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In the winter of 2017, the nights in Inner Mongolia were very cold, with the outdoor temperature below minus 20 degrees Celsius.
In a desolate "mine", due to the lack of entertainment activities, Feng Sheng, a Bitcoin miner from Hangzhou, Zhejiang, fell asleep early in a large room with bunk beds that can sleep seven or eight people.
"The site is very remote, half a day's drive from the nearest small county town, and it's like the Gobi Desert. There is nothing except the site and a road." He told the reporter from The Paper that it was an endless wasteland. The "mine" that Feng Sheng went to was located in a wasteland in Inner Mongolia. Photo provided by the interviewee What drove this young man from the south to this cold and frozen wasteland was the booming Bitcoin market. In 2017, the price of Bitcoin rose from $1,000 at the beginning of the year to $13,000 at the end of the year, an increase of more than 10 times.
Feng Sheng is just one of many "gold diggers". Behind him is a large group of people who are flocking to Bitcoin and regard it as "digital gold".
Since the second half of 2020, Bitcoin miners seem to have smelled the "madness" of three years ago. After breaking through $10,000, the price of Bitcoin has been rising all the way, once breaking through the $40,000 mark.
Feng Sheng just graduated from college in 2017, and now he has more than three years of "mining" experience. During this period, he also witnessed the price of Bitcoin plummet from nearly US$20,000 in December 2017 to around US$3,000 in December 2008. Bitcoin price trend since 2017 After experiencing "big winds and waves", facing the current wave of Bitcoin's rising market, Feng Sheng told the reporter of The Paper, "Mining is a long-term job. If you update the mining machine in advance, plan the site, electricity price, and electricity fee, the subsequent price fluctuations will have little impact."
Mining is actually an activity with potential policy risks. In September 2017, the People's Bank of China and seven other departments jointly issued the "Notice on Preventing the Risks of Token Issuance and Financing", calling a halt to all types of token issuance and financing activities. Domestic cryptocurrency exchanges have been gradually closed, and virtual currency mining was also required to exit in an orderly manner. Due to its high power consumption, virtual currency mining was once included in the list of "eliminable industries" in the "Guidelines for Industrial Structure Adjustment (2019, Draft for Comments)" issued by the National Development and Reform Commission, but it "escaped" in the official draft.
Miner's account book: costs include electricity, hosting fees and mining machine costs
"It takes 12 months to recover the investment in Bitcoin mining" and "Bitcoin mining machines are still in short supply even after doubling in price". As the price of Bitcoin hit the $30,000 and $40,000 mark, the Bitcoin mining industry has been trending twice in a row. The "miners" who have been hiding behind the speculators in the gray area have also reappeared in the mainstream view.
In 2015, Guo Li went to Sichuan to inspect the "mine". It was the rainy season at that time, and rain often washed away the road, and there were constant rolling stones falling on the road.
"It was very dangerous, and I felt like I was risking my life to do this," Guo Li recalled. However, from then on, Guo Li began to build a mine.
Bitcoin is "mined". According to the Bitcoin POW (proof of work) mechanism, each computer node uses its computing power (computing power) to compete for the right to keep accounts. Whoever wins the right to keep accounts can get the corresponding Bitcoin reward generated by the system. This process is called "mining". The hardware equipment for mining is called "mining machine", the individual miners who buy mining machines are called "miners", the place that hosts mining machines and provides electricity is called "mining farm", and there are also mining platforms "mining pools" and so on.
"Nowadays, people outside seem to think that our industry is quite profitable, but in fact, it is quite hard work behind the scenes. Everyone works very hard and is very diligent," said Guo Li.
In 2019, Liu Wu, a Bitcoin miner from Suzhou, invested in a cloud mining platform with the mentality of "throwing away some money, if I get cheated, I'll just get cheated". After receiving more than 2,000 yuan from the first sale of Bitcoin, Liu Wu had the idea of entering the Bitcoin mining industry.
The miner's income is the number of bitcoins rewarded in each block mined. The cost mainly includes the electricity fee paid to the mining farm, the hosting fee, and the cost of purchasing the mining machine.
Custody fees and electricity bills are usually calculated together. Chen Jiu, a miner in Nantong, Jiangsu, told The Paper that his monthly electricity custody fee is 60,000 yuan, while he can mine about one bitcoin per month (about 34,000 US dollars at the current market price).
How profitable is mining? Mining machines are still hard to come by despite soaring prices
"In traditional industries, it takes at least three years to recover the investment cost of a target, but mining can basically recover the cost within one year, and the cost recovery starts from the first day of the operation of the mining machine, which is quite tempting," said Liu Wu. He has hosted dozens of mining machines in mining farms in Xinjiang, Yunnan, Sichuan and other regions. According to the coin price in 2019, his income is a monthly return of 12%.
The price of Bitcoin mining machines will change with the changes in the price of Bitcoin.
"I bought 30 68t Whatsma M20s at an average price of 6,500 yuan per unit in the summer. Now the price of the machine has risen to 14,500 yuan per unit," Chen Jiu told the reporter from The Paper.
In fact, with the rising price of Bitcoin, the mining industry has become a veritable "gold mine", and the influx of newcomers and retail investors has made it difficult to find Bitcoin mining machines on the market. Currently, the latest mining machine S19pro produced by Bitmain is priced at 27,700 yuan, and the current market price is more than 50,000 yuan.
"Antminers are harder to get than Xiaomi phones. They are sold out in one or two seconds every time they are officially released. It seems that the current orders will not be shipped until August." Chen Jiu said.
Based on the selling price of 27,770 yuan for the mining machine, under the current market conditions, it only takes 6 months to pay back the investment in Bitcoin mining. If based on the market price, the payback time will double.
Therefore, for miners, the timing of entering the mining industry is very important. Long Qin, a miner from Liaoning who started mining in 2018, believes that his entry point was not very good. The machines he bought before were all low-computing machines, and he can only say that he is slightly profitable at present.
"If you entered in 2017, the price of the machine was so high when the price of Bitcoin was $20,000, but it plummeted in the following months, so it is very important to choose the entry point," said Long Qin.
Liu Wu also mentioned, "This year, many newcomers have entered this circle. I guess they haven't made any money. Because they entered the market when the market was good, the price of the machine was relatively high."
Long Qin said that since 2020, his profits have been good in the current bull market. If he sold Bitcoin at US$41,000, "it would at least triple."
The ups and downs of 2020: 312, halving, and Bitcoin bull market
In 2020, Bitcoin experienced great ups and downs. Among them, March 12 is a day that cryptocurrency practitioners still remember vividly.
Under the dual influence of the COVID-19 pandemic and the oil price war, the price of Bitcoin has fallen for two consecutive days. On March 12, Bitcoin even fell below $4,000, a drop of more than 50% from its highest price in February.
When the income from mining is not enough to pay for the electricity consumed, the currency price at this time is called the "shutdown price", which is affected by factors including currency price, electricity price, mining difficulty, etc. If the currency price falls below the "shutdown price", miners need to shut down the mining machine, otherwise they will suffer losses.
“Everyone was a little overwhelmed for a while. Fellow miners called each other to ask whether the price would continue to plummet, whether to sell their holdings or continue to wait and see. No one could give an answer.” said Chen Xiaolong, founder of Yunge Industrial Park and mine owner.
He admitted that he was a little confused at the time and felt very panicked. He was afraid that if the price of the currency continued to fall and the electricity could not be consumed, he would suffer huge losses.
"Many retail miners did not pay their electricity bills at the time and chose to shut down their machines. Some retail miners no longer needed their machines and used them to pay for their electricity bills. I don't know whether I should buy back some customers' machines at a low price," said Chen Xiaolong.
Will the scene of "mining machines sold by kilogram" in 2018 happen again? This was the "dark cloud" lingering in the hearts of many Bitcoin mining industry practitioners at that time.
However, the generational optimization of mining machines lies in computing power. The price of coins is lower when the mining machines with high computing power are shut down. Therefore, Feng Sheng, who just bought a new machine, was not affected too much. "The computing power is optimized, and it is nothing more than a problem of electricity bill settlement." Miner Liu Wu also said that he had invested not long ago and there was still a little profit, not much, but he could continue to operate.
“312 had no impact on the mining farm, but it had a huge impact on the overall mining and the coins held by everyone. No one could have imagined that the price of Bitcoin would fall below their expectations. It felt like Bitcoin might return to zero,” said Guo Li, the owner of the mining farm.
In May, Bitcoin ushered in its once-in-four-year halving moment, which means that the number of Bitcoin rewards for each block mined by miners will drop from 12.5 Bitcoins to 6.25 Bitcoins, and the income of mining machines will also be halved.
"The halving of Bitcoin is the most difficult for mining farms and miners, because the output is instantly reduced by half. It used to cost 30,000 yuan in electricity to mine one Bitcoin, but after the halving point, the mining price instantly became 60,000 yuan, but the price of the currency is still hovering around 40,000 to 50,000 yuan," Li Bo, the owner of the mining farm, once told The Paper. At that time, 30% of his mining farms were closed.
At the end of October, Bitcoin's upward momentum was unstoppable, soaring from $11,000 to $20,000, $30,000, and $40,000 in succession, and now hovering at a high of $34,000.
In 2020, miner Long Qin has been hoarding coins, and the three bitcoins he mined have not been sold yet.
"I don't think it will end like this. There are certain historical patterns to follow. I didn't experience the first two halvings, but the third halving happens only once every four years. I don't think the last wave was at $20,000 and this wave will end at $40,000, so I do have confidence. I will sell some Bitcoin when it reaches $50,000, and I will sell more when it reaches $100,000," he said.
Feng Sheng, a miner, believes that mining is a long-term job. If you plan ahead for machine updates, site electricity prices, and electricity charges, the subsequent price changes will have little impact. "It's nothing more than that after the price of the currency has risen, the shareholders have become more diligent and come to ask for profit distribution every few days," he said with a smile.
Miner Chen Jiu is a little worried: "It's rising too fast. I like bull markets, but they can't rise and fall so violently. I hope it's a slow bull market, rising more slowly, and extending the bull market cycle for a longer time."
He doesn't have many coins in his hands now, so even if the price increases a lot, there won't be much profit. Moreover, Chen Jiu believes that if the price increases too fast, the bull market will easily end early.
"It's too eye-catching, and there will be many uncertainties, such as stricter regulatory policies," said Chen Jiu.
Like a "migratory bird": Migrating between the southwest and northwest
In China, in pursuit of cheap electricity, mining farms are basically distributed in Sichuan, Yunnan, Guizhou, Xinjiang and Inner Mongolia, and the types of electricity include hydropower, thermal power and wind power.
Hydropower in Yunnan, Sichuan and other places is the cheapest, but its disadvantage is that there is a difference between flood season and dry season. In the flood season, there is abundant rain, sufficient electricity and low electricity prices, while in the dry season, there is less rain and high electricity prices.
Therefore, in order to reduce costs, some miners need to migrate their mining machines to hydropower-rich areas such as Yunnan and Sichuan during the flood season, just like "migratory birds", and migrate their mining machines to thermal power or wind power-rich areas such as Xinjiang and Inner Mongolia during the dry season.
"10%-20% of miners don't need to relocate, but 80% will," Chen Jiu said. "I mined in Sichuan during the flood season. Now there is no electricity in Sichuan during the dry season, so I went to Xinjiang to mine. I will move back to Sichuan when the flood season comes next year."
However, this migration is more targeted at mining machines with small computing power.
Chen Jiu explained: "Because the power generation is low, the mining farm has to drive away some customers, and that means the low-power users will be driven away, and the large users will be kept. The high-power machine is 3,500 watts, and the low-power machine is 1,300 watts. One high-power machine is equivalent to two and a half small machines, so the large users will definitely be kept. For the same operation and maintenance, only 100 machines need to be maintained for the large users, while 250 machines need to be maintained for the small users. The fewer machines, the less workload. Every mining farm likes high-power machines."
Such migration also means the loss of some profits, because it takes a month to go back and forth, and the mining machines cannot produce anything, which is equivalent to a stagnant state.
In order to meet the needs of miners, many mine owners have opened mines in areas with sufficient hydropower and other electricity. For example, Guo Li owns mines in Sichuan and Inner Mongolia to facilitate the migration of miners.
It is worth noting that the rise in coin prices does not seem to have brought much change in the profits of mining farms.
Guo Li, the owner of a mining farm, said that his income has actually been decreasing year by year. "In 2015, I could earn at least 10 cents per kilowatt-hour of electricity. Now it's only around 4 cents. This is because in the mining industry, electricity costs are always decreasing when the price of coins drops, and they can't increase when the price of coins rises."
"I am now selling at a low profit but in large quantities," said Guo Li.
Many customers signed contracts in 2020 and moved to mining farms in Inner Mongolia after the flood season in Sichuan. "The price of coins only went up after the mining machines were installed. It would be difficult to raise the electricity price for customers, and we would have no credibility, right?" he said.
Mine owner Chen Xiaolong also pointed out that his current electricity bill is 0.26 yuan, and the managed electricity fee charged to customers is more than 0.3 yuan.
Miners' wishes and plans
Mining and hoarding coins seem to be the inevitable plan of miners.
"I hope the price will rise slowly, giving miners like us more time to mine coins," Chen Jiu said. "Even if the price rises to 1 million per coin now, I don't have many coins. Let me mine more and hoard coins."
He regretted that he had mined about 220 coins in the past few years, but unfortunately he did not hoard them, and sold most of them on the eve of the bull market in 2017. Chen Jiu also mentioned that the difficulty of mining is increasing rapidly now. He can currently mine 1 coin per month with 4800T computing power, while he could mine 6 coins per month in previous years.
Miner Liu Wu recently acquired a batch of bitcoin machines. He plans to wait until the price of the currency is high enough to cover the cost of purchasing the machines, and then sell them to recover the costs. "The subsequent actions will be more casual and not so passive."
Long Qin has no plans to buy any more Bitcoin mining machines for the time being.
"I have 500 machines. Now there is no electricity during the dry season. I can only run about 400 machines recently. I am very satisfied," he said. "Because I have not used some of the high-computing machines at all, the profit is enough. I am just waiting. I can't buy more machines at this time."
Liu Wu, who owns both Ethereum and Bitcoin mining machines, plans to buy Ethereum mining machines because "Bitcoin mining machines are too expensive now."
Mine owner Guo Lize plans to build a new mine with a scale of more than 100,000 kilowatts.
"If the price of the currency can be maintained at a level of 30,000 to 40,000 US dollars, the electricity price should gradually increase this year," he said.
Do Bitcoin mining practitioners have faith in Bitcoin?
Chen Jiu has always adhered to the "faith of an old miner."
Chen Xiaolong said that his Bitcoin belief is "one coin, one villa" and he hopes to leave some Bitcoin for his children.
"It is possible that the time may exceed 8 years." Miner Liu Wu said that he will change the direction of investment according to the income and will not always invest in Bitcoin.
Guo Lize admitted that it had happened before.
"It's the same as when you were young and believed in love. When you experience it for the first time, if you catch the rise, you will believe in this belief very much. When you experience the first crash, you may doubt life. After experiencing it a few more times, you won't be like this anymore and it won't matter." he said.
(Feng Sheng, Guo Li, Liu Wu, Chen Jiu and Long Tan are pseudonyms in this article.) (The Paper)
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