Threats Fly As Fight Over Siacoin's Crypto Mining 'Kill Switch' Intensifies

An effort to keep the $200 million siacoin blockchain free from corporate interests is devolving into chaos amid accusations against the companies at the center of the effort.

At issue is the conduct of the protocol's coders, and the motivations behind their push to alter the rules of the blockchain they maintain. Last week, developers including siacoin creator David Vorick floated changes that would keep some mining equipment operators from earning value by securing the distributed storage protocol.

Simply put, the code would fork siacoin so that products offered by Bitmain, the China-based firm on the verge of an initial public offering, and its competitor Innosilicon, would be disabled.

But while such efforts have been met with enthusiasm on other blockchains, satisfying concerns about how such changes could impact the balance of power on their networks, there's just one problem – in the case of siacoin, the equipment that would still work is being sold by a company operated by siacoin's developers.

Indeed, the mining company in question, Obelisk, was founded by Vorick in 2017. In June this year, Vorick later announced a service named named "Launchpad," through which Obelisk would create mining equipment for a wider range of blockchains.

But while this was praised as a novel model for blockchain management, it did little to change the competitive environment for the company. Obelisk's SC1 miner had already been beaten to market by a competing offering from Bitmain in January. The stage set for competition by June, the mood in the community was tense, if optimistic, that is until Obelisk missed a June deadline.

Having amassed $22 million from siacoin users for the production of mining machines, the situation has now degraded into a tangle of legal threats and proposals to fork the blockchain. The situation is so fraught, even Vorick said he doesn't quite know "how things will play out."

Vorick told CoinDesk

Not simply a way to regain economic sway of the network, multiple sources within the siacoin community have told CoinDesk the move was in response to a rising legal pressure, a fact alluded to by Vorick in his statements.

"Obelisk felt that there was sufficient pressure in the sia community, and sufficient pressure from the Obelisk community to justify releasing the algorithm to the sia development team," Vorick told CoinDesk, adding:

At the time of writing, two parties have contacted CoinDesk claiming to be pursuing legal action against Obelisk. In both cases, the lawsuits stem from allegations the company failed to ship its SC1 miner by June 30, as agreed on purchase.

A third-party developer that was previously responsible for the upkeep of siacoin-related websites and web tools, the pseudonymous "RBZL" recently quit his engagement with siacoin, stating that the controversy over Obelisk has effectively stalled the platform's development.

Now pursuing legal action, RBZL explained that his concern was that Obelisk knew it couldn't commit to its release timeline. RBZL went on to call the venture "proud and arrogant," stating that the behavior of the company was a "slap in the face" to Obelisk's buyers.

Comments on the social media site Reddit

attest that such marketing efforts were made, with Vorick stating there that users "will be eligible for a full refund," in the case of a missed deadline.

"I have no interest in seeing the sia project go under, but they've done a good job of setting themselves up for that possibility," RBZL told CoinDesk.

Continuing, RBZL shared screenshots of private messages with Vorick that featured the founder stating Obelisk was unable to offer refunds due to a lack of funds. Funded entirely by advanced sales of its mining machines, Obelisk had already spent its money on manufacturing.

"I feel like we were pretty clear that we wouldn't be able to survive refund requests," Vorick wrote in the message.

Referring to a comment on Reddit, Vorick acknowledged that his statements might come back to impact the company. "That comment might be enough to kill us in court. And when I say kill us, I mean dead company," he said.

Making matters worse is that those behind the effort suggest any legal action against Obelisk could impact Nebulous, the startup entity the currently employs open-source developers for the siacoin protocol.

In the same screenshot, Vorick is seen stating that "Obelisk and Nebulous are not properly arm's length," and warned that in the case of legal action, "it's likely the court would order Nebulous to refund damages as well which we don't have money for either."

Speaking to CoinDesk, Vorick confirmed the messages were authentic, but said he was "speaking on a personal level and sharing [his] own fears with a community moderator and leader." He requested these messages "not be interpreted in an official capacity."

Another siacoin user named "Bloqtwits" also contacted CoinDesk, claiming to represent a group of claimants that had purchased Obelisk miners and are now seeking a class action lawsuit.

Bloqtwits declined to share further information about the filing, as did RBZL, citing advice from legal council that could impair any case.

Still, some of those seeking damages believe the entities backing the siacoin protocol have more than enough funds to pay up. The sole development body behind siacoin, Nebulous is custody of what is called the "siafunds," a slice of a siacoin smart contract that is built to incentivize siacoin development.

Speaking to CoinDesk, a siacoin trader named Scott Bell estimated the fund nears $56 million, or did at one point over the course of 2018.

"I believe these folks are not actually seeking justice, but instead see a legal pathway to the Nebulous siafunds in a class action," Scott Bell told CoinDesk.

That's not to say there aren't efforts ongoing that support the protocol's developers.

Bell, for example, leads one of the factions within the siacoin community that is promoting a "user-activated soft fork" (UASF), a change that would find users opting to alter the software's rules, as opposed to a corporate entity.

Bell said the proposal seeks to find a way to defend against the mounting legal pressure against Obelisk and Nebulous, which he sees as an attack on the siacoin network.

And that's because, according to Bell, Nebulous is vital to siacoin. If a lawsuit on Obelisk succeeded to take Nebulous down as well, it could have a damaging impact on the network.

"There won't be any devs on it anymore, the visionary will be bankrupted and will have to go away, and everything we put our efforts behind will go up in smoke," Bell told CoinDesk.

Published two weeks ago, the proposal argues that once the mining units are released, Obelisk should give Obelisk miners the run of the network for a three-month period, after which other miners would again be able to secure the protocol.

"Unfortunately, the only thing we could arrive at is a pretty messy way of solving the problem, and that's essentially paying off the people who are threatening legal action. I hate to say it, but it's that," Bell told CoinDesk.

Still, other factors suggest that the volatile situation could continue to change in the days and weeks ahead. For one, Obelisk said it began the shipment of its units Friday and planned to send "hundreds" this week.

"We are still on track to deliver all Batch 1 units by the end of August," the company announced on Discord last week.

In the meantime, Vorick said he remains skeptical of more grassroots efforts to change the protocol (Obelisk and Nebulous have not issued statements on the proposals).

For one, while Obelisk agreed to release its new algorithm, one that would shut out competing miners, Vorick said that he disagreed with the efforts of the UASF group to open the network to other mining after a brief lock-out period, as is specified in the proposal.

"If we are going to take proactive measures to curate our mining community, the goal is going to be to set up a healthy, decentralized, open mining ecosystem," Vorick told CoinDesk, "It therefore does not make sense to me that we would switch away and then switch back."

Further, uncertainties remain — for example, the threat of the class action hasn't subsided.

Speaking to CoinDesk, Vorick said that for now, he is practicing caution, focussing on shipping the units, and hesitating to take dramatic steps that could set a lasting precedent for the governance of the cryptocurrency.

"Something as significant as a fork should never be rushed," he told CoinDesk.

Correction (09:20 UTC, Aug. 21, 2018): An earlier version of this article erroneously stated the market value of siacoin as $200 billion instead of $200 million. This has now been corrected.

Correction (09:40 UTC, Aug. 22, 2018): An earlier version of this article erroneously stated Obelisk shipment deadline to be July instead of June. This has now been corrected.

Spotlight image via CoinDesk archives