Crypto Consultants

Business Plan & Technical

Document

David Hancock, Lawrence Rosenfeld &

c
Crypto Consultants July
2014

Contents
1 Executive Summary
1.1 Digital Currencies . . . . . . . .
1.2 Mining Software . . . . . . . . .
1.3 Company Formation . . . . . . .
1.4 Company Location and Facilities

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2 Products and Services

2.1 Pooled Mining . . .
2.2 Server Management
2.3 Industry . . . . . . .
2.4 Markets . . . . . . .
2.5 Alternate Products .

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3 Sales and Marketing Plan

3.1 Positioning . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.3 Distribution to Regional Supercomputing Grid N8 . . . . . .
3.4 Expansion to other Institutions with HPC/idle Computation
3.5 Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.6 Revenues and Costs . . . . . . . . . . . . . . . . . . . . . . .

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4 Management and Organization

4.1 Ownership Structure . . . . . . .
4.2 Internal Management Team . . .
4.3 External Management Resources
4.4 Operations . . . . . . . . . . . .

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5 Action Plan

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6 Financial Plan
6.1 Finance Forecasts . . . . . . . . . . . . . . . . .
6.2 Initial Startup Costs . . . . . . . . . . . . . . .
6.3 Ongoing Costs - Power Consumption of CPUs
6.4 Cash Flow of Mining Revenue . . . . . . . . . .
6.5 Projections of Revenue based on N8 Specs . . .
6.6 Risks . . . . . . . . . . . . . . . . . . . . . . . .

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A Financial Forecasts

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B Technical Appendix
16
B.1 N8 feasibility study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
B.2 HPC Scheduler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
C Hashing
C.1 Public Key Encryption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C.2 Hashcash (Proof-of-Work) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C.3 Cryptographic Hash Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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D Network Protocols
D.1 Pooled Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D.2 Stratum Mining Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D.3 Block Rewards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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D.4 Merkle Tree and Mining System Security . . . . . . . . . . . . . . . . . . . . . . . . 26

D.5 Common Algorithms used in Cryptography and Cryptocurrencies . . . . . . . . . . . 27
D.6 CryptoNote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
E Glossary of Terms

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Executive Summary

We assist Universities in converting idle processing power at their data centres into generating
digital currencies that are converted to British Pounds effortlessly. Thereby we mitigate the high
cost of running a data center with low utilisation, without any impact on normal operations.
A prototype of our solution on Sheffield Icebergs High Performance Computing (HPC) cluster
indicates that 860 per week 100 with 95% confidence can be created at N8 data centre with
around 5300 computer cores at fair levels of utilisation. Following the future expansion of N8, this
is going to increase to 7,200 per week within a two year period. This is possible through recent
advances in cryptography technology on which next-generation digital currencies are founded.
Crypto Consultants is a Sheffield based digital currency consultancy founded by three Sheffield
University graduates, David Hancock, Lawrence Rosenfeld and .
Crypto Consultants has been developing digital innovations for cryptocurrencies since March 2014.
Our company has expertise across a broad range of scientific, computational and economic fields
of work. The directors of our company have research and industrial experience collaborating with
world class institutions. We are an established partnership

1.1

Digital Currencies

Cryptocurrency (CC) is a decentralised digital monetary system that has become increasingly
popular since the first cryptocoin (Bitcoin) was created in 2008 [1]. Bitcoin is exchanged by the
US government among others and has a market capitalisation of $8 Billion. Now a huge number of
alternative cryptocurrencies exist, all offering different services and solutions to problems faced in
the financial and business world. There are over 300 active cryptocurrencies at the exchanges, the
top 50 having a cumulative market capitalisation of over $500 Million. They enable the exchange of
funds between anonymous individuals at a fast speed with very low transaction costs. The lifeblood
of any CC is its network. This network is based around a cryptographic protocol which governs the
transactions. Network users supply computational resource to run a secure ledger of transactions
in return for fees and a chance of discovering tradable new coins (see Appendix D).
More specifically to make a transaction, one attains the unique address of the receiver and sends the
desired amount directly to their wallet (account). To secure this transaction, it is processed
by a cryptographic hash function specific to the protocol used in that particular coin (see
Appendix C). The functions generated can be solved by anyone to verify the transaction; the
people that do so are called miners. As an incentive the miner receives a small fraction of the
transaction value as well as a subsidy of newly created coins known as a block reward. This
serves the purpose of disseminating new coins in a decentralised manner and also as motivates
people to provide security for the system.
The total supply of a CC is controlled, this is done automatically. The number of coins generated
slowly decreases over time 1 . The result is that the number of coins in existence will never exceed
the number set by the developer of the CC. The cryptocurrency mining protocol is designed to have
an adaptive difficulty, so that the minting of any one crypto coin occurs steadily as the network
workload changes.
Making significant profit from mining requires either:
A large scale mining computer with high computational power.
1
For a deflationary CC. More uncommon are CCs that are inflationary and the number distributed over time is
not bounded.

Figure 1: A graph showing the total market capitalisation of the Bitcoin (BTC) in Billions of US
dollars and the total number of Bitcoin in circulation. The price of an individual Bitcoin is valued
at 343.79 as of 29/07/2014 valued at http://www.bitstamp.net.
The ability to predict a coins success prior to its maturity, thereby mining it when the
difficulty is low.
Specific types of hardware are more efficient at mining than others depending on the protocol
that governs a particular coin. Many organisations own such hardware and do not take advantage
of the times it is not used. It is this underutilisation that can be pointed toward the mining of
cryptocurrency to generate significant revenue.

1.2

Mining Software

The software developed runs effortlessly alongside the Sun Grid scheduling system for HPC facilities.
Our product oversees the current jobs running and ensures that mining only takes place when there
are no research jobs waiting in the queue. Furthermore it has been programmed defensively so
that the necessary fail safes are in place to ensure that the system does not become flooded with
jobs.
Another software solution currently in development is the desktop computer miner. This product
is aimed at businesses who have many desktop PCs which remain turned on. The software for
these clients will monitor the core CPU usage and only activate the mining protocol when the CPU
utilisation drops below a defined level.
Our products will be significantly superior to any current competitor due to the continual refinement
of our clients and servers. Using our in-depth knowledge of the cryptocurrency markets we can
ensure that the most profitable cryptocurrency is mined and revenue generation is maximised for
the hardware running the software.
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A pooled mining server has been set up online that connects to various cryptocurrency networks
and distributes the transaction verification work load to selected worker units. This is necessary
for implementation in HPC clusters and desktop computer hardware. It allows the generation of
revenue more frequently, reducing the time between block rewards.
Our team are well connected within the cryptocurrency mining community. Through several communication channels, it is possible to keep track of new profitable coins to mine, trending currencies,
influential market developments and learn how the evolving markets move.

1.3

Company Formation

Crypto Consultants are a registered partnership, which will allow easy changes of ownership in
the future, as well as certain tax advantages. The firm will be managed initially by 3 executives
representing administration, marketing, sales and finance. These executives bring to the company
a large degree of experience.
met David Hancock who was looking to start a Bitcoin community in Sheffield to foster
collaboration as he has been actively involved in the crypto community scene. Lawrence Rosenfeld
who had been involved with previous mining projects joined as an additional member. The idea to
perform currency generation on grid computers at Sheffield University was proposed by the team
in June following the success of a new generation of coins made for CPU processing (see Appendix
D.6).
David Hancock has been a well known community member and expert in the digital currency scene.
He has been making a living from analysing the strong and weak points of new proposed currencies
and investing in them accordingly. Lawrence Rosenfeld maintains the mining pool connected to
cryptocurrency networks and predicts profitability of various currencies. has extensive
software engineering experience and modelling simulations on grid computers.
The company is going to be owned with equal shares among the founders with a five year vesting
period.

1.4

Company Location and Facilities

The company will be founded in Sheffield at the University of Sheffield Enterprise (USE), with a
view to relocate offices to a commercial space during the first year of operation. The company will
be registered at: Enterprise Zone, 210 Portobello, Sheffield, South Yorkshire, S1 4AE shortly.

Products and Services

We offer a service to solve underutilisation problems at large data centres, in particular related to
University research computing. Current utilisation of Sheffield Iceberg is around 60% and the N8
HPC is around 78% [17, 18]. Much of the cost of running a data centre is fixed, including staffing
costs and maintaining power supply to computers turned on. When not utilised, computers run
in empty cycles without any benefit to the University or researchers. We aim to convert this
inefficiency into revenue generation for the University by using the spare computing cycles to
perform hashing for a digital currency network, for which the network rewards us with payments.
The University gets a share of the revenues as royalties. This helps to considerably mitigate the
cost of data centre maintenance.
Cryptocurrency is a new industry with lots of possibilities. We are among the first to bring digital
currency mining to large University data centres, as the technology has only become available in
5

the first quarter of 2014. In the future, the company can expand to other data centres managed by
Universities, companies or the government in order to solve underutilisation problems. With our
solution, utilisation can be maximised at 100%, with absolute protection of the primary need for
research jobs to run. Our service is performed at the lowest priority, meaning it does not compete
with research jobs for resources.

2.1

Pooled Mining

One can choose to either solo mine or mine as part of a mining pool. Pooled mining takes the
current block in the blockchain and divides the problem into smaller ones. The smaller problems
are distributed amongst miners in the pool and once a block has been solved a proportion of the
reward is allocated based on the amount of work each miner has achieved. A prototype mining pool
web server has been setup for use with mining clients. This pool has options to mine many unique
cryptocurrencies with several algorithm variants. This website is used to distribute the reduced
problems for the current block to the N8 supercomputer and all other companies who wish to mine
with us. We will upgrade to an Amazon EC2 high performance server when the traffic for the pool
is large enough. There is a possibility of opening the pool for public use, meaning members of the
mining community contribute to the block our pool is solving, for which we would take a small fee
from their earnings.

2.2

Server Management

The web server profit switching management will be automated once it has been configured online.
A program has been written to change between the most profitable coin, automatically changing
the mining protocol at the clients end. Manual management of the website security and changes
to current range of cryptocurrency will be part of the ongoing development of our company. The
server will require addition and deletion of cryptocurrencies. New promising coins will need to
have the wallets installed and updated, whilst old unprofitable coins will be removed from the
server.

2.3

Industry

At present, the digital currency mining industry is unregulated and its use on high performance
computing hardware is allowed. Typically GPU hardware has a significant advantage over CPU
hardware for the mining protocol, however recent developments in the cryptocurrency markets have
led to the production of coin algorithms where the asymmetry between the two hardware types is
reduced. Producing significant revenue using CPUs for currency mining has only been available
for a few months, due to the advent of CryptoNote algorithm and the currencies that have forked
from it. See Appendix D.6.

2.4

Markets

We primarily focus on data centres at University for our main customer base. This market segment
has committed growth, the North England Regional Cluster is set to receive a 10 million investment in the near future. In addition, the digital currency market is also growing at an exponential
rate, given that its community is one of the largest ones on the Internet and the value of one
Bitcoin increased from virtually 0 to up to 700 in a 4 year time scale. Innovation is happening
at a fast pace with new digital coins appearing every week with active developers and eager early
adopters.

Our target audience is mid-top level business managers and developers at data centres seeking
to partner with industry, as well as technical leads that could verify the implementation of our
solution. Our first customer is going to be the N8 cluster. We had talks with the Sheffield branch,
both with the University of Sheffield high performance computing team and the commercialisation
team. They have given positive feedback and at present we are proposing the project to N8
representatives.

2.5

Alternate Products

PowerNap: Eliminating Server Idle Power (Meisner et al 2009) is the current state of the art
method to mitigate waste caused by idle processing power in University data centres. Currently,
data centres are one of the largest consumers of electricity around the world [2]. The authors quote
that much of the energy is simply wasted in the idle state of processing units, which draws around
60% of their peak electricity usage. It was estimated in 2011 that US data centres consumed at least
100 billion kWh at a cost of $7.4 Billion. PowerNap seeked to minimise load at a rapid response
rate in order to mitigate cost of every fraction of a second of idleness.
Our approach is superior to PowerNap due to the fact that we seek to maximise server load at
all times instead of trying to control electricity usage at low utilisation levels. Adaptive currency
mining is a scalable and robust alternative which results in a profit for the operator even at peak
power consumption. This fact justifies its use as an eliminator of electricity waste in data centres,
thereby saving considerable costs in data centre operation. Should the profitability of a digital
currency mining drop, our algorithms automatically switch to the most profitable currency at any
given time.
We expect the industry to gradually shift to digital currency mining as the primary way to utilise
idle power in the next 10 years. Controlling efficient management is still going to be important for
other use cases, which means our competitors will be likely to remain in business. Our service may
not yield perfect 100% utilisation, but comes very close. This means PowerNap will still keep its
market share, though on a smaller scale.

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3.1

Sales and Marketing Plan

Positioning

Our customers specific needs include the ability to turn idle processing into a useful profit generation opportunity. Therefore the product is positioned as a business solution with a focus on maximum utilisation. While PowerNap minimises energy usage, CC mining puts energy and existing
investment in IT to the best possible use given the circumstances in high performance computing.
At the same time, we also embrace new technology developed in cryptography for an anonymous
distributed payment system with view to maximising use of resources and profits. We are an early
adopter of a technology endorsed by numerous human rights organisations around the world, aiming
to protect civil liberties, privacy and freedom.
We give fast maintenance support and ensure that the integration with the job scheduler is as seamless as possible. Our solution is also scalable which means that no matter how large infrastructure
a data centre covers, we can still increase utilisation. There are no minimum startup costs or order
amounts with our product, our clients can start earning straight away, we do all the necessary
work.

3.2

Sales

Acquiring new customers is done by first approaching them via email or phone, and setting up
an initial meeting with a technical lead in order to perform a feasibility study on the hardware
and software requirements of a data centre. Following a feasibility study, negotiations start with
the commercialisation team of the industrial liaison branch of the data centre company, in order
to draft an operating plan and discuss revenue sharing. Once the negotiations have finished, a
user account is opened on the data centre for our company where we have sufficient rights to run
our programme to the satisfaction of the centre security manager. Note, our software works with
standard user account and requires no elevated privileges which may cause a security risk for the
data centre. Payments as stated in the contract are made on a monthly basis to bank accounts
of the customer until the end of the contract, at which point the customer is given the choice to
extend the contract for another year.
The sales process can take approximately 6 months from first contact until signing of the contract.
We aim to respond quickly; however, sometimes seasonal under-staffing could result in a delay. In
the first year, we aim to set up a contract with a single company, N8, then additional personnel will
be hired to approach other data centres. We aim to sign at least one additional contract per year
for up to five years in addition to renewing our existing ones. Our solution is based on long term
developments in cryptocurrency. In case a currency becomes unprofitable or completely mined, we
seek other new currencies to do computations for, and / or focus on providing service to existing
currencies and gain revenue from transaction fees. A profitability study is continuously performed
to this end.

3.3

Distribution to Regional Supercomputing Grid N8

Negotiations with the regional supercomputing grid, the N8 have been under way. A proposed
contract to manage the idle processing computing power at N8 (approximately 22% of the max
computing power) would yield a 50:50 split of the revenue generated. The mined currency will be
converted to fiat at regular intervals, with steady deposits into the N8 bank account.
The University of Sheffield / N8 technical manager expressed significant positive interest in the
project, since one of the main missions of N8 which is partly funded by the UK government and
several universities through the UK, is to foster small and medium sized local business relationships. Our projects fits this criterion therefore it is welcomed by N8. The University of Sheffield
commercialisation manager also judged our project favourably and referred it to evaluation to an
N8 business developer.

3.4

Expansion to other Institutions with HPC/idle Computation

Sheffield based companies have already expressed an interest in the mining of cryptocurrencies
using the idle processing power of computers within their institutions. Once we have an easy
to use, robust, all-in-one package for the mining protocol, we intend to contact other university
institutions and businesses with either high performance computing or desktop computers, to use
our idle processing miner product within their organisations.

3.5

Promotion

Promotion of the product is going to be performed through word of mouth advertising and through
social media. We will attend industrial and research workshops and conferences in high performance
computing and demonstrate our product to potential customers interested in latest developments
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in the industry. Free promotional material will be distributed at these events. Follow-up discussion
can be held in order to probe whether a customer has problems with underutilisation of servers.
There is an opportunity in a conference to give a talk about our product which will help spread
awareness and will result in future enquiries on our website.
At first, our business will provide a single product that addresses the main customer need of
solving underutilisation. If a customer has renewed their contract three successive times, they will
be eligible for increased earnings. Likewise, we plan to reward referrals the same way. As an early
incentive, customers may be given 90% of the profits for an entire week in order to experience the
product first hand.

3.6

Revenues and Costs

The product will lead to a steady flow of revenue, but occasional hiccups may occur in the operation.
Therefore, there will be periods where the cash flow is low. The customer receives their share of
the earnings and we assume no responsibility for lower than expected gross profit margins. As an
alternative, the customer can request a payout on a time frame determined by them.
Even in the worst case scenario the customer will not suffer any damages as other users of the data
centre can still request resources for jobs. Since the opportunity cost of underutilisation at normal
operating levels is quite significant, our customer will be likely to gain revenue from currency mining
for any periods of time. Therefore, under no circumstances will the customer be worse off by signing
the contract with us than by not signing it. This means, our product comes with extremely low
financial risk.
Gross profit margins can be increased via predicting profitability in advance and mining a currency
when the difficulty is low, then selling once it has matured.

Management and Organization

SWOT Analysis
Our strength is our expertise in all key areas. One member is an expert in digital currencies,
another has programming experience and a third modelling experience. All the members of the
company studied and graduated from the University of Sheffield and have formed good connections
within their subsidiary departments.
External opportunity is the fact that, in the wake of Bitcoins success, digital currency is on the
rise with staggering growth. Data centres are also becoming bigger with a 10M investment going
into N8. Last, CPU friendly currencies have become available in the past few months.
Weakness of the organisation is that internal controls must be in place to safeguard funds and make
sure the partners are protected from any liable action.
Threat to the business is that before expansion, progress depends on a first contract which can
sometimes be timely. Time is the essence to exploit the unique combination of opportunities
and digital currency mining is a competitive scene where profitability changes fast. Security is
also an issue and although the majority of the time it is safe, exchanges and networks have been
compromised in the the past.

Team Members
is a current PhD student at the University of Sheffield. He graduated with a 4-year
Master of Computer Science in 2012 after doing a degree in international business and economics
at the Corvinus University of Budapest. His Master thesis was in predicting Bitcoin trends using
statistical machine learning on one of the biggest exchanges at the time. His PhD work focuses on
financial market modelling with social media text. In 2013 his team came first place in the Ideas to
Enterprise competition for doctoral students. has been doing external communication with
the University and N8, as well as working on the currency miners and analysing profitability.
David Hancock, a keen entrepreneur who graduated in 2013 from the University of Sheffield with
a Bachelors degree in Physics, has been following the markets that govern cryptocurrency and
establishing networking connections with developers in the community. In his spare time he is the
events co-ordinator for Engineers Without Borders society for the University of Sheffield. He has
experience planning and designing many of the outreach projects currently in operation.
Lawrence Rosenfeld is a recent graduate from the University of Sheffield and completed a 4-year
Masters of Physics in 2014. His Masters thesis involved performing computationally intensive
simulations to investigate the structure of quantum state spaces on the HPC facilities (Iceberg).
He has further experience working with signal processing and communications engineering with a
world class team at the National Physical Laboratory in the Time Quantum and Electromagnetics
division after successfully being awarded an Institute of Physics research grant. Lawrence has a
substantial portfolio in coding and mathematical computation alongside skills in web design and
server management.

Information Systems
At present, Google Docs has been used for discussion in addition to Facebook and Skype. In the
future a shared code repository is going to be set up with Trello project management.

Support
Ongoing support is provided through University of Sheffield Enterprise Zone, through discussion
with colleagues and various members of the technical and commercialisation teams. In addition,
close ties with the cryptocurrency community members play a big role in defining the future direction of the project.
Initially the team will draw cost of living salary. The company has few overheads. Profits will be
reinvested into development.

4.1

Ownership Structure

The company we intend to found will be a partnership. It will initially have a board of 3 partners
who are all equal holders in the business. To suit predictions of future expansion there is room to
adopt to a private shareholding structure with a review of this in the the first AGM. The allocation
of roles will be the server manager, the client manager, the software developer and the day trader.
The employment of more staff will be initiated if there is sufficient demand for technical support
or consultancy on our products.

10

4.2

Internal Management Team

Management of the server is essential to the businesss success since the addition of new cryptocurrencies and the deletion of old unwanted ones will be key to ensuring that the most profitable coin
is mined. Additionally, security of company assets will be managed by director Lawrence.
The management of the client software and the updates that will be distributed in new revisions
will be director . Further responsibilities include managing company bank accounts and liaising with a company accountant.
Assessing new currencies and finding out developments within the community will play a key part
in the amount of profit made by the company. Other responsibilities such as customer outreach
and contract management will be handled by director David.

4.3

External Management Resources

Management of the assets within other institutions will become necessary once the size of the
company has increased beyond consulting the N8 regional grid. Developing a management software
to keep track of the revenues and hash rates of the mining pool will ensue once the company has
been started. Employment of additional staff for external technical support and maintenance will
be considered if there is sufficient revenue and communication from clients.

4.4

Operations

The company is located at an excellent place where it is registered at the University of Sheffield
enterprise zone, right next to a local N8 branch. Facilities include computers used to connect to the
data centre and high speed intranet and internet. In terms of providing the service, much of the
operations will be automated through computer software. Some actions will need to have human
confirmations, such as exchanging crypto currencies to fiat. In addition, safety checks will be in
place to make sure the software behaves in a predictable manner.
We need a programmer, a modeller and community member to operate the business. The programmer needs to have good programming skills with high performance computing and general purpose
web programming and server management. The modeller should be apt at predicting mining profitability with simple calculations or mathematical models. The community member should have
contacts in the cryptocurrency community to ensure support with implementation. He should also
keep in touch with clients and promote the business to data centres.
Selling can begin immediately, and revenue generation can happen shortly afterwards. Most customers should be able to sign a contract once a feasibility study has been performed. We will be
able to sell a new contract at least once a year, with a conversation rate of 50% which means about
half of our clients will turn into a customer given a positive feasibility study. The average sale value
will be 860 revenue per week, which is 430 per week for the company via a 50% royalty share of
the block reward. The cryptocurrencies are shortly converted to pounds after they are mined in a
few days, which means the cash flow is fairly good with short turnovers.

Action Plan

The current action plan for the company over the next 6-12 month time frame is as follows:
Developing the all in one mining platform that runs off idle power for Windows, Mac, Linux.

11

 Hosting a lightweight flexible mining server that has automated profit switching to the most
profitable coins for a given algorithm on Amazon EC2 server.
Negotiation of a preliminary year long contract with N8 regional supercomputer.
Explore expansion to other HPCs and organisations with idle computing power.
Promotion of mining pool through social media platforms: Facebook, Twitter, Reddit, Bitcoinforum etc.

Financial Plan

6.1

Finance Forecasts

Forecasting profits is especially difficult in the cryptocurrency markets as the rate of change of the
system is rapid. There is no way to predict what developments will occur (ie. developer changes
to a coin and say other organisations adopting a currency are not predictable). It should be noted
that forecasting mining profitability is a problem within the community, and a risk taken at the
expense of the person(s) buying the hardware, however early adopters have the greatest success
rates out of all miners.
We decided to model our financial forecasts using the following assumptions:
No office rental costs: remain registered at USE.
No power costs: our clients are aware that their share of the royalties must cover electricity.
Bitcoin markets remain stable and the value does not devalue.
We expect a 50% royalty share of the block reward from mined currency.
Assume implemented idle 22% utilisation of the N8 HPC and 40% of Iceberg.
We expect to mine around 860 of cryptocurrency per week (based on the last two weeks
average revenue from period 13/07/14 to 27/07/14 for Monero coin) for the first 9 months
(20 server rental cost / month), 1720 for the next 8 months (40 server rental cost) and
7200 for the following 8 months (150 server rental/month for first 3 with upgrade to 200
for the next 5).
Paying 1000 a month salaries to all of the directors (3 members).
Eligible for the 20% corporation tax band for companies earning less that 1M.
Find another HPC client by 01/05/15 willing to allocate idle processing to cryptocurrency
mining.
N8 Research Partnership renews contract after the 1st year preliminary period.
The N8 HPC facilities receive an upgrade by 01/01/2016.
The projected figures for our company are as follows (see Appendix A for breakdown).
Year

Net Profit

1
2

12,160 970 (95% confidence)

92,240 2,880 (95% confidence)

It should be noted that the financial forecast has been based around revenue that would have been
made between 13th-27th of July, this is because the coin exhibited turbulent behaviour before these

12

dates (see Figure 3), this was due to a large rise in the coins price leading to a large interest in
mining it. Since then the price/market has stabilised and therefore the data is more appropriate
within the time period selected.
Whilst these are quoted as a guideline figures for the business, it is worth bearing in mind that the
volatility of the cryptocurrency markets could lead to a significant variation of net profit revenues
obtained after the first year of trading.

6.2

Initial Startup Costs

The business does not require initial investment, only permission to operate.
The costs of starting the business are very small since only the rental of a server to host the online
mining pool is required for the company to generate revenue. There is a possibility of agreeing to
host the pool servers on the University of Sheffields high performance servers. Other startup costs
will be general founding costs such as registering the company name and employment of a company
accountant.

6.3

Ongoing Costs - Power Consumption of CPUs

The power costs of running a CPU for the mining protocol increases the energy consumption on
average at around 35% for large data centres [3]. The extra power consumed would be evaluated
for each institution since the power costs of the computing will be the responsibilities of our clients
and not our own. As we will not be paying for electricity for the mining protocol the costs to our
company will be essentially nil.

6.4

Cash Flow of Mining Revenue

In terms of mining the method of releasing the funds is relatively straight forward. The time taken
from when a block is found to it being stored as a fiat balance is between 12-50 minutes; it it should
be noted that due to some exchanges occasionally having problems with synchronising with the
network, the transfer period can extend to hours (does not occur on larger exchanges and is not a
frequent occurrence). The fee the network charges for a transaction is very small and can usually be
ignored, the BTC network charges 0.04 and the Monero <0.01 transaction fee as of 02/08/2014.
The exchange that the mined currency is traded my vary due to a difference in exchange rates.
Each exchange uses TFA (Two Factor Authentication) so as to maximise the security of our clients
money.
Frequency of withdrawal is decided with the clients, various payment plans could be offered. See
Figure 2.

6.5

Projections of Revenue based on N8 Specs

The regional N8 cluster supercomputer has historically run at about 78% capacity with a 22%
underutilisation of the full computing power. The specifications of the N8 are 316 nodes (5,056
cores) with 4 GByte of RAM per core known as thin nodes and 16 nodes (256 cores) with 16
GByte of RAM per core known as fat nodes [4]. Recent upgrades have increased this number [17].
If the N8 supercomputer were to utilise the 22% of the processing power for mining a profitable
CPU mineable coin: For Monero gross weekly revenue would average out to 1059 from the periods
between 04/06/14 to 22/07/14 (using current exchange rate of 1 USD = 0.59 GBP). See Appendix
B.1 for how these numbers were derived.
13

0.005XMR fee

Block found
Reward transferred
to wallet.

0.005XMR fee

1-10 minute
transfer time

Reward sent from

wallet to exchange

XMR is being mined

BTC/FIAT exchange is outside the UK but
within the EU
Mintpal is used to trade XMR-BTC
Bitstamp is used to trade BTC-FIAT

XMR is traded for

BTC
BTC sent to exchange

0.15% fee XMR/BTC

10-30 minute
transfer time

Assumptions

1-10 minute
transfer time

Funds distributed to
employees and clients.

1-3 day transfer

time

15 sepa transfer
5 Bank fee

0.0001BTC fee

BTC traded for fiat

Fiat withdrawn to
company account
0.5% fee BTC/FIAT

Figure 2: Diagram of cash flow, from the crediting of the block reward into the wallet to the
crediting of the clients bank account.

Figure 3: A graph showing the mining difficulty and projected revenue generated per day in USD
for Monero Coin over June and July assuming that 100% of the N8 regional clusters computational
power is allocated to mining.

14

6.6

Risks

One risk is that the scheduler software could go bad and crash the data centre with overflowing
of jobs. This can be mitigated by defensive programming, and by having a protective scheduler
system in place. If this happens, the bug is fixed and the data centre and scheduler is restarted
after an investigation. Another risk is that the funds must be safeguarded against attacks. For
this, other companies are consulted that deal with client funds directly in cryptocurrencies. One
solution is to use cold storage to keep funds secure.
In case no clients sign a contract with us, we will market the product to the general public. By
diversifying income channels, we can mitigate the risk on relying too much on one revenue channel.
For example, the mining pool can be open to the public which would pay a percentage fee to
access it. In case the currencies are no longer profitable to mine, we switch to another currency.
If all currencies are not profitable to mine, we investigate the hardware requirements to produce
better profitability. In addition, we research ways to predict profitability in advance before other
competing miners adapt to changing market conditions. Finally, a percentage of the revenue is
going to be reserved as a contingency fund.

Investment Opportunity
There is the possibility to invest money in our company through means of a contract by which the
investment is returned with a percentage of the profits deducted for the labour, monitoring and
maturing of a particular investment into a cryptocurrency.

15

Financial Forecasts

Figure 4: A spreadsheet showing the 2-year financial forecast of Crypto Consultants.

B
B.1

Technical Appendix
N8 feasibility study

A prototype mining software was deployed to the Iceberg cluster in order to measure the hashing
power of the hardware. The software is available open-source and it was precompiled before deployment. It ran without any root access, only with normal user level privileges. Specifications of
Iceberg and N8 were retrieved from the official web pages[4, 10] using real time live feed information
and historical data [17, 18]. We used live feed in case the specifications listed on the website were
outdated.
It can be seen from the results that the total hashing power of the clusters amounts to 220 Kilo hash
per second, the bulk of which comes from the N8 cores. This generated a total of $14,830 in the last
month. It must be noted that due to not yet having access to an N8 account, the hashing power
for N8 cores is a conservative estimate based on measured Iceberg Intel core hashing power. Given
upgraded hardware at N8, the hashing power is likely going to be significantly higher. In addition,
the reason AMD nodes have a relatively lower hashing power is because of the lack of availability of
AES-NI (Advanced Encryption Standard - New Instructions) on those nodes. These calculations
furthermore assume full utilisation, therefore given a percentage of idle time, the resulting profits
can be easily derived. Detailed historical profitability for Monero coin (XMR) is included below.
This was calculated with publicly available historical data [11, 12, 13]. We measured historical
profitability of Monero, given the hashing power available at Iceberg and N8 as a proportion of the
total historical network hashing power for Monero.

B.2

HPC Scheduler

The first version of the scheduler works with the data centre scheduler together. Iceberg and N8 use
the Sun Grid Engine High Performance Computing framework. The algorithm for the scheduler is
16

Figure 5: Monero (XMR) historical profitability given Iceberg and N8 hashing power (1/6).
as follows:
1. Set parameters of job
1.1. Set priority to low
1.2. Set time length to short
2. If job for user account is in queue waiting
2.1. Sleep for an hour
2.2. Go to step 1.
3. Submit job
This algorithm makes sure that if a job is already in the queue waiting and is not yet run by the
data centre scheduler, that means resources are needed for other jobs at the moment, therefore we
do not do anything. On the other hand, if we do not have any jobs in the queue, that means either
we have no jobs running at the moment in which case we should submit one, or that all our jobs
are running which means that data centre has idle resources available. Due to the fact that jobs are
submitted with a delay and with the shortest time length, resources are continuously being freed
up as our jobs finish one after another, and thus the data centre scheduler can retake control of
those resources for effective management. The miner uses CPU processing mostly while memory
usage is low and network usage is moderate.

17

Figure 6: Monero (XMR) historical profitability given Iceberg and N8 hashing power (2/6).
Then once a job is run by the Sun Grid Engine system, the miner discovers the CPU cores available, and connects to the company pool in order to request workload. It performs the hashing
computations and submits the work back to the pool.
The miner has several modes in which it can run such that each mode corresponds to a currency
mining algorithm which includes a family coins. Given the algorithm, the miner connects to the
pool on a designated port with VARDIFF, which means adaptive difficulty level. The type of
algorithm mined is going to be retrieved from a server in order to control the miners given the
profitability analysis. The algorithm for the miner is as follows:
1. Retrieve target coin to mine from server
2. Set algorithm to mine
3. Set target port to mine
4. Connect to pool
5. Discover number of CPU cores

18

Figure 7: Monero (XMR) historical profitability given Iceberg and N8 hashing power (3/6).
6. Start mining process.
The miner implementation itself is open source and currently industry standard. The miner can
be compiled for specific hardware architecture with AES-NI (Advanced Encryption Standard New
Instructions) technology enabled that achieves much better efficiency. At N8, all nodes are AES-NI
enabled while on Iceberg the Intel nodes have it, but AMD nodes do not. In the future, mining on
Nvidia GPUs can be deployed.

19

Figure 8: Monero (XMR) historical profitability given Iceberg and N8 hashing power (4/6).

20

Figure 9: Monero (XMR) historical profitability given Iceberg and N8 hashing power (5/6).

21

Figure 10: Monero (XMR) historical profitability given Iceberg and N8 hashing power (6/6).

Figure 11: Iceberg (left) and N8 (right) historical utalisation

22

C
C.1

Hashing
Public Key Encryption

Public key cryptography is also known as asymmetric cryptography as there are two different keys
used for encryption and decryption [5]. It is used all over the world by governments and banks
to encrypt their data. The easiest way to visualise the concept is with a mailbox with a lock;
when a message is delivered by the postman everybody on the street can see the mailbox and the
postman putting the letter inside. Only the person who has the correctly shaped key is able to
open the mailbox and retrieve the letter that was sent. In public key cryptography a large number
is generated, in many current state of the art encryptions prime numbers are used (RSA etc.), an
algorithm generates two keys, a public and private key which are connected by a mathematical
formula that is kept secret.
In asymmetric cryptography, Alice sends Bob her pubic key to encrypt plaintext and uses her private
key to decrypt the message. Most cryptocurrencies use a symmetric cipher that is established
between users. If Alice is to send Bob a message they must first establish a unique shared key.
First Alice broadcasts her public key to Bob, who in turn broadcasts his public key to Alice. At
this point, both Alice and Bob have shared their public keys with each other and any adversaries
listening to their conversation would still be none the wiser. Alice and Bob combine their own
unique private keys with the other persons public key to generate a shared key which is identical
for both users. Through using this method, Alice can now use the shared key to encrypt a message
to Bob who uses the same key to decrypt it. Anybody attempting to eavesdrop on their conversation
is unable to reconstruct the original message since they have not got Alice and Bobs shared key
to decrypt the message.
Many cryptocurrencies rely on symmetric public key encryption; in order for a users wallet to
receive a cryptocurrency from other users in the network, it requires them to broadcast a public
address to transfer the funds to. Using techniques of public key encryption, it is possible for secure
transactions between users of the cryptocurrency network.

C.2

Hashcash (Proof-of-Work)

Bitcoin uses the a Proof of work function as the mining core. All Bitcoin miners whether CPU,
GPU, FPGA or ASICs are expending their effort creating proofs-of-work, which act as a vote in the
blockchain evolution and validate the blockchain transaction log. Hashcash was originally designed
as a mechanism to throttle systematic abuse of un-metered internet resources such as email, and
anonymous remailers [6]. The hashcash CPU cost-function computes a token which can be used as
a proof-of-work for a client. The algorithm is as follows: for bitstring s = {0, 1} , [s]i means the
bit at offset i and [s]i...j is the bit substring between and including bits i and j. We define a binary
infix comparison operator:

where b is the length of the common left-substring from the two bit-strings. The hashcash function
is defined as:

23

It incorporates an algorithm by which the client must attempt to find partial hash collisions on
the all 0 bits k-bit strings 0k . The idea of using partial hashes is that they can be made arbitrarily
expensive to compute (by choosing the desired number of bits of collision), and yet can be verified
instantly. The fastest algorithm for computing partial collisions is brute force. There is no challenge
as the client can safely choose his own random challenge, and so the hashcash cost-function is a
trapdoor-free and non-interactive cost-function. In addition the Hashcash cost-function is publicly
auditable, because anyone can efficiently verify any published tokens. These are the ideas that were
adapted and used for the mining and verification aspects of the Bitcoin protocol.

C.3

Cryptographic Hash Functions

A cryptographic hash function is a hash function which is considered practically impossible to

invert, that is, to recreate the input data from its hash value alone. Cryptographic hash functions
are used in cryptocurrencies as they are computationally intensive to solve. If an attacker wants to
create several hundred fake accounts to verify a transaction, it becomes computationally infeasible
for the attacker to falsely verify transactions when the network hash rate is large.
For this we investigate a simple example of the conversion of a simple text string from plaintext
to hexadecimal. Let h(y) be a fixed hash function (SHA-256, Scrypt, etc. . . ) where y is the input
argument, let l be a plaintext string such as hello world! and let x be an integer nonce that is
the suffix to the plaintext string. The aim of a miner in the cryptocurrency network is to append
the nonce x to the end of plaintext string l so that the final output string is preceded by a series
of zeros. Due to the chaotic nature of hashing functions, minor modifications of the input string
lead to changes in the output that are completely different, known as the avalanche effect. The
character string such as Hello world!0 (x=0) which when represented as a hexadecimal string
becomes:
h("Hello, world!0")= 1312af178c253f84028d480a6adc1e25e81caa44c749ec81976192e2ec934c64.

An increment our nonce by a single integer (x=1) results in the hexadecimal string:
h("Hello, world!1")= 9afc424b79e4f6ab42d99c81156d3a17228d6e1eef4139be78e948a9332a7d8,

which is entirely unrecognisable from the first character string above. This process of performing
iterative appending of integer nonces and converting the result with a hash function is analogous
to the computationally intensive process used in the Bitcoin (SHA-256) protocol. We find that
x=4250 generates the string:
h("Hello, world!4250")= 0000c3af42fc31103f1fdc0151fa747ff87349a4714df7cc52ea464e12dcd4e9

From this we can now see that choice of x=4250 generates an output string that satisfied our
conditions of preceding zeros. The work required to systematically try find x that satisfies our requirements effectively eliminates an attacker from falsely verifying transactions using fake accounts
since the computational effort to flood the network with bots is too large to be possible. The
concept of proof-of-work in the Bitcoin protocol essentially extends this concept to the header of
the current block in the blockchain. The Bitcoin puzzle requires the header of the hash to be equal
or lower than a target value for the block to be accepted by the network. The target is a measure
of the network difficulty and the hash rate, it is automatically adjusted so that a block is released
on average every 10 minutes.
24

Figure 12: A flowchart showing the pool-based Bitcoin mining workflow.

Network Protocols

For Bitcoin the steps to run the network are as follows:

New transactions are broadcast to all nodes.
Each node collects new transactions into a block.
Each node works on finding a difficult proof-of-work for its block.
When a node finds a proof-of-work, it broadcasts the block to all nodes.
Nodes accept the block only if all transactions in it are valid and not already spent.
Nodes express their acceptance of the block by working on creating the next block in the
chain, using the hash of the accepted block as the previous hash.
Most other cryptocurrencies will run this protocol or some sort of variation of this verification
process to make the transactions and network more secure.

D.1

Pooled Mining

Cryptographic protocols are widely used for secure application-level data transport. A cryptographic protocol usually incorporates at least some of these aspects:
Key agreement or establishment
Entity authentication
Symmetric encryption and message authentication material construction
Secured application-level data transport
Non-repudiation methods
Mining for cryptocurrency is can be approached two ways: Solo mining - Running the mining
protocol as a single user. Mining pools - Which are collaborative mining efforts used to add
consistency to the mining payout. Some mining pools can consume up to 30% of the total hashing
contributed to the network for Bitcoin. Benefits of pooled mining result in a higher probability of
correctly finding the nonce to solve the block. The hash of the current block can be fragmented
into smaller problems for workers amongst the pool to solve. Typically in a pool, once a block
is found members of the pool receive a fraction of the rewards proportional to the computational
power they have contributed to the network. In this way it becomes possible to generate revenue
more often than mining as an individual.

25

D.2

Stratum Mining Protocol

When a miner wishes to use their computer to generate cryptocurrency, they must establish a
connection to the network as a solo miner or connect to a mining pool. The process of connecting
to a mining pool to receive a less difficult distributed problem (block) amongst workers in the pool
is known as the Stratum protocol. Stratum is a line-based protocol using plain TCP socket, with
payload encoded as JSON-RPC messages. The client simply opens TCP socket and writes requests
to the server in the form of JSON messages finished by the newline character. Every line received
by the client is again a valid JSON-RPC fragment containing the response.

D.3

Block Rewards

With Bitcoin the rate of block creation is approximately constant over time: 6 per hour. The block
reward halves every 2016 blocks, the average hashrate during that period is measured, and the
difficulty is adjusted based on that. Therefore a large increase in the hashing rate of a particular
cryptocurrency will cause the probability of solving a block to decrease. This is why it is important
to forecast a cryptocurrency that is not the most profitable at the current time. The information
for the most profitable coin is publicly available and a large volume of miners will jump ship
to this cryptocurrency. The trending nature of the network hash rates to profit switch results in
reduced revenue due to increased difficulty.

D.4

Merkle Tree and Mining System Security

The process of mining bitcoins requires an up to date version of the blockchain, with each miner
attempting to solve a unique hash. The hash that the nonce is appended requires the following
parameters for the Bitcoin network.
Field
Version

Purpose
Block version number

hashPrevBlock

256-bit hash of the previous block header

256-bit hash based on
all of the transactions in
the block
Current timestamp as
seconds since 1970-0101T00:00 UTC
Current target in compact format
32-bit number (starts at
0)

hashMerkleRoot

Time

Bits
Nonce

Updated when...
You upgrade the software and it specifies a
new version
A new block comes in

Size (Bytes)
4

A transaction is accepted

32

Every few seconds

The difficulty is adjusted

A hash is tried (increments)

32

Table 1: A table showing the components of the block to solved by each miner for Bitcoin. Note
between different cryptocurrencies the sizes of the fields and data contained in the blocks will
change.
Since all of these fields except the hashMerkleRoot are not unique to the miner it would at first
appear that miners with more powerful hardware would always find a nonce that creates a hash
lower than the target. The Merkle root provides a method to circumvent this problem. The Merkle
26

Figure 13: Showing a binary Merkle hash tree, where each parent is a hash of the concatenated
children.
root is a hash tree: A hash tree is a tree of hashes in which the leaves are hashes of data blocks in, for
instance, a file or set of files. Nodes further up in the tree are the hashes of their respective children.
For example, in Figure 13 hash 0 is the result of hashing the result of concatenating hash 0-0 and
hash 0-1. That is, hash 0 = hash( hash 0-0 + hash 0-1 ) where + denotes concatenation.
The Merkle root contains information about a users wallet address and transactions. It updates with
new transactions in the current block, a new unique hash for the current block in the blockchain
is continuously generated for each user. For each user the first transaction in your block is a
generation sent to the unique Bitcoin wallet address. Since the block is different from everyone
elses blocks, you are effectively guaranteed to produce different hashes. The probability is so low
for any two users to have the same Merkle root that each miner effectively hashes a unique series.
This means each miner has an equal chance of solving the current block for every hash they perform.
Once a nonce that is less than the target has been found for a specific user, they broadcast this to
the network who verifies that the current block hash and nonce are lower or equal to the target.
The user who finds a soluton to the current block is the recipient of the block reward and the
corresponding funds are transferred to their wallet.

D.5

Common Algorithms used in Cryptography and Cryptocurrencies

SHA: For more than 10 years, SHA-1 authentication has been used to effectively protect intellectual
property from counterfeiting and illegal copying. As computer technology advances, customers are
asking for an even higher level of security.
Bitcoin, the first cryptocurrency was designed using the well known SHA-256 algorithm (Secure
Hashing Algorithm). The SHA-2 family of hashing functions was developed and published by NIST
in the USA. The hashing functions are now used in commerce and in government as the standard
for encrypted data.
Other common hashing algorithms used for cryptocurrencies are called:
Scrypt [14]
X11 [15]
NXT [16]
27

 CryptoNote [7]

D.6

CryptoNote

In Bitcoin and many other Proof-of-Work currencies an ordinary digital signature verification process is employed (see Appendix C) CryptoNote employs technology that is based on ring signatures
this differs completely from the Bitcoin source code and as a result bares untraceable transaction capabilities and an improved solution to the double spending problem. Ring signatures work
by requiring a number of different public keys for verification. By ring signatures we perceive a
group of individuals, each with their own secret key and public key. The signer of a given transaction is an indistinguishable member of the group. The main difference with the ordinary digital
signature schemes is that a verifier cannot establish the exact identity of the signer and that is
where anonymity comes from. CryptoNote is not a currency but a technology used to create them.
Bytecoin, Monero, Quzarcoin, Boolbery, Dashcoin are just some currencies that utilise CryptoNote
technology.
Bytecoin was the first to introduce Egalitarian proof of work, which is essentially a voting system
where users vote for the right order of the transactions, for enabling new features in the protocol
and for the honest money supply distribution. Therefore, it is important that during the voting
process all participants have equal voting rights. This is an attempt at excluding the owners of
ASIC (specialised mining hardware) designs from the mining process. CryptoNight (the hashing
algorithm that is used by CryptoNote to achieve miners equality), albeit as well relying on memoryintensive calculations, makes every new block dependent on all previous ones. This way, anyone
who tries to increase their mining capacity through stockpiling RAM will also have to increase the
calculation speed exponentially, which makes ASIC mining impossible as of now [9].

Further Contact Info

For
further
inquiry,
please email at z.bitvai@sheffield.ac.uk.
David
Hancock
dave@sheffieldcrypto.com
For further information about USE, visit http://enterprise.shef.ac.uk/about-us#sthash.
cC8ESc2S.dpuf

28

Glossary of Terms

Term
ASIC

CC

Full Name
Application
Specific
Integrated
Circuit
Cryptocurrency

Cluster

N/A

CPU

Central Processing
Unit

Difficulty

N/A

FPGA

Field
grammable
Array

GPU

Graphical Processing Unit

Hash

N/A

HPC

High Performance
Computing

JSON

JavaScript Object
Notation

kWh

KiloWatt Hour

Mining

N/A

RAM

Random
Memory

RPC

Remote Procedure
Call

TCP

Transmission Control Protocol

TX
Wallet

Transaction
N/A

XMR

Monero

ProGate

Access

Definition
A device fabricated from the ground up to perform a specific
computation protocol.
Decentralised digital currencies that use cryptographic
techniques to exchanged and mined.
A computer cluster consists of a set of loosely connected or
tightly connected computers that work together so that in
many respects they can be viewed as a single system.
Computer hardware that carries out the instructions of a
computer program by performing the basic arithmetical,
logical, and input/output operations of the system.
The ratio of the average time taken to solve the current
block to the time taken to solve the first block. Is a measure
of the target for current block header.
An integrated circuit designed to be configured by a customer or a designer after manufacturing, used for implementing complex digital computations. Predecessor to the
mining ASICs currently available.
Computer hardware designed to rapidly manipulate and
alter memory to accelerate the creation of images in a frame
buffer intended for output to a display.
A hash function is any function that can be used to map
data of arbitrary size to data of fixed size, with slight differences in input data producing very big differences in output
data.
Computational activity requiring more than a single computer to execute a task. Supercomputers and computer
clusters are used to solve advanced computation problems.
An open standard format that uses human-readable text
to transmit data objects consisting of attribute-value pairs.
It is used primarily to transmit data between a server and
web application.
The amount of energy used when running a 1 KiloWatt
electrical device for an hour.
The process of performing computations (hashing) to solve
a block for a specific cryptocurrency.
Computer hardware that allows data items to be read and
written in roughly the same amount of time regardless of
the order in which data items are accessed.
An inter-process communication that allows a computer
program to cause a subroutine or procedure to execute in
another address space (commonly on another computer on
a shared network) without the programmer explicitly coding the details for this remote interaction.
A core network protocol used to check and verify a stream
of 8-bit strings between computers in a local area network
or over the internet.
An exchange of currency in a cryptocurrency network
Software for cryptocurrency that allows users to view transaction history and send/receive payments. Stores the digital credentials for your bitcoin holdings, allowing you to
access your assets.
Cryptocurrency using the CryptoNote algorithm

29

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31