Bitmain Sues Former Employees for Rival Mining Pool

Operator of the world’s top bitcoin mining pool, Bitmain, has filed lawsuits against three former employees and current co-founders of the rival mining pool, Poolin, for breach of contract.

Bitmain is suing the founders of Poolin, the seventh largest bitcoin mining pool by hash rate, for $4.3 million in damages as a result of these founders allegedly violating a noncompete agreement. Bitmain argues that the employees’ departure and their creation of a competing mining pool resulted in significant losses for the company. On the other hand, Poolin argues that the contract in question is no longer applicable because it was invalidated after Bitmain failed to compensate them on time.

There are reportedly six pending lawsuits in the Beijing Haidian District court all regarding this dispute. Three came from the co-founders of Poolin — CEO Zhibiao Pan, COO Fa Zhu, and CTO Tianzhao Li — who preemptively sued Bitmain in an effort to be released from the non-compete agreement.

In response, Bitmain countersued each of them and requested that the court order Poolin’s founders to compensate it for losses stemming from the rivalry and to continue honoring the noncompete agreement.

The dispute has been kept quiet for some time, but a court hearing video released on April 30, 2019, that shows discussions between Pan and Bitmain’s representatives has now become available. It indicates that Pan signed a contract that promised him a compensation of $2,780 per month for 24 months in return for not operating a competing mining pool. Any agreed-upon details for Zhu and Li under their own contracts remain unclear.

The Launch of Poolin

When Poolin launched in November 2017, it was a mining pool for several cryptocurrencies. Its bitcoin pool service wasn’t launched until it mined its first block in July 2018.

By February 14, 2018, Poolin was the third-largest mining pool by hashrate after Bitmain’s BTC.com and Antpool, and miners working with Poolin had mined 26,825 bitcoin, equivalent to $220 million today. Since then, Poolin has dropped to seventh in the rankings and its share of the hash rate has been reduced to 8.2 percent.

In the court hearing video, Bitmain lawyers argued that the Poolin executives breached the noncompete agreement and demanded that Pan return all compensation as well as pay a fine of $667,000 to Bitmain. The lawyers also argued that the 26,825 bitcoin mined should be paid back to Bitmain as it was profit generated as a result of violating the contract.

“By February 14, the total profit of Poolin was 4% of 26,825 bitcoins, which is the fee charged by the company, multiplied by the price of the bitcoin at that time, amounting to 24,518 yuan (about $3,500),” lawyers at the hearing said, according to 8btc.

In total, the amount of the claim, with all fines calculated, could exceed 30 million yuan, or approximately $4.3 million.

In addition to their argument that Pan is no longer obliged to honor the contract because he was not compensated properly, lawyers representing Poolin said that transaction fees Poolin received don’t automatically translate to profit because the firm had not turned a profit up to the date of the hearing. Poolin’s success in mining 26,825 bitcoin, according to the lawyers, does not necessarily mean a loss for BTC.com.

One of Poolin’s lawyers argued, “There are a lot more bitcoin mining pools in this network,” per 8btc. “It’s not just Poolin v.s. BTC.com. Even if Poolin didn’t operate its bitcoin mining pool, it does not necessarily mean Bitmain will be able to mine those coins.”

The court has yet to reach a decision for the lawsuit. At the end of the hearing, the judge asked if the two parties would be able to reach an agreement and settle the case, but Bitmain’s lawyers declined.

This is not the first time Bitmain has engaged in a legal battle with former employees. In March 2018, Bitmain was reportedly suing its former director of design, Yang Zuoxing, over patent rights of a chip design feature.

Representatives from Bitmain and Poolin did not immediately respond to requests for comment.

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