Miners' adventures at sea: some make a fortune, others are put on hold

Author | Yang Bing Editor | Xue Jing

Produced by | Lieyun Finance

Since 2020, Bitcoin has continued to rise amid fluctuations. Some people speculate that this may be related to the successive "accidents", such as the deterioration of US-Iran relations, the Australian wildfires, and the Syrian war.

Bitcoin has long been known as "digital gold". In the eyes of many people, it has the functions of risk aversion, value preservation, and asset transfer, which invisibly strengthens people's "faith recharge" in Bitcoin.

BTC trend chart in the past three months (taken on February 8, source: CMC)

However, in the minds of miners, this increase is just a "small fight". They have already reached a consensus: Bitcoin is bullish in the long run, and the best way to obtain Bitcoin at a low cost is mining.

At present, Bitcoin mining has already formed an industrial chain. Mining machine manufacturers, mining pools, mining farms, miners, etc. are important parts of this industrial chain. In China, mining farms with hundreds of thousands of loads have already appeared. What is the situation abroad? Lieyun Finance found through investigation that a "Caspian mining economic circle" has been formed around the Caspian Sea at the junction of Europe and Asia.

This article will focus on the relevant situation of the "Caspian Sea Mining Economic Circle", including but not limited to introducing the overall structure of the mining market, opportunities and risks of mining, etc.

Table of contents

01 What is the “Caspian Sea Mining Economic Circle”?

02 The market structure of mining around the Caspian Sea 1. Almaty is more suitable for mining 2. Mining is a "relationship science" 3. Each company has its own "little calculation" 4. "No advantage in electricity costs"

03 Opportunities and risks of mining around the Caspian Sea

01

What is the “Caspian Sea Mining Economic Circle”?

On the world map, there is a sea area that dances in an "S" shape like a graceful woman. This is the world's largest saltwater lake - the Caspian Sea. Today, the three countries along the Caspian Sea - Iran, Kazakhstan and Russia - have all become important mining countries.

Kazakhstan, in particular, has a growing position in the global mining industry, and is even considered by miners as the preferred destination for overseas mining.

In addition, miners have also left their footprints in countries near the Caspian Sea, such as Georgia, Armenia, Uzbekistan, and even Kyrgyzstan, which is a little further away. The local mining landscape is gradually taking shape.

“Caspian Sea Mining Economic Circle” (Source: Map Emperor)

These countries, whether they offer cheap electricity or open their doors to more liberal policies, are always attracting miners with a keen sense of smell.

This also accelerated the formation of the "Caspian Sea mining economic circle".

02

Market structure of mining around the Caspian Sea

Just like nomads on the grasslands who live near water and grass, miners often live near electricity. Miners will go wherever there is cheap electricity.

In the "Caspian Mining Economic Circle", cheap electricity is also one of the important factors that attracts a large number of miners to deploy. As early as the first half of 2018, some miners in my country were attracted by the cheap electricity there, which was as low as a few cents, and began to deploy. In October 2018, some miners even organized a group to visit Iran, which caused quite a stir in the industry.

It is also based on this that Iran's mining has attracted more attention in the industry, and some incredible fantasy stories, such as customs confiscating mining machines and mining by themselves, also happen from time to time. (Lieyun Finance has reported on this in "Can mining in Iran pay back in one month? Only if you can pay back is true!" For details, please refer to it.)

Compared with Iran, Chinese miners seem to be a little late in realizing the layout of Kazakhstan. In 2018, they made few "moves" in Kazakhstan. Until the beginning of 2019, more and more Chinese people went to Kazakhstan for inspection, but most of them were laymen and did not know the ins and outs of the local area.

According to information provided by insiders of the Kazakhstan Bitcoin Mining Association, the Chinese initially cooperated more with local Kazakhstan people to establish mining farms. As of June 2019, there was no mining farm independently established by the Chinese in Kazakhstan, and the situation changed in the second half of 2019.

At present, there are two main forms of mines established by Chinese miners in Kazakhstan: one is to build mines in cooperation with local people, which accounts for the vast majority, and the single mines built are relatively large. The other is mines established by Chinese people themselves, which, although fewer in number, also demonstrates the strong strength of Chinese miners in building mines overseas.

In sharp contrast to Chinese miners, European and American miners seem to have a "special liking" for Kazakhstan. There are many European and American miners in Kazakhstan. They seized the early bonus period and made a fortune. The mines are relatively large, some with a load of about 160,000 tons, and some are even larger. In addition, the mines established by Europeans and Americans have been in operation for a long time, and some have been in operation for about 4 years.

The situation is different in Kyrgyzstan. Before the New Year of 2020, the Kyrgyz government pressed the "pause button" on mining. It did not produce clear documents and regulations, but pointed the finger at mining companies. According to Chinese miners who mine locally, it is likely due to political struggles. The gods (the two presidents) fight and mortals (miners) suffer. When the government will press the "start button" again depends on the development of the situation.

In summary, although they are all in the "Caspian Mining Economic Circle", countries including Georgia, Armenia, Uzbekistan, etc. all have different mining situations, which will not be elaborated here.

In order to give readers a deeper understanding of the "Caspian Sea Mining Economic Circle", we have specially selected Kazakhstan, a relatively representative country, for a detailed introduction.

1. Almaty is more suitable for mining

Kazakhstan has industrial infrastructure and power facilities left over from the former Soviet Union, and its electricity prices are among the lowest in the world, so it is also regarded as a "mining paradise" by some miners.

Today, mining farms in Kazakhstan are mainly distributed in two cities: one is the capital Nur-Sultan; the other is the largest city Almaty.

Compared with the two, the capital Nur-Sultan is equivalent to Jiamusi in China, while Almaty is equivalent to Xinjiang in China. The former is too cold. Although the startup temperature can be properly handled and the mining machine will not be frozen, it will also bring many inconveniences to miners. Relatively speaking, from the perspective of climate, temperature and other factors, the latter is more suitable for mining.

However, the location of the mine is not only determined by these factors. When mining in Kazakhstan, Chinese miners generally cooperate with local Kazakhstan people to build mines, which is like a production line. Only when everyone handles the link they are best at can they maximize profits.

Chinese miners are generally responsible for handling issues such as the purchase and transportation of mining machines, while local partners are responsible for selecting the site of the mine and establishing local relationships. Therefore, the selection of local partners should be particularly considered in the layout of the mine.

2. Mining is a “relationship science”

Although there is no substantial difference in mining between cities in Kazakhstan, the national policy is unified and mining is legal.

However, it is undeniable that mining is still a "relationship science".

If you want to build a mine, the first thing you need to do is to go through various procedures such as government approval to obtain the qualification to build the mine. However, under the legality, the approval process is not simple. According to Lieyun Finance, it depends on the relationship between the parties or the ability of the partners. If the relationship is strong and the ability is strong, the approval will be relatively easier and the time will be relatively shorter.

"Kazakhstan has many departments, low efficiency, and a complex power structure. To combat monopoly, they implement segmented management. For example, power infrastructure is one company, electricity sales is one company, and management and maintenance is another company, and so on." A mine owner in Kazakhstan told Lieyun Finance.

“The people at the power company are very smart. When negotiating with them, they have to put a lot of details on paper, such as metering points, deviation assessment, payment, line maintenance, supply guarantee, etc.” the mine owner added.

After signing the power contract, the power company will coordinate quotas, quantities, and supplies, which takes a long time. After that, it needs to rent land, apply for project approval from the government, conduct land surveys and designs, and handle company entities. In addition, there are also taxation, fire protection, management, construction approval, and so on from the government.

According to Lieyun Finance, you have to run both the government and the power lines. Even if you have very strong connections, it will take more than a dozen trips and at least half a year to basically get through all the links. If you don't have strong connections, it will be more complicated and time-consuming.

3. Each family has its own "little abacus"

As early as July 2018, Leonid Muravyev, deputy chairman of the Kazakhstan Blockchain and Cryptocurrency Association, said that Kazakhstan’s backup electricity is equivalent to about half of the electricity consumed by Bitcoin operations worldwide, and that lawmakers should encourage cryptocurrency mining, saying that this could become Kazakhstan’s “new oil.”

In order to make full use of its abundant power resources, Kazakhstan has adopted a relatively open attitude to attract foreign investors. Under the favorable policies, in early 2019, Chinese miner Li Dong smelled the business opportunity and joined the mining team in Kazakhstan.

"The Kazakhstan government supports Bitcoin mining activities and is very friendly to the mining industry. Normal mining is not taxed. Currently, miners only need to go through normal customs when transporting mining machines to Kazakhstan." Li Dong said when introducing the situation of mining in Kazakhstan to Lieyun Finance.

But he also reminded that mining in Kazakhstan must pay attention to the relationship between the power grid company and the government. Each company has its own "little calculations."

He gave an example, saying that it is easy to "drag your feet" over the issue of line maintenance. Once a line has a problem, the government has the responsibility to repair it, but similar to planned funding, it takes time to carry out. At the same time, the power grid company hopes that the miners will advance the maintenance costs as a "bargaining chip" to negotiate with the government for maintenance contracts and subsequent construction. There are many "routines" involved.

"When mining in Kazakhstan, some miners choose to purchase substations to reduce electricity bills, but this is an investment strategy issue," Li Dong added.

Affected by the epidemic, Kazakhstan notified that entry would only be allowed after July 1, 2020. Li Dong said that although he was in China, his mining machine was still operating normally, so he felt at ease.

4. “No advantage in electricity rates”

However, some senior miners in the industry expressed their concerns. "At present, the Kazakhstan government supports it and does not collect taxes, which feels good, but that is because the government is not clear about this industry. Once it really develops, it is hard to say how many hundreds of millions of dollars of investment will be needed."

Some miners also calculated the economic accounts based on their actual research and said that there is no advantage in electricity costs, and going to Kazakhstan is not as good as staying in China.

No matter where you mine, for many people, the mining circle is a mysterious and closed circle. The miners in it are like "experts" hidden among the people, doing the business of "making money quietly".

These "experts" will make smart judgments based on their own situations.

03

Opportunities and risks of mining around the Caspian Sea

There is no doubt that both domestic and foreign mining face different opportunities and challenges.

In a previous interview with Lieyun Finance, a mine owner said: "In China, the mine has to deal with the power grid and the government. Most people cannot handle people at this level because China is a society based on personal relationships. In foreign countries, they have to deal with different beliefs, national conditions, political parties, and customs. The cost of the whole process is not low abroad. Overall, the domestic environment is better than that of foreign countries."

However, some miners also said that the comprehensive layout at home and abroad is ideal. For example, some old mining equipment that has been eliminated in China has been transferred to Iran for continued use.

With the arrival of Bitcoin halving, the Antminer S9, a first-generation flagship, is about to step down from the altar, but some miners have started to hoard S9. Not only do they not sell their own mining machines, but they have also purchased a large number of S9s, preparing to use them in countries such as Iran.

Compared with the domestic situation, the biggest risk of the "Caspian Sea Mining Economic Circle" is security, especially Iran.

On January 3, the Iranian military leader Soleimani was "targeted and killed" by the US military. In response, in the early morning of January 8, the Iranian Islamic Revolutionary Guard Corps launched dozens of missiles at two Iraqi military bases where US troops were stationed. This exchange of fire suddenly escalated the US-Iran conflict and the relationship between the two countries continued to deteriorate.

On January 18, Iran's Supreme Leader Khamenei condemned the United States in a post on social media. He compared the United States to the luxury ship "Titanic" that sank in the Atlantic Ocean, saying that the United States' fate would be equally miserable.

There are many things to pay attention to when mining, but safety comes first. The tension in Iran has forced Chinese miners to consider how to avoid risks.

In short, mining is a relationship business. In addition to some superficial business practices, there are many unknown operations. In addition, there are some external risk factors and so on. Overseas investment opportunities and risks coexist. Investment is risky, so be cautious when entering the market.

At the request of the interviewees, all names in this article are pseudonyms.