Loan for ASICs

[Nolo]

Terms:

1) You loan me the amount necessary to purchase one or multiple ASIC(s).
2) Once I receive the ASIC I immediately begin mining with it.  The first 100% of the amount the ASIC(s) earn, up to the amount you loaned, will be sent to you.  (Revenue not profit.  I will eat the electricity cost, as it is pretty cheap here anyway.)  
3) Once paid off, for the life of the ASIC I will send you 10% of the profits earned by the ASIC(s) weekly.  
4) If the ASIC is ever sold, I will then send you 10% of the liquidation amount of the ASIC(s).

So the way the return on this investment works is 1) Full repayment of your loan; 2) 10% of the earnings weekly; and 3) 10% of the liquidation amount.

There are two areas of risk for the investor:

1) ASICs are a scam and never ship.  You lose your investment.  This is why I am making this proposal.  I want to get into ASICs, but also want to mitigate my risk, and am willing to pay to do so.  
2) I'm a scammer.  Not very likely for two reasons:  1) I've built a solid reputation online; and 2) If I were to get caught scamming, I do not believe the legal profession would look very kindly on one of its own doing so, and there would be harsh consequences.

This is just an outline of the proposal.  For anyone that is interested, I have an actual contract with full details.  (The full details are just be more in depth, but fully comply with the terms of the above outline, unless we agree on other terms.)

Why not just buy an ASIC yourself?  People this might be a good investment for include:
1) Those who do not have the full amount to purchase an ASIC (I am willing to split this up into multiple lenders);
2) Those who wish to mitigate their risk of ASICs being a scam and never shipping (by grouping with multiple lenders);
3) Those who have high electricity rates; and
4) Those who do not want to manage the operation themselves
5) You live overseas, and the time for shipping, customs, and excess cost make the purchase of ASICs unfeasible for yourself. 

Feel free to pm me if you're interested as well.

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[fgervais]

Both of your 2)'s conflict. If ASICs are vaporware, who eats the loss?

Look into reformating as mining bonds, as is it makes little sense to invest in this.

[Nolo]

Both of your 2)'s conflict. If ASICs are vaporware, who eats the loss?

Look into reformating as mining bonds, as is it makes little sense to invest in this.

The lender eats the lost if ASICs are vaporware.  That is the whole purpose for me deciding to do this.  I could just purchase the ASICs myself otherwise.  They can mitigate their losses by having multiple lenders join them.  Not a conflict at all, but I should have made that more clear.  Not going to reformat these into mining bonds, as that would be issuing securities.   I am not in any way going to be involved in the mess that comes with issuing securities.  This is a loan.

I have now had several people contact me about being interested in this.  All seem to have different reasons for doing so, and some I didn't even think of.  So for various reasons, not all financial, it does make sense to invest in this.  We just disagree on your last point.  

[Bitcoin Oz]

Are you allowed to offer an investment to the public? I thought you wrote something about it being illegal.

[Nolo]

Are you allowed to offer an investment to the public? I thought you wrote something about it being illegal.

You can offer a loan.  (You could also make a private offering of securities as opposed to a public offering, but I'm not even going down that road.)  But you are correct.  A public offering of a security without being registered under the 1933 Securities Act is illegal. 

I will structure the transaction in such a way that it is a loan with a structured payment plan.  The risk of loss is if the ASICs never actually appear.

[MrTeal]

If you want to mitigate your risk, why not just buy a bASIC or two from BTCFPGA using Visa? If they don't ship in a month, demand a refund and if cablepair has skipped town issue a chargeback.

[repentance]

Both of your 2)'s conflict. If ASICs are vaporware, who eats the loss?

Look into reformating as mining bonds, as is it makes little sense to invest in this.

I can see it being attractive to certain kinds of lenders.  A lot of people are pretty cynical about mining bonds at the moment given their track record.  I think to a large extent this is the kind of proposal that only certain forum members can make - people who trust Nolo wouldn't necessarily trust someone else making the same proposal.

[Bitcoin Oz]

Both of your 2)'s conflict. If ASICs are vaporware, who eats the loss?

Look into reformating as mining bonds, as is it makes little sense to invest in this.

Mining bonds, especially perpetual ones, are a scam. Because you may never get your principal back.

[Nolo]

Both of your 2)'s conflict. If ASICs are vaporware, who eats the loss?

Look into reformating as mining bonds, as is it makes little sense to invest in this.

Mining bonds, especially perpetual ones, are a scam. Because you may never get your principal back.

Exactly.  That is why I am taking the opposite approach.  The principal will be repaid first.  And it will be repaid with revenue, and not profit. 

I am locking this thread.  I believe the pros and cons of this approach have been fully hashed out.  I have one full lender committed, for 1 of Tom's $1,069 models.  If others are interested (and I hope they are), please feel free to contact me by PM. 

Thanks,
Nolo

[Nolo]

I'm bumping this thread.  But I'm also adding a new piece of information in light of the delay announcements.  

Others may (actually, I guarantee some others will) disagree with me, but I've come to the conclusion that the openness and professionalism of Tom (cablepair) with BTCFPGA is far superior to that of BFL.  I believe BTCFPGA will deliver before BFL.  I obviously may be wrong as I don't have any inside information other than what has been publicly stated.  

In addition, the quick support I received yesterday in placing my order, even in light of such a busy day for them, further reinforces my opinion.  

I do not take lightly the responsibility to protect my lenders' interests, especially when I am asking them to bear the risk that ASICs are vaporware.  So at this time, with this responsibility in mind, I prefer lenders who are interested in ordering bASICs.  Will I order from BFL?  Yes, if you want me to. 

Thanks,
Nolo

[Nolo]

[Nolo]

That's cute

I thought so 

[hardcore-fs]

Both of your 2)'s conflict. If ASICs are vaporware, who eats the loss?

Look into reformating as mining bonds, as is it makes little sense to invest in this.

The lender eats the lost if ASICs are vaporware.  That is the whole purpose for me deciding to do this.  I could just purchase the ASICs myself otherwise.  They can mitigate their losses by having multiple lenders join them.  Not a conflict at all, but I should have made that more clear.  Not going to reformat these into mining bonds, as that would be issuing securities.   I am not in any way going to be involved in the mess that comes with issuing securities.  This is a loan.

I have now had several people contact me about being interested in this.  All seem to have different reasons for doing so, and some I didn't even think of.  So for various reasons, not all financial, it does make sense to invest in this.  We just disagree on your last point.  

So clearly you are a crook, because you could easily pay for the equipment using a credit card, scam the money from the suckers AND do a reversal on the CC.

All I can say is that there must be some fairly desperate and stupid people in the community to fall for this.

HC

[Nolo]

So clearly you are a crook

Quite clearly I am a crook.  As everyone I have done business with on here can attest to  There are many things I could do using your logic.  I could use the money to buy a spaceship instead of purchasing an ASIC.  But that is what a contract is for.  If I breach the contract, I can be sued.  If the lender breaches the contract with me, I can sue him.  Otherwise, please post all relevant evidence that you have, that proves I AM a crook, as you stated.  You did not state that I have the potential to be a crook.  You stated I AM a crook.  We all look forward to your well thought out, rational post.  Also, I'll link you to my article on liability for online (and offline) defamation:  https://bitcointalk.org/index.php?topic=109363.msg1190739#msg1190739

Anyway, back on topic, I am still taking additional loans for this proposal.  Many thanks to those that have expressed interest, and also have taken me up on my offer.  I look forward to a long and prosperous relationship with each of you.  

Once again, this is a much safer alternative to the "mining bonds" that numerous people offer, in which it has been pointed out above, that you never recover your initial principal investment.

[proper_proper]

A few too many "in camera" sessions of knocking his head on the bottom of the magistrates desk has left Nolo dazzled and unable to think clearly. Why would you think this is a good idea?

[MrTeal]

A few too many "in camera" sessions of knocking his head on the bottom of the magistrates desk has left Nolo dazzled and unable to think clearly. Why would you think this is a good idea?

Why wouldn't he want to do this? It allows him to buy ASICs at almost no risk. If the company he chooses doesn't deliver? No loss. Difficulty goes batshit crazy and the ASIC takes years to pay off? No worries, not his money. ASICs actually turn out to be pretty profitable and they pay themselves off in a half year? He gets a steady income stream without using his own money and only has to pay 10% of income.

[Nolo]

A few too many "in camera" sessions of knocking his head on the bottom of the magistrates desk has left Nolo dazzled and unable to think clearly. Why would you think this is a good idea?

Why wouldn't he want to do this? It allows him to buy ASICs at almost no risk. If the company he chooses doesn't deliver? No loss. Difficulty goes batshit crazy and the ASIC takes years to pay off? No worries, not his money. ASICs actually turn out to be pretty profitable and they pay themselves off in a half year? He gets a steady income stream without using his own money and only has to pay 10% of income.

proper appears to be a troll/sockpuppet that for whatever reason doesn't like me or maybe its just lawyers in general, as to my knowledge I've never even communicated with him.  He follows me around and makes snide lawyer comments.  So I find it best not to respond to him.

Also, you're correct I don't share the risk that ASICs are vaporware.  But I do share the risk if difficulty goes crazy, as I'm the one paying for ALL of the electricity until the ASIC is completely paid off.  Then it's free money for the lender after that in perpetuity (or until the ASIC dies). 

Basically with me, you get the benefit of the mining bonds, without the risk of never getting the thing paid off.  So the way I view it, lending to me is much lower risk, as it is a somewhat secured loan.  The ASIC itself serves as the collateral. 

A side note, I have strep throat.  So for the next couple of days I'm probably going to be slow responding, and mostly in the bed.  I get pm's immediately on my phone, so that is definitely the best way to get me. 

[Kluge]

Basically with me, you get the benefit of the mining bonds, without the risk of never getting the thing paid off.

It's the same kind of risk as with mining bonds, and of course there's risk of not making investment back. If there were no risk to make a decent return, everyone would be doing it. Both this offering and mining bonds are effectively leasebacks, except OP mentions liquidation (which investor gets 10% back on... for the item he effectively purchased... whoopee!).

There's no guarantee (and by a good few estimations, no likelihood) of ASICs making a decent return if you're not one of the first in line for whatever company ends up delivering first. There's very significant risk of loss, and given orders are being placed on-demand this late in the game, it's almost guaranteed. The difference between this and a mining bond is mostly just in phrasing, but fundamentally, it's the exact same risk. The ASIC will depreciate in value and returns in time -- so will a mining bond. This deal gets OP "free" mining hardware -- so does a mining bond. "Perpetuity" can end without a positive RoI -- so can happen with a mining bond. Just because an ASIC unit is tangible and a "MH/s" is not, does not make this contract significantly different (except for the paltry liquidation value an investor gets at... Idunno, some undefined time).

And electricity? Really. What's that, $.01/gigahash-day? The idea that this offering is "much safer" borders on fraudulent, and "the way the return on this investment works is 1) Full repayment of your loan; 2) 10% of the earnings weekly; and 3) 10% of the liquidation amount." is absolutely misrepresenting the involved risk. Additionally, this offering fulfills every requirement of the Howey test, so there's not really much (if any) regulatory advantage over mining bonds, either, except there not being any type of securities exchange involved (which is not relevant to the Howey test, anyway, so....).

The other problem, which I already hinted at, is lack of definition under when a liquidation happens - and it's a big red flag to have "liquidation" and "perpetuity" in the same description of an offering. They can't co-exist. There is no definition in the terms of which conditions would justify liquidation, or even if both (or >2, in cases of "splitsies") the purchaser and manager need to agree. The only guarantee provided by OP is the implicit "I wouldn't take advantage of ambiguity in contracts like so many others."

(err - sorry to be blunt. The abrasiveness on the forum's rubbing off.)

[Nolo]

Basically with me, you get the benefit of the mining bonds, without the risk of never getting the thing paid off.

It's the same kind of risk as with mining bonds, and of course there's risk of not making investment back. If there were no risk to make a decent return, everyone would be doing it. Both this offering and mining bonds are effectively leasebacks, except OP mentions liquidation (which investor gets 10% back on... for the item he effectively purchased... whoopee!).

There's no guarantee (and by a good few estimations, no likelihood) of ASICs making a decent return if you're not one of the first in line for whatever company ends up delivering first. There's very significant risk of loss, and given orders are being placed on-demand this late in the game, it's almost guaranteed. The difference between this and a mining bond is mostly just in phrasing, but fundamentally, it's the exact same risk. The ASIC will depreciate in value and returns in time -- so will a mining bond. This deal gets OP "free" mining hardware -- so does a mining bond. "Perpetuity" can end without a positive RoI -- so can happen with a mining bond. Just because an ASIC unit is tangible and a "MH/s" is not, does not make this contract significantly different (except for the paltry liquidation value an investor gets at... Idunno, some undefined time).

And electricity? Really. What's that, $.01/gigahash-day? The idea that this offering is "much safer" borders on fraudulent, and "the way the return on this investment works is 1) Full repayment of your loan; 2) 10% of the earnings weekly; and 3) 10% of the liquidation amount." is absolutely misrepresenting the involved risk. Additionally, this offering fulfills every requirement of the Howey test, so there's not really much (if any) regulatory advantage over mining bonds, either, except there not being any type of securities exchange involved (which is not relevant to the Howey test, anyway, so....).

The other problem, which I already hinted at, is lack of definition under when a liquidation happens - and it's a big red flag to have "liquidation" and "perpetuity" in the same description of an offering. They can't co-exist. There is no definition in the terms of which conditions would justify liquidation, or even if both (or >2, in cases of "splitsies") the purchaser and manager need to agree. The only guarantee provided by OP is the implicit "I wouldn't take advantage of ambiguity in contracts like so many others."

(err - sorry to be blunt. The abrasiveness on the forum's rubbing off.)

I appreciate your bluntness.  This was the kind of suggestion I was originally asking for in my original post (which I have since edited).  The contract I have drafted and have my lenders sign, actually addresses most of your concerns.  My contract actually borders on having an illusory term, as I give the lender the right to demand liquidation almost at any time he chooses.  So the option is pretty much his.  If I decide to liquidate the ASIC the lender receives substantially more than the 10% quoted in the original post, and that is after he has been fully repaid for the cost of the ASIC. 

Now I do take issue with your term of "borders on fraudulent".  I believe I have been as clear as possible on what the risk is, and in my contract I am even more so. 

There are so many issues with ASIC mining, it is clearly a high risk venture.  I have taken steps to minimize this risk, but it is still a high risk venture any way you slice it. 

[Nolo]

I wanted to give a little bit of an update on this program.

1) Thanks for the well wishes in pm folks.  I'm back to (almost) full health now.

2) I'm considering some type of stair stepped % of interest the lender would earn to further reduce the risk/reward ratio.  This would be based on the amount of time it takes for the lender to make back his principal.  This would obviously shift more risk to me, but I feel if this can be done reasonably, it would be further incentive for more lenders to join me. 

3) bASIC announced today that they are getting close.  Per Tom aka cablepair at the BTCFPGA forums: "The chips will be on time, and the board design is coming along very nicely. Dare I say we are close to completion."  This gets me excited, and I hope if you'd like to invest in an ASIC, but for whatever reason (customs, electricity, shipping, space, etc.) you just don't have the ability to do it on your own, let's work together and make a little BTC 

[mining4fun11]

I wanted to give a little bit of an update on this program.

1) Thanks for the well wishes in pm folks.  I'm back to (almost) full health now.

2) I'm considering some type of stair stepped % of interest the lender would earn to further reduce the risk/reward ratio.  This would be based on the amount of time it takes for the lender to make back his principal.  This would obviously shift more risk to me, but I feel if this can be done reasonably, it would be further incentive for more lenders to join me. 

3) bASIC announced today that they are getting close.  Per Tom aka cablepair at the BTCFPGA forums: "The chips will be on time, and the board design is coming along very nicely. Dare I say we are close to completion."  This gets me excited, and I hope if you'd like to invest in an ASIC, but for whatever reason (customs, electricity, shipping, space, etc.) you just don't have the ability to do it on your own, let's work together and make a little BTC 

We will have to see if there is any asics.  At this point everything at this point has just been empty promises.

[Nolo]

We will have to see if there is any asics.  At this point everything at this point has just been empty promises.

I think the odds of there not being ANY ASICS are extremely low.  Now as far as the time period on when they are shipped, that's the million $ question. 

[gopher]

Hi Nolo,

I've read through this thereat as well as the other one where you publish the defamation and the ponzi articles.

Great work.

Although I don't have any spare BTC to send you (sorry, everything I mine, I save so I can buy myself a mini-rig or two!), may I offer you my opinion about the structure of your loan proposal.

I would not bother with a TL:DR trailer, as I am sure you enjoy reading stuff (like I do, lol)

My credentials: 14 year as a senior partner in a top 10, 32 year-old Private Equity firm - successfully raised two funds (total +/- $305M), one at the top of the IT bubble, one at the aftermath. Exited both funds successfully within the investment horizon. With the profits bought myself an airplane. Now struggling to keep-up with its running costs, bummer!

Here comes my analysis and opinion.

To structure this as a loan is wise.

Alternative would have been to offer an investment opportunity, your argument against that is self-explanatory.

But the loan structure will present its own challenges.

First question, are you securing the loan (not sure if the mining-rig is / can be held in escrow?). If you are, then you potential customers will fall into two categories - one that is looking to receive interest form the capital he/she has at hand and second, someone who has secured a credit line with his/hers bank at an interest rate lower to what you are offering and contemplating to do a back-to-back deal and profit from the interest arbitrage.

If you are not securing the loan, then I doubt that people will queue to offer you the loan - its just too unpalatable, the risk is too unbearable.

Looking at the parameters in your offer, I see another issue.

You are guaranteeing 1 x money back at unspecified Internal Rate of Return (IRR) + 10% interest in perpetuity after the 1 Time Money Back (TMB) period

You will agree, such offer is very different to what one would get from his/hers Bank. And if one cannot figure out what his/her deal would be, one would usually walk away from this opportunity, irrespective of how lucrative it may look.

So, here is my view, perhaps you may re-look your business-plan and come with more similar rather than different to the traditional lenders proposals

If I was you, I would re-structure the offer as follows:

1. Start by asking for an unspecified initial payment holiday period, subject to the ASIC-rig supplier supplying you with the equipment + 1 week setup time (this defines the initial risk - similar to what you have already stated). Bank agree on initial payment holidays all the time. You prospective lender will understand this as well.

2. Provide guarantees for the rig while at your possession - I am not sure how you would do that, but it will be a great thing if you manage to do. Banks rarely offer unsecured loans, and only if they can blend it with some other risk

3. Offer let's say 100% IRR with an option to increase the IRR as the market conditions allow - this in effect means that you are going to pay back the lender 100% of the loaned amount within the first 12 mounts (including the holiday period), or sooner if market conditions allow it. There is a certain risk for you in this initial period, but it does give you the flexibility to react if things do not go well for you - let's say in moth 9 you managed to re-pay 50% of the loan, then you will have 3 months to sell the equipment, even at loss, and re-pay the other 50% (providing the holding-of-security agreement allows it).  

4. After the 1 x money back grantee, then you must specify a return (interest if you like) per period of time. The actual percentage is irrelevant, as long as it is specified per commonly acceptable period - month, year. So when you stated 10%, it must be per month or per year - the prospective lenders will understand.

5. Then you have to stop somewhere - otherwise this is not a loan. I am sure you know the law, but a loan has a maturity date. State it. The the prospects can calculate their return on the money they "loaned" - either in terms of IRR or TMB, or both.

I'll shutup now.

[Nolo]

Hi Nolo,

I've read through this thereat as well as the other one where you publish the defamation and the ponzi articles.

Great work.

Although I don't have any spare BTC to send you (sorry, everything I mine, I save so I can buy myself a mini-rig or two!), may I offer you my opinion about the structure of your loan proposal.

I would not bother with a TL:DR trailer, as I am sure you enjoy reading stuff (like I do, lol)

My credentials: 14 year as a senior partner in a top 10, 32 year-old Private Equity firm - successfully raised two funds (total +/- $305M), one at the top of the IT bubble, one at the aftermath. Exited both funds successfully within the investment horizon. With the profits bought myself an airplane. Now struggling to keep-up with its running costs, bummer!

Here comes my analysis and opinion.

To structure this as a loan is wise.

Alternative would have been to offer an investment opportunity, your argument against that is self-explanatory.

But the loan structure will present its own challenges.

First question, are you securing the loan (not sure if the mining-rig is / can be held in escrow?). If you are, then you potential customers will fall into two categories - one that is looking to receive interest form the capital he/she has at hand and second, someone who has secured a credit line with his/hers bank at an interest rate lower to what you are offering and contemplating to do a back-to-back deal and profit from the interest arbitrage.

If you are not securing the loan, then I doubt that people will queue to offer you the loan - its just too unpalatable, the risk is too unbearable.

Looking at the parameters in your offer, I see another issue.

You are guaranteeing 1 x money back at unspecified Internal Rate of Return (IRR) + 10% interest in perpetuity after the 1 Time Money Back (TMB) period

You will agree, such offer is very different to what one would get from his/hers Bank. And if one cannot figure out what his/her deal would be, one would usually walk away from this opportunity, irrespective of how lucrative it may look.

So, here is my view, perhaps you may re-look your business-plan and come with more similar rather than different to the traditional lenders proposals

If I was you, I would re-structure the offer as follows:

1. Start by asking for an unspecified initial payment holiday period, subject to the ASIC-rig supplier supplying you with the equipment + 1 week setup time (this defines the initial risk - similar to what you have already stated). Bank agree on initial payment holidays all the time. You prospective lender will understand this as well.

2. Provide guarantees for the rig while at your possession - I am not sure how you would do that, but it will be a great thing if you manage to do. Banks rarely offer unsecured loans, and only if they can blend it with some other risk

3. Offer let's say 100% IRR with an option to increase the IRR as the market conditions allow - this in effect means that you are going to pay back the lender 100% of the loaned amount within the first 12 mounts (including the holiday period), or sooner if market conditions allow it. There is a certain risk for you in this initial period, but it does give you the flexibility to react if things do not go well for you - let's say in moth 9 you managed to re-pay 50% of the loan, then you will have 3 months to sell the equipment, even at loss, and re-pay the other 50% (providing the holding-of-security agreement allows it).  

4. After the 1 x money back grantee, then you must specify a return (interest if you like) per period of time. The actual percentage is irrelevant, as long as it is specified per commonly acceptable period - month, year. So when you stated 10%, it must be per month or per year - the prospective lenders will understand.

5. Then you have to stop somewhere - otherwise this is not a loan. I am sure you know the law, but a loan has a maturity date. State it. The the prospects can calculate their return on the money they "loaned" - either in terms of IRR or TMB, or both.

I'll shutup now.

Homerun of a post.  Thank you very much for your input.  After reviewing your suggestions, I will be implementing a version of them in all future contracts I enter into regarding this venture.  Thanks again.