On the eve of the 2020 Bitcoin halving, the mining industry faces a life-and-death gamble

At the end of 2019, miners were not having an easy time.

Bitcoin prices are low, and a large number of mining machines have reached shutdown prices. The upcoming halving of Bitcoin output may intensify the mining industry reshuffle.

Mining machine manufacturers are also having a hard time. Discounting mining machines and listing them at a loss have become their common choice.

Some miners predict that an unprecedented mining disaster is about to happen. 2020 is about to become a life-or-death year for the entire mining industry.

Danger lurks on every side

"This time, Ant S9 is really going to be eliminated." Bitcoin miner Chen Ping told Yiben Blockchain.

The Antminer S9 was launched in 2016 and was once recognized by the industry as the most cost-effective mining machine. At its peak, 60% of the Bitcoin network's computing power came from the S9.

But now, the S9 is becoming a burden for miners.

F2Pool mining pool data shows that as of December 18, 2019, if calculated at an electricity price of 0.38 yuan per kWh, the revenue of Antminer S9 has equaled the electricity cost. This means that there is no profit margin for mining with Antminer S9.

"The market price of a second-hand S9 is only 300 yuan now, and it also comes with an official power supply, which is equivalent to selling scrap metal." Chen Ping said that this price is even lower than last year's "mine disaster."

The Ant S9 SE, which is priced at 1,060 yuan on Bitmain’s official website, currently has a second-hand price of only 700 yuan.

Other low-computing mining machines that have reached the shutdown price include Shenma M3, Avalon A821, Avalon A741, Ebit E9+, Antminer T9+, etc. In the mining circle, they have become useless.

The Snow Leopard A1, released by Bitfury in 2018, had an even more tragic ending. This mining machine had mediocre computing power but extremely high power consumption, but because of its low price, it was the first choice for many power-stealing miners. Today, its glory is gone.

In November 2019, a case of stealing electricity for mining was uncovered in Panzhihua, Sichuan. The one in the red box is the Snow Leopard A1.

The withdrawal of low-computing-power mining machines indicates that the mining industry has entered a turning point. The new generation of mining machines represented by Antminer S15/S17 and Shenma M20 have replaced the old mining machines.

At the same time, computing power is increasing. In August this year, a blockchain publication reported that Bitmain will release at least 600,000 mining machines to the market in the second half of the year, and the total network computing power is expected to reach 110EH/s by the beginning of next year. (For details, see "Bitmain's confidential data leaked: 600,000 new mining machines produced in half a year, with a valuation of $12 billion")

Now, the total computing power of Bitcoin network has reached 91.92EH/s. If nothing unexpected happens, this number will continue to rise.

The increase in computing power means that the difficulty of mining increases and the output decreases. In addition, miners are facing another major crisis - the halving of Bitcoin production is coming.

According to Satoshi Nakamoto's design, Bitcoin production is halved every four years on average. The next halving will occur in May 2020. By then, the mining output of all mining machines will be cut in half.

“When revenue is halved and costs remain the same, miners’ profits are not halved, but shrunk to one-third of the original amount,” Yu Yang, COO of Mine Ocean Association, told Yiben Blockchain.

But in the eyes of some miners, his algorithm is still too optimistic.

"He only considered the electricity cost of the mining machine and calculated it according to the current mining difficulty." Miner Wu Di said, "But in fact, the computing power of the entire network will continue to increase, and miners also need to consider the payback period of the mining machine."

"We expect that when Bitcoin is halved, the total network computing power will reach at least 100EH/s," said the mine owner. By then, the output of existing mining machines will be further reduced.

Many miners are betting that the price of bitcoin will surge after the halving. However, that may not happen.

"Take the last halving of Bitcoin in July 2016 as an example. Within a year of the halving, that is, before the second half of 2017, Bitcoin only rose slightly," said Sun Yuan, a blockchain researcher. "It was only after the halving that the price of Bitcoin began to rise sharply."

Yu Yang said: “At present, off-site funds are not very interested in Bitcoin, while on-site funds are trying to save themselves. The price trend of the currency is just a stock game brought about by the halving expectation.

"At present, it seems that there is a high possibility of a large-scale 'mining accident' occurring next year," he concluded.

Difficult to deal with

Regarding possible situations in 2020, Yu Yang’s advice is to stay put and avoid expansion, “everything will be seen after the halving in May 2020.”

In fact, with the price of the currency flat for a long time, some miners have come to the consensus of keeping their hands off. In order to survive the winter, they have come up with various methods to make minor repairs to the mines and mining machines.

One of them is to transform the old Antminer S9 into a dual-barrel version. Miners will convert two S9s into a dual-barrel mining machine to reduce its power consumption.

The modified double-barrel S9 mining machine

The computing power of the modified dual-cylinder S9 mining machine is not as good as the sum of two S9s, but the power consumption is greatly reduced. "The computing power of the dual-cylinder S9 can reach 20T, and the power consumption is about 1560W, which is equivalent to an Antminer S11." Chen Ping said.

Based on this calculation, the energy efficiency of S9 can be improved by 30%.

In Huaqiangbei, it is not complicated to modify the double-barrel S9, and the price including material and labor costs is only 30 yuan. However, Yang Jiang, the owner of the mine, believes that modifying the S9 is not worth it.

"The S9 is already very old, and the mining machines are not stable after the modification." He believes that even if the modified S9 can operate stably, they will be eliminated during the flood season next year.

In Yang Jiang's view, when the bitcoin output is halved in May next year, Sichuan will be flood season, and many mining machines will migrate again. In this process, some miners will also be eliminated.

"They will sell the machines and send them directly to Sichuan, so that new players with more powerful capabilities can take over," said Yang Jiang.

Today, in Xinjiang, Sichuan and other places, some traditional companies with strong capital have entered the mining market, including many listed companies.

"Some large companies want to invest in the cryptocurrency industry, but lack compliant channels, and mining is one of the few options." A cryptocurrency investor pointed out, "When buying mining machines, you can issue an invoice and use the company's account. As for the mined coins, you can 'handle them flexibly'."

He revealed that in the history of the mining circle, Canaan and Ebang had more contact with traditional enterprises, while Bitmain and Shenma Mining Machine focused on the miners in the traditional mining circle.

Small miners in the mining industry are obviously unable to compete with large companies with abundant capital. A new round of reshuffle in the mining industry may come in 2020.

"Miners are betting that Bitcoin will surge after the halving, but this is irrational." Yu Yang said that miners should be awed by risks.

However, Mr. Mine said that while replacing old mining machines with new ones, miners also need to learn to make rational use of financial tools to hedge risks.

"For example, when the market is good, you can hedge and lock in mining profits, or you can use Bitcoin options to obtain more liquidity," he said.

Mining Revolution

In 2020, the mining industry, which has been experiencing ups and downs, is about to usher in new changes.

"Water-cooled and liquid-cooled mining machines will become mainstream in about five years. The power consumption of new mining machines will be reduced by 15% every nine months, and the service life of mining machines will be extended from a maximum of three years to 4.5 years." Yang Zuoxing, founder of Shenma Mining Machine, said this at the New Era Mining Summit in September this year.

More importantly, perhaps, is the change in the form of mining machines in the future. Yang Zuoxing believes that in the next three to five years, mobile container mining machines may occupy half of the market space.

In traditional mining farms, mining machines are placed on racks in factories. However, container mining machines do not require factories. They have built-in racks, power supplies, lines, heat dissipation and control systems, making them easy to transport and build.

"Now, when a mining machine is transported from Xinjiang to Sichuan, it will take at least 20 days to stop working," Chen Ping said. "It only takes a few days on the road, and the rest of the time is spent on installing and debugging the mining machine."

Bitmain launched a container product, ANTBOX, in 2017, which can accommodate more than 300 mining machines. But it did not become mainstream.

ANTBOX launched by Bitmain

"The advantage of containers is that they have low construction costs and are easy to relocate or sell as a whole for cash. The disadvantage is that they are not friendly to small miners." Chen Ping said that a container can hold hundreds of mining machines, which is difficult for small miners to afford.

Big miners who can afford container mining machines often own their own mining farms. The power supply, racks, and cooling equipment that come with the containers are equivalent to duplicate investment.

However, as the mining industry continues to reshuffle, container mines may become the first choice for miners in the future. By that time, the mining industry will completely become the world of medium and large miners.

In addition to miners, mining machine manufacturers are also having a hard time in the current environment. They have all chosen the strategy of "company listing + mining machine promotion".

On November 21, mining machine company Canaan Inc. took the lead in going public and successfully landed on the Nasdaq.

As of the close of trading on December 19th, U.S. time, Canaan Inc.'s stock price was $4.65, down 48.3% from its issue price of $9.

Data source: Xueqiu

“Canaan’s IPO this time can be considered as a loss.” An investor in the cryptocurrency circle pointed out, “But the Bitcoin halving is coming soon, and mining machine companies now would rather bleed than go public.”

Bitmain and Ebang International are exactly like this. Recently, there have been constant reports from KOLs and media that these two mining machine companies are preparing to go public in the United States.

"The competition between mining machine manufacturers is becoming more and more fierce. For example, the fight between Bitmain and Shenma has escalated from lawsuits to calling the police to arrest people," said Chen Ping.

In his opinion, after the halving of Bitcoin production, the competition between manufacturers will become more intense. Once the price of the currency is not as expected, the sales of mining machines will definitely drop, and some manufacturers will fall behind. "So, for them, going public now is the best choice."

The price of coins has been flat for a long time, mining output is about to be halved, and the performance improvement of mining machines is limited. Some people believe that the golden age of mining machine companies has passed.

However, practitioners are still actively seeking a way out. For example, Canaan Technology has already begun to lay out the AI ​​industry in a high-profile manner.

Bitmain has also recently announced a series of sales incentives, such as bundling put options with mining machines, and launching installment payment and joint mining models, with the intention of regaining market share.

The mining industry is at a crossroads.

Miners, mining sites and mining machine manufacturers all sat at the gambling table and drew their own cards.

They are anxiously waiting for the hand of fate to reveal the final answer.

*Some of the interviewees in this article are pseudonyms.

Source: Text | Blockchain Pizza Ratchet