Can a Filecoin mining machine that costs 248,000 yuan make a profit?

Source of this article: A Blockchain Book, original title: "Is Filecoin, the most expensive ICO project in history, just "$50 billion worth of air"? "

Author: Ratchet Pizza

Four years after ICO, there are reports that Filecoin, a star project in the cryptocurrency circle, may be launched on the mainnet.

In 2017, Filecoin completed an ICO totaling $257 million, setting a record in the cryptocurrency industry. From March to now, the price of Filecoin token FIL has soared 7 times to $25. Based on this calculation, Filecoin's market value is as high as $50 billion.

However, the mainnet launch time of this $50 billion market value project has been postponed again and again, so it has been jokingly called "$50 billion worth of air."

But a game of harvesting has already begun. Filecoin miners start with tens of thousands of yuan, and industry leaders have already made a lot of money.

Interestingly, although Filecoin is a foreign project, it is more popular in China. Behind its popularity, there are also domestic promoters.

The new sickle has been swung. Will the mainnet launch day be the day when Filecoin tokens crash?

01 “More than 50 billion US dollars worth of air”

"After waiting for more than two years, Filecoin is finally going to be launched." A few days ago, Jiaming, a cryptocurrency player, expressed his feelings on WeChat Moments.

What exactly is Filecoin, which has attracted much attention in the cryptocurrency circle?

The story begins with IPFS.

IPFS, also known as Interstellar File System in Chinese, is a decentralized network underlying protocol. Similar to Bitcoin, IPFS miners can freely join the network, contribute storage space to the IPFS network, and obtain various resources in the network.

IPFS was launched as early as 2015. Strictly speaking, IPFS does not use blockchain technology and does not issue coins, so it is not a blockchain project. However, its decentralized concept coincides with Bitcoin and blockchain.

IPFS has since launched the Filecoin plan, introducing an "incentive layer" for IPFS. Players who participate in IPFS mining and contribute storage space, bandwidth, and computing power to IPFS can obtain Filecoin tokens FIL.

Filecoin has been a star project in the cryptocurrency world since its exposure. In September 2017, Filecoin completed an ICO of $257 million, setting a record in the history of ICOs. If Telegram, whose ICO was stopped by the US SEC, is excluded, Filecoin is still the world's largest ICO project.

However, nearly three years later, Filecoin has not made smooth progress. Its mainnet launch plan has been full of twists and turns, and has been delayed since 2018.

In June this year, Filecoin developers announced that Filecoin will be launched on the mainnet in July this year. Upon hearing this news, players went completely crazy.

“Almost all major blockchain events recently have opened special sessions for IPFS & Filecoin, and the seats are basically always full,” miner Lao Ding told Yiben Blockchain.

Jiaming told Yiben Blockchain that major Filecoin mining machine manufacturers are gearing up. "A mining machine manufacturer received a large order of 60 million yuan a few days ago, and the boss directly rewarded the sale of a house."

BiKi, Gate and other exchanges have also launched FIL futures. According to Gate Exchange data, the lowest price of FIL was $3.5 in March this year. By July, FIL had risen to $25, a seven-fold increase in price.

Based on Filecoin's circulation of 2 billion, Filecoin's market value has reached 50 billion US dollars.

But in fact, before Filecoin was officially launched, the FIL traded in major exchanges was just a bunch of air.

Despite the enthusiasm of players, the launch date of Filecoin mainnet continues to be postponed.

On July 15, Filecoin officially announced that the launch time of Filecoin mainnet will be postponed again, and is expected to be postponed to August 31-September 21.

But players seem to be particularly tolerant of Filecoin. "We have waited for two years, so what's the big deal if we wait another two months?" Jiaming said.

02 Mining Machine Competition

Although the launch time of Filecoin mainnet has been postponed again and again, the Filecoin mining machine market is booming.

"There are nearly 50 known domestic IPFS mining machine manufacturers, among which Lingdong, Xianhe, Yuanli and 1457 are relatively large ones." Wang Qiang, marketing director of a leading Filecoin mining machine manufacturer, told Yiben Blockchain.

The reason for the proliferation of Filecoin mining machine manufacturers is not complicated: Filecoin mining is still in its early stages, and integration and mergers have not yet begun; in addition, compared with Bitcoin, the technical threshold for Filecoin mining is very low.

"Filecoin mining machines have almost no core technology. Major components, such as CPU, motherboard, memory, hard disk, and graphics card, can be purchased directly on the market." Wang Qiang said, "The work done by mining machine manufacturers is more like supply chain integration."

The profits of mining machine manufacturers also come from this. In 2019, the cost of assembling a mining machine with a hard disk capacity of 96TB was about 35,000 yuan. However, the price set by mining machine manufacturers is about 80,000 yuan.

Huge profits and extremely low entry barriers have attracted a large number of mining machine manufacturers to join the market.

“Many manufacturers haven’t even figured out the most basic concepts like IPFS and Filecoin, but they’ve started looking for OEMs to sell mining machines under their own brand,” Wang Qiang told Yiben Blockchain.

Some mining machine manufacturers even forcibly bundle IPFS and Filecoin with the new infrastructure construction led by the state, claiming that Filecoin mining is a new generation of infrastructure supported by the state.

Filecoin mining machine advertisement released by mining machine manufacturers

Players are chasing after Filecoin mining machines for a simple reason: Filecoin’s payback period is very short.

Taking the 1475 mining machine as an example, data from its official website shows that the price of the 1475 Pro supercomputing version mining machine with a hard disk capacity of 144TB is 248,000 yuan, and the average cost per T is 1,722 yuan.

"According to the current test network data, the Filecoin mining machine produces an average of 0.2 coins per terabyte of memory per day," said Wang Qiang.

On July 15, the price of FIL was 112 yuan. Based on this calculation, without considering the electricity and operation and maintenance costs (the electricity cost of Filecoin mining machines is not high), a mining machine priced at 248,000 yuan only needs 77 days to pay back the investment, and its return on investment is far higher than that of Bitcoin mining machines.

However, the future of Filecoin mining is highly uncertain.

In the first year of Filecoin’s launch, the entire network produced an average of 410,000 FILs per day, with a daily output of about 0.2 per terabyte. However, once the mainnet is launched, the computing power will increase significantly, and the amount of coins produced per terabyte of memory will be reduced simultaneously, and the payback period for miners will be greatly extended.

"Filecoin mining machine manufacturers are desperately trying to sell mining machines now," miner Lao Ding told Yiben Blockchain, "because once the mainnet is launched, this bubble is likely to burst, and high-priced mining machines will not be able to recover their investment for several years."

Unlike Bitcoin mining, Filecoin mining does not require high electricity costs, but it does require certain network bandwidth and stability. Therefore, if Filecoin mining machines want to fully exert their functions, they also need to be equipped with "mining farms" and large-scale clustered mining.

Therefore, after buying Filecoin mining machines, many small and medium-sized miners do not ask manufacturers to ship them, but directly host them in the mining farms of mining machine manufacturers. Some manufacturers have also introduced Filecoin cloud computing products by learning from the cloud computing model in Bitcoin mining.

"Our IPFS mining machine costs 53,800 yuan, has 40T of memory, and the usage right is three years. In addition, the platform will charge 25% of FIL as a hosting fee." Wang Qiang told Yiben Blockchain.

This means that many players pay to buy mining machines, but what they buy is only the right to use the mining machines.

Compared with purchasing mining machines by yourself, cloud computing power investment is simple and direct, and more suitable for novices. But at the same time, the cloud computing power market is also full of various scams.

Among them, some cloud computing platforms do not have real mining machines and computing power. As early as 2018, various IPFS mining machines were flooding the cryptocurrency circle, most of which were scams. (For details, see: "Uncovering the IPFS mining machine scam: the cost is only one-tenth of the selling price, and some people have been cheated out of hundreds of thousands of yuan")

In February 2019, the Snail Interstellar IPFS mining machine ran away. It claimed that it could mine Filecoin and CAI coins on one machine. However, CAI coins are just virtual coins issued by Snail Interstellar.

A Zhengzhou police announcement showed that 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.

"In 2018, the official Filecoin had not even finalized the mining rules, so the so-called IPFS mining machines were naturally scams," said Jiaming.

To this day, when searching for the term “Filecoin free mining” on the Internet, there are still a large number of Ponzi schemes that claim to “get a mining machine for free after registering”.

03Chinese capital enters the market

There are many strange things behind the popularity of Filecoin.

Most DeFi projects are located abroad, and their popularity is also concentrated in foreign markets. But Filecoin is completely different - its team is located abroad, but its popularity is concentrated in the domestic market.

Searching for the word Filecoin on Baidu retrieves 8.18 million search results. But on Google, the number is only 1.93 million. Baidu's number is more than four times that of Google.

In contrast, the number of search results for Bitcoin on Baidu is 67.2 million, only one-seventh of Google's.

"The people behind Filecoin are all Chinese capital," Jiaming said. "The Filecoin mining machine bubble was also created by them."

For example, blockchain investment institution Distributed Capital and cryptocurrency celebrity Bao Erye both participated in the early investment of Filecoin. Since then, Filecoin mining machine manufacturers have also received capital injections from a large number of domestic cryptocurrency investment institutions.

Obviously, they will spare no effort to promote Filecoin. "IPFS will be launched this year, and the 100-fold increase depends on FIL!" "The next Ethereum-level investment opportunity!" Big Vs such as Bao Erye have been frequently cheering for Filecoin recently.

The miner node distribution map on Filecoin's official browser Filscan shows that currently, most Filecoin nodes are located in China, the United States, Europe, etc. Among them, China's Filecoin nodes are the most densely populated.

Filecoin miner node distribution map

"Filecoin officials have postponed the launch of the mainnet several times and raised the hardware threshold for mining machines. This is probably because they are controlled by these capitals and want to push up the price of mining machines and make more money," said Jiaming.

In the early years, the hardware specifications of IPFS mining machines were not high, and the industry generally believed that home PC-level mining machines would be sufficient to run Filecoin mining. However, since then, Filecoin officials have gradually raised the hardware threshold of mining machines.

In November 2019, Filecoin officially announced that Filecoin mining machines need to be equipped with high-performance graphics cards, and the configuration must reach the level of GeForce RTX 2080 Ti. The retail price of this type of graphics card mostly starts at 10,000 yuan.

"As a decentralized storage technology, IPFS should be a game for the common people. But in the end, Filecoin mining has turned into an arms race for mining machines. The price of mining machines starts at 30,000 to 50,000 yuan, and can even reach 200,000 yuan. This has deviated from the original intention of IPFS." Jiaming sighed.

Now, as the mainnet launch date approaches, more and more voices of doubt about Filecoin are emerging.

"The FIL currently circulating on exchanges are all futures. Once the Filecoin mainnet does not develop as expected after its launch, it may trigger a stampede," said Lao Ding.

Even Bao Erye, a staunch advocate of Filecoin, said frankly on Weibo on July 5: "FIL is overpriced and the risks are too great."

In addition, IPFS technology itself may also be a false demand. Some investors believe that there are relatively mature commercial storage products on the market, such as Baidu Netdisk in China and Dropbox abroad.

Jiang Zhuoer, CEO of Litecoin Mining Pool, said on Weibo that he was optimistic about IPFS, but now he doubts the future of IPFS. The ending of Kuaibo can be used as a reference for IPFS.

"In fact, IPFS is likely to become a breeding ground for illegal content such as piracy and pornography. Running a Filecoin mining machine may be regarded as spreading the above-mentioned illegal content. This is also a sword hanging over Filecoin's head," said Sun Yuan, a blockchain researcher.

The launch date of Filecoin’s mainnet has been postponed again and again, but the price of mining machines has continued to rise.

A decentralized content storage protocol is evolving into a financial game.

Is Filecoin the new generation of "wealth-making machine" in the cryptocurrency circle, or the biggest "bubble" in history?

I'm afraid the answer will only be revealed after the tide recedes.

*Some of the interviewees in this article are pseudonyms.