8 Questions About Major Events: Bitcoin Miners’ Life and Death Situation, What is the Real Survival Status of the Mining Industry?

Bitcoin halving, the price of the currency is less than 10,000, the flood season has not yet arrived, and the unstable policy, is this the beginning of a disaster or an opportunity for change? On May 25, Babbitt's "8 Questions on Major Events" invited three first-line mine owners to personally describe the true state of the mining circle after the halving. They are Yao Binbin, founder of Jiangyu Mine, Huang Fangyu, co-founder and director of Wanyou Computing Power, and the mysterious Han Miner. This may be the most miner-like live broadcast you have ever seen.

The following is a condensed transcript of the live broadcast.

Question 8: How has mining changed your life?

Yao Binbin: I started mining Ethereum in 2016, and then gradually built a mining farm. From a state-owned enterprise employee to a veteran in the mining circle, my life has changed a lot, but it has changed in the direction I like. Mining is a rising industry, and the economy is better.

Korean miner: Mining is different from other industries. It is either very busy or very idle, especially when the flood season and dry season change each year. In addition, my mentality has also changed because I have traveled to so many places. In the past, I would take pictures when I went to places with beautiful scenery, but now I just want to sleep a little longer on the way to the mine.

Huang Fangyu: Most of the miners who entered the market before the beginning of 2017 have made money. If they entered the market in early 2018, they may not have made much. The timing node is very important.

Q8: As far as you know, how many miners and mining farms are there in the world now? How many machines are mining?

Huang Fangyu: It depends on how you define a miner. In a broad sense, anyone who holds computing power can be classified as a miner, so retail investors who buy cloud computing power are also miners. Because the mining industry is showing a trend of groupization and scale, the survival space for small retail investors to find a mining farm for hosting is getting smaller and smaller, and cloud computing power provides retail investors with an investment channel. Currently, there are about 2 million power loads in Sichuan, about 1 million power loads in Yunnan, and there are also many in Xinjiang and Inner Mongolia.

Yao Binbin: Xinjiang has a rated capacity of about 2 million tons, but it is definitely not fully utilized now that it is the flood season. In addition, there are mines in the United States, Southeast Asia (Kazakhstan, Kyrgyzstan), and Central Asia, but the number is difficult to estimate.

Q8: Korean miners have been rushing to remote areas of the motherland. How do you find mines? Where is the most remote mine?

Korean miner: Finding a mine is a laborious job, and you also need some social resources. Otherwise, you can't find the core people and many things can't be discussed. In the early days, miners visited the mines one by one along the river, but now the power stations have basically occupied them. Our mines are not too remote. There are two relatively remote ones. One is next to a nature reserve. There are often mudslides and landslides on the Wenchuan Road. I also encountered wild giant pandas walking around. The other one is near the border port.

Q8: What was the mining industry like before and after the 2016 halving? What was the status of miners?

Yao Binbin: The mining industry at that time was described in two words: "rough and open". There were almost no rules, pricing costs were different, and the nature of electricity used was not standardized. Some were residential electricity, some were commercial electricity, and some were gray electricity. In 2016, most of the mining farms were small workshops. Unlike today, hydropower is basically around 0.2 yuan, and thermal power is basically around 0.35 yuan. The mining machine models during the halving in 2016 were mainly Antminer S7, and they all survived the halving, which is different from today.

The peak prices of the two markets and the prices after halving are similar. The peak price before halving in 2016 was 9,000 yuan, and the price after halving was 3,000 yuan. The peak price before halving this time was 140,000 yuan, and the price after halving was about 70,000 yuan. So for investors and miners, there is nothing too surprising. However, as the industry develops to this day, with the entry of big capital, mining is becoming more scaled, and their requirements for annual yields are not so high, which makes the survival space of retail investors smaller and smaller.

Question 8: After the third Bitcoin halving on May 12, what is the real survival status of the mining circle?

Yao Binbin: In one word, it is "miserable". As a service provider, the mine has to negotiate with customers to survive the massive defaults. We use the State Grid electricity throughout the year, so the electricity cost is relatively high. The difficulty reduction is not too great. Now the income is close to the cost, and the models that are not particularly good are eliminated.

Han Miner: The real halving, although the computing power has decreased due to water shortage in Sichuan, the income has increased a little bit, but it is still much less than before. Our main work is to find power points and build mining farms. Although the payback period of mining farms will be longer than before, it is still profitable overall. And we have a small amount of dry hydropower. When we recruited investors this year, low-computing power machines did not enter the market at all, so the overall situation is controllable.

Huang Fangyu: There will be some impact. When the halving occurred on May 12, most places had not yet had hydropower. That was the most painful time. With the cost unchanged, the income was halved, and the profit fell by 70%-80%. But fortunately, China has the concept of hydropower. The computing power has been reduced to a certain extent, and the electricity price cost has been reduced by 1/3 to 1/2. So overall, mining during the flood season this year is still okay, but the income is not as good as before.

Question 8: Have there been any unexpected events in the mining industry recently?

Huang Fangyu: The power outage in Sichuan a few days ago was a bit unexpected. Generally speaking, Sichuan's electricity is moving towards compliance and is a sunrise industry. The power in the consumption park is definitely more stable. There are policy documents that state that the power supply in the city should be guaranteed first, then the consumption park, and finally the direct power supply.

Korean miner: The halving itself is not surprising. As early as two or three months ago, the price reduction, replacement, and negotiation had all been completed. The only thing that surprised me was that the U.S. stock market circuit breaker and Bitcoin plummeted simultaneously, because in the past, everyone believed that Bitcoin is Bitcoin and the global economy is the global economy, and they are negatively correlated or unrelated, but this time there is a strong correlation. We speculate that some U.S. companies may hold a portion of Bitcoin, and they sold Bitcoin to protect the market after the stock price crashed, so now we can no longer simply look at Bitcoin.

Yao Binbin: There is nothing surprising. We are committed to thermal power. We had already negotiated with customers before the halving. If they are willing, the machines can be moved to the Sichuan site during the flood season. We will only charge a management fee of 2 cents. We will strive to fulfill the contract and prepare for this year's dry season.

Question 8: What do you think about the recent 6% reduction in Bitcoin mining difficulty? How big of an impact will it have?

Han Miner: The difficulty reduction is a short-term phenomenon, mainly due to water shortage in Sichuan. It will recover to above 110EH/s in mid-June. Last year, Sichuan added too much new power load, about 1 million loads, which indirectly pushed the flood season to around July in some areas. This year, the overall power supply is insufficient, even Chengdu has a power outage, and thermal power units have also started. Therefore, it is estimated that the consumption park and direct power supply will enter a stock game in the future.

Question 8: Has anyone around you quit mining because of this halving?

Yao Binbin: It is still increasing, but there are always people coming and going. Some people do not take this as their main business. They enter the market at the wrong time and buy bad models. They may leave without making any money. But I believe that only by sticking to any industry can you make big money.

Korean miner: I have seen people upgrading their mining machines, but I rarely hear of people quitting. Because if you have been doing it for a long time and have a good customer base and industry resources, you generally won’t leave. Of course, it is normal for retail investors to quit.

Q8: What pitfalls have you encountered in the mining industry over the years? What experience have you gained?

Korean miner: There are countless pitfalls in the mining circle, some deep and some shallow. In 2018, I stepped into two big pitfalls, Rijing Optoelectronics and Hunan Yixun Cloud. These two scams defrauded 14 million and 300 million respectively. Mining is a new industry, many things are inevitable, and human nature is also complicated. We will pay more and more attention now. From then on, we will never touch second-hand projects. We will connect by ourselves and control the whole process to control risks. Now there are also long-term cooperative lawyers who intervene in advance to provide legal advice. In addition, if you encounter a pitfall, express your demands to the relevant departments in a legal and compliant manner. Of course, as the mining industry gradually complies with regulations and the industry becomes more and more standardized, the opportunities for new entrants will become fewer and fewer, and this is true for every industry.

Yao Binbin: I encountered many pitfalls here, mainly the policy risks of building a mine. For example, we built a mine in the western region. After obtaining all the procedures, we started construction. The land acquisition was completed, the ground was laid, and the high-voltage line was laid. The initial investment was about 4 million. But suddenly they said they didn’t want to do it anymore. The electricity bill couldn’t be paid, so it was almost a waste of money. Later, we paid a demolition fee to finish it.

Huang Fangyu: I have never stopped stepping into pitfalls since I entered this industry. For example, some mining machines were not returned after being placed on the site in the early days. Some sites I invested in had problems attracting investment. I was also cheated when I bought second-hand mining machines. The main reason is that this industry is too close to money, and there are too many speculators, so it is difficult to avoid stepping into pitfalls. But I have never regarded the pitfalls I stepped into before as a bad thing. I think it is to prevent me from stepping into bigger pits in the future.

Q8: What are your plans for the future? What will you do if you stop mining?

Huang Fangyu: We should try to move towards compliance as much as possible, because all industries will eventually tend to a rational rate of return. We should be more calm and treat it as a career, rather than short-term speculation. In addition, we started planning for this halving last year, replacing the 100W mining machine with a 40-50W mining machine. Everything is going as planned.

Han Miner: We are still building mines, so the impact is not big at the moment. Once we finish the things we have, it will take until at least August. If we stop mining, we will move to data centers. Relatively speaking, we won’t make as much money, but the assets will be more valuable and the policies will be more supportive. There are pros and cons.

Yao Binbin: If I didn’t become a miner, I would like to be a free investor. I am quite interested in this industry and have done research on it. It just depends on whether I have enough funds.