Fengshui Investigation Notes: Mining is just a financial product for small miners

"Small miners like me only need to transfer money, pay electricity bills, and then wait for their share of the profits. Even big customers will be like this in the future," said miner Mr. Huang in an interview with Bibi News.

For some small miners, under this market situation, taking mining as a side job is an easier choice.

Sichuan has frequent policy changes

Many research reports have pointed out that Chinese miners control more than 65% of the world's Bitcoin computing power. Therefore, events such as Bitcoin prices, electricity prices, policies, and halving have a profound impact on domestic miners.

From last year to this year, in Sichuan, which has more than 50% of the country's Bitcoin computing power, mining-related policies have been constantly announced:

-In December 2019, Ganzi, Sichuan, urgently issued a work plan to clean up and rectify Bitcoin mines, urging power generation companies to give priority to ensuring unified dispatching indicators and social electricity supply during the dry season.

-From April to May 2020, Sichuan announced the first batch of "Hydropower Consumption Demonstration Enterprises", which included several mining farms. This is a rare policy in 18 years for local governments to explicitly support mining during the flood season.

-In May 2020, the Sichuan Financial Office issued a notice to all counties and cities requiring companies to withdraw from virtual currency mining in order to avoid risks such as "mining"-related investment speculation, illegal fundraising, and pyramid schemes.

-In June 2020, the power systems of Sichuan and Yunnan provinces emphasized the protection of compliant mining farms and cracked down on mining farms that directly supply electricity.

It is no exaggeration to say that mining policies change every day, and every policy change stirs the nerves of miners. The uncertainty in mining policies is fatal to every decision made by miners and mines, including whether to shut down the mining machines or keep them running, whether to migrate with the mining machines or mine on the spot, etc.

The mining policy issue is obviously a protracted battle. Mr. Huang revealed to Bibi News that according to a document, the country will pay more and more attention to this issue and continue to introduce relevant policies to regulate the mining industry.

Uncertainty during the flood season

Mining is ultimately a weather-dependent activity. Policy uncertainty torments miners, and even the flood season, which has basically become a regular pattern, has great uncertainty.

In 2019, the mining industry experienced a "fake flood season". Ant Pool co-founder Tian Xin recalled the flood season in 2019 at an online event this year. He mentioned that it did not rain in many places in Sichuan at the time, so there was no water and no electricity. Later, there was another heavy rain in the area, and there was too much sediment in the river, which prevented the equipment from generating electricity normally, resulting in a continuous shutdown of the mining machines.

This kind of weather condition is basically a disaster for mines. In fact, the delayed flood season, heavy rains and geological disasters in 2019 caused huge losses to miners.

The video released by Biyin Mining Pool on Twitter showed that some Bitcoin mines in Sichuan were hit by floods and suffered varying degrees of damage. Local media reported that Aba Prefecture in Sichuan was hit by heavy rains and landslides affected 17 counties in the area.

Mr. Huang told Bibi News that according to some people's estimates, the mining payback period may increase by one month for every day the mining machine is shut down.

"Generally, the electricity fee is more than 0.2 yuan, but if the mining machine is shut down due to reasons such as mining machine failure or extreme weather, the payback period of the mining farm will be extended. If you miss the cheap electricity, the average electricity fee of the mining farm will rise to more than 0.4 yuan or even more than 0.5 yuan."

It’s too difficult for retail miners

Miners face so many uncertainties in mining, and retail miners are also very helpless in the face of the trend of specialization and scale in the mining industry.

Hu Donghai, another miner interviewed by Bibi News, said that in the future, large-scale mining industry and even joint mining will become more mainstream. Among them, the cooperative relationship between mining machine investors and mining machine manufacturers may become more common, and it will be more difficult for ordinary people to enter this market.

“Mining is becoming more professional and large-scale, making it difficult for retail investors to participate, and there are more and more pitfalls.”

A miner mentioned the pitfalls he had encountered in an interview with Bibi News. When he hosted his mining machine in Yunnan, he encountered a situation where the mine owner tried every means to deduct computing power.

The mine owner claimed that the mining machine was shut down due to maintenance, policies, power supply, etc. However, due to geographical barriers, the miner was unable to know the true situation of the mine, which caused him to suffer some losses.

The miner told Bibi News that due to the halving of Bitcoin and the increase in computing power, they have to move their mining machines to places with lower electricity costs, and now they can only shut down the machines again.

Electricity prices are the real issue

Retail miners certainly cannot compete with large miners in terms of mining machine computing power, and even if the mining difficulty is reduced, it may not save retail miners.

Information from BTC.com shows that the difficulty of Bitcoin mining was reduced from 15.14T to 13.73T on June 4, a decrease of 9.29%. This is the second largest decrease in difficulty this year. The last major decrease occurred after the March 12 crash, when a large number of mining machines were shut down.

The reduction in Bitcoin mining difficulty combined with the arrival of the flood season seems to be a good thing for miners, including retail investors. However, the information Mr. Huang gave to Bibi News is that the reality is cruel, and the flood season and the reduction in mining difficulty are of no significance to retail miners.

Mr. Huang said that for retail miners, mining is just a financial product and a sideline, which may be easier for them. Now that the mining industry is becoming more and more mature, small miners will slowly be eliminated by the market. This is a trend from low-dimensional to high-dimensional development.

"Now, large mining pools have monopolized the mining industry, and many new financial products have gradually emerged. This is an interlocking development model. The era of placing a bunch of mining machines in a few rooms and fighting each other is over," said Mr. Huang.

When it comes to competition among miners, electricity prices are the most crucial factor. Discussions on the current situation of miners inevitably return to electricity prices.

Mr. Huang said, “The flood season is not an essential issue. The electricity price is the essential issue. No matter whether it is a mining machine with good performance or a mining machine with poor performance, as long as the electricity price obtained by the miner is cheap enough, the miner can survive and grow bigger and bigger.”

Source: Bibi News