A brief discussion on the business logic of mining and anecdotes from mining farms: Have you ever seen zero-cost mining?

Many people have not heard of what I am talking about today. Some of the stories are just jokes. Reality is so magical sometimes that even novels dare not write about it this way.

In this article:

• Mining business logic

• Profit and cost

• Mine anecdotes:

• Zero-cost mining

• Negative cost mining

Let me ask you a question first: what does mining require? Where is the focus?

There are two key factors: one is the mining machine, and the other is electricity bills.

Other parameters can be ignored when making estimates, and the details only need to be calculated when you actually invest funds in operations.

Basic business logic

The above picture comes from the Internet. Bitcoin mining is the simplest manufacturing industry. You only need to look at the cost structure and revenue sources. It has been marked with a red circle and arrow.

When choosing Bitcoin mining machines, you can choose the leading brands such as Bitmain and Shenma. It doesn’t matter if they are similar or not.

What is more critical is the electricity cost. When mining BTC and selling it, the cost is lower than the market price, and a profit of Bitcoin price difference is obtained. This profit is: the selling price minus the mining cost. Most of the time, the mining cost is less than 50%, which is the gross profit margin. The profit margin is strongly related to the electricity cost and the energy efficiency ratio of the equipment, and weakly related to other hosting fees, mining pool fees, etc.

All BTC is sold every month to obtain funds, and the profit is minus the electricity cost (the cost is mainly electricity cost).

That is: Sales - Cost = Profit

Then look at how much you spent when you bought the machine. Assuming you spent 18 million RMB on the machine and made an average profit of 1 million RMB per month, after 18 months, you will earn 18*1 million = 18 million RMB, which means that after a year and a half, you will have recovered all your costs. Starting from the 19th month, 1 million RMB per month is your actual profit. The money earned before is not net profit, but recovery of investment.

Real case:

I also have friends from traditional industries who have entered the mining circle. They pay 500,000 or 600,000 yuan for electricity a month, and then they hoard coins and almost never sell them. Because they are optimistic about the prospects of TBC and have high incomes in other fields, they take such unreasonable and extreme actions. Later, they found that it would be better to buy and hoard coins directly. I said, yes, you are destroying the business logic of ordinary miners. How can you mine like this? But the world of the rich is always magical, and it is normal for us not to understand.

The above is the basic business logic of cost-profit.

Mine form

Generally speaking, machines are purchased with funds raised by oneself and one's organization (institution, fund, company, circle of friends, etc.). The so-called zero-cost mining means that you do not have to pay electricity bills, and the electricity bill is 0.

How can it be zero cost or negative cost? This is the biggest expense. If the electricity bill is zero every month, excluding the cost of machinery and equipment, I can assume that my sales are equal to profit, which is 100% profit.

Note: Basic business knowledge, (sales - cost) ÷ sales = profit margin

Take the simplest transaction as an example:

The purchase price is 100 yuan, the selling price is 100 yuan, and the profit margin is 0;

The purchase price is 100 yuan and the selling price is 250 yuan, and the profit margin is (250-100)/250=60%;

The cost is 100 yuan, and the selling price is 1000 yuan (ten times the price), and the profit margin is (1000-100) ÷ 1000 = 90%

Some friends are used to saying that if the price doubles, the profit will be 100%. This is not accurate. Only when the cost is 0 can there be 100% profit.

Zero-cost mining

Real case:

I once knew a tennis coach who trained politicians and Federer. He had a strong network of connections. He mined with the support of the Venezuelan government and signed a contract with the local government. He did not charge electricity fees, and 50% of the mined bitcoins went to the local government and 50% to himself. Without considering other minor expenses and machine costs, his profit margin was 100% because his electricity cost was 0.

If you don't consider the depreciation of the machine, you can use a machine with a very poor energy efficiency ratio to mine, and keep mining, because you don't need to spend electricity. Looking back at the business logic of the first part, it is easy to understand. However, such a thing rarely happens. It just happened by chance and I happened to find it. We don't usually encounter such a good thing, because miners do manufacturing work. Considering the input-output ratio,

If you buy a machine and the electricity bill is too high, and you still haven't made your money back by the time the next halving comes, this cycle may be endless. If we take this case as an example, if you mine with 0 electricity bills, you can make your money back anyway and you can afford it.

Negative cost mining

Real case:

There are many nuclear power plants in some states of the United States, and the United States is also a major nuclear power user in the world. You don’t need to look up the data, just watch one of my favorite American cartoons, The Simpsons.

The story is set in Springfield (a fictional town based on Springfield, the capital of Illinois). The picture below shows the nuclear power plant in Springfield, and the scene where the male protagonist works (slacking off) in the nuclear power plant.

Image source: The Simpsons

This animation is famous for its ingenious ideas and divine predictions, such as predicting Trump's presidency and 911. You can search the keyword "Simpsons divine predictions" on Baidu to see more shocking results. What I want to say is not these, but that in such a popular animation, there is a nuclear power plant that we don't often see, and the male protagonist is an ordinary worker working in a nuclear power plant, which can show the developed nuclear power network in the United States from one side.

What is the relationship between nuclear power networks and negative cost mining?

Sometimes the electricity generated by nuclear power cannot be used up, and there is no suitable place to store it, so it needs to be consumed, similar to the logic of garbage disposal. Therefore, some nuclear power plants in some states have given subsidies. Large trucks pull Bitcoin mining machines to form mobile Bitcoin mines, rushing from one nuclear power plant to another. The local government and the nuclear power plant reimburse (subsidize) the road and fuel costs, and the electricity cost is 0, and sometimes there are some subsidies. The electricity cost is also 0. Considering the subsidy, this is negative cost mining.

There are many interesting things about mining. As the weekend approaches, this article tells some strange stories that are not often heard. There is a kind of thinking in physics and mathematics called extreme thinking. In this article, we push the cost of electricity to the limit, which is 0 and negative values, to see the profit model of miners. Through these cases, we can better understand the panorama of mining.