Jiang Zhuoer's latest sharing: What are the pitfalls of cloud computing power? What is B.TOP joint mining? What are the advantages compared with cloud computing power?

At 4 pm on April 17, at the 2nd anniversary mining special interview event of Honeycomb Finance, Jiang Zhuoer, founder of BTC.TOP, participated in the live interview as a guest.

The following is a transcript of Jiang Zhuoer’s interview:

01
The pitfalls of cloud computing

Host: Many mining farms are doing cloud computing. Does Litecoin have any cloud computing business? What is the business model of cloud computing for operators? What are the pitfalls for users who buy cloud computing?

Jiang Zhuoer: We also have cloud computing power, but we only do toB business. Some businesses selling cloud computing power on the market are supplied by us.

Why don’t we do toC cloud computing? Because cloud computing cannot be fully compliant, especially in the domestic environment. If it makes money, it’s fine, but if it loses money, cloud computing is mostly retail investors, and users make trouble, causing mass incidents. In the eyes of the regulatory authorities, cloud computing is especially like a financial product, and the regulatory risk is very high.

Taking this risk into consideration, we do not sell cloud computing power, but only do joint mining. Cloud computing power is more risky for retail investors:

The first is that the machines are expensive. For example, the S19 (power consumption 34.2W/T) used in our B.TOP joint mining is 161 yuan/T according to Bitmain's large customer price, and cloud computing power is basically 30% to 80% more expensive than the price of mining machines. This means that after retail investors buy cloud computing power, they are 30-80% behind large miners like us.

The second is the high electricity cost. For example, the electricity cost of our S19 joint mining is estimated to be around 0.23 yuan/kWh during the flood season, and around 0.19 yuan per T per day. The maintenance fee of cloud computing power is basically much higher than this price. After converting various miscellaneous maintenance fees and management fees into electricity costs, it is often as high as 0.35~0.5 yuan/kWh.

In addition, cloud computing power often has regulations. For example, if there is no output for 30 days, the cloud computing power contract will be terminated. Combined with the high electricity prices, users will suffer a lot. It is very likely that the mining machine is still mining normally according to the market electricity price, but according to the high electricity price, it is no longer enough to pay the electricity fee and has to be recycled.

Therefore, if you buy cloud computing power, you must calculate carefully, taking into account various charges, and figure out how much 1T is, how much is the maintenance fee for 1 day, and then compare multiple platforms horizontally to see which one is more expensive and which one is more cost-effective.

Third, there are many pitfalls. Not to mention the small cloud computing power providers, even some large cloud computing power providers are cutting leeks from customers in various ways. For example, a certain Xin is also well-known, but they also cut a lot of leeks during the bull market in 2017. A certain Xin sold a batch of futures cloud computing power to customers in 2 months. When the futures mining machine was shipped 2 months later, the market price of the mining machine doubled due to the increase in the price of the currency. The customer was very happy at first, and he made double the money before he started mining, but he didn't expect that the certain Xin would breach the contract.

A certain letter said that the mine had problems and this batch of mining machines could not be put online, so the customer was refunded the original purchase price and a 2% interest was paid for two months. Of course, the customer refused and said that since the mine could not be put online, then just give me the mining machines and I would sell them directly on the market. Wouldn’t it be better to sell them at double the price? Then the certain letter played tricks and first said that the mining machines were not ordered. After being exposed, it played tricks again and said that the customer bought a cloud computing power contract, not a mining machine, and the contract could be cancelled. It had no obligation to give the customer a mining machine, and then swallowed the mining machines that doubled in price.

If it is a joint mining machine, there will be no such problem, because the customer buys the mining machine, has an invoice, and has ownership of the mining machine.

Fourth, it is popular to sell short-term computing power in cloud computing power, which is very risky. In the eyes of the regulatory authorities, this looks like financial management. Moreover, the buyer is not as smart as the seller. Merchants split a mining machine into multiple parts and sell it to customers. The total price is higher than selling it once. For customers, the risk is much greater because the mining time is short, which is the opposite of what I said, that mining mainly relies on long-term mining and then making money when the bull market rises.

02
Merged Mining vs Cloud Computing

Moderator: Litecoin has a joint mining business. What exactly is it selling? How is it different from cloud computing power (what is the biggest difference)?

Jiang Zhuoer: What is joint mining? Joint mining has actually been around for quite a while. We have had this product since 2016, but it was an internal product before and was not available to the public. At the beginning, when we were mining, there were partners, friends, fans, etc. who saw that mining was profitable and wanted me to help them mine. But now mining has become a very professional field and it is difficult for retail investors to get involved. So what should we do? So we established the joint mining business, which is to mine with partners.

We provide a one-stop mining service called joint mining. As long as the customer pays the money, we will take care of all the mining matters, including the selection, purchase, transportation, maintenance, relocation, and even the final sale of the mining machine at its residual value. The principle is that the customer pays the money, we work hard, and we do business together.

Generally, we buy a large number of mining machines ourselves, and then take customers to purchase some. Customers are just following orders. We have rich experience in when and what type of mining machines to buy, and we have our own set of logic. Customers can save time and worry by following orders.

Because we are doing business in partnership, we provide resources at cost price. For example, the price of mining machines is the price for large customers of mining machine manufacturers. For example, Bitmain will reduce the price of each large miner by 200 yuan for purchases of more than 200 units. We will directly sell to miners at this large customer price. Therefore, our price is directly the bare price, the lowest in the market. Let customers get as close to the treatment of large miners as possible.

If the price of a mining machine drops, the mining machine manufacturer will often provide coupons. For example, at the end of December 2019, Bitmain issued a coupon worth 1,315 yuan for each T17e because of the price drop. This coupon can be sold at a discount of 70% to 80% on the market, which is worth about 1,000 yuan. If you buy cloud computing power or a mining machine on the market (not directly from Ant), then this 1,315 yuan coupon has nothing to do with you. But if you buy a mining machine in our joint mining, then we will send this coupon to you, and if you don’t need it, we will help you sell it on the market.

So from here you can see that we are very honest. For a T17e priced at 8,870 yuan, the cloud computing provider or the middleman selling the mining machine will eat up the 1,315 yuan coupon. This is a huge profit, and we still return it to the customer.

Our electricity charges are also provided at the market price of managed electricity prices. We do not make extra money. So when do we make money? When the customer starts to make a profit. For example, a customer bought a mining machine worth 1 million yuan, and made 2 million yuan from mining (including the final sale of the mining machine at residual value), making a net profit of 1 million yuan. In a business partnership, you make money and I work hard. Is it not too much to give me 20% of the net profit? We will take 200,000 yuan. If the customer does not make money from mining in the end, we will not distribute dividends and provide free services.

This post-dividend strategy greatly reduces the risk of loss for customers. If the person who buys the joint mining product breaks even, then the person who buys the cloud computing power has already lost 30%. This also ties our interests together with those of our customers. The customers have to make money first before we can make money.

Joint mining can be fully compliant. We use the company account to collect money and issue invoices, which also prevents us from overselling. In fact, some cloud computing platforms are air-to-air, without purchasing mining machines, Ponzi schemes, and you can't verify it. They take some photos and videos of mining machines, or even take you to see the mining machines in the mine, but you can't be sure whether these mining machines are his, whether there is overselling, or whether one machine is sold to multiple users.

We can verify this because the money collected in our company account and the invoices issued strictly guarantee that we only sell the number of mining machines we buy. If we oversell or issue false invoices, it is a felony in tax law and you will be sentenced to jail. So no matter how big our scale is, it is compliant and safe.

Joint mining is essentially a partnership system, so we first consider the interests of our customers. We can only make money if our customers make money. For example, Cloud Computing's S9 was basically shut down at the end of 2018. Cloud Computing was shut down for 30 days and reset to zero. However, Joint Mining's S9 is different. We tried every possible way to keep S9 running.

For example, Bitmain released an AB firmware at that time that could reduce the power consumption of S9. We immediately updated the firmware for all S9s and helped customers reduce their electricity bills. If you buy cloud computing power, there is no such benefit. The cloud computing mining machine does not belong to the customer. The merchant is eager for the mining machine to pay the electricity bill as soon as possible, so that the mining machine becomes the merchant's. The sooner it is used up, the higher the residual value of the mining machine, and the higher the profit will be whether the merchant mines by himself or sells it.

We also kept the S9 running by reducing the power station electricity bills, so that customers could make another profit in the bull market in 2019. The S9 was not shut down until the recent big drop on March 12, which was 1 year and 4 months longer than the cloud computing power S9. This is our integrity. Although it was shut down, the mining machine is still there and sealed in the warehouse. If the coin price sees a big bull market later, the S9 may still be able to continue mining.

So to summarize, joint mining:
1. Low price: mining machine price for large customers and electricity market hosting price.
2. Integrity: coupons, firmware upgrades, bear market pressure station electricity prices.
3. Good system: fees are charged only after investment has been recovered, with low risk.
4. Legal and compliant: The company account receives money, issues invoices, and does not oversell.

03
All In Mining Machine

Host: Last year, there were rumors that some people in the mining circle were leveraging all-in mining machines. What was the actual situation? Did this market situation have a big impact on everyone?

Jiang Zhuoer: First of all, the risk of mining is very small. Mining machines are a long-term option for Bitcoin, which allows you to obtain Bitcoin at a lower cost. For example, mainstream models like S19 allow you to buy 10 yuan of Bitcoin with 3 yuan of electricity bill.

There is a joke about investment. Someone said that my investment strategy can not only absolutely protect the principal, but also have the opportunity to hit high returns. When someone asked him how he did it, he said that he saved 10,000 yuan in Yu'e Bao and spent 2 yuan every day on lottery tickets. Although it is a joke, it still makes sense.

Mining is actually somewhat similar to this strategy. Mainstream mining machines depreciate at a relatively slow rate, and may even appreciate in a bull market. For example, an S9 bought for 10,000 yuan in 2016, after two years of free mining, became 20,000 to 30,000 yuan per unit by early 2018. Mining obtains Bitcoin at a low cost, and then hoards the coins for appreciation in order to achieve high returns.

The life cycle of mainstream mining machines is very long. For example, the S9 has been mining from 2016 to 2020, for 4 years. If there is another bull market from 2020 to 2021, the S9 may still be able to continue mining.

In such a long period of time, it is almost certain that there will be one or even several bull markets. As long as you are not at the top of a cycle, such as buying a very expensive S9 of 20,000 to 30,000 yuan in early 2018 (the normal price of S9 is 8,000 to 10,000 yuan), miners who have been mining for a long time will hardly suffer losses.

There are two types of leverage: pure credit leverage and collateralized currency loans. The key to credit loans is that the time period should be long. The reason is as mentioned above. Bitcoin is such an interesting thing, and the fluctuations are so large. As long as time passes, there will definitely be a surge, and if there is a surge, the miners will make money.

For those who pledged their coins to borrow money, this wave of decline is very dangerous, but relatively speaking, it is still much better than speculating in coins. For example, a miner pledged coins and borrowed 65% of the funds to buy mining machines. On March 12, many people were forced to close their positions, but did they suffer a loss? In fact, no, because first, the mining machines that were bought with 65% of the funds are still there, and the maximum loss is only 35%. Second, even now, the coin price has risen a lot, but if the pledged coins are held until now, it is still a 35% loss.

Therefore, miners who use collateralized coins for loans will not suffer losses due to forced liquidation now, but if the price of coins goes back up in the future, they will have fewer coins and earn less money. However, their mining machines are still there, and they can continue to mine coins at a low cost, so the overall risk for miners is still very low, unlike many cryptocurrency speculators who will go bankrupt once their positions are blown up. Miners' mining machines are always mining.

04
Tokenization of computing power?

Moderator: Mining pool coins and computing power tokens are also a business model in the mining circle. Do you think it is necessary to tokenize mining pools and computing power? What are the risks to operators and users?

Jiang Zhuoer: Tokenization is commercially beneficial, making the entire business model and capital flow smoother and more cost-effective. The risk lies mainly in compliance. Whether in China or the United States, it involves certain legal issues regarding equity and securities.

If we make money, then everyone is fine, but if we lose money and retail investors make trouble, then it’s hard to say. In China, it is illegal to issue coins and raise funds, and in the United States, it is illegal to issue securities. We don’t want to cause any trouble, so we don’t do tokenization.

Risk warning: The content of this article is only the personal opinion of the guest and does not constitute any investment opinion or advice.

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