Hard Drive Mining Still Lurks in Data Centers

After Bitcoin mines were cleared out in many provinces, hard disk mining projects under the name of "IPFS" (distributed storage) are still lurking in data centers across the country, including virtual currency projects Filecoin and Chia.

Unlike Bitcoin and other technologies that generate virtual currencies by computing power verification, hard disk mining is mainly based on storage space verification. During the mining process, "hard disk mining" occupies a large amount of storage space. As of July 30, the effective computing power (storage space) of the FIlecoin network accounted for 8.259EiB, and the storage space of Chia's network reached 31.45EiB. The two together occupied nearly 40EiB of storage space. What is the concept of 40EiB? A comparison is that in November 2020, Baidu Netdisk announced that the total storage volume of its user data has exceeded 100 billion GB (about 93EiB), which is the result of its 8-year development since its operation in 2012. The verified storage space of the above two virtual currencies has reached more than 40% in less than a year.

"These storage spaces record a lot of useless information and basically no valid information," a person who once provided hardware equipment and technical services for the File mining pool told the Economic Observer.

The above-mentioned person provided 3,000 servers for the FIL mining pool for data packaging in the first half of 2021. The person introduced that China is the region where the computing power of the above two virtual currency mining pools is concentrated. Unlike Bitcoin mines, Filecoin consumes less electricity, but has higher requirements for the computer room environment. Therefore, it mostly exists in the form of renting data center cabinets in various places, which is why it is more concealed.

In addition, the phenomenon of Ponzi schemes in hard disk mining has also attracted much attention. Unlike Bitcoin, FIL has set up a mortgage mining model in terms of incentive mechanism, that is, before mining, you need to buy FIL coins as collateral, and the mined coins can only be "unbanned" one by one after a certain period of time. A virtual currency investor said that this model itself is a very typical Ponzi scheme model.

At present, domestic Bitcoin mines have been cleared out one by one. Under supervision, is it far from the time for hard disk mining mines to be cleared out?

The price of coins is falling, but the storage space is still rising

In October 2020, Filecoin was officially launched, which also promoted the concept of "hard disk mining". Since then, a variety of hard disk mining coins have been launched one by one, and have received widespread attention due to a round of virtual currency market from 2020 to the first half of 2021.

In April this year, FIL coin reached its peak value, and has been declining since then. It is currently only about a quarter of its peak value. Other virtual currencies that focus on IPFS have also experienced a general decline as the entire virtual currency market has declined. However, it is worth noting that investment in the "mining" end has not decreased. After the coin price fell in April this year, the storage space is still in a growth range.

At the beginning of July, the storage space occupied by the entire Filecoin and Chia network was nearly 36EiB, and by the end of July it had risen to nearly 40EiB.

The rapid growth has brought a great impact on the hardware market.

The above-mentioned equipment technology service provider did some calculations. Based on the total storage volume of nearly 36EiB at the beginning of July and the average capacity of 320T per server, at least 120,000 storage servers were used to store this data, and 15,000 high-performance computing servers were used to generate this data, occupying nearly 20,000 IDC cabinets. "The huge demand for mining has caused a sharp increase in the prices of server core components such as CPU, memory, and hard disk since the beginning of the year, and they are out of stock. This has also caused an increase in the price of the entire server and delayed delivery," said the above-mentioned service provider.

A hardware equipment seller told the Economic Observer that the price of hard disks experienced a rapid increase in the first half of this year, and it was not until the past two months that it gradually stabilized. He believed that the reasons came from two aspects: one was the impact of the epidemic on global supply and demand, and the other was the increase in demand brought about by hard disk mining.

Seagate, the world's largest manufacturer of hard drives, disks, and read-write heads, previously released its Q4 financial report for the 2021 fiscal year ending July 2. Revenue for the quarter was $3.01 billion, up 20% year-on-year and 10% month-on-month, while net profit reached $482 million, up 190% year-on-year and 47% month-on-month, and gross profit margin also expanded to 29.4%. Seagate said that during the fourth fiscal quarter, the mining boom of the decentralized storage blockchain Chia coin drove the demand for hard drives, accounting for a mid-single-digit percentage of total bit shipments this quarter.

Unlike the large number of second-hand graphics cards generated by Bitcoin, due to the existence of technical processes such as "P disks", second-hand hard drives after mining are more difficult to circulate in the market and the prices are lower.

In addition, although the power consumption is lower than that of Bitcoin mining, hard disk mining still consumes a lot of electricity. The above-mentioned supplier did some calculations and estimated that based on the average power of 500W per server, 135,000 servers with a total storage volume of 36EiB consume nearly 600 million kWh of electricity per year, and the hosted IDC computer room consumes nearly 300 million kWh of electricity, with a total annual power consumption of 900 million kWh.

After consuming a large amount of storage space and power resources, what was finally formed was only nearly 40EiB of "junk data". "This data is of no use at all and is only generated to obtain rewards," said the above-mentioned supplier.

"Funding" hidden under technology

The Bitcoin mining process consumes a lot of electricity, so its mining farms are mainly concentrated in Sichuan and Inner Mongolia, which are rich in wind and solar power resources. However, this is not the case with hard disk mining. Many people who have invested in hard disk mining projects said that many hard disk mining pools are located in the eastern region, and even in IDC computer rooms in some core cities in East China and Central China.

An investor said that he had visited a Chia project located in a computer room in Changsha. According to the introduction of the mining pool sales staff at the time, if an order was successfully signed, the round-trip air tickets could be reimbursed, and even more computing power could be purchased. There were also promotional activities such as free Tesla cars.

The above-mentioned supplier stated that Filecoin has high requirements for the computer room environment and bandwidth, so it is generally established in the form of renting cabinets in the IDC computer room. Because of this, it is better concealed, and there has not been a large-scale shutdown so far.

The concealment of hard disk mining does not only lie in its location. Projects such as Filecoin are based on the concept of "IPFS". Under the packaging of technology, hard disk mining is packaged as a financial product for sale. Many promotional materials obtained by the Economic Observer mentioned the number of coins that can be generated by computing power and its profit payback period.

“But in fact, due to the overall decline in the digital currency market, the payback period for hard disk investment is getting longer and longer, and it is nowhere in sight,” said an investor in hard disk mining.

Due to the technical characteristics and high investment thresholds, virtual currencies such as Filecoin generally use mining pools for investment, that is, the storage in the mining pool is sold in the form of split packages and a return cycle is promised. Therefore, the investor's investment amount does not directly correspond to specific hardware equipment, and the entire "computing power pool" has become a "capital pool."

"The entire Filecoin mechanism is very clever. It has a pledge mechanism, which means that in order to mine, you must first invest a portion of your funds as a pledge. In addition, the mining income is not paid in one lump sum, but is paid gradually over a certain period of time. The mechanism can naturally accumulate a lot of funds," said the above-mentioned supplier.

On May 21, 2021, the Financial Stability and Development Committee of the State Council (hereinafter referred to as the Financial Committee) held its 51st meeting, at which it proposed to "crack down on Bitcoin mining and trading activities." Sichuan, Inner Mongolia, Anhui and many other places also successively proposed to clear out virtual currency mines.

On July 15, Hefei Online, hosted by Hefei Newspaper Media Group, published an article titled "Our Province Comprehensively Cleans Up and Shuts Down Virtual Currency Mining Projects," which stated that "for areas with severe energy consumption and dual control situations, insufficient energy use space, and tight balance between electricity supply and demand, Anhui Province will strictly control new high-energy and high-power consumption projects, rationally plan and orderly build data centers, and comprehensively clean up and shut down virtual currency mining projects built under various names."