Blockware Solutions LLC, a provider of BTC block reward mining equipment and hosting, has been sued by one of its customers for negligence, fraud and breach of contract. The customer, Faes & Company (NASDAQ: FAESOX ), claims Blockware lied about ownership of its hosting facilities and is seeking $250,000 in damages.
The lawsuit, filed in the Northern District of Illinois, alleges that Faes bought 50 BTC miners from Blockware in October 2021. Blockware will host and operate these machines at one of the server facilities it claims to own as part of an agreement between the two companies. .
However, Faes claims that Blockware lied about owning the facilities. The company, according to the plaintiff, “relied on third-party facilities that did not have reliable power (probably due to limited contractual arrangements with energy suppliers), so miners were regularly experiencing outages or layoffs.”
Blockware was well aware that miners were experiencing significant downtime, but continued to advertise “zero downtime” to their customers, Faes claims.
The company’s website states: “WE OFFER: On-time machine installation, Reliable internet and power, industry-leading uptime.”
Faes claims that the average uptime of its miners at Blockware’s facilities was less than 70%, with miners mostly offline during November 2022. Since October of this year, the company estimates it has been losing thousands of dollars a month due to outages.
“In fact, since around October 20, 2022, all 50 Faes miners at Blockware’s Pennsylvania facility have been offline without any justification or even explanation. Suppose that a [BTC] At a price of $20,000, this represents an ongoing loss to Faes of approximately $5,000 per month after deducting expected energy costs and hosting fees,” the lawsuit states.
Despite the downtime, Blockware raised energy rates from $0.068 to $0.08 per kWh, which management blamed for “unprecedented cost inflation.”
Faes accuses his business partner of negligence, breach of contract, deceptive trade practices and fraud and is demanding a trial by jury.
Blockware has denied the accusations and expressed confidence that the lawsuit will not proceed.
“We do not agree with all statements and claims in the lawsuit. We are sure it will be thrown out of court…we have served this industry honestly for over 5.5 years and this [the] filed a lawsuit against us first,” CEO Mason Japp told a publication.
While Blockware has struggled with fraud allegations, other BTC miners are faring worse. As CoinGeek recently reported, Core Scientific, one of the world’s largest BTC miners, has filed for bankruptcy, blaming a bear market and ‘crypto contagion’.
Listed miners are also facing their own struggles, with Bitfarms (NASDAQ: BITF ) recently threatened with delisting by Nasdaq due to poor price performance, while Argo Blockchain (NASDAQ: ARBKF ) was temporarily delisted by the London Stock Exchange.
BTC Miners Collectively Debt $4 Billion: Report
It is an open secret that BTC miners are struggling in 2022. However, a recent report from Hashrate Index, a block reward mining data analytics firm, provided a better insight into the extent of their struggles.
The report revealed that public BTC miners are at least $4 billion in debt. Core Scientific (NASDAQ: CORZW ) is in the top spot with $1.3 billion in liabilities, even as it tries to restructure without liquidating its assets. Marathon Digital Holdings is second with more than $850 million in debt.
Source: Hashrate Index
As observed by the Hashrate Index, most miners borrowed heavily during the good times and BTC was trading at $50,000 and above. However, as the bear market bites, those loans are now haunting miners, forcing them to restructure or go bankrupt.
“Due to unsustainably high debt levels in the industry, it is likely that we will continue to see more restructuring and potentially some bankruptcies. We are starting to enter the part of the cycle where weak players are hyped,” the report concluded.
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