This article is the second research report of the Law and Motion Research Institute, "2020 Mining Report". The report is mainly divided into four parts: historical background and market share analysis of the four major mining machine manufacturers, the proportion of computing power in various countries around the world, mining costs and benefits, and the impact of the 2020 black swan event on the mining industry. Reply "Mining Report" to the Lvdong official account to obtain the full text of the "2020 Mining Report".
In 2008, the financial crisis swept the world, and central banks around the world launched quantitative easing, resulting in serious inflation problems around the world. In November of the same year, at a forum for a non-profit organization called P2Pfoundation, a geek named Satoshi Nakamoto published a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System, which is the white paper of Bitcoin. The Bitcoin network is a distributed database composed of a chain structure and encrypted using the SHA-256 algorithm. Bitcoin is the value carrier of this network. Transactions in the network are transmitted between nodes through the P2P network, and the Proof of Work consensus algorithm is used to reach a consensus across the entire network. Providing computing power in the Bitcoin network, maintaining network security, and obtaining Bitcoin as a reward is called mining. In the early days, the overall computing power in the network was not high, and people could easily mine Bitcoin through CPU or GPU. However, as the price of Bitcoin and other cryptocurrencies gradually climbed, cryptocurrency mining became an industry, and many companies began to provide mining machines dedicated to mining. Branch businesses such as mining farms and cloud mining have gradually appeared in the market. This report will conduct an in-depth analysis of the mining industry around mining machine manufacturers, computing power, mining costs and benefits, and the impact of black swan events on the mining industry. (Note: Thanks to BTC.com, a mining pool under Bitmain, for its data contribution and guidance for this article. BTC.com is the largest mining pool under Bitmain and currently ranks third in the global mining pool list, accounting for 13% of the total network computing power.) Since mining machine data is relatively sensitive, this article only uses part of the data for analysis, which may be incomplete. Readers are welcome to correct and provide guidance. 2. Background and analysis of the four major mining machine manufacturers 2.1 Background introduction of each mining machine manufacturer When it comes to Bitcoin and cryptocurrency mining, the first thing that comes to mind is Bitmain. Bitmain's products include Antminer, BTC.com mining pool and blockchain browser service, Antpool, BitDeer one-stop mining cloud service platform, supercomputing center, Suanfeng (artificial intelligence), etc. Bitmain was founded by Wu Jihan and Zhan Ketuan in 2013. In April of the same year, Bitmain began to prepare for R&D and completed angel round financing. Subsequently, Zhan Ketuan developed the first ASIC chip dedicated to mining within half a year: the 55nm chip BM1380, and Bitmain launched the first mining machine Antminer S1. It can be said that this product led to the first rapid growth of Bitmain. In 2014, Bitmain launched the Antminer S2 (55nm chip) and developed the first version of the 28nm chip BM1382, which was used in the Antminer S3. In November of the same year, Bitmain's mining pool service Antpool was officially launched. In 2015, BTC.com gradually appeared in people's vision. The BTC.com team started with the block browser infrastructure, and then the services provided by its website extended to wallets, mining pools, market conditions, information and other fields. BTC.com team members are all from domestic first-tier Internet companies. They have been serving the Bitcoin mining machine and mining industry for many years and have many years of experience in system design, development and maintenance, and operation management. In the following years, the two mining pools under Bitmain have always occupied the top two positions in the mining pool computing power rankings. In September 2017, Bitmain received US$50 million in Series A funding from Sequoia Capital, IDG Capital and others. In July 2018, Bitmain completed its Series B financing, led by Sequoia, with participation from US hedge fund Coatue and Singapore's state-owned emerging market investment fund EDBI. Bitmain received a total of US$300 million in financing with a valuation of approximately US$12.4 billion. In August of the same year, it received US$442 million in Series B+ financing, led by Crimson Partners, followed by Palace Investments, Pavilion Capital Fund, Lioness Capital, and other institutions. At this time, Bitmain's total valuation reached US$14.2 billion. Subsequently, Bitmain prepared to go public in Hong Kong. However, with the sluggish cryptocurrency market in the second half of 2018, Bitmain’s revenue data was dismal, and the company carried out large-scale layoffs. Finally, in March 2019, Bitmain’s prospectus on the Hong Kong Stock Exchange expired and its listing plan failed. Bitmain-New Mining Machine Launch in 2020 As one of the leading companies in the mining machine field, Bitmain has been deeply involved in the mining machine market and continuously promoted the replacement of mining machines. At the end of February 2020, Bitmain released the new S19 series mining machine. The S19 Pro has a rated computing power of 110 T±3%, a wall power consumption of 3250W±5%, and dual fans in parallel at the front and back for exhaust and heat dissipation. Although the price is much more expensive than the previous mining machines, there is a significant improvement in computing power and energy consumption. The firmware of S19 Pro is a brand new design. The mining machine starts very quickly, optimizes the process of self-checking and frequency adjustment, and starts mining immediately (about two minutes) after the mining pool is set up.
As the price of Bitcoin rises, the prices of mining machines from major manufacturers have increased again this year. In the middle of the year, the price of a single S19 Pro mining machine was only more than 10,000 yuan, but as of the time of this report, the price of an S19 Pro mining machine has reached 25,610 yuan, and the spot has long been sold out. The official website shows that the futures delivery time has been scheduled until August 2021. 1. The new mining machine has a very high cost-performance ratio, has obvious first-mover advantage in market share, and has a strong reputation and brand effect in the industry; 2. It has the most types of mining machines and is one of the few companies that can provide multi-currency mining machines; 3. Almost monopolizing TSMC resources, other strong competitors can only choose to cooperate with chip manufacturers such as Samsung; 4. Rich customer resources and strong overseas market advantages (overseas sales outlets and overseas factories); 5. The mining machine has good after-sales service, there is a professional mining machine maintenance department, and new mining machines are all under warranty. 1. Previously, the internal fighting among the company's founders seriously affected the mining machine business. Although it is suspected to have been resolved recently, it will still take time to restore market share; 2. According to media reports, after Wu Jihan and Zhan Ketuan reached an agreement, the mining machine department was under the charge of Zhan Ketuan. Zhan Ketuan prefers AI business, so the future layout of the mining machine business line is still unclear; Summary: This year, Bitmain maintained its technological advantage and launched two S19 series mining machines, 7nm chips, and TSMC supplied wafers. The S19 series has high computing power and low energy consumption, and continues to follow the price war route, with extremely high overall cost performance. If there are no internal problems, production capacity can also keep up, and market share should be maintained. However, due to internal strife and the epidemic, Bitmain's domestic sales in the first half of the year were not ideal, according to the news. Fortunately, the advantages in the overseas market are still there. According to previous reports, Bitmain has received multiple overseas orders this year, including more than 30,000 Ant S19 series mining machines booked by Riot Blockchain, a Nasdaq-listed crypto mining company, and 17,595 Ant mining machines booked by Core Scientific. In addition, Bitmain has also made some strategic arrangements, taking the lead in launching a double-barrel design in an attempt to reshape the industry standard. Unlike the single-barrel mining machine design, the double-barrel mining machine is larger in size than the single-barrel mining machine, but its power consumption is reduced. More importantly, if a mining farm purchases a double-barrel mining machine, it needs to modify the rack to match the shape of the mining machine. This means that some mining farms need to make a choice: whether to gradually modify the rack or maintain the status quo and give up using double-barrel mining machines. According to current market information, Canaan Creative's Avalon mining machine has adopted a dual-barrel design, while MicroBT's Shenma mining machine still adheres to a single-barrel design. There is a game of industry standards in the mining machine market. Left: Bitmain Antminer double-barrel miner design, right: BitMicro Shenma miner single-barrel design At the same time, according to Lvdong, Bitmain still holds an ultimate weapon, the chip orders from TSMC. Competitors that cannot obtain TSMC's order support mostly turn to chip manufacturers such as Samsung, but TSMC's quality is slightly higher in terms of both production capacity and performance, which is undoubtedly a strategic advantage for Bitmain. In terms of mining machine types, Bitmain also launched another new type of mining machine this year, which is used to mine CKB (public chain Nervos token), which is very competitive. Looking at the mining machine market, Bitmain is one of the few manufacturers that can provide multi-currency mining machines. In December 2020, the media reported that Wu Jihan and Zhan Ketuan had reached a preliminary agreement to split Bitmain into two . The main profit-making unit, Antminer, will belong to Zhan Ketuan, while BTC.com, BitDeer and overseas mining farms will be controlled by Wu Jihan. This will result in the separation of Bitmain's business. Whether Bitmain can continue to have an advantage in the mining machine market in the future remains to be seen. In August 2011, Zhang Nangeng appeared on the Bitcoin forum Bitcointalk with the ID " ngzhang " , and a few months later launched the FPGA mining machines he invented - Icarus and Lancelot, which were also the earliest FPGA mining machines in China. The ID " ngzhang " is the reason why later generations called Zhang Nangeng " Pumpkin Zhang " .
Then in 2012, the American Bitcoin mining machine research and development organization " Butterfly Labs " announced that it would develop ASIC mining machines. Butterfly Labs said that after the ASIC mining machines are made, they will not be sold to the public, but only used by themselves, which means that the Bitcoin computing power will be fully concentrated in the hands of a certain organization. Zhang Nangeng could not sit still and decided to develop ASIC mining machines himself to prevent the Bitcoin computing power monopoly "crisis". Zhang Nangeng asked his tutor for a year's leave of absence, but was rejected, so Zhang Nangeng decided to drop out of school to concentrate on ASIC. In China, there is also a person named Friedcat who plans to make ASIC mining machines like Zhang Nangeng. In 2013, Zhang Nangeng founded Canaan Technology, with the mainland entity named Canaan Creative. In January of the same year, he made Canaan Creative's first ASIC mining machine, named Avalon, which also led the industry into the ASIC era. Canaan Creative was a little lonely in 2014-2015, but it also completed an important turning point. In June 2015, Shuimu Zehua Fund under the Hangzhou Branch of Zhejiang Tsinghua Yangtze River Delta Research Institute signed an investment agreement with Canaan Creative and led the investment of 2.5 million yuan. Canaan Creative was introduced from Beijing Zhongguancun to Hangzhou and has since taken root in Hangzhou, and has received much attention from the local government. However, Canaan's road to listing has been full of twists and turns. In 2016, Canaan attempted to list on the A-share market through a "reverse backdoor listing", but was stopped by the Shenzhen Stock Exchange. In August 2017, it sought to be listed on the New Third Board again, and this time it happened to encounter the "September 4th" turmoil, and the domestic cryptocurrency market encountered a policy and regulatory storm. Relevant departments began to ban all cryptocurrency transactions and IC0s in the country. Canaan also received four consecutive inquiries from the stock transfer company in October and November of that year, and finally gave up the listing in March of the following year. In May 2018, Canaan officially submitted a prospectus to the Hong Kong Stock Exchange, but it ultimately failed. On November 21, 2019, Canaan Creative finally landed successfully on the Nasdaq with the stock code "CAN", becoming the "first domestic mining machine stock". In addition to its own strength, it also benefited from the relatively tolerant listing policy of the U.S. stock market. Canaan Creative - New Mining Machine Launch in 2020 Avalon has launched three mining machines this year, namely A1166, A1166 Pro and the latest model A1246 launched in October. The rated computing power of A1246 is 90T, and the energy efficiency ratio is 38J/T. This is Avalon's first high-computing power model that has reached 90T. Due to the recent good market conditions, the price of mining machines has also fluctuated greatly. Canaan Creative's official website has not announced the price of the latest mining machine. According to relevant sources, BlockBeats learned that the spot price of A1246 in December this year was 19,300 yuan, while the futures price of the mining machine in May next year is 14,450 yuan, and a 50% deposit is required for futures. This price is not much of an advantage over other competing products. In terms of computing power, 90TH/s is much inferior to the 110TH/s of S19pro and the 112TH/s of Shenma M30S++. From the perspective of energy efficiency, the performance of 38J/T is not impressive. Therefore, Canaan Creative, which is busy with its listing on Nasdaq, has launched new models after its successful listing to try to catch up with its competitors, but it has also fallen behind in technology and R&D. Whether it will have the opportunity to regain market share in the future remains to be seen. 1. Old generation mining machines, with a certain reputation and user base; 2. Founder Zhang Nangeng is a technical leader who understands the mining machine market; The top management of Canaan Creative team has been replaced, and the internal management is relatively stable; 3. It has been successfully listed on Nasdaq, attracting widespread attention in the crypto community. 1. The mining machine has low cost performance; 2. The frequency of new mining machines is slow; Summary: Canaan Creative is one of the early mining machine companies. However, in recent years, Canaan has been focusing more on the AI field in pursuit of listing. The mining machine market has been quite different from that of MicroBT and Bitmain, and the computing power of the new mining machine is quite different from that of the S19 series or M30 series. According to BlockBeats, its new mining machine A1166 Pro has not been shipped for more than half a month after its release, while Antminer and Shenma Miner have almost completed the shipment of the first batch of new mining machines. In addition, some miners told BlockBeats that most miners may not choose Canaan's new mining machine because its performance is not as good as the S19 series or M30 series and the price is not cheap, but Canaan's second-hand old mining machine still has a certain market share. Canaan also experienced a change in senior management this year, but the process of job changes and power transfer was relatively smooth, and the transfer of company management rights was completed peacefully. Currently, Canaan's founder Zhang Nangeng is leading the company's business development.MicroBit was founded in July 2016. Compared with the other three companies, MicroBit is the latest to enter the market. MicroBit's founder Yang Zuoxing actually entered the mining circle as early as 2014. After experiencing the "Baomao runaway" incident and the "Bitmain equity dispute" incident, he decided to start his own business and establish MicroBit. The market share of its mining machine brand "Shenma Miner" has soared since its launch. With its high cost-effectiveness, it has begun to compete with Bitmain.
MicroBT received its first angel round of financing of US$5 million in September 2016. In December of the same year, its 28nm chip BT1000 was officially taped out. In April 2017, MicroBT's Shenma M3 mining machine was officially put into mass production, and the first batch of M3 mining machines had sales of nearly 10 million yuan. With the success of the M3 mining machine, MicroBT launched subsequent financing. BitMicro-New Mining Machine Launch in 2020: This year, MicroBT is the manufacturer that launched the most new mining machines among several mining machine manufacturers. In April, it launched 5 new mining machines with different computing power. Among them, the computing power of the Shenma mining machine M30S++ is 2TH/s higher than that of the Antminer S19pro, and the overall weight is 0.3kg lighter. The overall chassis size still adopts a single-barrel design, which is different from the new standard "double-barrel mining machine" advocated by Bitmain. It is still difficult to judge the winner in this industry standard competition for the "single and double barrel" design of mining machines. In the future, when small computing power mining machines are gradually eliminated and large computing power mining machines dominate the market, whether mining farms will choose Bitmain's double barrel design or continue the single barrel mining machine position setting remains to be further observed. Like Bitmain, the price of MicroBT's Shenma mining machines has also soared in the current favorable crypto market. The price of the M30S++ mining machine has soared from 10,000 yuan per unit in the middle of the year to nearly 30,000 yuan per unit at present, and it is also a futures product. 1. The founder Yang Zuoxing has excellent technical skills, and the performance of the 8nm mining machine developed by him is not inferior to some of the current 7nm mining machines; 2. Spot mining machines are now available, and they have occupied a certain market share during the period of Bitcoin’s inland expansion; 3. Production capacity has increased since the middle of the year, and currently tens of thousands of mining machines can be provided to the market every month. 1. Yang Zuoxing was involved in a legal dispute and has now resigned as the legal representative and executive director of MicroBit; 2. Previously, it was revealed that the company had insufficient production capacity and had been in arrears with mining machines for several months; 3. There is a large gap in the overseas market, and sales mostly rely on domestic distributors; 4. Market operations are relatively weak, with little media publicity. Summary: BlockBeats found that according to official data from MicroBT, 300,000 Shemma M3s were sold in 2018, accounting for 9% of the total network computing power at the end of the year; 600,000 M20s were sold in 2019, accounting for 35% of the total network computing power at the end of the year. The market share has been steadily increasing. MicroBT has always been relatively low-key. Compared with market promotion and other aspects, MicroBT pays more attention to technology, which also limits its brand awareness. Yang Zuoxing previously revealed in an interview that the company has about 70 people, 50-60 of whom are technical personnel. In addition, Yang Zuoxing's technical level is recognized by the industry, and he has a good relationship with many mining pool companies in the industry. Ebang International was founded in 2010. At the beginning, Ebang was engaged in business based on communication equipment, and the communication industry is cyclical. In 2011, Ebang founder Hu Dong paid close attention to Bitcoin and came up with the idea of making mining machines. When the communication industry was in a trough, Ebang International considered whether to do research and development in the blockchain field.
Yibang started to invest in bitcoin mining machines in 2014, and the mining machines were not put into production until 2016, with 9 versions changed. After that, Yibang's main business was the sales of bitcoin mining machines and accessories, mining machine hosting and maintenance services, with telecommunications networks accounting for only a small part. Yibang International was once listed on the New Third Board and completed two rounds of fundraising. In the second half of 2017, it began to consider listing in Hong Kong. Ebang’s move to the US stock market was also a helpless move to a certain extent. It had previously tried to list on the Hong Kong Stock Exchange twice, but both ended in failure, just like Bitmain and Canaan Creative. The reason is that the Hong Kong Stock Exchange has an extremely cold attitude towards mining machine companies. On June 26, 2020, Ebang International "cloud rang the bell" in Hangzhou and officially landed on the Nasdaq, becoming the second domestic Bitcoin mining machine stock. The stock code is EBON, and the total fundraising scale is approximately US$100.75 million. Ebang International - New Mining Machine Launch in 2020 Ebang International, which is busy with its IPO, has hardly focused on its mining machine business in 2020, and has not launched any new mining machines throughout the year. The overall data of its mining machine E12 launched in 2019 is mediocre, and it cannot be compared with the high-power models of the other three companies. The model that E12 was originally matched with should be MicroBT's M31S. The price is basically the same, but MicroBT's M31S has better performance in computing power and energy efficiency. Yibang International Advantages 1. Already on the market; 2. An old mining machinery company with a certain reputation. Disadvantages of Ebang International 1. The mining machine has low cost performance; 2. There is almost no market. Summary: Although Ebang International is one of the old-brand mining machine manufacturers, its R&D technology is not strong. In the later period, it was obsessed with listing and basically had no intention of deepening its roots in the mining machine field. Compared with the frequency of other competitors' full-line efforts to introduce new products in 2020, Ebang has long been "left behind" by the market. There has been no new Bitcoin mining machine launched for a year, and the price is too high and the cost performance is low. The market share is almost negligible. After its listing, it has not made any moves in the mining machine field. It may be difficult to see Ebang in the future market competition. 2.2 Market share analysis of various mining machine manufacturers From the perspective of mining machine computing power, we can see that the global computing power statistics provided by BTC.com show that in recent months, computing power above 80TH/s accounts for 16%; mining machines with computing power exceeding 60TH/s account for 27%, indicating that the new generation of 7nm or 8nm Bitcoin mining machines have already been put into use in the market.
According to the conversation between LIDONG and the mining farms and miners in October, around July this year, most of the mining machines with a computing power of more than 75 TH/s were from the Bitcoin Micro-Shenma M30 series. At that time, a large number of Bitcoin Mainland S19 series mining machines had not yet arrived due to delivery issues, and the Canaan A1160 mining machine had not yet been shipped. This conclusion was later confirmed by people familiar with the two mining pools, BTC.com and Biyin. At that time, data showed that mining machines with a computing power of 75TH/s accounted for nearly 33% of the total network computing power, which means that Shenma mining machines once accounted for as much as 33% of the computing power at that time. However, as the two founders of Bitmain ended their dispute, subsequent shipments became much smoother. Many miners have received the new mining machines that had been delayed and completed their deployment. On the other hand, from September to November, the total proportion of mining machines with a computing power below 60TH/s was about 73%. Among them, the proportion of mining machines with a computing power below 40 TH/s was 47%. In July, the proportion of mining machines with a computing power below 40T/s was only 39%, which once again confirmed that as the price of coins rebounded, many old models of mining machines were turned on again. Looking at the four major manufacturers in the market, they all have mining machines that meet the computing power of less than 60TH/s. But at that time, Bitmain had just started and its market share was not high, so BlockBeats speculated that this 47% share should actually be divided by Bitmain, Canaan and Ebang International. However, considering that the popularity and performance of Ebang International mining machines in the market are slightly inferior to Canaan and Bitmain, this part of the market is likely to be held by Canaan and Bitmain. In May 2020, Bitmain's Antminer S9 series hardware was upgraded, and its computing power was upgraded from 14TH/s to 37 TH/s, and the computing power also rose to 32% at one point. Since Canaan's new mining machines cannot be shipped on a large scale yet, and Ebang International has not yet launched high-computing power mining machines, it can be inferred that 27% of the medium and high-computing power market (computing power exceeding 60TH/s) is likely to be occupied by the Bitmain S19 series and Shema M30 series. Summary: In recent months, the mid-to-high computing power market (above 60TH/s) has fallen into the hands of Shenma and Bitmain. On the other hand, Bitmain still occupies at least 20% of the total network computing power with its S9 series. As the price of the currency recovers, this proportion may be even higher. Combined with the computing power of some mid-to-high-performance mining machines, Bitmain's share of the mining machine market is about 40%-45%. 2.3. Summary of recent market performance of various mining machine manufacturers 1. Previously, while Bitmain was in internal strife, Bitmain (Shema) had occupied the high-computing power market. However, as Bitmain restored internal order and mining machines were shipped normally, it has regained part of the high-computing power market. In addition, relying on the original brand advantage and the high price of cryptocurrency, Bitmain has captured more low- and medium-computing power markets. 2. The sales volume of high-computing-power mining machines produced by Bitmain this year is considerable, and the stock was sufficient before. The original planned production capacity of Bitmain could meet the market demand, but due to problems at the Shenzhen factory, it has been unable to deliver the products normally, resulting in most of the high-performance new mining machines not being put into use before October. However, with the internal disputes settled, the S19 series has resumed normal delivery. 3. The advantages of the giants of Bitmain are still there. In the low-computing power market, which accounts for about 47% of the entire network, the S9 series of mining machines still occupy at least 20% of the market share. Other models of mining machines, such as the T17 series, also occupy a considerable share. In the 27% of the medium and high-computing power market, Bitmain and Bitmicro (Shenma Mining Machine) almost occupy most of the market share. It may be difficult for Canaan Creative to catch up. 4. Based on the data from both parties, it is predicted that the market share of Bitmain and BitMicro Mining Machines may have begun to equalize, each accounting for about 40% (or higher). 5. The market structure has changed, from the original first place of Bitmain and the second place of Canaan to the competition between Bitmain and Bitmicro (Shenma). Bitmain resumed shipments in a timely manner and the US market continued to expand, which timely delayed the momentum of Shenma to overtake and seize market share. There is a certain first-mover advantage in the mining machine market. If the market demand has not been met, it will be more difficult for miners to grab market share after deploying new mining machines. 6. The competitiveness of other manufacturers, such as Innosilicon and Ebang International, has gradually weakened. From the perspective of the international situation, the main overseas mining machine manufacturer is Bitfury (mainly container-type mining machines, mainly for mining farms, with very few bulk mining machines), but it does not pose a major threat. 3. Analysis of the global computing power share According to mining data from BTC.com for the past six months, about 50% of the world's computing power is in China, which is basically consistent with the data in a report commissioned by Fidelity Capital and overseas research organization BitOoda. It is an indisputable fact that China's share of the computing power of the entire Bitcoin network is declining. BTC.com is the largest mining pool under Bitcoin Mainland, currently ranked first in the global mining pool list, accounting for 16.8% of the total network computing power. The following article mainly uses BTC.com statistics as an example to briefly analyze the global computing power share and the market share of each mining machine manufacturer. The global computing power share from January to July 2020 is shown in the figure below: China's computing power still accounts for a relatively high proportion, but it reached nearly 70% in 2019. The reason for the decline this year is related to policies, the distribution of mining farms, and the alternation of old and new mining machines.
According to the data, starting from May, China entered the flood season, and the computing power share of China as a whole still maintained an advantage, at about 55%. Mining has been basically legalized in Russia (14%) and the United States (12%). There are several large mining farms in the United States, including listed companies. According to a report by Law and Flow in June this year, Bitmain signed an order with one of the mining farms for about 18,000 mining machines, with a value of about 200 million yuan (the price of mining machines changes at any time, and the value will change accordingly). There are many Bitcoin mining farms in Russia and its surrounding areas, which are also the locations of Bitmain's customers. Law and Flow learned that Bitmain has established dedicated sales branches in Russia and the United States, and also has Chinese and overseas sales who are proficient in Russian and English. Entering the second half of 2020, global computing power began to change slightly. This may be because new high-computing power mining machines have been deployed one after another, and the flood season in China has ended, and the mining machines have begun to migrate. In August and September 2020, China's computing power accounted for about 52-53%, but in October there was a sudden surge, reaching 72.21% at one point. The reason for this may be the sudden rise in Bitcoin prices in October, which caused the mining machines that had been shut down due to low prices to be restarted. As can be seen from the figure, computing power in other regions, not only in China, also increased in October. On December 1 this year, BlockBeats interviewed Fan Jianwei, head of Bitmain's supercomputing center. He said that the S9 and some older mining machines in the same series (16nm) still account for about 25% of the total network computing power, which is consistent with the increase in China in October.
In contrast, Russia's computing power has declined sharply, with its share of computing power dropping sharply from 12.55% in September to 3.8% in October. This is related to the serious aging of local mining machines and the fact that the mines have not purchased new ones. In addition, the Russian authorities' attitude towards the mining industry has been unclear, resulting in a certain degree of instability in the local mining industry. The US computing power began to rise in October, which is consistent with previous market news. According to a report by BlockBeats this year, mining farms are being built in batches in many parts of the United States, and most of the new models of mining machine manufacturers such as Bitmain have also been pre-ordered by the North American market. Among them, Riot Blockchain, Inc., a US-listed company, has ordered more than 30,000 S19 series mining machines from Bitmain in multiple batches this year, and another company, Core Scientific, has also reached an agreement with Bitmain to purchase 17,000 mining machines from Bitmain this year. These companies deployed mining machines in local mines in the United States, which further helped the growth of computing power. However, by November, China’s Bitcoin computing power fell again. One of the main reasons is the end of the flood season, when mining farms began to relocate from hydropower-rich areas such as Sichuan. This coincided with the resurgence of the epidemic, which led to lower logistics efficiency and longer migration time. In addition, although the flood season has ended, there are still mining farms that use hydropower. This year, many places in China have issued documents stating that electricity resources are tight, which has also affected mining farms that rely on hydropower for mining to a certain extent. 4. Mining costs and benefits The cost of mining can basically be divided into two categories: hardware cost (mining machine cost) and operating cost (electricity cost, manual maintenance...). The income from mining can be roughly divided into block rewards and transaction fees. From the perspective of hardware cost, new mining machines tend to be more expensive than old mining machines each time they are iterated due to their superior performance and low energy consumption. However, the price of mining machines is closely related to the price of coins. When the cryptocurrency market is booming, mining machines are often hard to come by. Mining machines that originally sold for 10,000 yuan are often sold for tens of thousands or even hundreds of thousands of yuan in the secondary market. But when the coin market is bleak, the price of mining machines will also plummet, and some old mining machines have even become "scrap iron" sold by pound. We can see that the high-performance mining machines newly launched by various manufacturers are basically priced between 20,000 and 30,000 yuan, and the prices of other types of mining machines also range from several thousand yuan. So how long can such an expensive mining machine usually mine? The service life of a mining machine can usually be divided into physical life and economic life. The physical life of a mining machine refers to the time from when the mining machine is put into use in a brand new state until it is damaged and scrapped. There are two main factors that affect the physical life of a mining machine: the quality of the mining machine and operation and maintenance. The quality of the mining machine is closely related to the mining machine manufacturer, the structural design of the mining machine and other factors. For example, the Antminer, which is famous for its low power consumption, uses a series circuit to supply power to the hashboard. If there is a problem with the circuit or chip of one of the hashboards, the entire hashboard will be unusable. The level of operation and maintenance will also affect the physical life of the mining machine. A large amount of heat will be generated when the mining machine is running. If the heat dissipation is not timely or the mining machine fan is damaged, the continuous high temperature will cause the mining machine to shut down, or even cause a short circuit in the circuit inside the mining machine. This is why mining machine manufacturers always emphasize the heat dissipation performance of the mining machine when promoting their new mining machines. In addition to temperature, there is also humidity. If the air is too humid, it may cause the mining machine to rust and corrode. In addition, in mining farms in Xinjiang, Inner Mongolia and other places, due to excessive wind and sand and dust, the mining farms also need to regularly check the dust of the mining machine. Failure to clean the dust in time will also affect the physical life of the mining machine. Under normal circumstances, the physical life of a mining machine can reach 5-10 years. For miners, what they need to pay more attention to is the economic life of the mining machine. The economic life of a mining machine refers to the service life of the mining machine from the perspective of cost and benefit. There are usually two indicators that determine the economic life: "electricity expenditure" and "mining income". When the mining income of the mining machine cannot cover the electricity cost, the economic life of the mining machine ends. Generally speaking, the economic life of the latest mining machine is more than three years. Next, let's look at the operating costs. Electricity costs are the main operating cost. For mining farms, there are also labor costs for mining machine maintenance, but compared with electricity costs, labor costs are basically negligible. The electricity used in the mines is mainly thermal power and hydropower. Thermal power is mainly concentrated in remote areas such as Xinjiang and Inner Mongolia. Not only is the price of electricity relatively low, but more importantly, it is relatively stable, which reduces the cost of building a factory; hydropower is mainly concentrated in Sichuan, Yunnan and other places. Due to the influence of seasons, Sichuan and Yunnan have flood seasons and dry seasons. The flood season is usually from May to October, and the price of electricity is very cheap, but the dry season is when the price of electricity will increase. The disadvantage is that the price of electricity is unstable, and the amount of water in the local area will greatly affect the price of electricity. During the dry season, some mines will choose to shut down and seal up their machines until the flood season, when miners will restart their machines. Some mines will even choose to move their mining machines from other places to Sichuan, Yunnan and other places during the flood season to enjoy the low electricity prices. Electricity costs are the core competitiveness of miners. Therefore, the economic life of the same mining machine is also different. For example, due to the low price of coins, many small miners had too high electricity costs and had to shut down their machines and sell their mining machines to large miners with electricity advantages (generally large miners will sign power supply contracts with power supply companies and enjoy relatively low electricity prices). Some domestic miners will also ship the mining machines that are about to be eliminated to countries with lower electricity costs such as the Middle East. According to Coinshare’s statistics and estimates, about 74.1% of the energy used for Bitcoin mining worldwide is renewable energy. The Cambridge Bitcoin Power Consumption Index points out that the total global power supply is 25,082 TWh, while Bitcoin’s power consumption accounts for 0.26% of the total power supply and 0.30% of the global total power consumption (20,863 TWh). In terms of revenue, the main revenue from Bitcoin mining now comes from block rewards. The total amount of Bitcoin is 21 million. Initially, each block will reward miners with 50 Bitcoins, and one block will be produced every 10 minutes on average. Subsequently, every 210,000 blocks, which is about 4 years, the Bitcoin block reward will be halved. At the time of writing this article, Bitcoin has just completed its third halving, and the block reward has been reduced to 6.25 Bitcoins per block. Miners will receive transaction fees at the same time as block rewards. In order to prevent dust attacks, users must pay a certain transaction fee for each transaction they initiate. At the same time, users will voluntarily increase this fee in order to get their transactions confirmed faster. However, the current transaction fees of the Bitcoin network are much lower than the block rewards. For miners, block rewards are still their main source of income. Based on the current daily output of 144 blocks and a reward of 6.25 bitcoins per block, the fixed daily output of bitcoins is 900. According to Ycharts data, the recent daily miner fee income range is 50 to 150 bitcoins, accounting for about 5% to 15% of the block rewards. However, Ethereum's recent transaction fees have shown a completely opposite situation. With the boom of liquidity mining, the activity of DeFi applications in the Ethereum ecosystem has been pushed to a new high, and followed by Ethereum's congestion and soaring transaction fees. Ethereum miners generated revenue of US$285.1 million in August, a month-on-month increase of 98.2%, a 25-month high. The proportion of transaction fees to miners' total income reached an all-time high, exceeding 40.5% of total income, while this proportion was only 10% in May. In a few days, the handling fees exceeded the block reward. The miners' income per block was 5 ETH, 2 from block rewards, and the remaining 3 were handling fees. 5. The impact of the Black Swan Event on Mining in 2020 At the beginning of the Spring Festival in 2020, two black swans "flying" in the crypto mining market one after another. First, the domestic epidemic prevention and control, and then, the global economy affected by the epidemic suffered a heavy blow, and of course the crypto industry failed to survive. Starting from March 8, the entire market fell for many consecutive days, hitting a low of $3,600 at one point. Affected by the epidemic, major manufacturers are facing delays in production and delivery. However, with the arrival of Bitcoin halving in May, users' demand for new mining machines has surged again, but most factories have to stop all production operations. The epidemic has not only affected the production of mining machines, but also interrupted the transportation chain of mining machines for a long time. It is understood that many new mining machines should have been delivered to miners in April this year, but due to the epidemic, some miners who have booked mining machines only received the mining machines in May to June, which indirectly affected the computing power of the entire network. At the same time, the epidemic has also had an impact on staff returning from their hometowns. According to local policies, it often takes two weeks to quarantine when reworking from other places, which brings trouble to mines that require personnel operation, maintenance and management. Some miners said that the mines they commissioned have received notices of clearing and shutting down. Fortunately, there are not many similar situations. Most of the mines are actually built in remote mountainous areas, with limited personnel flow. In addition, the person in charge arranged the on-duty personnel before the New Year, so the impact will not be particularly large. With the impact of the epidemic, the growth rate of computing power and mining difficulty on the entire network have declined. 312 The market plummeted: Bitcoin fell, the computing power of the entire network decreased, and mining institutions were shut down. Starting from the afternoon of March 8, BTC fell rapidly, and then hit US$3,600 in the following days. The continuous fluctuating price stimulated the fragile nerves of crypto investors. Faced with the eye-catching and dazzling shutdown price, some Bitcoin miners and miners were in a dilemma: when they turned on the computer, they lost; when they shut down, they also lost. The biggest impacts are those small mines and miners. They have insufficient cash flow, either because of crypto lending and liquidation, or because they cannot continue, and some have already collapsed on the eve of the halving. On March 12, the price of Bitcoin fell by nearly 40%, but the computing power did not fluctuate greatly. This is not because miners can still make profits through mining, but because most miners have no choice. Mining is an industry. In order to obtain the optimal electricity price, most mines will sign contracts with local power supply companies, and the contract will clearly state that miners need to pay a fine for shutdown of their operations on a large scale, or the number of machines running after shutdown does not meet the agreed standards, and the electricity bill will increase. Therefore, the mines can only continue to operate the mining machines due to the high shutdown cost. However, if the currency price falls again, it will lead to the fact that most old mining machines with low computing power and high energy consumption will not be profitable even in the flood season. Then the only remaining one is the new high computing power miner, which will to a certain extent lead to a decline in the computing power of the entire network and affect the security of the Bitcoin network. However, if the computing power of the new mining machine can exceed the computing power of the eliminated old mining machine, then network security will not be affected in any way. In fact, Bitcoin halving is not a black swan event. The previous few halvings were regarded as a positive event by the market. Because Bitcoin prices often usher in a wave of rise before and after the halving. As mentioned above, Bitcoin will experience a reward halving every 4 years. This year coincides with the sharp plunge of the market on March 12, and the market and miners have not recovered yet, which is undoubtedly a step further for miners. The Bitcoin halving in 2020 allowed insufficient funds to be washed directly by miners, while prepared miners had already made full preparations. Many miners learned to hedge this year: some did hedging; some bought double-limit insurance for bullish and put options, and even sold some bitcoins before, in order to reduce income uncertainty. The most direct impact of this year's halving is to raise the mining cost of Bitcoin. Many small mining companies will be forced to shut down old mining machines, and may withdraw from the mining industry because they cannot afford high-cost new mining machines. On the other hand, in order to cope with the halving of output, miners have to update and replace mining machines, which requires higher performance efficiency. Mining farms and miners who have not made sufficient preparations in advance are destined to be abandoned by the market. For mining machine equipment manufacturers, whoever gains technological leadership first will occupy more market share, and the upstream mining machine market structure may also change. After this halving, Willy Woo, the proposer of Bitcoin NVT valuation model, put forward a very interesting point. He believes that after this halving, the trading platform will replace miners and become the net seller in the market. In any case, the crypto market after 2020 is full of challenges for the entire mining industry. 2020 is destined to be a year of updates and iterations. The market is starting its own evolutionary model. Some miners may be slowly left far behind by the market if they lack plans, lack sufficient funding support, and even non-compliant mining farms. Most investors and industry insiders in the market have a relatively unified view before the halving: if the price of Bitcoin remains at the level before the halving, a large number of miners will be forced to stop mining, and the computing power of Bitcoin network will also be reduced by half. If the price of Bitcoin doubles, the computing power can still be maintained at the original level before the halving. Until today, more than half a year has passed since the halving. According to BTC.com data, the computing power of the entire network has achieved an 11% growth from 121TH/s when the halving was halved on May 12 to reach 135.62TH/s recently. The price of Bitcoin has achieved a nearly 180% growth from the lowest price of US$8,206 on May 12 to breaking through US$20,000 to around US$22,800. The overall operation of the Bitcoin network remains healthy and stable, and the market sentiment is good.
*Rhythm BlockBeats reminds investors to prevent high-risk risks. The views mentioned in this article do not constitute any investment advice.
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