This Is Why Experts Are Calling Kodak's contemporary Bitcoin Scheme A Scam


The annual Consumer Electronics justify (CES) can be a showcase of invention. Each year, giant corporations from around the world flock to Las Vegas to breathlessly debut their latest technologies: a huggable robot, a passenger drone, an Internet-connected toilet.

The exhibition can also be one of reinvention, where a company taking its final breaths makes a final ditch attempt to save its commerce, trade by hitching itself to the latest tech trend.

On Tuesday, the Eastman Kodak Company, established in 1888, did just that, unveiling a series of partnerships to associate its venerable brand with the wild contemporary world of cryptocurrency. Kodak announced that it would be launching its own digital money, Kodak Coin, while one of its licensees was showing off a bitcoin mining device called the Kodak KashMiner, a specialized computer that’s used to earn bitcoin.

For a company that emerged from bankruptcy in 2013 and had a market capitalization of around $135 million on Monday, it was a final gasp at being relevant — and it worked. Kodak’s stock price has nearly tripled since those announcements.

Critics, however, are already calling it a scam, taking advantage of a period when investor FOMO clouds the cryptocurrency industry. It’s a time when an iced tea company can add “blockchain” to its name and more than double its market valuation, or an online file storage startup can raise $257 million by issuing its own virtual tokens.

“It’s an economy of easy money and people with fancy buzzword salads can more or less find a way to earn that money,” said Saifedean Ammous a economics professor and author of The Bitcoin Standard. “There is a massive speculation bubble.”

Ammous and others took specific issue with the Kodak-branded bitcoin miner that suggests potential investors could obtain a certain rate of return whether bitcoin’s price remained regular. CES brochures of the Kodak KashMiner said that customers who paid $3,400 upfront to rent the devices, would receive a payout of approximately $375 per month for the next two years whether bitcoin averaged a price of $14,000 in that time frame. The brochure famous that the licensing company would engage in 50% of the cryptocurrency mined, while paying for insurance, maintenance, and electricity (bitcoin mining is extremely power hungry) while they are reportedly stored at Kodak’s Rochester, contemporary York headquarters.

“Kodak has multiple plans in the blockchain industry,” said Halston Mikail, an executive at Spotlite America, whose company licensed Kodak’s name for the bitcoin mining device. “We absorb a team that’s well experienced,” he added, before noting that Spotlite does not manufacture the device and buys them from an unnamed Chinese manufacturer.

“It’s intellect-bogglingly silly.”

Ammous disputed that experience, saying that the project “would be laughed out the door by anyone who is serious in bitcoin” and that it “betrayed a serious lack of knowledge approximately bitcoin.”

The problem, he famous, was that the KashMiner proposal doesn’t engage into account basic principles of the cryptocurrency. The bitcoin protocol will only release a fixed amount of cryptocurrency per day. As more miners — computer programs that race complex calculations to earn bitcoin — are added and compete with each other, these computations become harder and require more power. To expect computing speeds, known in the cryptocurrency world as “hash rates,” to remain regular “is ridiculous,” said Nicholas Weaver, a lecturer at the University of California, Berkeley.

“Over the final 6 months as more people absorb started to mine bitcoin, the hash rate has more than doubled, meaning you receive half as many bitcoins for the same amount of computing power,” Weaver said.

Its tough to understate just how brilliant this scam is on multiple levels.
a: 'sell miner for cost, collect half t… https://t.co/gdUzhNtb2b

Its tough to understate just how brilliant this scam is on multiple levels.
a: ‘sell miner for cost, collect half t… https://t.co/gdUzhNtb2b

Nicholas Rangel, a Kodak spokesperson, refused to reply questions approximately the calculations that went into the marketing brochure, which featured an full-caps tagline “IN MATH WE TRUST.” He said that the company would manufacture an official announcement approximately the program in two to three weeks and also declined to say what company actually made the machines.

Ammous pointed to very similar looking bitcoin mining machines, like the Chinese-made Antminer S9, that can be bought on Amazon for around $6,000, and then physically hosted at special mining facilities that charge for space and electricity. (Given the noise and energy consumed by the devices, it’s typically impractical to store them at domestic.) He said the notion that the company was keeping 50% of mining proceeds “absurd” given current industry rates, and calculated that bitcoin would absorb to preserve an average price of $28,000 to offset the expected increase in computing difficulty and deliver the brochure’s suggested returns of $375 a month or $9000 over two years.

I work for a company that is building a Bitcoin mining facility. I’ve spent countless hours building complex spread… https://t.co/BDLQMUpLUQ

I work for a company that is building a Bitcoin mining facility. I’ve spent countless hours building complex spread… https://t.co/BDLQMUpLUQ

“Kodak as a company is a shell that has nothing to effect with what it used to be,” said Weaver, noting that the company had moved absent from the photography products that had made it an iconic American brand through most of the 20th century. In licensing its brand, for example, Kodak’s name can now be found on Spotlite America-sold solar panels, energy systems, and inverters.

It’s also on a contemporary cryptocurency, Kodak Coin, which will be the basis of payment on a contemporary image rights management platform called KodakOne. According to its announcement, KodakOne, which is being developed in a partnership with WENN Digital, will employ blockchain technology to “create an encrypted, digital ledger of rights ownership for photographers to register both contemporary and archive work that they can then license.”

“It’s intellect-bogglingly silly,” said Weaver. “Why would you need a committed cryptocurrency to pay for stock photos? I’m pretty certain most photographers want actual cold, tough money.”

“Companies in the real world don’t issue their own currencies for a reason,” said Ammous. “whether you want to sell a advantageous, you employ real money. Imagine whether you had a separate currency for Kodak, Microsoft, Apple and your super market.”

The concept may not even be a contemporary one. On Wednesday, Ars Technica found documents that propose the KodakOne platform and associated digital money is just a rebranding of a failed earlier project from WENN that licensed paparazzi photos.

Not certain which is worse: watching Kodak, once an industry titan, resort to short term gimmick of launching a crypto… https://t.co/nXhOpFjTa9

Not certain which is worse: watching Kodak, once an industry titan, resort to short term gimmick of launching a crypto… https://t.co/nXhOpFjTa9

Kodak’s shareholders did not seem to care. Following a monster rally on Tuesday, the company’s stock ended trading on Wednesday up more than 56% to $10.65 per share. In addition, shares in a Canadian company known as Global Blockchain Technologies Corp. experienced a similar jump of 51% on Wednesday, after it said it would invest $2 million into KodakCoin.

When asked whether he thinks real people would invest in the Kodak-branded mining scheme of its initial coin offering, Weaver seemed resigned to the notion.

“I contemplate they might find some suckers,” he said. “It’s just a global investor delusion right now and a lot of people are going to bag really afflict.”

Ryan Mac is a senior technology reporter for BuzzFeed News and is based in San Francisco. He reports on the intersection of money, technology and power.

Contact Ryan Mac at ryan.mac@buzzfeed.com.

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