Mining machines or computing power: How to break through Filecoin?

Author: Tony

Proofreading: lris, Joss

Source: IPFS Force Zone

Trading is not about buying low and selling high; in fact, it is about buying high and selling higher, making the strong stronger and the weak weaker. - Japanese stock god Shikagawa Ginzo

1. History of the blockchain era: the birth of the new protagonist Filecoin

1. Blockchain 1.0: The Age of Digital Payment Enlightenment: Bitcoin’s Decentralized Currency

In 2008, the US subprime mortgage crisis broke out. The wealth-creating effect of real estate + leveraged financing got out of control. The bursting of the real estate bubble directly triggered the financial crisis, and leverage exacerbated the bubble burst. At the same time, Satoshi Nakamoto published a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System", which proposed a global cryptocurrency, Bitcoin. Bitcoin has brought about a new Internet era - blockchain, because it solves the problem of financial payment.

(Figure 1) "Bitcoin: A Peer-to-Peer Electronic Cash System", source: bitcoin.org, 2008-12

2. The explosive era of blockchain 2.0 token issuance: Ethereum’s trust solution

Compared with the previous centralized anonymous electronic cash protocol, Bitcoin has achieved a qualitative leap in technology, but there are still many shortcomings: Turing completeness, proof of stake improvement, application expansion, etc. In response to this, Ethereum proposed smart contracts based on the characteristics of blockchain. Smart contracts are programs stored on the blockchain, and the program will follow the code to fulfill the contract. The rise of Ethereum has triggered a new generation of waves - 1CO (initial token offering), which directly led to the emergence of many projects in the market to issue tokens based on Ethereum, which once again triggered a new wave of heat.

(Figure 2) Blockchain 1.0, 2.0, and 3.0 eras, source: IPFS Force Zone, 2020-07

3. Iteration of the blockchain 3.0 era: Filecoin VS EOS

1) EOS Blockchain 3.0: The barbaric stomping in the chaotic period

In 2018, EOS was called the last blockchain 3.0 project. EOS completed 350 days of crowdfunding since June 26, 2017, and its total financing amount at that time was close to 4.2 billion US dollars. However, the performance of the EOS main network was not ideal in the later period: it was mainly dominated by gambling games, and no high-quality Dapps were born; and as the value of the community increased, the EOS network itself was not secure, becoming the focus of hackers, and attacks occurred frequently.

In 2018, Bitcoin processed 7 transactions per second and Ethereum processed about 25 transactions per second. The rise of 1CO introduced many new projects, and with them many users and applications, which directly led to congestion in the transaction network and opened the curtain for EOS to enter the market with a million TPS. From global financing, super node elections, code vulnerabilities, Dapp stability, node infighting, etc. to the current depression, in less than three years, EOS has worn out the patience and trust of many community members and has not shown the era standards that meet the blockchain 3.0.

2) Filecoin Blockchain 3.0: The last gasp of a spent force, yet still able to penetrate the silk of Lu

In 2020, IPFS is called the key to blockchain 3.0. In 2017, Filecoin successfully obtained $250 million in financing, with more than 2,100 people, plus the first round of funding from German Blue Square Venture Capital, totaling $257 million. IPFS mainly solves the problem of data storage and use, and realizes the distributed storage and use of data. It is about to be launched, and the world is waiting to see.

As a seed player of blockchain 3.0, IPFS has also begun to get on the right track. After 7 years from 2014 to 2020, it has finally opened the 5G era of new storage - the new digital economy that links artificial intelligence, the Internet of Things, big data, and cloud computing (Figure 3), completing the privacy storage and transaction of data. Although IPFS is late, it is not absent. Once it is revealed, it will be amazing.

(Figure 3) Source: TaraX, 2020-02

Yao Qian, director of the Science and Technology Supervision Bureau and director of the Information Center of the China Securities Regulatory Commission, once pointed out the epochal significance of IPFS and said: Now some people have proposed IPFS. How to combine it with big data analysis, how to make data credible through blockchain, and how to make data more intelligent through big data analysis are all important development directions in the future.

There are less than two months left before the launch of Filecoin mainnet. Compared with the ambitious goals of IPFS, many people who want to enter the market are concerned about whether to invest in mining machines or cloud computing power now? How to judge?

2. How to recognize scam routines?

1. How did Snail Star create a “fake dream” to defraud 1.36 billion yuan?

On October 29, 2018, Henan Lianxin Technology Co., Ltd. launched the "Snail Interstellar Miner", which publicly claimed that its mining machine can mine CAI and Filecoin at the same time, and pre-mined CAI can be used to exchange for Filecoin. Here is a question? Is the Filecoin exchanged for the pre-mined CAI purchased by the mining machine manufacturer later? Or is it to divide the original mined by everyone and realize the income in batches through the form of coin mining?

(Figure 4) Hurun attended the Lianxin Technology Mining Machine Sales Conference, source: Internet, 2018-10

In addition, Lianxin has also launched a marketing strategy of "the more mining machines, the more coins produced" to stimulate investors to increase their principal investment. Simply put, a single "Snail Interstellar Miner" can only produce 47 CAI tokens a day. If 100 mining machines are purchased together for joint mining, each mining machine can produce 70 CAI tokens a day.

Filecoin mining explains that: the more data is stored, the more computing power grows, and the more storage computing power is stored. If the Filecoin mining pool is jointly operated and maintained, efficiency may be improved, but Lianxin borrowed the "MLM" incentive concept from Filecoin to increase revenue with a single mining machine.

In February 2019, the Snail Interstellar IPFS mining machine ran away. CAI coin is a virtual coin issued by Snail Interstellar itself.

According to an announcement by Zhengzhou police, in just five months, the company sold more than 300,000 "Snail Star Servers" to thousands of people, with the total amount involved reaching 2 billion yuan (later announced as 1.36 billion yuan).

On November 9, 2019, the special task force of Zhengdong Branch of Zhengzhou Municipal Public Security Bureau escorted Gao, Hu and Feng, the criminal suspects suspected of fund-raising fraud, who were repatriated from Cuba, back to China.

There have been similar cases before: the Ponzi scheme project "Bit Miner" swindled hundreds of millions and ran away, with many victims. Behind scams like this, there is probably no real mining machine, let alone a large-scale formal mining farm. Therefore, users who invest in mining must make an on-site inspection to see if there are "real" mining machines and mining farms behind them.

Whether it is the early scams of Bitcoin, Litecoin and other mining machines, or the current Filecoin dual mining (CAI and Lamb), the beautiful packaging may be false propaganda. Different products, same ending.

Let's understand how the scam builds up the "high ground" step by step to carry out the fraud. The following are some common escapes of mining machines for new investors to open their eyes, mainly including: high-end packaging and overwhelming publicity, high-profit channels and targeted summits, and pumping and shipping.

2. Mining and classic routines in the blockchain industry

1) High-end packaging and overwhelming publicity

High-end packaging

There are two main types of packaging in the blockchain industry: one is the packaging of hot projects, which takes out-of-context information from well-known projects to increase the popularity of the projects; the other is the packaging of super-luxury teams. The former requires the projects to be very popular, while the latter is to shape the brand image for themselves.

Riding on the popularity. This is clearly reflected in the packaging of Lianxin Technology Company, which mainly rides on the hot spots of Filecoin's strong technical team, capital and Hurun Report. People are led to believe that they are official, they have a strong technical team, a strong brand, and Hurun's endorsement of their products, because Lianxin Technology uses the brand to quickly sell mining machines.

Super luxury team. This part is mainly to build its own IP for the project. One is a "real" team and the other is a "hypocritical" team.

The "real" team is: the project uses a senior professional broker with high education, strong research level and top technology to promote. The main role of the broker is to give speeches and promote. The author has experienced a company like this, which was shaped into a brand form of tall, rich and handsome to achieve the purpose of project promotion. Now the project has failed and the boss behind the scenes is abroad; there are also some companies that hire foreigners as professional brokers, so as to avoid unnecessary communication between them and general investors. The author has met a foreign broker A before. A said: He has now resigned as the CEO of the original company and is now looking for the CEO position of a new company. If there is a suitable one, he can be introduced.

(Figure 5) The mysterious man in V for Vendetta, source: V for Vendetta, 2006

The main manifestation of a "hypocritical" team is that the project uses materials from overseas people for publicity without authorization. Because the amount of global information is too large and it is difficult to combine domestic and foreign information, overseas people may not be aware of it and stop it in time, and the project will then hold high the "banner" to commit fraud.

Overwhelming publicity

Compared with packaging, publicity is simpler and cruder. The project will use the content of the packaging to carry out multiple content forms and wide channels to achieve brand promotion and user fission dissemination, and achieve the brand effect: the project or mining machine is very popular, the project is good, and reports can be searched everywhere, and users come to ask. This form is mainly based on launching the brand, and conversion is supplementary.

2) High-profit channels and targeted summits

Because short-term media promotions have not gone through a long period of brand accumulation, they will not bring about a large amount of traffic conversion, and the main conversion to customers depends on high-profit channel dealers. No matter which field, there will be a complete ecology and professional division of labor, so in the field of mining machines, the corresponding channel dealers can still be directly used, which mainly has high profits.

The purpose of the summit is to convert users and build brands, with the main purpose of achieving revenue. The summit format will have some very professional lecturers, professional venue layout, professional channel diversion, professional actors, professional sales team, etc., which is different from the usual free and open meetings, giving users a high-yield user impression, thereby achieving revenue.

Jonah Berger, author of Contagious, points out that “we are all essentially social animals, and whether we realize it or not, other people have subtle and surprising influences on every aspect of our lives.”

They influence people around them through their personalities and behaviors to achieve higher sales performance. How can they achieve high-profit distribution to channel partners without a professional team and fake products?

3) Pulling and selling

Pumping up the market and selling out are mainly secondary cash realization methods after selling mining machines. After combining the high returns of the tokens obtained from the mining machines (based on the fission or increased investment of the first batch of users who purchased the mining machines), more investors' funds are taken out through secondary market management. Secondary cash realization includes the purchase of mining machines and tokens.

Take CAI as an example. A group of early mining machine investors have obtained a certain amount of CAI. For them, if the CAI market performs well, they can realize return on investment and profit within expectations. With some incentives, they will continue to buy mining machines and CAI or guide others to buy mining machines and CAI. After the sales team completes the secondary marketing, they will frantically ship tokens and the project will end and run away.

Although there are many forms of running away, including soft running away (not maintaining the original network) and hard running away (openly announcing and leaving), the final result is that there is no one to manage the market, no value, and it becomes a virtual coin.

In fact, many of the above forms are normal sales channels, but if the project is started at the wrong beginning, it may eventually lead to the uprooting of the project.

So in such a chaotic market, how can we boldly invest in Filecoin?

3. Market investment wave: mining machines or cloud computing power?

Since the Bitcoin mining industry, there have been two ways of investing in mining: mining machines and cloud computing power. The same is true for Filecoin. So what is the difference between the two? Simply put, it is the difference between a landlord and a second-hand landlord. A mining machine means that I bought the entire mining machine and own the ownership of the mining machine; cloud computing power means that I rented all or part of the mining machine for a certain period of time and can only obtain the income for that period.

(Figure 6) Mining machine hardware, source: new.qq.com, 2020-06

Mining machines are customized computers used to earn crypto assets. These computers generally have professional mining CPUs, GPUs, memory and other hardware. Early Bitcoin mining machines mostly used the proof-of-work method of burning graphics cards, which consumed a lot of power. Users mainly run software on the mining machine and then run specific algorithms. After communicating with a remote server and completing the task, they can get the corresponding crypto assets. It is one of the ways to obtain BTC, ETH, Filecoin, etc.

Compared with purchasing mining machines, cloud computing power is to split the total computing power of mining machines into independent units. Users purchase a part of the computing power of a single mining machine for mining. Usually, large mining farms provide computing power leasing services. Users can earn digital currencies mined by the corresponding computing power by purchasing computing power contracts, saving the cost of purchasing mining machines and the cost of mining machine operation and maintenance.

(Figure 7) Mining machine VS cloud computing power, source: IPFS Force Zone, 2020-07

In Filecoin, cloud computing power is divided into two major forms, one is simple clustered cloud computing power, and the other is mining pool cloud computing power, which can be understood as shared mining machines/mining pools. Simple clustered cloud computing power mainly involves many single mining machines being managed together. The mining farm and the hardware are independent. The cloud computing power sold by splitting the single T computing power of the mining machine is similar in concept to the split concept of Bitcoin. Mining pool computing power is concentrated in a data center. All hardware is uniformly arranged through planning. All equipment is closely linked and communicates internally. It has good network conditions and rarely has storage bottlenecks. All equipment is under unified management. All levels have fault tolerance protection and stable operation.

(Figure 8) Mining pool cloud computing power, source: Hu Feitong’s public account (ID: gh_0a0825484600), 2020-04

The main difference between the two is the difference in computing power allocation. Simple clustered cloud computing power is the patchwork management of a single mining machine. The computing power allocated may be N (the computing power purchased by the investor) / the total computing power of the mining machine or N (the computing power purchased by the investor) / the total computing power of the mining farm; the computing power of mining pool cloud computing power is N (the computing power purchased by the investor) / the total computing power of the mining farm.

Then the difference between the two is:

The threshold difference. The threshold for cloud computing power is lower, and users can purchase it with a single terabyte of computing power according to their investment preferences; while the starting price for mining machines is a single mining machine, and the target amount is larger than that of cloud computing power, including a lot of hardware, and the matching requires at least dozens of terabytes.

Differences in costs and energy. For mining machines, investors are equivalent to buying a mine to mine. They need to set up a site, operate and maintain it, pay electricity bills, and other costs and energy to maintain their own mining machines. There will be different "pitfalls" in the operation process. Once a "pitfall" is not grasped correctly, it may directly affect the subsequent income. After purchasing cloud computing power, investors only need to pay a certain management fee. The management fee is mainly paid in advance or paid in the form of post-income.

The risks are different. Once you start mining Filecoin with a mining machine, you can only sell the mining machine hardware to exit; while some cloud computing systems will protect investors, and some systems indicate: fill the effective computing period, extend the investment for one year if the investment is not recovered in the first year, and refund if the profit cannot be obtained. In the final analysis, investors still have to look at the technical capabilities of the miners, because many of these terms that seem to protect investment are marketing methods to seize the market.

Ownership is different. Buying a mining machine means buying ownership; while buying cloud computing power means leasing cloud computing power for a certain period of time, with no ownership, only profit income.

Liquidity. The exit of mining machine investment may require more considerations, including mortgage mechanism, exit approval, mining machine sales, etc.; while cloud computing power can choose whether to continue to participate after expiration, and its liquidity is relatively simple, including early participation and later exit.

Operation and maintenance adjustments. Once the official participation rules are adjusted, mining machine investors may need to find an operator to adjust the computing power and pay additional fees; and because the income from cloud computing power is tied to the mining pool, it generally includes operation and maintenance services, so there is no need to worry about it.

In addition to the above mining pool types, there is also a distributed mining pool concept.

Distributed mining pools contribute to distributed storage networks by utilizing idle resources in society, providing computing, storage, network and other unified management equipment across networks and regions, and decentralizing storage of a large number of tasks. This method can be used to access existing external equipment, and is particularly suitable for providing services to individuals or other entities. Distributed mining pool service providers have less investment and mainly make profits through services.

(Figure 9) Distributed mining pool, source: Hu Feitong, 2020-04

At present, the technology is not very mature, and there are no companies selling distributed mining pool business in the market. At the same time, how to deal with official standards also needs to be explored step by step, but the future is promising.

4. Sharp eyes: How do we identify hardware devices?

There are many accessories for mining machines, mainly including CPU, SSD, hard disk, GPU, memory, motherboard, network card, display card, board connector, radiator, etc. The following is an analysis of the main hardware, including CPU, SSD, hard disk, GPU, and memory.

The mainstream hardware configurations on the market are as follows:

CPU: AMD 3960x/3970x, 3990X

GPU: 1060, 1080, 1080Ti, 2080, 2080SUPER, 2080Ti

SSD (solid state drive): 1T/2T*NVMe

RAM: 128G/256G/512G

Hard disk: 96T-336T

CPU: The core of computing power growth

(Figure 10) Hardware performance comparison of the Filecoin community, source: filecoin.io, 2020-07

The above are some suggestions on CPU given by the official Protocol Lab through the community.

According to official information and the experience of miners' testing, multi-core, high-frequency CPUs will greatly accelerate the storage packaging process. The performance of the CPU determines the growth rate of the computing power of Filecoin mining equipment. The more powerful the CPU, the faster the computing power of Filecoin mining equipment will grow.

In fact, both AMD and Intel processors can help storage miners submit packaged calculation results to the network as quickly as possible. However, the latest experiments conducted by Protocol Labs themselves show that AMD processors with SHA are much better than other processors. The community announced the use of AMD 3960x, but some mining machines are already using AMD 3970x.

As previously noted, Protocol Labs (and others) have found that AMD processors with SHA extensions accelerate this process to a considerable degree.

Source: Filecoin Official Blog Mining Guide A Guide to Filecoin Storage Mining

The processor solution currently used by mainstream mining companies on the market, such as Force Zone, is the AMD architecture processor.

GPU: Proof of Replication

Before the GPU was invented, basically all information processing work was done by the CPU. After the GPU came out, because the two have certain differences in processing, they can be finely divided: the CPU is responsible for logical transaction processing and serial calculations, while the GPU focuses on executing highly threaded parallel processing tasks (large-scale computing tasks). It can be seen that the CPU is the "master" and the GPU is the "slave". No matter how fast the GPU develops, it can only share the work for the CPU, not replace the CPU, so the same is true for Fielcoin mining.

GPU assists miners in completing SNARK calculations within a strictly limited time. The main role of GPU in Filecoin is to generate "proof of replication". Protocol Labs will also explore the use of GPU in other parts to provide greater flexibility, because GPU makes certain calculations faster, cheaper, and more technically logical than CPU.

The current client Lotus supports NVIDIA chips, and currently supports 1080 and 2080 series GPUs; the team is testing more GPU models, and the official hopes to support more chips from other manufacturers in the future.

During the testnet phase, many miners may use multiple graphics cards on a single server to shorten the time to generate replication proofs in order to compete for computing power rankings. After the mainnet is launched, in order to control costs, generally only one graphics card is used, otherwise the payback period will be prolonged.

SSD: 1T is necessary in the future

SSD function: The system processor transfers program data from the SSD to the memory for short-term access and use. Because solid-state drives have instant data transfer speeds and can help speed up the data transfer process, SSDs are used as system disks, large caches, and for storing unsealed sectors in transit in Filecoin mining machines, as Filecoin node data storage disks, etc.

With the development of the network, the space required for the storage disk of Filecoin's node data may become larger in the future, and the main network launch requires 32GB sectors. The sealing process will increase the occupancy rate of SSD space. In the future, SSDs with larger memory may be needed. At the current early stage, 512G may be enough.

Memory (RAM): How fast can the highway go?

The main functions of memory are: temporarily storing sealed files; running each link of the mining program, calculating data cache usage. Memory is a data "highway" that connects the hard disk and the CPU. The improvement of memory can increase the sealing speed to a certain extent. At present, the mining market mainly uses 128G/256G/512G. Some miners even increase the memory in the test network for ranking. Some manufacturers' storage servers participating in the test actually use 1T or even 2T memory bars, which is not reasonable for individual investors.

Hard disk: Efficient storage is the key to profitability

Hard disks are only a medium for storing data, and they are not the only factor in mining. How much data is stored is affected by bandwidth, hardware facilities, operation and maintenance, mining machine layout, etc. As a miner, the more effective data is stored, the greater the profit.

Compared with the POC consensus mechanism, its data hard disk mining is based on who has more hard disks. Whoever has more hard disks can mine more. The PoST consensus does not care about the hard disk, but only focuses on the amount of data stored in the hard disk. During the mining process, parameters and plans may be continuously adjusted to mine more effective storage and obtain Filecoin.

In addition to some important equipment, we also need to refer to the manufacturer's operation and maintenance capabilities.

The key indicators for measuring the operation and maintenance capabilities of Filecoin mining can be referred to as follows:

Rich R&D experience. The operation and maintenance team needs to have been deeply involved in Filecoin for a certain period of time and have rich technical R&D experience. They can make contributions by improving some technical details, hardware equipment (number of hard disks), mining farms and mining pool implementation methods, etc.

Management costs and revenue cycle: On the test network, many computing power rankings require high costs. For investors, it is unreasonable to invest in equipment for the test network. Therefore, a good operation and maintenance team will reasonably plan how to configure the hardware to maximize profits, which is a reference standard.

Network stability: It is also necessary to achieve network stability through some technologies, hardware (whether hot plugging is supported), etc. Otherwise, there will be economic penalties due to network instability.

The test network performed well: Although the test network results cannot clearly show the actual ranking after the main network is launched, they reflect the technical strength of many manufacturers to a certain extent. The manufacturers that will truly rank top in the future may be on the list of those participating in the test network competition.

In addition, we also need to examine the financial strength of the team, which depends on R&D investment, computing power competition, cluster layout, etc. If there is no large-scale technical team, there is a high possibility of pseudo miners/cloud computing power or channel dealers.

As Warren Buffett once said, there is no formula to determine the true value of a stock. The only way is to thoroughly understand the company.

This also applies to investing in Filecoin. Look for companies that truly do technology and don’t be blinded by the fancy marketing methods on the market.

The Planet Daily pointed out that the market price of Filecoin mining machines is generally divided into three levels: high-end mining machines of 200,000 to 300,000 yuan, mid-end mining machines of 60,000 to 130,000 yuan, and low-end mining machines below 60,000 yuan, which are different from the price of the higher-configuration 192T mining machine (161,000 yuan).

(Figure 11) A 192T high-end mining machine costs 161,000 yuan, 838 yuan per ton, source: Scale Blockchain, 2020-06

To a certain extent, in addition to paying attention to the cost-effectiveness of hardware, we must also pay attention to the early investment costs and technical input of the operation and maintenance team, which will be the key to obtaining high returns in the future.

The details of many mining pool layouts on the market have not been disclosed, and there are different opinions on the truth and falsehood, so it is impossible to verify. For mining machines or simple cloud computing power investment, the above can be used as some reference. After basic understanding and research, it is more convenient to compare the differences between manufacturers.

5. Opportunity cost is the most expensive investment

There is a very important concept in economics: opportunity cost. Opportunity cost means that there are several options for the use of a resource, and the cost of using the selected option is the highest value among all the unselected options.

The main references for opportunity cost are:

• Resources are scarce. Which company has the most sophisticated and scarce technology? Which one cannot be easily copied?

• Resources have multiple uses. Which one can maintain the greatest flexibility? To achieve multiple uses?

• Resources have been fully utilized. Have the purchased hardware and technology been fully utilized? Maximize the benefits?

• Resources can flow freely. Can everyone achieve maximum liquidity after participating?

Faced with more than 200-300 Fielcoin investment products on the market, investors need to abandon more items and choose the investment targets with the highest value. What is needed more is that we should devote more energy to research in order to seek higher opportunity costs.

Based on the above considerations, I believe you will soon find the most suitable investment method.

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