Compared with cryptocurrency speculation, the expected returns from mining are not high. Why do so many people choose mining?

In the eyes of many people, compared with cryptocurrency speculation, the expected returns from mining are not high, but some people are more focused on mining. Why is this?

In the previous tweet of Zhikuang University, "If hoarding coins is more profitable, why bother mining?" Series - Jiang Zhuoer's Insights", Jiang Zhuoer, the founder of BTC.TOP, gave his own insights: mining can avoid being washed out, can provide financing (borrowing money for mining), and can also alleviate the embarrassment of escaping the top too early.

At the same time, Zhikuang University also interviewed professionals from Antminer, BTC.com, OKEx Mining Pool, Bitcoin Deer and other industry companies. Today, let's listen to their views on mining.

01
OKEx Mining Pool Manager: Alina

Compared with cryptocurrency speculation, mining has many advantages for investors who value long-term investment value.

First of all, from the cost point of view, mining is a cheaper and more stable way to obtain Bitcoin. There are two ways to obtain Bitcoin, buying from the secondary market and mining. Bitcoin purchased through the secondary market, also known as speculation, carries a market sentiment premium. This premium can be a positive premium or a negative premium. The recent waterfall-like drop in the price of Bitcoin is because it contains a negative premium of market sentiment.

With data such as mining machine costs, electricity costs, other fixed operating costs, and the total network computing power, the cost of mining to obtain Bitcoin can be roughly calculated. In the early days of the industry, many miners with faith accumulated a huge amount of wealth.

With the rapid development of the industry, the difficulty of mining and the computing power of the entire network have increased significantly, the price of mining machines has become higher and higher, and the cost advantage of mining to obtain Bitcoin is gradually decreasing or even disappearing. But at the same time, this has also promoted the specialization and centralization of the industry, and large-scale mining farms and mining pools have gradually emerged, which has greatly reduced the marginal cost of mining. Under good market conditions, mining is still profitable.

Secondly, mining is a good means of risk hedging. The blockchain industry has experienced ups and downs, and the market conditions in recent days are a good example. When the price of a coin reaches a fluctuation range of nearly 30%, any short-term operation, especially leveraged trading, is extremely risky. Mining, which continuously produces coins, has become a risk hedging method to reduce the average cost of obtaining coins.

Thirdly, the profit model is clear, and mining has won the favor of a large number of traditional capitals. For investors in traditional industries, the sharp fluctuations of Bitcoin may bring the possibility of large profits from speculative transactions, but the risks are also unbearable for ordinary people. At the same time, many traditional capitals do not understand the value of Bitcoin, so they are unwilling to invest rashly in currency speculation. The economic model of mining is relatively easier to understand. The scale of the mine will give people a very spectacular and down-to-earth feeling: the huge roar of the mining machine and the endless factory buildings will give people a sense of the impact of large-scale industrial production. The payback period of mining is basically about one year, and the payback period and profit margin can be quantified and estimated.

Finally, the recent plunge in the price of coins is both a risk and an opportunity for mining. At present, some old mining machines such as S9 have basically been shut down, and the computing power of the entire network is estimated to gradually decrease by 15%-20%. This is undoubtedly a blow to low-performance mining machines, but for the entire industry, the era of reshuffle and upgrade is coming. This provides a quantitative opportunity for the replacement of mining machines, which will help to enhance the vitality and liquidity of the entire industry. In this context, whether it is miners, mining farms or mining pools, they all need to continuously optimize, improve efficiency and competitiveness, and force the mining industry to develop in the direction of more professional, compliant and efficient operation and management.

As negative market sentiment gradually subsides, the market will eventually return to a reasonable position. It is foreseeable that independent small miners will gradually be eliminated, and the future will be an era of professional, centralized, compliant and efficient operations.

02
Antminer: Dai Pengcheng

We usually regard mining as a powerful way to buy coins at a low price and obtain Bitcoin. Mining can make the entire investment process more stable by extending the investment cycle, stabilizing income, and shortening the capital investment recovery cycle based on currency.

When the coin price rises sharply, the coin base value increases, even the price of second-hand mining machines will rise, and the investment return rate will increase significantly; when the coin price falls, pay attention to the break-even point. At this time, the mining difficulty is stable, and protecting the coin is the basis.

The profits from mining include not only the value of the currency but also the residual value of the mining machine. The mining machine can also hedge part of the risk during market fluctuations.

03
BitDeer CMO: Ray Shi Rui

Jiang Zhuoer once said: The most profitable thing in the cryptocurrency circle is to hoard coins. The most feared thing in the blockchain world is being washed out, and mining can avoid being washed out.

Compared with cryptocurrency trading, mining has the following advantages:

1. Risk resistance

The volatility of the currency price is huge, and it is difficult for most people to remain calm when faced with the sharp rise and fall of the market. In the development of Bitcoin, there have been many extreme market conditions where the currency price has fallen by 75% or even 90%. The panic caused by the extreme market conditions has caused many people to sell their coins and clear their positions. The change in mentality has caused these people to lose the opportunity to get on board.

The huge fluctuations in the cryptocurrency market can easily lead to irrational trading behavior. Reducing or even eliminating panic trading behavior is the secret to success for many miners in navigating bull and bear markets. In the process of mining, do a good job of risk control and use financial instruments to hedge potential risks. You can still start the machine in a sluggish market. At this time, the computing power of the entire network decreases, and more coins can be obtained per unit computing power. Mining and hoarding coins in a bear market, when the market comes, you can get a double increase in both the coin price and the second-hand mining machine.

Therefore, the risk resistance of mining is not only reflected in reducing irrational trading behaviors, but also in not being easily thrown off the bus.

2. Mining can build a business system with currency as the core

The huge fluctuations and cyclical changes in the price of coins in the past have made old users in the circle want to buy at the bottom and sell at the top. Unfortunately, history is always surprisingly similar, but it is not a simple repetition. If you buy at the bottom and sell at the top according to the previous "data rules", you may make wrong operations because the price of coins does not follow the preset script. Once you get off at the wrong place, your mentality is likely to collapse, and it will be difficult to get on the bus again.

Mining provides a daily cash flow in the form of coins, which allows you to stay on the train. From this perspective, mining can avoid the risk of getting off the train.

3. Strategic balance of future mining

Mining plus financial derivatives form a more stable investment strategy. With the emergence of digital currency derivatives, miners have more strategies to deal with risks.

When digital asset financial instruments are scarce and the industry winter is approaching, miners have no choice but to persist in mining. It depends on who has sufficient funds and who can stick together to survive the winter.

Today, financial derivatives related to digital assets are becoming more and more abundant. Miners in the new era have more solutions to deal with volatile market conditions. Miners can use various financial instruments to hedge risks, including futures, options, leveraged lending and other financial derivatives.

When the market is going up, miners can sell; when the market is going down, miners can take some hedging measures to narrow the volatility of income and find a relatively stable income range. At this stage, miners can control the mining risk within an acceptable range through financial leverage derivatives.

4. Mining is still one of the best industries in the future

For Bitcoin, mining has three meanings: first, decentralized operation to ensure that the digital asset network continues to produce blocks; second, decentralized node broadcasting to ensure that digital asset network transactions are packaged and broadcast; third, to ensure that digital assets are not lost.

Mining is the foundation of Bitcoin and a social experiment full of geek sentiment. Mining is also a rare real industry in the blockchain industry, and Bitcoin is also the most stable and oldest application. The Bitcoin system has achieved today's scale and is widely known thanks to Bitcoin's inherent reasonable economic model.

The cryptocurrency market has gone through several ups and downs, and many currencies have disappeared, but the value of Bitcoin has always been recognized by everyone. It can be foreseen that mining will still be one of the best industries in the future.

04
BTC.com CEO: Solemn

The profit of a single machine is indeed not very high, and mining has long since changed from a geek game to an investment behavior of professional miners who pursue lower costs under the scale effect. There is often a mismatch between the growth of computing power and the computing power capacity of the entire network, which allows miners to obtain excess profits, which is equivalent to obtaining Bitcoin at a lower cost and making stable profits.

For miners with economies of scale, mining in a bear market is still an economic activity that can be compared with a large amount of traditional investments. When a bull market comes, they can use stable Bitcoin income to ensure profits from all increases and hold on to the coins in their hands.

There are already various financial products on the market that can help miners lock in profits, increase profits, and expand scale through flexible allocation of futures and options, electricity bill payment plans, digital currency lending products, and financial products.

05
Conclusion

Senior people in the industry explained the advantages of mining from different dimensions, including hedging risks, the cost of obtaining Bitcoin, stability, and reducing irrational transactions.

What do you think are the advantages of mining compared to cryptocurrency trading? Feel free to share your views in the comments section.

Risk warning: The content of this article only represents the personal opinions of the guest, does not represent the views of Zhikuang University, and does not constitute any investment advice or suggestions.