NVIDIA is the subject of a recent class-action lawsuit filed by the Schall Law Firm of Los Angeles, California. Legally known as NVIDIA Corporation, the company is being sued for making multiple misleading statements to potential customers about the benefits of its cryptocurrency mining rigs.
To better understand why this lawsuit was filed, let’s take a look at what cryptocurrency mining is how NVIDIA is tied into the practice.
What is crypto mining and how does it work?
Cryptocurrencies are digital currencies but highly secure. While not all digital currencies are cryptocurrencies, all cryptocurrencies are digital currencies. These cryptocurrencies are so secure because each one is backed up by a blockchain, or a publicly-available ledger of every transaction that has been executed.
Put simply, people use electricity, Internet connections, and computer power to solve math problems that verify transactions that have been made with a particular cryptocurrency. Once those transactions are verified, every computer that helped solve those math problems is given a small amount of that cryptocurrency in return.
Cryptocurrency mining is how new units of these digital currencies are created. Without miners, cryptocurrencies simply couldn’t work.
Most miners use graphics processing units (GPUs) to solve these problems. Few people use full-fledged computers because they’re slow, take up tons of electricity, and simply aren’t as profitable as GPUs.
Why is NVIDIA potentially in trouble?
Last year, the general cryptocurrency market maintained increases in price. These consistent, months-long price hikes lasted nearly the entire year.
As such, the price of graphics processing units either held steady or increased. No manufacturers of mining rigs were incentivized to lower prices on their units due to favorable market conditions. During this period, GPU and mining rig manufacturers like NVIDIA ramped up production to meet demand. Failing to beef up production would have resulted in customer dissatisfaction, losing sales to competitors, and less revenue.
While the demand for GPUs and mining-related equipment was high for a long time, it eventually simmered down. Companies like NVIDIA were left with tons of graphics processing units. They were forced to liquidate them at low prices before they became outdated.
NVIDIA claimed to investors that the company would promptly sell its surplus of mining rigs to buyers in the gaming industry. This never happened to the degree the company promised it would. In short, NVIDIA’s investors suffered major losses, many of which were directly related to the reassuring claims made by the company that were not true.
Read More: https://investorplace.com/2019/01/class-action-suit-nvidia-stock/
