Rustam Kutuev, business developer at Finom AG Blockchain Corp, founder of Pride Games Game Studios and the Cryptal mining center in Russia, used to own two car repair shops and car rental services. He even used to export fuel pellets to Europe, but now he has a new passion – cryptocurrency production.
Back in 2012, my high school friend told me about Bitcoin. His colleagues took up cryptocurrency mining, and in 2015, when Ethereum appeared, they created a cryptocurrency pool called Nanopool. Despite all this, cryptocurrency mining did not interest me until last year. It was difficult to say whether the investments would pay off and whether the government would intervene in the process or even declare cryptocurrency illegal.
Everything changed for me in August 2016. During a joint road trip, my friend persuaded me to create a mining farm. We decided that if mining would be considered illegal one day, we could sell graphics cards to gamers to get back at least part of our investments.
However, this new thing turned out to be rather successful and we started earning quickly. At that time, cryptocurrency mining would bring us 15% percent of the invested funds per month. It was difficult to start mining in 2016 and I had to invest a lot of money.
At that time, my business turnover amounted to $3,500,000, so I could afford to invest $85,000 without compromising my material well-being.
We used this money to buy equipment, and then leased industrial premises, initially in St. Petersburg. We soon decided to move to the Leningrad Region to save on our electricity bill, and started mining.
We spent two months traveling across Russia buying graphics cards. You couldn't just come to a store and get $85,000 worth of GPUs. It was impossible to find that many graphics cards anywhere. Nowadays, you can spend millions of dollars to get an already assembled mining rig (a rig is a computer system based on 5-7 graphics cards used for mining – Ed.) from China. It will only take about 30 days to ship.
It took only one year for the industry to adjust to meet the needs of all miners. Back then, only amateurs mined cryptocurrency. It was only in China that cryptocurrency was mined professionally.
We bought 250 Radeon RX 470 graphics cards, which were the cheapest and most accessible at the time, put together a mining rig, and began mining. Mining alone is not profitable, so from the very beginning we joined Nanopool.
We knew everybody on the pool’s team personally and that was why we decided to join. Trusting a mining pool is extremely important because all the coins which miners get as a reward for the amount of work they contribute to solving a block go through the pool, which then distributes the payments.
Each user makes a different contribution to solving a block, so rewards are split between all the nodes in a network, depending on their capacity. A dishonest mining pool can keep all the coins mined and never pay any money to its members.
In Russia, cryptocurrency mining is neither permitted nor prohibited. In 2017, the government became more lenient toward it. There were reports of business centers equipped for mining farms on Channel One, which means it is allowed. Once a relevant law is passed, we will bring our activity in line with it. I hope that this new law will take into account every aspect of mining.
The situation with taxes is also unclear, so nobody pays cryptocurrency mining taxes. You can't tax something that’s not there. If cryptocurrency in Russia will be equal to goods, then I believe it is possible. Nevertheless, how do you know how much a particular miner earned?
Perhaps the government will introduce something like imputed income tax on mining farms. I used to own a car fleet, and no matter how much money I earned, be it one ruble or a million, I would pay $100 for every car on my balance sheet. You can calculate only the approximate revenue of a particular farm and subtract the percentage from it. However, it only works with large-scale farms.
If somebody has a home farm with 5-7 graphics cards, there is no taxation involved. You could compare such mining with illegal taxis on the road.
At some point, a law on transportation of passengers was passed, and drivers were obliged to obtain a license, taxi booking apps appeared and now nobody stands by the side of the road with their thumb out as before. Over time, mining will also become more civilized.
The government will benefit from it. There is a huge amount of unused electrical capacity in Russia. If it is used for mining, the income from cryptocurrency mining including the mining tax will be higher than from the sale of electricity alone.
I would set up a global mining farm, say, in Irkutsk, for example. There, one kilowatt-hour costs 1 ruble, whereas in Moscow and St. Petersburg it is five or six times more expensive. You can set up a great techno park in Siberia. Moreover, that’s exactly what they are trying to do now.
We might soon witness a great migration of miners to the Taiga forests. Just like during the Golden Rush.
Construction of mining farms could greatly help the region develop its infrastructure. The only thing that stops people is the fear that one day officials will come knocking on their door and, under the guise of countering terrorism, say something like, "You have to vacate these premises. It is not officially forbidden, but we are going to seize everything you have." The millions invested will be frozen and all your equipment will stall.
However, if we imagine that cryptocurrency mining is suddenly legalized in Russia, I don’t see any obstacles to the development of the new economy. Mining will be popular for a long time. When production of some coins shifts to industrial capacity, as was the case with Bitcoin, there appear dozens of new ones that allow non-professional players to enter the market.
Initially, we expected a monthly income from cryptocurrency mining to be about 15 percent of the invested amount. However, we managed to get only 10 percent because all our equipment would break down all the time. It was about half a million rubles. With so many graphics cards, something will inevitably go wrong.
We spent the first two to three months just debugging the system to keep at least 80 percent of the devices working. We now have an average of 98 percent graphics cards that work just fine. Nevertheless, despite the costs, we were able to earn back our 5 million invested within just six months. I’m talking about money in the form of cryptocurrency.
Many overclock their graphics cards to get the most out of them, but we decided not to do it. For us, it is more important to keep our force active during the marathon rather than kill our equipment in a sprint. When you overclock your graphics card, it wears out more quickly. The entire system suffers from this and starts performing poorly.
Sometime after we launched our farm, we realized that with the cheap graphics cards that we had initially bought we would not be able to advance much. They worked according to their price tag. You have to watch over the farm and troubleshoot if necessary 24/7. My friend was in charge of that.
Later, we decided to buy more expensive devices - ASUS ROG Strix GeForce GTX 1070. If our first cards were a beat-up Ford, now we're driving a Mercedes-Benz.
I can’t say that our income has grown enormously, but our costs have been reduced. The rigs were twice as expensive, but take up less space. Therefore, a large facility was no longer required. Electricity consumption has remained the same, as has the efficiency of mining. For the money invested, we got fewer devices, but they were much more stable and we didn’t have to watch over them 24/7.
Now we're waiting for another shipment of equipment from China. We hope to install it by early November. This will allow us to reach 35,000 MH/s. The cost of such a farm is estimated at $850,000. It’s a lot, but on the global scale it’s nothing.
The top Nanopool miners have rigs that reach 239,000 MH/s. Just imagine how much their equipment costs. Moreover, Nanopool only makes up 10% of the Ethereum extraction network. With our 35,000 MH/s, we will be somewhere in 12th-13th place in this rating.
Nowadays, cryptocurrency mining is so profitable that I could easily sell all of my businesses, but that would be boring. Mining should not be regarded only as a source of passive income.
We started with premises with a total area of 300 square meters, and we now have 1,000 sq. m. premises. We have 250 rigs and 1,500 graphics cards. Having come all this way by ourselves, we learned the market, realized that it was much bigger and that it would be more profitable and more interesting for us to serve its members than to just mine cryptocurrency.
We have teamed up with the developers of TabTrader, which is one of the most popular applications for cryptocurrency trading, Cryptonit cryptocurrency exchange with its five-year history, and Nanopool’s founders, whom I mentioned earlier.
Our new holding company is called Finom. It’s a finance Google built on blockchain with artificial intelligence. We want to transform the existing cryptocurrency infrastructure and make it convenient, understandable and accessible to all. To this end, we’re creating a single ecosystem that contains everything: mining, trading and banking. Users on our platform can save and earn money.
Our AI helps beginners reach their financial targets. We believe that by setting up a user-friendly infrastructure we increase people’s profits and standard of living.
One of our first joint projects was the mobile exchange app Beetle.io, which genuinely makes people’s lives easier. It makes it possible to purchase Bitcoin or Ethereum with dollars directly from a bank card in just a couple of clicks.
As for cryptocurrency mining, we plan to build eight large centers not only to mine, but also to provide facilities for those who don’t want to set up their own farm. Some call it cloud mining, while others would rather refer to it as leasing.
In order to carry out these plans, we’re tokenizing our company’s assets and offering investors FIN security tokens. These are completely analogous to regular fund shares. As a gift, investors receive NOM utility tokens, which will provide privileges and discounts in the future system. As of today’s date, investors have already entrusted $37 million to the project.
Mining cryptocurrency is a pretty unpredictable thing. Today you are in the red, tomorrow – you make a lot of money. I know how much I earn from cryptocurrency mining, but due to the high volatility of cryptocurrency and network self-control, you can only calculate your average earnings. Cloud mining is different; everything is crystal clear there. You know perfectly well that the more facilities you rent out, the more money you get. It’s a more stable business.
Over the next few years, we will see construction of large mining centers. The more people enter the cryptocurrency market, the more transactions will have to be handled, and the more difficult it will be to solve a block. The network load will grow. Income is likely to decrease compared to what miners get now. Due to this, there will be bigger players, home farms will turn into enterprises or firms.
You can only guess the real size of the Russian cryptocurrency mining market. Players don’t like to share their cryptocurrency mining experience due to the legal uncertainties.
I visited some Russian mining farms, including in St. Petersburg. There are quite large ones. Most farms are smaller than ours; there are only about 100 that are as big as ours, and about 10 really big ones. However, that's just a guess because nobody's going to give you the exact figures.
There could be a mining farm across the street from your office, but only five or six people know about it.
Perhaps things will change for the better when the government passes a law governing the activities of the cryptocurrency market’s participants. There has already been a lot of talk about it, but the situation is extremely tense. Mining is like sex in adolescence – everybody talks about it, but few actually do it. Hence the questions.
Contradictory statements by opinion leaders rock the boat. Some believe that cryptocurrency is the future, others see it as an enemy. Both can influence decision-making. Therefore, it is at least entertaining to stay up to date with current events and activities.
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