNBC earlier this week that he was more bullish on bitcoin than ever. TAKEAWAY: Bullish statements from investors who are long are to be taken with a grain of salt (of course they have a bullish stance, else they’d probably have sold). But Jones’ comment about the “intellectual capital” behind bitcoin deserves highlighting, as I haven’t heard it mentioned nearly enough. Few understand that bitcoin is more than an alternative asset – it is also an idea that draws from philosophy, economics, sociology, technology and history, pulling in the curious and the innovative who are asking the right questions and feeling their way towards answers that reflect some of the deepest conflicts known to man. The crypto industry is where the smartest minds of today are actively thinking about and building for tomorrow. 

A note published this week  by JPMorgan’s Global Quantitative and Derivatives Strategy team posits that bitcoin has proven itself to be a risk asset, not a safe have, with “considerable” potential upside. TAKEAWAY: The term “safe haven” has to be one of the most widely misconstrued in all of finance (along with “uncorrelated” and “fair value”). Short term, of course bitcoin is not “safe” – just look at the volatility. It is a hedge against fiat debasement, however, much like gold. The term “hedge” is often erroneously conflated with “safe haven” – gold is often referred to as a safe haven, for example, but at times it is more volatile than the S&P 500. And longer term, hedges can become safe havens. Meanwhile, positioning bitcoin as an either/or thesis does it a disservice. It can occupy many portfolio roles simultaneously. That aside, the note correctly focuses on the millennial generation’s looming influence on the global financial system, their growing interest in bitcoin, and “strong growth” in institutional investor interest.

Bloomberg’s quarterly note on crypto assets posits BTC at $100,000 by 2025. The team also expects the price to break $14,000 soon, possibly this year, and singles out hashrate and active addresses as the metrics to watch for signs of growing adoption. TAKEAWAY: Bloomberg analysts are no doubt extremely qualified and well-informed, but this report reminds me of the saying: “If you’re going to predict, predict often.” In their previous quarterly crypto report, they had $20,000 as the end-of-year price target. That’s not really material, however – what is interesting is that Bloomberg clients obviously want this type of coverage. Interest from traditional investors seems to be getting broader and deeper. 

Bitstamp, one of the world’s oldest and largest cryptocurrency exchanges, has introduced an insurance policy that covers the theft and other losses of user funds held on its platform. TAKEAWAY: Insurance has been a thorny subject for crypto exchanges and custodians, as most insurers have shied away from the additional complications and risks involved in insuring bearer assets that run on a new technology. The evolution of crypto asset insurance policies for market infrastructure players underlines the growth of the industry in terms of a broader understanding of crypto businesses and their underlying risks. What’s more, it’s a virtuous circle. Better insurance policies means more robust market infrastructure, which means greater institutional comfort and confidence, which means more incentives to continue improving insurance policies and market infrastructure. 

My colleague Omkar Godbole interviewed Philip Gradwell, chief economist at the blockchain intelligence firm Chainalysis, about the numbers that he thinks are essential to understand market sentiment. TAKEAWAY: The five most significant metrics, according to Gradwell, are:

  • Exchange inflows (indicates readiness to trade)
  • Trade intensity (the number of times an inflowing coin is traded)
  • Interexchange flows (hints at institutional involvement by differentiating fiat buyers vs. crypto buyers)
  • Liquidity (those that sit on holdings vs. those that circulate them)
  • Value transfers across blockchains (speaks to demand for a cryptocurrency)

This sounds like a fun exercise. Excuse me, off to think about what my top five are. (For more of Philip Gradwell’s insights into Bitcoin metrics, check out the recording of our webinar “How to Value Bitcoin: Addresses”.)

Podcast episodes worth listening to

We’re pleased to announce a new podcast series: On Purpose. Hosted by independent registered investment adviser Tyrone Ross, it explores the emerging world of bitcoin and cryptocurrency for the modern financial professional. 

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The role of the crypto community for the success of marketing promotions




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@golubevGolubev_Od_UA (project manager), EU structural funds, ICO/STO/IEO, NGO & venture, marketing projects

Unlike the process of writing code, the creation of a crypto community is difficult to imagine as an algorithm. The community is a living phenomenon, the construction of which requires an understanding of human desires rather than formulas and codes. Over the past years many crypto projects have attracted huge investments. Often people believe that the main thing is technology (a more perfect blockchain, a new algorithm for reaching consensus), and that they are the key to the success of a new cryptocurrency. This focus on technology and product quality is in line with Silicon Valley’s favorite mantra – “If you build it, he will come.” This tactic can lead to success, but I think the most important foundation of any new project is the activity of the community that supports it. The mantra “If you build openly, they will help you” would be more suitable for the creators of new crypto projects.

When it comes to starting a traditional company, the interests of end users and shareholders do not always coincide. Users want a good product, while shareholders think more about good leadership, fair distribution of bonuses, and most importantly, sales results. Success can be achieved by focusing on creating an attractive product for users. Then the company will succeed, even with problems with leadership, distribution of rewards and performance. But the consumer, as a rule, does not care about who created the company, how many shares belong to the key participants in the project, how property rights are, and how the management makes decisions and implements them. The cryptocurrency market is unique in that users and shareholders are often the same people. As a rule, hodlers of crypto assets attach great importance to property rights, management and project performance, since the profitability of their investments depends on these factors. Given that cryptocurrency is based on open source and low marketing costs, the success of a cryptocurrency is largely determined by the size of its community. An illustrative example: the bitcoin blockchain has undergone at least 98 forks, but its investment attractiveness is still high: the market capitalization of bitcoin remains at $100 billion, and all its other forks are at $10 billion. It is the Bitcoin community that makes it so attractive. The strength and size of the community determines the value of a cryptocurrency. There is no guaranteed success formula in building a strong cryptocurrency community, but there are certain fundamental principles that have proven to be effective:

• The creators of the project must be open and honest

From the very beginning of project development, founders should consider the interests of users, treat them with respect and be open to dialogue. This approach is very effective in building a strong community of cryptocurrency users.

• Distributed property rights and a clear distribution system

Ownership and community power are inextricably linked. People tend to stick close to those who share their views. At the same time, we are wary of closed communities, in which bonuses are distributed among members of the management and are not always available to others.

• Lucky meme

Practice shows that a successful meme serves as an incredibly effective means of promoting a new project and developing its community. All 10 cryptocurrencies with the maximum market cap use powerful memes: Bitcoin (digital gold), Ether (innovation platform), Ripple (interbank payments), Bitcoin Cash (scalable payment network), EOS (innovative next generation platform), Stellar (interbank payment next generation system), Litecoin (digital silver), Tether (stablecoin), Cardano (innovative next generation platform) and Monero (confidential payment system).

• A useful tool that becomes the standard

While strengthening the community early should not be neglected, there is no doubt that the practical application of the new currency is also extremely important. Bitcoin originated as a ledger for storing data on the ownership of assets and their transactions. Ether as a platform for creating open source financial applications. However, the Bitcoin and Ether communities have raised the bar so high that it will not be easy for even the best products to compete with them. Success in this struggle can only be achieved by creating not only a better product, but also a better community with a more effective management system.

Most of the marketing tools for crypto projects come from traditional digital businesses. In the world of cryptocurrencies, traditional marketing solutions have changed: they have adapted to a high volatility market and an overheated community. The cryptocurrency “boom” was strong – in 2017/2018, the “crypto community” included not only crypto enthusiasts, but thousands of newcomers. Many of the marketing tools in these conditions turned out to be more effective than others, since they formed the opinion of the crypto community and were useful for marketing crypto and blockchain projects. What really worked and what is the crypto community still paying attention to?

• White Paper

This is a big document for potential investors. Contains a detailed presentation of the project, the essence of the problem and how the project solves it, a description of the technical part, legal, roadmap, financial model and much more. This is the “face” of a blockchain project, by which investors determine its relevance and potential profitability. White paper has become an important part of your content strategy today. It can be a visual business plan, it can contain information about a solution to a specific problem, or it can present information of interest to investors or potential partners, for example, a part of a business plan (or meet the requirements of the regulator). White paper can also serve as a basis for any promotional materials: one pager for presentations, pitch deck for meetings with investors, articles, reviews.

• Roadshow

This is a series of meetings, most often abroad, with business representatives, investors and potential partners. At the peak of the hype, startups often used this tool to localize interest in themselves from the crypto community in many countries. Even today under quarantine conditions, you can take advantage of online meetings and presentation of your project with the crypto community around the world. However, a plus in offline meetings is, first, live communication, to which after quarantine the business will return, since international travel to meet with investors can be very effective. You just need to carefully choose whom to work with in the Roadshow organization. Personal acquaintance remains important in all areas, and no video communication can replace it yet. Investors from China, South Korea or Singapore are willing to invest in foreign companies producing promising products, and meeting in person is one of the best ways to impress them.

• Bounty & Airdrop

It’s kind of like developing the idea of social media contests. They are based on completing tasks for a reward. In an Airdrop, it can be as simple as registering. Bounty is more difficult – participants complete tasks, receive points and share the prize pool at the end of the campaign. It is thanks to the crypto community that international business has learned all the advantages of such marketing mechanisms as bounty and airdrop. On the other hand, thanks to these tools, it is possible to form a community of followers and fans from a clean slate for a project. The more promising the project, the more willingly people participate in its Bounty, because the “coins” received will be more expensive. The Bounty Principle can be very useful for startups. It is very important for beginners to show investors that they have a living community – that their product will be needed by someone, that they know how to communicate with people, that they are open and modern. Bounty is also a type of “guerrilla marketing”, that is, promotion with minimal costs. If you need to quickly and very inexpensively translate into less common languages, create live social media pages and get wide coverage there, then Bounty can be very effective.

• Targeting

This is the display of ads on social networks and search engines to a specific group of users, united by age, place of residence, interests or some other common features. The main distinguishing feature of targeted advertising for “crypto” is that it very quickly got bans on advertising. Gradually, all major social networks and Google imposed bans on almost any mention of cryptocurrencies. However, there are shadow methods to bypass the prohibitions, and social networks are gradually weakening their negativity towards this topic. Cryptocurrencies aren’t the only ones struggling with targeted ads. To one degree or another, bans are imposed on advertising of gambling, medicines, and financial services. The ability to create ads without falling under complex constraints is a very valuable skill. This can be a neat creative selection or, for example, a landing page that is not directly related to the product. And the instant distribution of promotion in the environment of certain crypto communities.

• Community Management

It is about creating and managing communities united by interest in a brand or product. It works for the loyalty of the target audience and, in general, for the credibility of the project. Communities are an important point of contact with your audience. The rates are jumping, bitcoins are falling, so working with the negative is very important. Moreover, sometimes the situation is heated up on purpose – by competitors or fraudsters. In general, it is never boring. Knowledge of psychology in the matter of building and managing a community is only a plus. Both startups and large brands need working with the community. It is there that the most sworn enemies and the most loyal customers can appear. Your image in the eyes of clients will largely depend on how much attention you pay to this area. Hidden Marketing is widespread in working with the community – correction of opinions, change of attitude towards a product, dissemination of information about it. It is especially noticeable in politics – remember the “troll factories”. But this does not mean that it is not used for commercial purposes, it is just that the “trolls” work very rudely and are not too concerned with conspiracy.

It’s no secret that the shopping process has changed significantly over the years. Today, before making a purchase decision, people search for information themselves, read reviews and study recommendations. And online communities are starting to play an important role in this process. Building a community around a startup is arguably the cheapest way to increase conversions. A full-fledged community will bring much more value than a one-time ad campaign. There are practically infinite number of platforms for community management: any communication service is a player in this market, and their demand is determined by many factors. Depending on the purpose, you can choose: telegram, wechat etc

Another solution is the community’s own platform. This site is brand-owned and offers all the benefits of social media, but with much more control and flexibility. This could be a blog / website with a forum or a comment section. Own communities also have advantages and disadvantages. The disadvantage is that, in terms of the audience, you are starting from scratch. Native communities give you more freedom, but you have to do a lot more promotion work before your community grows. One of the main benefits of native community platforms is that they give you tighter control over your branding – without having to compete with other communities on the same platform. Community platforms also enable you to overcome the limitations of social media. Features such as deeper analytics, single sign-on (SSO), gamification, and custom design allow you to create a better experience for your fans. Why do you need a community:

1. Creating a community is useful, because modern customers want to receive feedback, to understand why a brand offers this or that thing or service, what values it is based on.

2. To build a successful community, reach out to your audience on social media. Think over a motto that is close to customers, offer useful information, and study your audience: what kind of people they are, what their interests are, where they go, how they live.

3. It is important to develop a community not only online, but also offline. Events help people feel connected, unite and build brand loyalty. It is not the size of the community that matters, but the level of its loyalty and activity.

4. Attract influencers with an active audience.

5. The community cannot develop on monotonous content by itself. Do not leave the community without leadership, develop new events, projects

Crypto business and projects have presented many interesting approaches to marketing. The cryptocurrency boom has set specific goals for marketing:

• increasing confidence in the project “from ever beginning g”

• building a solid community

• information transparency

• work with investors and influencers.

And all this – for specific audiences in various countries, each of which has its own national characteristics. Many of the best practices of cryptocurrency marketing can be successfully applied to other projects that have nothing to do with blockchain. Community building or face-to-face meetings with investors can be effective for almost any business. Less familiar tools can also be useful: the practice of preparing White Paper, is a common part of content strategy in the USA and England, especially in B2B; or a Bounty campaign that can significantly reduce promotion budgets. In addition to paid channels for promoting and creating crypto communities for certain projects, there are several ways with minimal costs that will help to start the community’s interest in the project’s products at the first stage. What are these ways:

• Creation of thematic groups and attraction of users to them. We create several groups for free and invite friends and like-minded people to them. If you regularly publish interesting information, then word of mouth radio will work with a bang. The promotion of your group will grow exponentially.

• Mutual subscription, likes and following. There are many users on social networks with fake accounts who are ready to give you likes, tweets and classes. And you will mutually have to like them. But you need to understand that this should be done only at first, in order to create the appearance of a promoted page or group. This is not the target audience, if you stop following each other, they will disappear.

• Search and participate in competitive groups and communities. If you find groups of your topic, on which there is a live audience, you can take part in its life, while periodically referring in comments and discussions to your page or group

Join the chat —

Sergey Golubev (Сергей Голубев)

Crynet Marketing Solutions, EU structural funds, ICO/STO/IEO projects, NGO & investment projects, project management, comprehensive support for business


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How to build a crypto mining rig in 2020 to earn Bitcoin and Ether




In a time of global crisis, a pandemic, and a generally unstable political and social environment, cryptocurrencies have shown remarkable stability. Moreover, the pandemic-induced economic downturn played into the hands of the industry by not only attracting professional cryptocurrency traders but also reviving mining as a way of generating passive income. 

It is not surprising that countries experiencing difficult political and economic situations have witnessed a boom in the purchase of GPU cards in recent months. In the region of Abkhazia, where all crypto activities have been illegal since 2018, citizens spent more than $500,000 on mining equipment over a period of six months.

Another factor that has worked to further popularize mining is strong crypto prices. Bitcoin (BTC) has risen by almost a third, while Ether (ETH), the most popular currency for mining, has added $150 to its price and the decentralized frenzy has meant that gas fees have reached unprecedented levels.

So, here’s how to design a cryptocurrency rig — and an exploration of whether it needs to be done at all, given all the associated risks.

Mining rig components

A cryptocurrency mining rig consists of a computer that has many graphics cards but no monitor. Computer cases are filled with GPU cards, a power-generating unit, a motherboard and a cooling system. If a monitor is connected, it can become a regular computer where a user can open a browser or play their favorite video game.

The rig is connected to the internet, and thus, the blockchain network. The network operates by itself to conduct monetary transactions using the power of the graphics cards. To be more specific, a mining rig consists of:

  • An ordinary motherboard, which has the capability of linking to a number of connectors for GPU cards.
  • A hard disk drive, or HDD, with 100 to 250 gigabytes of memory to house the cryptocurrency wallet, with an Ether wallet usually taking up 25 GB and a BTC wallet requiring 50 GB or more.
  • Several GPU cards, which are the most important components in a rig because they are the base that defines the cryptocurrency that a user will mine, along with their future profit and its timeline.
  • A power-generating unit. A rig with four GPUs often requires more than one power unit. Usually, miners have a few 750-watt units connected together.
  • A power adapter for GPU cards. Video cards are connected to the motherboard using special extension cards called “risers.” There are many different types and models of risers, but the PCI-E 1x version 006 is the most popular.
  • A power switch.
  • A cooling system, and it’s preferable to have several coolers to provide additional airflow.

Another important detail is the frame for the rig. It is better to make a frame out of wood or aluminum. The size of the mining rig will be slightly larger than its frame due to protruding parts, adapters and a cooling system. For example, a seven-GPU rig will be approximately 21 inches wide (53 centimeters), 12 inches deep (30 centimeters) and 12 inches high (30 centimeters).

After purchasing all the components of the rig, it’s time to design it, which is a rather easy task for a person who has experience with computer hardware. Additionally, there are plenty of guides on YouTube.

When a rig is ready, all that needs to be done is to install some software — i.e., to choose a program for mining the currency of preference. Another way is to find a mining pool, which is a popular way to mine, as it’s becoming harder to do so individually due to the rising complexity of crypto mining. There are also some tools available such as TeamViewer, for remote control, and WatchDog, which automatically restarts the system if the program freezes.

GPU card in the top

As a rule, one rig should include four to seven video cards — it’s a number that will not go beyond the framework of a stable operation, although there are exceptions. Miners can connect 10 to 15 GPU cards to one motherboard, but seven is the optimal number because Microsoft’s Windows 10 operating system can detect only this number of cards. But there is a solution: specialized mining software based on the Linux kernel. In that case, the key is to choose the right motherboard, such as an ASRock Pro BTC+ series or similar.

Determining which GPU cards are best for mining is not so straightforward, as the answer depends only on the amount of money that the miner has. In general, it makes little sense to buy the most expensive, powerful GPUs for the price of two to three slightly weaker ones, as there is a greater chance the cheaper ones will bring more benefits due to their low power consumption and initial cost.

The highest income in mining is currently achieved with Nvidia GeForce RTX 2080 Ti and AMD Radeon VII cards, but it is more profitable to build a mining farm with AMD Radeon RX 580 and Nvidia GeForce GTX 1660 Super cards, as they will pay off much faster.

Related: The top crypto-mining graphics cards to get a big bang for your buck

It should also be kept in mind that AMD RX series GPU cards can be flashed by changing the working time of the RAM, downvolting the core and overclocking. Programs such as MSI Afterburner and Sapphire TriXX can assist in making these manipulations, which will help GPU cards achieve maximum performance during the mining process.

Electricity in question

In over 10 years, the mining industry has turned from something incomprehensible and rather cheap to a professional, high-tech venture that implies high barriers of entry, not only for the equipment but also for its maintenance.

After purchasing mining equipment, paying the cost of electricity during its operation becomes the main expense that directly affects profitability. The energy consumption of one mining rig consists of the following components:

  • GPU cards, depending on the power and mining algorithm, consume between 360 watts and 1500 watts for a rig of six to seven cards.
  • The motherboard, power unit, HDD and RAM consume up to 100 watts.
  • The cooling system uses from 20 watts to several kilowatts when using air conditioning systems.

So, how can a miner reduce the cost of electricity? The main consumers of electricity are the GPU cards, and with the right settings, electricity consumption during mining can be reduced significantly. For example, when mining Ether, the main thing is to overclock the video memory. The most optimal operating mode for GPU cards is setting the core voltage to about 830 to 850 millivolts for AMD cards and 650 to 850 millivolts for Nvidia cards. Lowering the voltage on the core of the card, in addition to reducing power consumption, decreases the amount of heat, which has a beneficial effect on the equipment.

Power-generating units can also use less power if they have a “gold” certificate, which means they save a large amount of electricity (about 15%) compared with power units that lack them. Another way is to change HDDs to solid-state drives, which will increase the speed of loading the operating system and reduce the power consumption of each rig by five to 15 watts. Furthermore, modern RAM (DDR4 or DDR3L instead of DDR3) and processors can reduce consumption by another 10 to 20 watts.

A miner can also reduce consumption through slightly more complicated ways too, such as finding more economical electricity tariffs — for example, installing the rigs where there are reduced tariffs for consumers with electric stoves or electric heating and lower night-time prices. If possible, miners can even reach out to a power plant that generates electricity to find out if it has surplus capacity. Some miners can create their own solar or wind farms and use them for mining, but not everyone can afford such an investment.

Mining in the cloud

Keeping in mind the unstable situation in the economy, some may want to join the crypto mining community but cannot due to the high initial costs associated. Here’s where “hosted mining” can come into play, whereby cryptocurrencies are mined through a remote connection to equipment that has been rented out. Philip Salter, head of operations at Genesis Mining — a cloud mining provider — told Cointelegraph:

“Since mining is becoming more competitive, margins are shrinking and it’s harder for home miners to compete. Miners need to get every drop of efficiency they can, and that means growing the operation (economies of scale) and doing it somewhere where electricity is insanely cheap. […] Mining in the cloud seems like the only viable option for many.”

Hosted mining starts with a user choosing a provider of computational capacity. Then they enter into agreements with the company to connect to its equipment. After paying for computer capacity, miners are provided with access to remote mining of cryptocurrencies through rented equipment. So, users only need a computer and a fast internet connection to operate. Hosted mining commissions are charged in accordance with the agreements established between the parties.

This type of mining has a number of advantages, such as not requiring start-up capital, not needing to connect equipment by yourself, no costs of maintenance and electricity, the ability to disconnect from work at any time, and not needing special technical knowledge and skills.

There are also risks in cloud mining, primarily because, like any young industry, many rogue actors seek to take over the funds of ignorant users. So, when choosing a platform, users should spend time and carefully study its history and reviews.

Also, hosted mining brings in lower income compared with mining using one’s own equipment. Nevertheless, this is a possible option for those who really want to get involved in mining because, in any case, no one will give up an opportunity for passive income, even if it’s not too significant.

Buil it on your own

In summary, it can be said that today, mining seems to be an attractive way to make some income. If for some reason hosted mining is inconvenient, then setting up a personal rig is not too difficult. This will require an initial investment and a little time to figure out how the system operates.

Randy Ready, CEO and chief technology officer of Mining Rig Rentals — a hardware mining rental platform — believes that building your own system certainly is more interesting, adding: “I suggest going with a small rig and potentially going larger once you are familiar with mining and have a stable profit.”

Disclaimer. Cointelegraph does not endorse any content of product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.

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