“Why do you want to mine overseas? What are the pitfalls?” | Wu Says No Crypto Dialogue Episode 2 Wang Wenguang

Wu said author | Colin Wu

Editor of this issue | Colin Wu

Wu said that unencrypted conversation is our new column. We found professionals who have tens of thousands of hours of experience in a specific field, and they are willing to condense their experience into 1 hour of practical information to tell everyone.

1 Please introduce yourself, Mr.

Wang Wenguang: Hello everyone, I am Wang Wenguang. I was in charge of global mining business at Bitmain before, and later I came to BitDeer. I worked in auditing and investment before entering this industry. Everyone is familiar with Deer. Simply put, we are now going all out to provide you with reliable and trustworthy mining business services. The BitDeer Mining Ecosystem Conference will be held at Beijing Damei Center on April 21. Friends are welcome to come and negotiate.

2 Why do you want to mine overseas? What are the benefits?

Wang Wenguang: First of all, Bitcoin mining is not unique to China. In the early days, Bitfury and KNC were both manufacturers of Bitcoin mining machines, with mines in North America and Northern Europe. There have always been mining businesses overseas, but the scale has never been developed, so domestic miners have a certain business foundation overseas.

The overseas expansion of domestic miners is not only an inevitable trend of the industry development, but also an active and passive choice of miners. Just like the domestic mining industry started with informal channels, then used direct power supply, and now most use grid power. Every industry has a process from chaos to order, and the economies within the industry are also looking for suitable soil for development.

We have seen that many miners have taken the initiative to go abroad in this bull market, because there are more ways to exit overseas, such as the secondary stock market, participation in trust funds, etc., which has more room for imagination. In addition, some people are passively going abroad, because policy risk is the biggest risk in the mining industry. This is a consensus and a lesson learned from blood. The domestic layout is already very heavy, and it is necessary to diversify investments.

Compliance is definitely the first consideration. Mining is not 100% welcomed overseas, but they are more receptive to innovation and willing to give companies space and time to develop. When it comes to cost, some people may say that it is very expensive to build a mine overseas. It is indeed much more expensive than in China, but it is not without reason. Transformers overseas are all ABB and Siemens, and the steel structure is stronger than in China, with a higher asset value retention rate.

But this is a relative cost. An administrative order in some regions can wipe out an investment. Isn't this cost high? In fact, the overseas investment of miners is the same as that of traditional industries. It is more compliant, has relatively low costs, and has a market. Investing abroad is not a terrible thing. You can watch the documentary about Fuyao Glass building a factory in the United States. In fact, foreign countries also have rules.

3 Briefly introduce the current distribution and characteristics of overseas mining

Wang Wenguang: Apart from China, the largest mining farms are located in the United States, followed by Canada, Northern Europe, Kazakhstan, etc.

The factors that miners consider when choosing these places are basically the same: political stability, blockchain or cryptocurrency friendly; low electricity prices, low overall costs; suitable natural environment, and a social environment that is friendly to Chinese people; complete technical talent, network and power facilities required for mining. Of course, another important point is that there are Chinese or familiar partners, and there is a trust relationship.

What is the order for choosing a mining site?

First, is the climate suitable? There are almost no large mining farms in the southern hemisphere, and few Chinese go there. Everyone is in the northern hemisphere, and the overseas Chinese are mostly in developed countries. Second, is the electricity price? The cheapest electricity price in the world is in South America, but it is not suitable for mining in the southern hemisphere, followed by North America, Northern Europe and Asia. Third, is the policy stable? Although the electricity price in Russia is also very low, few Chinese miners go there. Everyone knows the reason. Finally, the electricity, network and talents are relatively complete, which is also something we must consider. In this way, North America and Northern Europe are the most suitable overseas, followed by Central Asia.

4. Are there unstable factors in environmental protection and carbon neutrality overseas, especially in developed countries?

Wang Wenguang: There will definitely be an impact. The United States' return to the Paris Agreement will be the biggest guarantee for the implementation of carbon neutrality. The current situation is very sensitive. Countries will not cause public outrage in the field of public opinion. Carbon neutrality is a real deal. However, in terms of the degree of impact, overseas developed countries are much smaller than China (China's carbon emissions account for 1/3 of the world's total).

There are two main reasons: First, the utilization rate of clean energy overseas is very high. Take Texas, the United States, where our mine is located. 51% of electricity comes from natural gas power generation, 24.8% from wind power generation, 5.9% from solar power generation, 4.9% from nuclear power generation, and only 13.4% from coal power generation. The proportion of domestic coal-fired power generation exceeds 60%; second, carbon neutrality is not an absolute one-size-fits-all approach. The essence is to require economic development and energy consumption to match. This is why, although Inner Mongolia has been criticized, it is not the largest province in China for coal-fired power generation. In 2020, 39% of the energy used for POW mining is renewable energy, and overseas mining taxes are regular, and the social and economic benefits generated are good. It is not like the domestic industry that is "criticized by thousands of people" and "should be restricted."

5 North America is the future mining center. What is the situation in North America?

The biggest difference between this bull market and the past is that institutions have entered the market and the secondary capital market is active. After this bull market, we have seen: 1. Many large domestic miners or mines with good asset conditions are seeking to go public in the United States; 2. Mining companies that have already gone public in the United States are desperately purchasing machines and improving computing power, because the size of computing power determines the market value. Slowly, the world mining pattern will change. In the past, domestic computing power accounted for more than 70%, and it is estimated that this cycle will be reduced to less than 50%. All the leading companies will gather in North America, large mines and formal mining are concentrated in North America, and funds will also begin to tilt towards North America. At the same time, because the chip industry chain is concentrated in developed countries, some North American and European companies have restarted the design of mining chips. If successful, the mining pattern will change fundamentally.

The mining business model cannot be one-sided, just like the long-term coexistence of domestic grid power and direct power supply. In addition to North America, Europe and Central Asia are also suitable for continued expansion. At the same time, countries such as Indonesia are also suitable for small-scale opportunistic investment, but the risks in these regions are greater.

6. Summarize the pitfalls of overseas mining layout and any suggestions

Wang Wenguang: The companies I know that have fallen into pitfalls in overseas mining have the following shortcomings:

1. Unfamiliarity with overseas electricity policies. Take the United States as an example. We have built mines in three states. The electricity policies in each state are different. The household electricity prices range from 2.7 cents to 3.5 cents. And some areas have additional requirements for electricity use, such as investment amount, employment quota, etc. It is difficult to get the expected electricity price if you are not familiar with it. 2. Blindly trust overseas partners. Not all people in Europe and the United States are trustworthy. There is also a phenomenon of cheating overseas. What others can do may not be possible for you. And it is extremely difficult to hold accountable. In the end, it is all in vain and you can only admit it. 3. Unsure of investment expectations. Many domestic companies just go there directly when they hear that "electricity is cheap" in a certain place. They blindly invest without systematically conducting on-site due diligence, mine design, procurement budget, etc., and often end up with delayed construction period, skyrocketing budget, and constant contradictions. Over time, the golden period of currency price is missed, the investment model collapses, and the project is also yellow. 4. Encounter unreliable people or institutions. Everyone's cognition is limited, especially when laymen command experts. Many Chinese immigrants or business partners introduce projects to China, not because they have bad intentions, but because they do not understand mining and are unreliable.

As for suggestions, as mentioned above, enterprises going overseas are in all walks of life, and we just need to copy it. The most effective way is to "take a boat to the sea" or "borrow a boat to the sea". As Mr. Yang said in the last issue, it is most important to find professional institutions and reliable people, and I agree with this very much! We have been doing overseas mining since 2016, and we are one of the pioneers in the industry. We have rich experience in various overseas regions, especially in North America, Northern Europe and the five countries in Central Asia. We are willing to help you free of charge, provide advice, and make friends! BitDeer's overseas mines are also open to everyone, and we can work together on our existing load. Finally, I wish everyone can enjoy the bull market feast and use this bull market to complete the industrial layout. Thank you all!