Warning About "Bitclub Network"

Bitcoin Austria warns against investing in the “Bitclub Network.” #

Through multi-level marketing, the “Bitclub Network” sells mining shares and promises to pay returns for 600 days. How high these returns will be and whether the initial investment of at least 599 USD will ever be recouped is completely unclear. Also unresolved is what computing power you actually acquire, what hardware is used (if the money is invested in hardware at all), and who you are even doing business with.

At Best a Bad Investment #

Bitcoin and altcoin mining are now only profitable under ideal conditions. In addition to investing in current specialized hardware and running efficient operations, miners compete globally with industrial operators who can count on energy costs of less than 3ct/kWh. Investors in Bitclub Network must finance the expensive MLM distribution — up to 30% of the invested sum goes to recruiters (“sponsors”). In Bitcoin Austria’s view, it is impossible to earn back the invested capital through mining with the remaining funds.

At Best, Barely Breaking Even #

The latest ASIC miners such as the Antminer S7 can barely break even under current conditions. Here are the hard numbers: An Antminer S7 delivers 4.73 TeraHash/s, consumes 1300 watts, and costs at least 700 USD (615 EUR) including the power supply, but not including shipping and taxes.

Assuming electricity costs of 0.3 ct/kWh, the break-even point is reached after about 230 days. Over the following 270 days, the device then “earns” 0.42 BTC (155 EUR). After 500 days, mining returns fall below electricity costs due to rising difficulty, and continued operation would only generate losses.

Major Uncertainty Factors and Additional Costs #

Any delay in getting started also has a negative impact. In our example, we assume an immediate start (today, April 4, 2016). If the device were ordered today but only put into operation 10 days later, the profit shrinks to 0.31 BTC (115 EUR).

We have also generously ignored ongoing operational costs (e.g., personnel costs for monitoring and maintenance, rent, cooling, insurance, etc.), as well as one-time costs for setting up the operational infrastructure or taxes for importing the hardware (Iceland: 24% VAT + customs duties), device setup, and the risk of premature hardware failure. If we factor in 1 euro per month for ongoing operations and a modest 20 euros in one-time costs for setup, taxes, etc., the profit shrinks to 0.21 BTC (77 EUR).

Then Comes July 2016

Not yet factored into the calculation is the block reward halving in early July. For the second time in Bitcoin’s history, the so-called “block reward” will be cut in half. While 50 BTC were originally awarded for each newly found block, this was reduced to 25 BTC in November 2012. Now in July 2016, the next halving to 12.5 BTC is approaching.

How strongly the other key parameters — the Bitcoin exchange rate and mining difficulty — will cushion the massive drop in miner revenue is uncertain. If the adjustment happens primarily through a price increase, as it did after the first halving, then a direct investment in Bitcoin would clearly be the better option.

Conclusion #

At best, ‘Bitclub Network’ is a bad investment; far more likely, it is the latest pyramid scheme using ‘Bitcoin’ as a marketing hook to lure unsuspecting investors.

Links:

• Bitmain Technologies Ltd. / Antminer S7
• Industrial Electricity Prices Iceland
• Bitcoin Mining Difficulty History
• Bitcoin Block Reward Halving
• Bitcoin Mining Calculator I
• Bitcoin Mining Calculator II
• Report by the Tiroler Tageszeitung
• BitcoinTalk Discussion on Bitclub Network