Review of major mining events in the first half of 2020

2020 is already halfway through. Miners are facing the pandemic in the context of large-scale iteration of mining machines. They have to survive the "black swan" and "halving" with difficulty, and enter the "midfield battle" through the smoke of war.

Driven by the halving and the pandemic, miners are feeling that they have entered a year of unprecedented events in the crypto mining industry. Next, let’s review what history the crypto mining industry has witnessed in the first half of the year.

On March 12, Bitcoin plunged more than 50% to $3,800. Prior to this, Bitcoin had just fallen from more than $10,000 to $8,000. The market was "cut in half" before it had time to digest the waterfall. This not only caused the contract market to blow up more than $3.8 billion in 24 hours, but also caused most mainstream mining machines to reach the shutdown price, and the mining cost was temporarily broken. In the following week, the computing power of the entire network dropped from about 124E to about 90E, a drop of nearly 27%.

Although this sharp drop is related to the liquidity crisis in the capital market and high leverage, the impact of the epidemic on the entire capital market has made the cryptocurrency industry not immune. However, compared with the four circuit breakers in the U.S. stock market within 10 days and the strange news of "negative oil prices", the cryptocurrency industry seems to have found some "comfort".

We also see that “312” is a blow to highly speculative miners, but for relatively conservative miners, the crash and reshuffle can bring them excess returns; the new generation of mining machines are sufficiently “anti-fall” and can still maintain profits.

"312" seems to be the Bitcoin halving that took place in advance. Fortunately, the two did not overlap, leaving miners time to adjust.

Two weeks after "312", the difficulty of the entire network experienced the second largest difficulty reduction in history, with a magnitude of 16%. The security of the Bitcoin network was not threatened. The adjustment of network difficulty allowed the industry to gradually "heal itself", prices also gradually warmed up, and the mining circle "survived from the desperate situation".

2. Mining coins "clustered" and reduced production ★★★☆

The scarcity of mining coins has almost become a standard in economic design parameters. In the first half of 2020, six currencies have completed production cuts ahead of Bitcoin. Among them:

On January 5, BEAM halved; on March 17, ETC reduced production by 20%; on April 14, SERO halved; on April 8, BCH halved; on April 9, BSV halved; on April 28, DASH reduced production by 7.14%.

The market generally has high expectations for the halving, and seems to have "consumed" the concept of production cuts in advance. Compared with the market at the end of 2019, BTC, BCH, BSV, ETC, DASH, etc. have experienced substantial price growth, while the computing power and coin prices have mostly experienced varying degrees of decline after the production cuts. The "rule" of mainstream production cut coins is to pull back before the production cuts, quickly bottom out after the production cuts, and then slowly recover.

3. Bitcoin completes third halving ★★★★★

At 3:23 am on May 12, the last 12.5 BTC block and the first 6.25 BTC block of Bitcoin came one after another within seconds. Although it had been a long time coming, it still seemed a bit "caught off guard."

One day before the halving, the total computing power of the Bitcoin network hit a record high. The halving brought a short-term arbitrage opportunity. Miners switched their computing power to BCH and BSV with the same algorithm, pursuing double the currency-based returns. This "interest rate spread" quickly flattened within a few hours. However, the halving effect was not "immediate" as usual. The currency price did not see a significant rise or fall on the day, and even fell slightly.

On May 12, the day of the halving, the hashrate of the top 10 mining pools dropped by about 18E compared to the previous week, and the hashrate of the entire network dropped from 120E to about 100E. In the following week, the hashrate of the entire network dropped by 30% in total, and miners chose to temporarily shut down their machines and wait for the "flood season" to resume.

For Eastern and Western communities, this “halving” is also an opportunity to reflect on the meaning of Bitcoin and is full of a sense of “ritual.”

F2Pool recorded the headline of the New York Times article in the last block before the third Bitcoin halving, which echoed the information recorded by Satoshi Nakamoto in the Genesis Block, and was forwarded and liked by industry veterans, Twitter founders and the community. This time, miners are not only mining, but also writing history together.

4. Miners complete the "great migration" during the flood season ★★★★

The “once-in-a-year” flood season arrives after the halving. This year’s flood season starts in mid-to-late May, and it takes 1-2 weeks for the mining machines to move from the northwest to the southwest.

Some mining machines did not have time to evacuate from the flood-prone areas at the beginning of the year, and were forced to stay in place due to the epidemic, and started working directly after the flood season arrived. Some miners with old models did not rush to migrate, but "wait and see" whether the price of the currency after the halving can cover the mining cost, and then decide whether to move.

The average price of electricity during the flood season is below 0.23 yuan, which has greatly reduced the cost of mining. The continuous supply of mining machines with a power consumption ratio of 50W and lower, coupled with the reduction in mining difficulty due to the halving, will lead to a computing power war during the flood season, thereby pushing the computing power of the entire Bitcoin network to a historical high.

The flood season also coincided with the easing of the domestic epidemic, allowing miners to meet offline in Chengdu and other flood season "host cities" to discuss new business opportunities. However, supply chain delays caused by external risks such as the epidemic and the global financial crisis affected hardware production capacity, resulting in no large-scale new mining machines appearing during the flood season. The mining industry is currently engaged in a "zero-sum game."

5. It is difficult to attract investment in mining farms ★★★

There is an oversupply of electricity during the flood season this year, and the cost of electricity has dropped significantly. Compared with last year's full-time electricity fee of 0.24-0.26 yuan, this year's electricity price is basically just over 0.2 yuan.

Since the flood season came earlier than last year, and 30% of the old models in the entire network will be eliminated, there is a redundancy in power resources. This situation has also made it more difficult for many mining farms to attract investment, and this year's mining business has therefore changed from a "seller's market" to a "buyer's market." At the same time, some mining farms have adopted a joint mining method with miners to share risks and profits.

Mining farms are facing unprecedented difficulties in attracting investment. In the eyes of many veteran miners, the electricity price after this halving is not only lower than the similar situation of "halving + flood season" four years ago, but even lower than the electricity price during the bear market in 2015. Today, more than 87% of Bitcoin has been mined, and the "incremental" space for mining has further decreased. Miners need to further reduce costs and are more "concerned" about the stability and operation and maintenance level of the mining farms.

6. Replacement of main mining equipment★★★☆

Although new models with greater computing power and better power consumption are launched on the market every year, this year is still significantly different. The large-scale hardware update heralds the end of the hardware competition in the previous halving cycle and the beginning of a new round of "arms race".

As 30% of old models are about to be phased out, the main mining models will be converted from 80-60W to 60-40W mining machines. With the launch of the S19, M30 and other series, the "flagship" model upgrade has begun.

During the flood season, the 85W mining machine is turned on and off alternately following the rise and fall of the coin price. However, after the flood season, based on the electricity fee of 0.35 yuan, the mining income is not enough to offset the electricity expenditure. In addition, with the influx of new mining machines, if the coin price does not rise significantly, it may bid farewell to the historical stage of mining.

7. "Small Mining Coin" Ecological Chain Expansion ★★★

While mainstream coins are repeatedly "testing" the bull market, some "small mining coins" have also surprised the market and won recognition and support from the community and miners. Small-scale mining coins such as GRIN, BEAM, and HNS, which are full of geek spirit and technical hardcore, are becoming more and more well-known both at home and abroad.

Some trading platforms are optimistic about the growth potential of the market value of small mining coins. They evaluate and list small mining coins based on indicators such as team, community consensus, code development, and token economic mechanism, thereby improving the liquidity of small mining coins.

In the first half of the year, ASIC mining machines from CKB and HNS were launched, which kicked off the competition among professional mining machines in the two mining scales of annual output value of more than RMB 100 million and RMB 50-60 million respectively.

F2Pool Innovation Zone launched several new coins including KDA, HNS, TRB, RVC, UFO, etc. in the first half of the year, giving miners more choices in small mining coins.

The attention and support from mining pools, mining machine manufacturers, and exchanges have made the small coin mining ecosystem more complete. Some potential small currencies are also expected to become mainstream with more complete industrial support.

8. Mining financial instruments attract more attention ★★★★

The diversification of mining financial products began to show a trend in the first half of 2020. The "halving + hardware upgrade" has caused miners to pay more attention to financial instruments.

Compared with the daily demand for paying electricity bills in the past, the large-scale purchase and migration of machines in the first half of the year has made miners have a stronger demand for loans; the "312" black swan has caused miners to pay attention to hedging of currency price risks, and platforms such as Cobo have developed and launched hedging products. Miners have begun to use such financial products to seek stable costs from March to June or even longer, avoiding most of the risk exposure caused by electricity bills.

Hash power financial derivatives were also launched in the first half of the year. Data company Coin Metrics launched a hash power indicator, and trading platform FTX launched hash power futures. The launch of some financial derivatives helped miners hedge against hash power changes and price risks.

9.60% of Ethereum GPU mining machines will be replaced★★★

Ethereum mining revenue is relatively stable and is not so sensitive to electricity prices, and it has generally remained "calm". However, in the first half of 2020, a considerable number of Ethereum miners needed to upgrade or replace their hardware.

Ethereum's DAG file will reach 4GB by the end of December this year. At this point, 4G graphics cards, which account for about 60% of the total computing power of the entire network, will no longer be able to mine ETH. The Windows system itself has a certain amount of graphics memory usage, and the mining suspension time will be brought forward.

4G graphics card mining machine manufacturers have taken firmware upgrade measures to extend the service life of mining machines by several months. Some graphics card models have adopted BIOS upgrades and hardware modification solutions to expand graphics card capacity. Major mining companies have started large-scale hardware upgrades earlier.

Although PoW-based Ethereum will continue to exist for several years, the increasing discussions on switching to PoS have also led the graphics card miner community to begin searching for graphics card mining coins that can become the next ETH.

10. Mining machine manufacturers raise funds in the US stock market ★★★

In June, Ebang International, which had just updated its prospectus, successfully "cloud rang the bell" a few days later, becoming the second mining machine manufacturer after Canaan Inc. went public on the Nasdaq in November last year.

Just a few days ago, Yibang International held a listing ceremony at the InterContinental Hotel in Hangzhou. Previously, Yibang International, which had failed twice in the Hong Kong Stock Exchange, finally realized its dream of entering the capital market.

The global capital market has been hit hard by the epidemic, but mining machine manufacturers have never stopped seeking mainstream financing. Although they have temporarily "cold" the capital market, the signing of orders around the world and the development of more business areas have also made people look forward to the "recovery" of mining machine stocks.

The 10 events or trends listed above have become hot topics in the first half of 2020, affecting the structure and layout of the mining industry from different levels, and becoming the prologue of the second half of the year. In this year's "second half of the battle", how will the trend of the mining industry develop, and what new highlights will run through the mining industry in the second half of the year?

• Filecoin mainnet launched

After several delays, Filecoin will finally be "delivered" to the entire mining community in the second half of 2020. If all goes well, Filecoin will announce detailed parameters at the end of July and launch the mainnet at the end of August.

In 2017, Filecoin updated and released its white paper and completed the largest initial coin offering at the time on CoinList. Together with the pre-sale, it raised a total of US$275 million. Its market value is expected to surpass Ethereum after it goes online.

How big is Filecoin's storage capacity? How will it affect the form of mining pools, mining farms and other ecological chains?

• Ethereum 2.0 mainnet launched

Ethereum 2.0, which has been delayed more often, is expected to be officially launched before the end of the year. According to developer Afri Schoedon, if everything goes well, the Ethereum 2.0 mainnet will be launched in November, or it may be further delayed.

The “beacon chain” implemented in Phase 0 will be the first step towards implementing this new, more scalable network. After Phase 0, several more phases need to be achieved before reaching the quiet phase of Ethereum 2.0. Since Ethereum 1.0 and 2.0 are two independent blockchains and the transition process will be gradual, miners will still be able to perform PoW mining for several years.

There are currently more than 800 verification nodes participating in the Ethereum 2.0 test network, demonstrating the extremely high enthusiasm of the top cryptocurrency developer community. Its new monetary policy and highly scalable network are highly anticipated.

Although it is still too early for miners to decide whether to stay or go in mining, how many miners can Ethereum with PoS consensus attract to participate in "cross-border" mining? Which new graphics card mining network will miners who firmly believe in PoW gradually turn to?

• Production cut season continues

Although Bitcoin has already halved in the first half of the year, the second half of the first year of the reduction is still worth watching. Among the currencies currently supported by F2Pool, 8 currencies are about to have their production reduced, which is more than the first half of the year.

Starting from July, there will be a halving of coins every month. XZC, ZEC, and ZEN will halve in September, November, and December respectively, marking the "anonymous coin production reduction season."

Can the mining coin production reduction model continue to drive the rising prices of some currencies in the second half of the year?

• New changes in computing power

In the fourth quarter, the domestic flood season ended and miners once again experienced seasonal migration. The ultra-low electricity prices during the flood season were no longer available, and high-power consumption models withdrew from the entire network. At the same time, new main models will be released in the second half of the year, and the proportion of high-computing power equipment launched by various mining machine manufacturers will increase, completing the "new and old replacement" of computing power.

From the perspective of global computing power, new large-scale mining farms are expected to be built in North America, and overseas computing power is showing an upward trend.

As the geographical location and scale of mining farms change, what new balance will the computing power of the entire network achieve in the second half of the year?

• BTC bull market expectations

In the second half of the year, phenomenal projects such as Filecoin and Ethereum 2.0 will be gradually launched, the mining coin production reduction season will continue, new mining opportunities, changes in market supply and demand, and the improvement of the domestic epidemic situation are expected to inject new liquidity into the entire industry.

After experiencing the market test and the industry's zero-sum game, the miners who survive will be able to establish their own advantages in the "post-halving era".

In the second half of the year, can we expect to see the emergence of major currencies such as BTC and the arrival of a bull market?

No matter what our aspirations are, we still need to maintain our faith, respect the market, and make careful choices.