Half of the mining machines failed before BTC halving?

On April 21, the Bitcoin network ushered in a new increase in mining difficulty. Affected by this, the unit computing power income of the BTC network dropped from the original 0.00001709BTC/T to 0.00001576BTC/T, a drop of 7.7%.

This is the second difficulty increase for Bitcoin since April, and the living space of miners has been compressed again before the halving. Pan Zhibiao, founder of Biyin Mining Pool, summarized the current environment of the mining circle with the word "ruthless".

As of 16:00 on April 26, according to F2pool data, based on the current mining difficulty, electricity cost of $0.05 per kilowatt-hour, and the price of one Bitcoin at $7,547, 35 of the 91 popular Bitcoin mining machines included in the platform have a daily net income of less than $1, and nearly 40% of the mining machines are in a precarious situation.

The last time Bitcoin was halved was on July 9, 2016. At that time, the global financial market did not see extreme events such as "four circuit breakers in 10 days for the U.S. stock market" and "crude oil futures fell to negative values". This time, the trend of Bitcoin after halving faces a more complex market environment.

Currently, 86.89% of Bitcoin has been mined. Qiu Shaoxian, a BSV community celebrity, believes that the new round of reward halving will have little impact on the deflation of the Bitcoin network and will not stimulate a sharp rise in the price of the currency like the previous two halvings.

Theoretically, if the price of the currency does not rise, the sharp drop in miners' profits caused by the halving may lead to the loss of miners. So, can the Bitcoin network fee income become the main source of income for miners? According to Glassnode data, the current daily transaction fees generated by the Bitcoin network range from 20 to 100 Bitcoins, accounting for 1% to 10% of miners' income.

According to Satoshi Nakamoto’s design, when the block reward gradually decreases, transaction fees will become the main source of income for miners. However, there is a big gap between the current reality and the original idea.

Mining difficulty continues to rise and mining machine profits decline

On April 21, with less than 20 days left before the next round of Bitcoin network reward halving, the difficulty of network mining was raised again.

The increase in mining difficulty means that the competition between miners is intensifying. According to the operation mechanism of the Bitcoin network, when the number of miners in the system increases, the hash rate of the entire network will increase, and the difficulty of miners mining Bitcoin will also increase, and vice versa.

Affected by this, the unit computing power revenue of the BTC network dropped from 0.00001709BTC/T to 0.00001576BTC/T, a drop of 7.7%.

The decline in the unit computing power output ratio of Bitcoin has a direct impact on the mining income of miners. Pan Zhibiao, founder of the Biyin mining pool, called it "ruthless" on social media. "The latest BTC mining difficulty is 15.96T, and the difficulty has increased by 8.45%. The mining difficulty is close to a historical high on the eve of halving."

In fact, this is the second increase in the difficulty of Bitcoin mining since April. On April 8, the difficulty of the entire Bitcoin network increased from 13.91T to 14.72T, an increase of 5.77%. As of 16:00 on the evening of April 26, after two adjustments, the difficulty of the entire Bitcoin network has increased to 15.96T.

The unprecedented halving of the price on March 12 shook the outside world’s belief in BTC’s safe-haven attributes, and also allowed investors and miners in the currency market to witness an unexpected large risk before the halving. The difficulty of BTC’s entire network also dropped significantly. According to BTC.COM data, the difficulty of Bitcoin mining dropped by nearly 16% in March, which is one of the largest drops in the history of the Bitcoin network.

In April, with the rebound, the price of Bitcoin once exceeded 7,000 US dollars. The mining difficulty, which had been reduced in March, began to gradually recover, approaching the historical highest level. "The recovery of Bitcoin prices and the two increases in mining difficulty mean the return of miners," analysts said.

The computing power has increased significantly and the price of the currency has rebounded slightly. The "double increase" trend has not fundamentally changed the situation of some miners.

As of 16:00 on the evening of April 26, according to F2pool data, based on the current mining difficulty and electricity cost of $0.05 per kWh, and the price of one Bitcoin of $7,547, 35 of the 91 popular Bitcoin mining machines included in the platform have a daily net income of less than $1, which is on the edge. Among them, 17 mining machines are in a loss-making state. Currently, a BTC mining machine called Snow Leopard A1 has the highest daily net loss of $1.56.

Snow Leopard A1 mining machine has the highest daily net loss

With the increase in mining difficulty, nearly half of the mining machines have been forced to shut down or are on the verge of shutting down. What is worrying is that it is less than 20 days away from the third halving of the Bitcoin network's rewards, when the Bitcoin block reward will be reduced from 12.5 BTC per block to 6.25 BTC. According to BTC.COM's forecast, the unit computing power revenue of the BTC network will drop from the current 0.00001576 BTC/T to 0.00000788 BTC. This means that if estimated based on the current coin price, after the reduction in production, the cost of BTC miners will double in a short period of time.

On April 21, F2Pool co-founder Mao Shixing said that if the Bitcoin price stays in the current range of $6,000 to $7,000, more mining machines will inevitably shut down after the halving.

On the eve of BTC halving, the mining circle is full of dangers caused by market uncertainties.

The demand for low-power mining machines has led to the launch of new models

At the beginning of the year, some media predicted that this year’s Bitcoin production cut would lead to “an unprecedented mining disaster”, and even regarded 2020 as the “year of life and death” for the mining industry. The pessimism at the time was sneered at by many people in the mining industry, and no one expected that the financial environment would become so special.

The last time the Bitcoin network reward was halved was on July 9, 2016. At that time, the global financial market did not see any extreme events that would go down in history, such as “four circuit breakers in 10 days for the U.S. stock market” and “crude oil futures falling to negative values”.

Historical data of Bitcoin shows that the price of the currency usually does not rise immediately after the halving, and miners, regardless of their size, may immediately encounter cash flow problems due to the halving of mining rewards, and thus fall into trouble.

Historically, Bitcoin has undergone two halvings. The first occurred on November 28, 2012, when the block reward was reduced from 50 BTC to 25 BTC. On the day of the halving, the BTC price was $12.22. One year later, on November 30, 2013, the BTC price reached its highest point of $1,175 after the first halving, which lasted 367 days.

The second halving occurred on July 10, 2016, when the block reward was reduced from 25 BTC to 12.5 BTC. On the day of the halving, BTC was quoted at $648. On December 16, 2017, BTC hit a new all-time high of $19,891, which lasted 525 days.

From the long-term trend, the price will rise after each halving, but the cycle to reach the peak is getting longer. "The '3.12' crash caused a lack of liquidity in the entire market, which needs time to repair. The halving is coming soon, and by then, some machines may be shut down. If they cannot survive until the end of the year, miners will face a more severe situation." Huobi Mining Pool CEO Cao Fei told the media.

At present, some mining practitioners have begun to be vigilant. "We should iterate mining machines as much as possible and use mining machines with low power consumption ratio to maintain the computing power advantage in the market." This is the idea of ​​Marvel Capital.

Mining machine manufacturers such as Bitmain and MicroBit are also launching new machines one after another. On February 27, Bitmain announced the mining machines S19 and S19Pro equipped with the latest 7nm chips. Both mining machines are superior to most mining machines on the market in terms of performance. On April 17, MicroBit officially released the new models M30S++ and M30S+ at the "Shenma M30 Global Online Conference".

Even if everything is ready, the mining industry after the halving will still depend on the price of the currency. As Alina, head of the OKEx mining pool, said, if the price of Bitcoin does not rise as expected after the halving, the mining cost of miners will be higher than the income, and the mining industry is likely to be reshuffled for a period of time.

On-chain transactions are not yet popular, miners still focus on the price of coins

At present, every miner is facing a "gamble", and the key to winning lies in the "increase in coin prices."

Jiang Zhuoer, the founder of Litecoin, is optimistic about price manipulation. He admits that after the BTC halving, miners will have a hard time, but there is a slight advantage that the timing of this year's halving basically coincides with the flood season. "After the output is halved, the flood season will significantly reduce the electricity costs of miners. I estimate that it will drop from the current range of 0.38 yuan to 0.4 yuan to around 0.2 yuan to 0.24 yuan, which is basically a half drop. This can offset the adverse effects of the halving to a certain extent."

Another important factor that reassures Jiang Zhuoer is that the reduction in BTC production is beneficial to the price of the currency in the long run. "From the historical records, as long as a miner persists in mining for 2 to 3 years, he will basically make money."

What if halving fails to provide momentum for coin prices to rise?

BSV community celebrity Qiu Shaoxian believes that nearly 90% of the total Bitcoin has been mined and circulated in the market. "Compared with the previous two halvings, the amount of Bitcoin flowing into the market from mining this time has little impact on the original circulation."

As of 16:00 on the evening of April 26, the current circulation of Bitcoin, that is, the number of mined Bitcoins, is 18,247,575, and the maximum supply of the Bitcoin network is 21 million, which means that 86.89% of the Bitcoins have been mined.

Qiu Shaoxian believes that the new round of Bitcoin mining halving will have little impact on the deflation of the Bitcoin network, so it cannot stimulate a sharp rise in the price of the currency like the previous two halvings. When the price of the currency does not rise, the sharp drop in miners' profits caused by the halving cannot be compensated. Qiu Shaoxian is worried that a large number of miners will leave the market, causing a sharp drop in the computing power of the Bitcoin network, affecting the security of the entire network.

In fact, Satoshi Nakamoto had considered this situation when designing the Bitcoin network. He predicted that the block rewards that miners get from packaging network transactions will gradually be replaced by transaction fees, that is, when the block rewards gradually decrease, transaction fees will become the main source of income for miners.

According to the Bitcoin white paper, the current miners' income comes from block rewards and network transaction fees. So, when Bitcoin block rewards are not enough to maintain the current miners' income, can network transaction fee income replace block income to meet the miners' work efforts?

According to data from Glassnode, the current daily transaction fees generated by the Bitcoin network range from 20 to 100 Bitcoins, while the daily block reward is around 2,000 Bitcoins. The proportion of transaction fees in miners' income is only between 1% and 10%, and the current situation is obviously far from what Satoshi Nakamoto had expected.

"During the last bull market, there was a period of time when Bitcoin's network fees were basically equal to the block reward." Cao Fei is not worried about the current on-chain transactions of Bitcoin. "The fees are generated with the activity of the entire network transactions, which is related to market performance. In addition, Bitcoin may have other applications in the future. When the price increases, the overall transfer activity will also increase, thereby increasing the income of miners."

The "last big bull market" that Cao Fei refers to occurred on December 22, 2017. Data from the Glassnode website shows that Bitcoin's daily network fee income reached 1,495, setting a record high, which was not much different from the block reward of 1,936 Bitcoins on the same day. In this way, the bull market of rising coin prices is the key factor for active network transactions.

Satoshi Nakamoto once said: In another 20 years, we will either have a huge transaction volume or nothing. This cycle has passed for 10 years, and there are still 10 years left for the Bitcoin network to be widely popularized and become a practical electronic cash. Can we see the situation of "not talking about the price of the currency but looking at the usage" in Bitcoin? This is worth thinking about for everyone who loves BTC. (Fengchao Finance)

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