By David Z. Morris
July 21, 2018

Hashflare, a so-called “cloud mining” service that allowed speculators to effectively rent processing power on the Bitcoin network, announced Friday that it had shut down its Bitcoin mining hardware and canceled related contracts. The company says the cancellations are in accordance with its terms of service, but many users are also reporting that the company has placed strict new controls on withdrawals, fueling longstanding allegations that the operation is not above board.

The shutdown was announced in an email to customers and on Hashflare’s Facebook page, with the statement primarily blaming “a difficult time for the cryptocurrency market,” including a dramatic decline in the market value of Bitcoin from its bubbly December 2017 peak. Hashflare claims that it has worked to lower its costs, but that the price decline nonetheless means that “BTC mining continues to be unprofitable.”

Hashflare contract-holders pre-paid a yearly fee for a fixed amount of the cryptographic processing power that secures the Bitcoin network, along with daily service and maintenance fees. In principle, the yearly fee was effectively an investment in mining hardware, while the service fees covered costs like personnel and electricity. In exchange, Hashflare agreed to buy, operate, and maintain Bitcoin mining hardware on customers’ behalf, and share with contract-holders a portion of the Bitcoin rewards received from the network for operating the machines.

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Because those costs were more fixed than the value of rewards in Bitcoin, these agreements always involved the risk of losses. Hashflare said on Friday that its daily fees have exceeded customer returns for 28 consecutive days, triggering a clause that allows Hashflare to terminate those contracts – without, according to users, refunding the remaining portion of annual contract fees. Hashflare also offers mining contracts on other cryptocurrency networks, such as Litecoin, Ether, and Dash, but has not said those contracts will be canceled.

Just before its cancellation announcement, on Thursday, Hashflare also implemented new controls on withdrawals, putting stricter limits on withdrawals for customers who do not verify their identity. The restrictions have added to anger over the shutdown on forums like Reddit, where many users report having funds trapped in Hashflare’s system. Some disappointed customers have reported successfully disputing Hashflare’s contract fees to credit card companies, while others have proposed pursuing legal recourse to try and recover their investments.

 

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