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A hot virtual currency "digital game" is impacting the financial order and industrial resources of the real world.
In recent days, the prices of virtual currencies such as Bitcoin have skyrocketed and plummeted. At the same time, after virtual currency exchanges launched OTC trading and futures contract trading products and services, various so-called "financial management", "lending" and "fixed income" products around virtual currencies have also emerged. These virtual currency "financial services" similar to traditional finance but not provided by licensed institutions have become unprecedentedly popular.
In addition, the original means of directly obtaining virtual currency - "mining" has also become the focus again. The "mining machines" that were shut down in the bear market in the past few years have become popular again, and some A-share listed companies have invested tens of millions of dollars in the mining market. In the competition for computing power between major mining pools (computing power collection) and mining farms (hardware equipment collection), not only are resources such as chips, hard drives, and graphics cards being quickly devoured, but also local firepower, water power and other power resources are annihilated in the rumbling computing sound of "mining machines".
An involutionary coin mining market is having a serious impact on the real world... Crazy expansion of virtual currency
The rise of financial derivatives in the cryptocurrency industry began with the craze for opening virtual currency exchanges around 2015. Virtual currency-related derivatives launched by virtual currency exchanges mainly use futures-like contract trading methods to go long or short on virtual currencies and other virtual currencies.
But what followed was continued high-pressure regulatory control over virtual currency transactions, including in 2017 the central bank and seven other ministries issuing strict orders to ban virtual currency fundraising and issuance and close domestic virtual currency exchanges.
Under continued supervision, a number of virtual currency exchanges have gone underground and are quite "low-key". However, since 2021, after the price of Bitcoin has continued to break through the $50,000 and $60,000 mark, major platforms claiming to be "digital financial service providers" have been unable to hold back and have been high-profile online and offline solicitation of customers without obtaining regulatory approval.
A promotional leaflet of a virtual currency trading platform obtained by a reporter from China Business News from an offline promotion conference shows that it provides financial services such as investment management, leveraged trading, lending, etc. around virtual currencies, including a diversified asset portfolio such as DeFi mining, debt, options, etc.
Different from the simple contract trading and cryptocurrency speculation in the past, this virtual currency trading platform absorbs virtual currency from users by providing dual-currency financial management, pledge lending, zero-interest lending, funds, and current deposit services, claiming that it "can help users complete investment interest or lending consumption with virtual currency as the subject."
In the loan business it claims, the principal and interest are denominated in Tether (USDT), a currency that links virtual currency to the legal currency of the US dollar. Users can pledge virtual currency to borrow money, and the loan purposes include purchasing mining machines, daily consumption, decoration, travel, and medical treatment. The reporter checked the loan agreement and found that the loan contract with the user was signed by an overseas company.
Regarding the above-mentioned business content, Peng Kai, a senior partner of Beijing Jincheng Tongda (Shanghai) Law Firm, told reporters, "First, this is a lending business, and it is cross-border lending that circumvents foreign exchange supervision, and it involves both financial licensing (lending business qualifications) and foreign exchange supervision issues; secondly, using USDT for decoration, daily consumption, etc., such borrowing purposes are absurd and self-deceptive. For domestic life consumption scenarios such as decoration and tourism, only legal currency that is legally circulated in the country can be used."
When talking about the boundary between this kind of coin-raising behavior and illegal fundraising, Peng Kai said frankly that there is no boundary between the two. It is unrealistic to try to bypass legal currency through "coin-to-coin transactions" to achieve the goal of not involving legal currency transactions. From the source, the virtual currency held by most people is purchased with legal currency rather than obtained through mining. It is too naive to hope that "coin-to-coin transactions" can achieve a detour from criminal regulations on fundraising.
"In addition, it is important to note that most of these business entities are currently established overseas, but they have 'branches' in the country. This 'branch' may be a newly established company, or it may be an office location and personnel without a corporate entity. The obvious purpose of opening such a 'branch' in the country is to develop business for domestic customers. This practice is exactly the same as when ICO moved overseas but the business targets were still mainly domestic people." Peng Kai added. Grabbing territory: Capital rushes into the coin mining market
As the "financial" game of chasing wealth intensifies, the price of a bitcoin in the secondary market has reached hundreds of thousands of yuan. As a result, the "mining" operation at the top of the virtual currency industry has naturally entered the public eye.
As we all know, the key to mining virtual currency is computing speed, referred to as "computing power". That is, if you have more powerful and advanced hardware and cheap and stable electricity than others, you can be allocated more virtual currency. The computing power is proportional to the possibility of miners (investors) successfully mining new coins.
Under the temptation of hundreds of thousands of yuan per virtual currency, "mining machines" have become the only choice for capital and public companies to enter the virtual currency game. First, A-share listed companies invested tens of millions of dollars in cloud mining, which was cited by the "mining circle" as a typical case of circumventing supervision. Then, there are US-listed companies that have laid out the entire "mining" industry chain by issuing additional stocks and cash.
"We have invested over 100 million yuan to build many hydropower mines. We have also acquired manufacturers that have developed 7-nanometer mining chips, and are racing against time to buy large quantities of second-hand mining machines," a person from the investment department of a listed company told reporters.
However, such an investment is not considered a big deal in the Bitcoin mining industry.
"This is one of the mines we have set up in Hami, a prefecture-level city in Xinjiang Uygur Autonomous Region." A mining pool founder took out a photo and said that the spacious square in the photo has a capacity of 120,000 kilowatts. If the price is 500 yuan per kilowatt, the construction cost of this mine plus the electricity cost alone will cost 60 million yuan. If it is filled with the most advanced "mining machines", it will cost 2 billion yuan, and the inferior "mining machines" (with relatively low computing power) will cost 500 million to 1 billion yuan.
Wang Peng, assistant professor at Renmin University of China, pointed out that "in the field of Bitcoin and other virtual currency mining, the computing power and algorithm requirements are strict, and the update and iteration speed is fast. This means that even if a huge amount of money is spent on purchasing mining machines, it is possible that the advantages will be lost in a very short time, and the degree of wear and tear of the machines is high. Operating the 'mining machine' business requires maintaining relatively good performance in the 'mining' field for a long time in order to mine new coins to cover costs and obtain profits."
Wang Peng also emphasized that in addition to financial strength, there is another major barrier to entry into the "mining" industry - control of the supply chain. Wang Peng gave an example, saying that the current Bitcoin market is hot, capital is flocking to professional "mining machines", and companies around the world that are interested in investing want to purchase professional "mining" equipment. "Whether a company can purchase and acquire computing power equipment in the fastest time directly determines the size of its profits. At the same time, the cost of the "mining" industry will become higher and higher, forcing the "mining machines" to iterate in a shorter time, and the investment cost will also rise."
"Everything depends on the price of the coin. If it reaches $100,000 or $1 million per coin, the competition for mining will only get more intense," said an industry insider.
Involution: Control of industrial resources
It is obvious that this "involutionary" competition of competing investment has not yet reached its end, and the carnival of chasing each other and gaining and losing has begun to have a huge impact on the industry.
"Our company can no longer buy graphics cards. We cannot even get twice the price. Suppliers say they have all been reserved by virtual currency mining machine manufacturers." A purchaser of a game company asked the reporter: Isn't Bitcoin a string of code? Why do these invisible and intangible things in the virtual world occupy industrial resources?
On February 9, data from the China Association of Automobile Manufacturers showed that in January, automobile production and sales reached 2.388 million and 2.503 million respectively, down 15.9% and 11.6% from the previous month. The association reminded that the rapid decline in production from the previous month reflects that the shortage of automotive chips has affected the production rhythm of enterprises.
In sharp contrast to the worries of the gaming and automotive industries, mining farm owners seem to be somewhat happy about the chip shortage. In their eyes, the global chip shortage is beneficial to "mining" and will make money as long as the computing power does not increase in a bear market. "Now car companies have stopped production of the entire production line due to a lack of a few chips, but we have mining machines (no shortage of chips), so we can keep making money." said a mining farm owner.
"At that time, no one was optimistic about XX coins, except us, so we hoarded a lot. Now everyone thinks that the bull market is coming, and they are rushing to mine coins. Of course, they are trying every means to get the "raw materials" for mining machines. The gross profit of the mining industry is more than 200%, (graphics cards, hard drives, chips). We estimate that the shutdown price of Bitcoin mining machines (mining machines dedicated to mining Bitcoin) (the income cannot cover the electricity bill and hardware costs) is about 20,000 US dollars per coin. Now the price of Bitcoin is 50,000 US dollars per coin. What price can we not afford?"
Just as the chips were out of stock and the price of graphics cards, the "raw materials" of mining machines, skyrocketed, hard drives were also doomed. "Direct supply of hard drives from the manufacturer, in stock, orders can be placed on the same day the payment is made." - This is an advertisement in the mining pool's WeChat Moments.
Recently, Chia mining has suddenly become popular. It uses idle hard disk storage space instead of graphics card computing power for mining. Since it involves large-capacity reading and writing, the larger the storage space used by users for mining, the greater the probability of obtaining native token rewards, which leads to a surge in hard disk prices. In mid-March, the Chia mainnet was launched (the mainnet launch means that the blockchain project opens the blockchain to the public and begins large-scale use), and the sales of large-capacity hard disks on major domestic e-commerce platforms surged. However, after the price rose sharply, it fell sharply, trapping a group of "miners" who hoarded goods.
According to media reports, with the enthusiasm for Chia coin mining, the prices of hard disks and SSDs have skyrocketed and plummeted in the short term. "The price of an 8T (hard disk) has reached 1,730 yuan, and it changes every day. The highest price before was 2,999 yuan."
As the price of "raw materials" soared, power product companies and chip manufacturing companies that originally supplied other companies in the industry chain also rushed to cooperate with mining machine manufacturers who could offer high prices.
According to incomplete statistics from reporters, there are already more than ten listed companies in the domestic A-share market that have begun to provide services or export products for virtual currency mining machines. Among them, virtual currency mining manufacturers have appeared among the top five customers of many companies.
In addition, data centers cannot escape the clutches of the evil. Previously, a data center announced that the company's cloud host shall not engage in activities that violate national policies and regulations. Since Bitcoin mining has not been recognized by relevant national laws and regulations, and mining will also cause a large loss of hardware resources, affecting the stability of the cloud server, in order to ensure the stable operation of the user's cloud server and avoid the legal risks brought about by it, please do not use the company's cloud host for related activities. If found, it will be directly closed and no refund will be given. High energy consumption: Devouring natural resources
More important than raw materials to the mining industry is electricity. Mining farms, filled with the roar of running machines, consume huge amounts of electricity.
According to the "mining machine" manufacturers who revealed to reporters, the electricity consumed by virtual currency mining in 2020 is equivalent to Thailand's total electricity consumption in 2020.
According to BitDeer's statistics on the scale of electricity consumption for cryptocurrency mining, the electricity consumption for ASIC (application-specific integrated circuit) mining from 2013 to 2021 was 1.8 billion kWh, 2.3 billion kWh, 5.4 billion kWh, 13 billion kWh, 41.5 billion kWh, 55.3 billion kWh, 71.3 billion kWh, and 137 billion kWh, respectively. The electricity consumption for GPU (a more powerful "graphics processing unit" that is often used for gaming and 3D rendering) mining from 2017 to 2021 was 6.2 billion kWh, 16.9 billion kWh, 7.9 billion kWh, 9.1 billion kWh, and 20.1 billion kWh, respectively (Note: 0 kWh in 2016 and before).
"What is the local electricity price?" a VC investor in the cryptocurrency circle asked mysteriously to a local municipal investment company that was attracting investment. When she got the answer of 0.26 yuan per kilowatt-hour, she told the reporter with some excitement but some concern: "If the local government does not agree, we can only dig secretly, which is too unstable."
In fact, local regulatory authorities have begun to be alert to such investments. On December 24, 2019, the People's Government of Ganzi Tibetan Autonomous Prefecture in western Sichuan Province issued the "Ganzi Prefecture Work Plan for Cleaning Up and Rectifying Bitcoin Mines."
At the end of February this year, the Development and Reform Commission of the Inner Mongolia Autonomous Region issued the "Several Guarantee Measures to Ensure the Completion of the "14th Five-Year Plan" Energy Consumption Dual Control Target Tasks (Draft for Comments)", proposing to comprehensively clean up and shut down virtual currency mining projects and withdraw all of them by the end of April.
In the context of policy withdrawal, mining farms may choose to continue "mining" secretly, or choose to migrate to areas in China where the attitude towards Bitcoin mining is not yet clear, or even declare that they will "go overseas". Although the choices are different, their current goals are surprisingly consistent - racking their brains to attract investment. They repeatedly emphasize that "now there are almost no retail investors who can make money. Retail investors invest their money in mining farms, professionalize and scale "operation", invest money in the early stage, and receive dividends during the contract period". What's more, some even claim that they provide this kind of computing power splitting and selling service for domestic A-share listed companies, which is absolutely safe.
“Choosing business loans, credit loans or mining machine loans from domestic commercial banks to buy mining machines has relatively lower risks than speculating in cryptocurrencies and having your position liquidated. Alternatively, borrowing money from friends and family to mine is also a good option.” At a “mining” conference, reporters saw that the founders of mining pools encouraged “miners” to use loans to purchase mining machines and mine coins.
"90% of people who speculate in cryptocurrencies lose money. Speculating in cryptocurrencies is equal to online gambling and drug abuse, while mining machines have compliant contracts and VAT invoices, which are more compliant..." Currently, people in the virtual currency mining industry (an industry consisting of mining pools, mining farms, and mining machine manufacturers) are brainwashing investors over and over again. However, no one has ever mentioned the investment disclosure and authenticity issues involved, as well as the risks of illegal fundraising in this direct fundraising mining model, to investors outside the industry who are eager to make a move.
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