Observation | The flood season is coming again: the mining industry is in a zero-sum game, miners are setting up stalls in their circle of friends

Text | Tanya Edited | Bi Tongtong Produced | PANews

"Why do we have to change the arrangements again? It keeps changing every day, how many times has it happened!" Sister Lin hung up the phone angrily and revised the form information on the computer again, tears streaming from her eyes.

In order to deliver the mining machines to various mines smoothly before the flood season in early June, Sister Lin has been unable to sleep or eat well these days. She complained to PANews, "I have been on a business trip in Chengdu for more than a month. The pressure is too great. Tens of thousands of mining machines have to be driven thousands of miles from Inner Mongolia and Xinjiang to Sichuan, and then placed in different mines. There are new changes in the information of the mines every day, and I have to contact and adjust constantly..."

Sister Lin’s boss is one of the top miners in the country. Electricity bills are their lifeline. Their mining machines migrate seasonally within China. In order to transfer from a hydropower mine to a thermal power mine with the best electricity rates in the shortest time, they once airlifted all the mining machines together. The shipping cost of hundreds of thousands of yuan seems insignificant compared to the electricity bills and mining income.

At the end of May, before the southwest of China fully entered the flood season, several mining conferences held in Chengdu became the real "Chengdu Mining Week", which gathered almost all the links and roles of the domestic mining industry from mining machines, mining sites, mining pools, financial service providers, exchanges, etc., but there seemed to be not many miners. Although they were all invited, Sister Lin did not have time to attend too many meetings and only took time to attend the opening dinner of the organizer.

World Mining Conference

Xiao Hua, a miner who lives in Hefei, did not go to Chengdu this time. On the one hand, he signed a one-year contract with the thermal power mine and did not need to relocate during the flood season. On the other hand, the payback period was lengthened after the halving and the income became worse, which also made him upset.

Long table hot pot banquet, flood season is coming again: zero-sum game in mining ecology, miners’ friends circle “setting up stalls”, miners’ private meetings, mining machine roadshows, behind the lively Chengdu Mining Week, a new round of reshuffle in the mining industry is still going on, gradually moving towards industrialization, financialization, refinement and intensification.

Miners' concerns: In the last four golden years, mining can only be a sideline

"Would you like to buy Hanyuan cherries from Sichuan miners at a low price? You will have to wait for another year if you miss it." Xiao Hua posted cherry advertisements for Sichuan miners on WeChat Moments. Like the street vendor economy across the country, miners have also started to save themselves financially.

Xiao Hua, who entered the industry in 2016, has been a miner for four years, following the ups and downs of Bitcoin prices. He has witnessed the total network computing power increase from about 1400T to 100E at the beginning of 2020, a 71-fold increase. The computing power of machines has developed from S9 to S19, and the computing power of Bitcoin mining machines has increased 10 times.

Bitcoin miners naturally hope that the price of the currency will rise. After several bull and bear cycles, Xiao Hua is more determined to hold the currency, but if the market does not come, he will not have any new rice to cook. "I am waiting for the market. I haven't bought any new machines recently, but miners also need to make a living, so they will start other businesses." Xiao Hua told PANews.

As the Bitcoin mining revenue is halved, the price of the currency has been fluctuating since the halving. Many miners' old machines are gradually being eliminated at the shutdown price, and the story of miners leaving the market continues to unfold. Xiao Hua is not surprised, "Once the market is good, the miners will come back."

In addition to being a miner, Xiao Hua also has another identity as a mining machine agent and distributor, but he has decided not to do this business anymore, mainly because there are too many upstream and downstream links involved, and there are constant problems and disputes. Upstream, you have to find mining machine manufacturers to get goods, and downstream, you have to help customers host mining machines in mining farms. Mining machine manufacturers often delay delivery, and mining farms are all kinds of tyranny and opaque.

"Due to the previous dispute with the Yunnan mining farm, the hundreds of thousands of yuan deposit of the mining machines from the entrusted customers have not yet been recovered." Xiao Hua complained.

A small private mine in Yunnan

Lin's boss did not encounter these problems. As the earliest miners in China, they have accumulated rich original accumulation during the bonus period. Mining farms, mining machine distribution, cloud computing power, mining pools, their current business covers all links in the mining ecosystem except mining machine manufacturing. They can get the cheapest machines and electricity prices, and have been promoted from big miners to mining tycoons.

Sister Lin also has her own concerns. In her opinion, these are the last golden four years for miners. By the next halving in 2024, there will only be 1.3 million bitcoins to be mined in the entire network. By then, the difficulty of mining will increase, and it will be difficult for miners to make money. Most of their income may become transaction fees.

Canaan Blockchain General Manager Shao Jianliang also saw this problem. Speaking at the World Mining Conference, he called on miners to pay attention to their role in maintaining the Bitcoin network. "Now the transaction fee is actually slowly guiding the future as the entire block reward continues to rise. We should not only focus on the block reward, but also pay more attention to what role miners should play in the sustainable development of the block network."

The miners' concerns are also shared by participants in other links of the mining industry.

Mining machines are in short supply, and the mining industry is in a zero-sum game

Sully Yu, the agent of Shenma Mining Machine, appeared at the "Hundred Regiments Mining Summit" on May 23 with a suitcase. He flew from Taiwan to Chengdu and had just finished quarantine. He was about to rush to Beijing after the meeting.

When his friends heard that he was on a business trip to the mainland, they were puzzled. “Isn’t the economic situation bad now? How can you still do business in your industry?” As the official agent of Shenma mining machine, Sully became busy when Shenma launched the Shenma M30S in April.

According to Sully's observation, the current buyers of mining machines are a completely different group from before, with a large influx of institutional buyers. "Ordinary miners value return on investment, but capital values ​​annualized returns, so now capital dares to take action, but small miners don't." He told PANews, but because the first batch of spot production of Shenma M30 mining machines is very small, the current mining machines are all futures that have been booked until September.

In addition, unlike previous years, overseas buyers accounted for 40% of Sully's customers, most of whom are from North America and Europe. Some people say that Bitcoin mining is essentially a financial product of global energy arbitrage, and outside of China, there are many places around the world with cheap electricity or even negative electricity prices.

The cost of mining for miners is getting higher and higher, and the same thing is happening to mining machine manufacturers. BTC.com CEO Zhuang Zhong said that the cost of producing machines is much higher than before. The trend of computing power now depends more on the future market. The technology has always been good, but the question is whether everyone has the funds and ability to produce computing power. Mining machine manufacturers do not have such great pricing power now. With the scale of the mining industry, even joint mining will become the mainstream in the future. In this case, it is more of a cooperative relationship between mining machine investors and mining machine manufacturers.

“Because of the supply chain delays caused by the epidemic and the economic crisis, there will not be a particularly large-scale new mining machine, and the revenue has dropped sharply due to the halving,” F2Pool co-founder Shenyu said at the Chengdu World Mining Conference. The entire mining market is in a state of "zero-sum game."

Exchanges run mining pools, but their real purpose is not computing power

The Binance Pool team has been stationed in Chengdu for a long time. They are also active participants in this Mining Blockchain Week. This "baby" as the head He Ke calls it has ranked among the top 10 mining pools in a short period of time. At present, the three major mining pools occupy the top ten of the mining pool list.

The mining pool business is not profitable, so why do you still do it? Faced with such questions, He Keren believes that the mining pool business completes the last layout of Binance in the exchange, platform currency, stable currency and other ecosystems. She also bluntly stated that there is no plan to issue new assets through the mining pool.

He Keren said that mining and trading will be connected in the future, and even mining and financial products and financial services will be connected. Whether it is leverage, futures, options, or financial management, etc., all of them will be connected to serve the miners in the future.

OKEx mining pool also plans to cooperate with the exchange. Its business director Luo Chenfeng said that there will be cloud computing power in the future. After all, there are so many C-end users, and it is hoped that the development of cloud computing power will lower the threshold for all those who want to mine.

When exchanges run mining pools, their real purpose may not be computing power. Liu Fei, who previously served as the operations director of Huobi and is now the CEO of Bixin Mining, is very familiar with the minds of exchanges. He analyzed to PANews that the mining pools of exchanges have natural advantages. On the one hand, PoS mining pools are zero-cost. On the other hand, PoW mining pools are different from other mining pools. Exchange mining pools have various profit models, which can provide miners with zero fees or even subsidies.

Exchanges naturally have abundant funds, and can achieve large-scale and low-cost operations when dealing with currency loans, hedging, options and many other derivatives. The cost of serving miners is lower than that of others, so they can make profits. The exchange can leverage the miners' asset stock. In addition, there are many ecological synergy effects, such as the miners' OTC and the miners' own transactions. The exchange will have handling fees, and these miners are naturally big customers of the exchange; and there are additional brand benefits.

The Hundred Regiments War Roundtable, the first on the right is Liu Fei, CEO of Bixin Mining

Of course, for Bitcoin believers, the mining pool business also includes the original intention of maintaining the Bitcoin network.

Tian Xin, co-founder of Ant Mining Pool, recalled that people didn't have much idea about computing power before. In the early days, many mining pools were not standardized and small in scale, which could easily cause some dangerous things to the computing power of the entire network. I embrace and like many new partners who join the mining pool, because this will make the computing power more decentralized. At least the global network is safe, and it will not be as easy to reach 51% attack as before. In the next 10 years, mining pools will be more about protecting computer networks and will become more service-oriented products.

It is worth mentioning that the Roadside Mining Pool, which has been quite mysterious recently and suddenly entered the mining pool ranking list, also appeared at the Mining Week Hundred Regiments Battle Conference, but its partners were unwilling to disclose the specific situation of the mining pool to PANews.

Make good use of financial tools, is leverage a terrible thing?

“Before the bull market starts, the primary factor for miners is to survive and earn more Bitcoin revenue when others shut down their computers.” Shenyu earnestly suggested that the new skills that miners in the new era must possess are, on the one hand, to choose professional platforms with technological advantages, and on the other hand, to make good use of financial tools to reduce unexpected risks and improve survival capabilities.

At the Chengdu Mining Week, there were many institutions that provided financial services such as lending and quantitative finance. Among them, lending developed rapidly in 2019, and miners were their important customer base. For example, PayPal, the leading company in the field of crypto financial lending, has developed rapidly through mining companies across the country and miners’ lending.

However, according to Xiao Hua's observation, most miners around him do not use such financial products. "Most miners are local bosses who can't handle these things and can't figure them out," Xiao Hua said.

Zhao Qianjie, an old miner who has been mining since 2014 and also a consultant for FBG, seems to understand the voices of Xiao Hua and his group of miners. The miners have two major demands: one is how to sell the least coins to pay for electricity, and the other is whether the coins they have finally obtained can increase in value. There were few financial products provided for miners in the past, and now many financial instruments are too complicated for ordinary miners to understand.

"To solve this problem, the financial industry not only needs to strengthen communication with users, but also needs to design products to be simpler and easier to understand," said Zhao Qianjie.

Wang Li, co-founder of PayPal Finance, also saw this problem. "Many miners may have traditional backgrounds. If you want them to quickly accept a new financial product and make mining more refined, it will require relatively high education costs. This is an inevitable process for the advancement of the industry." But he also firmly believes that financial products have naturally suitable scenarios and soil in the mining circle, and will accelerate development in the future.

Of course, the use of financial instruments and leverage also needs to be moderate. In the view of Jiang Zhuoer, founder of Litecoin Mining Pool, "leverage is the root of all evil, and on-site leverage is very dangerous."

"Everyone has experienced this in March. Many miners who were doing mortgage coins saw their prices drop from $9,000 to $3,800. Almost everyone who used leverage, even if your leverage was low, suffered a loss. One very clear point is that you cannot use on-site leverage. Bitcoin fluctuates greatly, so you cannot use on-site leverage. At this time, you have to use off-site leverage and find ways to find money off-site." Jiang Zhuoer told PANews.

The 312 crash also brought a reshuffle to the miners. Many miners left the market due to awkward usage.

How to make good use of financial tools may be a journey that countless miners will pay with blood and tears.

As time goes by, miners have been replaced one after another, the ranking of mining pools has changed several times, and mining machines have been constantly updated. As long as Bitcoin is still there, the story of mining will continue.

Of course, for many miners who did not catch up with the Bitcoin mining dividends, they are already looking for new mining opportunities, such as Filecoin. Is this a new opportunity or a new bubble, new wealth or a new round of harvest? PANews will further share with you in subsequent articles.