Floods and DeFi boom: A dangerous August for crypto miners

Source: BlockBeats, author: 0x66, original title: Crypto Miners’ “Thrilling” August

For crypto miners, 2020 is both a year of innovation and a magical year.

Although they are all miners, the situations of different miners are quite different. While Ethereum miners are still enjoying the surge in mining revenue, Bitcoin miners far away in the mountainous areas of Sichuan are extremely anxious.

In August this year, Sichuan suffered a once-in-a-century flood disaster. The raging floods quickly submerged the streets, and the resulting mudslides and landslides quickly covered roads and houses. The Bitcoin mines hidden in the mountains were not spared.

The sudden flood also caused the owners of the mines in the upstream and downstream areas of the Qingyi River in Sichuan to experience the most torturous half a month: poor network, trapped operation and maintenance, and destroyed factories. In sharp contrast, Ethereum miners have recently reaped good profits.

"We have already experienced four mudslides this year."

"As long as no one is hurt, that's good." These days, whenever someone posts on WeChat Moments that their mine was severely damaged by a mudslide, miner Lao Lu always sees similar messages below. Cheerful each other up and keeping each other warm have become the most common scenes.

Since August 10 this year, Sichuan has experienced heavy rainstorms, and many counties have suffered varying degrees of disasters, especially in the early morning of August 18, when a once-in-a-century flood occurred in the Qingyi River. Since the mine is located in Leshan, where three rivers converge, the Bitcoin miners have been worried for as many days as the rainstorm lasted.

When Lao Lu saw the video on social media showing the Leshan Giant Buddha being flooded to the toes, he was terrified. The day before, he had received a message from the staff stationed on the spot: a mudslide occurred at the gate of the power plant, which almost affected the factory. From the video sent by the other party, it can be seen that the sudden mudslide took only 5 seconds from triggering to flooding the small truck on the road. "Fortunately, the power plant is fine."

Some miners said they have encountered several mudslides this year.

Some mine owners have encountered several mudslides this year, but they can do nothing about such natural disasters. They can only exclaim in their WeChat Moments, "Four or five mudslides a year, that's enough!" Compared with previous years, there are more mudslides in Ya'an, Sichuan this year. "Overall, there are a lot more, but it also varies by region. For example, places like Aba still have fewer than last year."

Another mine manager is in Sichuan, but because the roads were blocked by landslides and mudslides, he cannot go to the mine at all. "I am very worried about the machines." "The road to Changheba will be open soon, but other small mines are still not accessible. People inside have no nets or water, but fortunately they are safe."

Judging from the data, this natural disaster has seriously affected the computing power of the entire Bitcoin network. On August 18, the computing power of the entire network declined abnormally, including Biyin, F2Pool, AntPool and Huobi Mining Pool, which all experienced a drop of nearly 15%. At present, the data has returned to normal.

Bitcoin mining pool hashrate rankings on August 18: hashrate of many mining pools dropped by more than 15%

Some miners said that due to the fierce flood, some mines have arranged for local staff to evacuate. However, when the price of coins is high, most miners will adopt hedging methods and sell the coins corresponding to the production capacity in the next 1-6 months in advance to ensure stable income even when the price of coins drops sharply.

Compared to the Bitcoin miners who are suffering, Ethereum miners, who have received less attention due to their lack of graphics cards, have recently become the object of envy due to the super high returns brought by the DeFi craze.

"The last time this happened was in 2017 with IC0."

Liquidity mining has become very popular in recent months, and many crypto players have "transformed" into DeFi trendy farmers, from sweet potatoes to various fruits and vegetables. Some players have made considerable profits, while some investors have returned empty-handed because the on-chain transfer fees are higher than the mining income.

Amid the craze, Ethereum miners are undoubtedly the beneficiaries of this carnival.

Screenshot source: Weibo

Since May this year, the daily gas fee generated by Ethereum has continued to rise. Miners clearly felt this change in July. At the peak, the fee income once exceeded the system block reward. On August 13, due to the wealth effect of DeFi liquidity mining and Uniswap, the user's single transfer fee once exceeded US$20. In this context, miners' mining income after deducting electricity costs was as high as 92%.

One day in July this year, miner Lao Wei suddenly discovered that the unit revenue of the data background had changed significantly, from the initial 0.085ETH to 0.1ETH, and then broke through the high of 0.131ETH. "Everyone is very happy. The last time this happened was when IC0 was the craziest in 2017." The picture below marks the daily transfer fees of Ethereum, and these fees are obviously distributed to Ethereum miners and mining pools.

Image source: The Block

In addition to mining, miner T, who also participated in liquidity mining, can intuitively feel the changes during the period. "In fact, the income has started to increase since '312', but the change may not be so significant." He said that when products such as YFI and Uniswap appeared, Gas began to take off rapidly, "The peak was the emergence of YAM."

DeFi is indeed the driving force behind all this. On August 23, the fee payment data displayed by the Ethereum browser showed that within 24 hours, Uniswap accounted for more than 16% of Ethereum Gas, and the stablecoin USDT accounted for nearly 11% of Gas.

Screenshot source: Ethereum browser

The high gas fee has attracted the attention of Vitalik, who tweeted to call for an end to the increase in gas fees and also wrote a post to criticize Forsage, which is actually a Ponzi scheme for increasing gas fees. But until now, there is still no good solution to the Ethereum congestion problem. Some community members even proposed a proposal to "reduce the block reward to 0.5ETH." However, it was not recognized by many people.

The congested Ethereum network not only affects investors participating in on-site transactions, but also affects the smoothness of primary market investment projects. On August 18, the SKALE Dutch auction was postponed. According to the official statement, the reason was that the website crashed due to too many investors.

Of course, this is not the first fundraising recently. Projects such as Avalanche, Near and Justswap have all experienced downtime and delays due to overly "enthusiastic" users. The server problem may still be solved, and the entire Dutch auction process of SKALE, which was delayed, also added a link of on-chain transfer. It can be expected that if there is no good solution, in addition to hand speed and luck, participating users are destined to pay an expensive "ticket" for successful participation.

A similar scenario occurred in another project called Barter Trade, which started fundraising on August 14. According to players who participated in the fundraising for this project, because the project was too popular, although the Gas fee was as high as 1 Ethereum, it was still "naive", and some people were even willing to pay 4.4 Ethereum (worth more than 1,900 US dollars) for it.

Source: Crypto Community

In order to reduce gas costs and increase transaction speed, some players even came up with a "on-chain proxy investment" model similar to the popular proxy investment in 2017. The specific approach is: multiple people agree on an acceptable gas fee, and then use cross-chain protocols such as RenVM and Solana to map Ethereum to Solana, and then transfer Ethereum to the participating party (i.e. proxy investment). Since the gas of crowdfunding is always higher than that of a single player, it means that the probability of successful participation is greatly increased. After the participation is successful, the proxy investment will distribute the tokens to everyone later.

Of course, there are still some problems with this approach. For example, it does not solve the old problem of donation agents running away. At the same time, opening up crowdfunding means that the Gas "bid" of this small group will be known to others, and there is a possibility of being "exploited" by others. But in any case, as more projects start liquidity mining, since Ethereum's high Gas problem cannot be solved in the short term, this will greatly limit the user penetration of DeFi.

The DeFi craze has indeed brought tangible benefits to miners. The most intuitive feeling is that the coins they get are getting more. As the price of Ethereum rises simultaneously, the coins in the hands of Ethereum miners "have increased by 60-70% compared with the previous two months, and the price of graphics cards in their hands has also increased by 50%." Miner Brother T recalled, "I personally think that the current rate of return is very similar to the Fomo wave in June 2017. Both of them stopped making money after the rapid increase in computing power."

He said that some miners had quietly laid out their plans a few months ago, and the overall computing power has increased by 20% in the past two months. Now the super high income has fallen back. In T's opinion, this DeFi craze is just a temporary craze, and even if it is increased, "only old miners are increasing their investment... (but overall) after the halving this year, the income of ETH has greatly outperformed BTC mining."

Today, the floods in Sichuan have gradually subsided, and busy repair work is underway. The DeFi craze brought about by Uniswap is also cooling down. With the launch of similar platforms taking away some of the traffic, and the decrease in the frequency of new products, Uniswap's trading volume has now fallen back, and returning to normal profits is the daily routine of miners.

The first half of the year was delayed due to epidemic prevention, and the second half of the year was spent on flood control and machine repair. 2020 was not easy for crypto miners. Not only the Bitcoin miners on the field, but also another group of "quasi-miners" who entered the field early, although there was no natural disaster, were waiting for the project to go online. The long wait has exhausted the patience of many people. Although the Filecoin mainnet has not been launched, some miners have already planned a hard fork. Not only that, when it was close to the launch, the official team was also involved in a dispute with equity investors over the distribution of interests.

As the most upstream link in the entire industrial chain, crypto miners enjoy high returns while also taking on higher risks.

Whether it is the ups and downs of the currency price or the sudden disaster, there are always unpredictable accidents in between, but there are always some people willing to take risks. However, it is also their tireless pursuit of profits that has made crypto mining develop to this day and gradually become one of the commercial activities with global influence.