A billion-dollar mining machine, 30,000-dollar BTC, what is the relationship between mining and coin prices?

It is not difficult to understand how Bitcoin is mined. To sum it up in one sentence: whoever can calculate the correct random hash function first can package the block, and whoever packages the block will receive a Bitcoin reward + transaction fee.

This calculation process is the mining process, which involves randomly filling in values ​​to find a solution.

The machine used to calculate this correct value is the mining machine, and currently the most energy-efficient one is the ASIC mining machine.

The computing speed of your mining machine will have a quantitative indicator, such as 1T computing power, which means that 10 to the 12th power of computing can be performed in 1 second. If these 10 to the 12th power can calculate the current random hash function, then you have grabbed Bitcoin, but if not, it is a waste of time. This is computing power.

If you buy a mining machine to calculate, it is individual mining. (Now retail miners can hardly mine Bitcoin because the computing power is too high) You gather a group of people to buy mining machines to calculate, and after the calculation, everyone distributes the Bitcoin income according to the computing power ratio, which is a mining pool. You pay to buy thousands of mining machines, rent a site, and find cheap electricity to mine, which is a mining farm. What I want to say here is that the most upstream of the currency industry is not the mining farm, but the mining machine manufacturer, and there are companies that supply mining machine chips above the mining machine manufacturers, such as TSMC and Canaan Creative. They are the most stable to make money.

Let’s first look at the four types of mining machines that were born in different periods and compare their computing power:

CPU mining era: In January 2009, Satoshi Nakamoto mined the first block of Bitcoin, the Genesis Block, on a small server in Finland and obtained 50 bitcoins.

The mining tool used by Satoshi Nakamoto was the CPU, which means that Satoshi Nakamoto was able to achieve the computing power required to obtain the reward using the CPU of his own computer. At that time, the CPU of an ordinary computer could mine Bitcoin because Bitcoin was not well known to the public in the early days, there was little competition, and the threshold for mining was naturally very low.

GPU mining era: In 2010, a miner was the first to successfully mine with a personal GPU, and GPU mining officially debuted. One GPU is equivalent to dozens of CPUs, and the computing power has been significantly improved. If a GPU is lucky, it can mine dozens of bitcoins a day, so miners began to buy a large number of computers equipped with GPUs for mining. 2010 is known as the first year of Bitcoin GPU mining.

Satoshi Nakamoto’s original intention was to hope that everyone would only use their own CPU to mine, but because of the high returns from mining, the Bitcoin system’s accounting function was surpassed by the rewards from mining, which is the result of the market’s pursuit of profit. Of course, if Satoshi Nakamoto’s original intention was really followed and only individual mining was carried out, the price of Bitcoin might not have risen at all.

FPGA mining: Most people may not have heard of it. This is because although FPGA has powerful mining functions, it is too difficult to develop, so it has not been popularized. In short, in 2011, the price of Bitcoin exceeded $1 for the first time. The rising price prompted miners to improve their "equipment" to mine more Bitcoin. In mid-2011, the first FPGA Bitcoin mining machine appeared. This was the first professional chip design for mining.

How powerful is FPGA? If GPU is a kitchen knife, then FPGA is a cannon - the computing power of a single GPU can only reach a few MH/S, while the computing power of FPGA has increased thousands of times to the level of GH/S. At this time, Bitcoin surged from $2 in 2012 to $1,200 in November 2013. Many speculators poured in, and the difficulty of mining began to rise sharply. Miners holding FPGAs could not make ends meet and had to look for new mining machines.

ASIC mining era: In 2012, professional mining machines represented by ASIC were launched. They are equivalent to integrated circuit devices customized for digital currency mining. They are born for mining and focus only on mining digital currency. ASIC mining machines are still the mainstream mining machines today.

The first ASIC mining machine was the "Avalon" mining machine developed by Pumpkin Zhang. Later, he founded Canaan Creative and turned to the research and development of mining machine chips, outsourcing the manufacturing of the entire machine to the foundry and focusing only on chip development.

Wu Jihan took out the 50 million yuan that he had invested in the development of mining machines at Baked Cat and founded Bitmain. At the end of 2013, Bitmain developed the Antminer S1 mining machine. We all know the story that followed, and Wu Jihan established his position as the "number one in the mining circle."

The history of the entire BTC mining industry is basically the history of the iteration of mining machines and the increase of computing power. The three are like the wheels on a carriage, moving forward continuously driven by interests and technology. (The missing wheel is the mining farm/mining pool)

The development of mining pools is just like the changes in the world's political and economic landscape, from turbulence to competition, and finally to basic stability in the overall landscape.

2012 was the first year of mining pools. In June 2011, the total computing power of several mining pools accounted for less than 20% of the entire mining industry at its peak. By 2012, it soared to nearly half of the mining industry's computing power. Therefore, 2012 is considered the first year of the development of mining pools.

In 2014, domestic mining pools emerged. Considering the network speed, miners would give priority to mining pools in their own country, so they are integrated with domestic mining pools. The rise of Chinese miners has led to the rise of Chinese mining pools.

The overall mining industry was basically stable in 2015. Small mining pools were gradually squeezed out, and the computing power of mining pools outside the top ten mining pools accounted for less than 5%. In addition, among the top five mining pools, four are from China. The high total share of domestic mining pools has caused some people in the European and American cryptocurrency circles to worry.

The landscape has been set since 2016, with little change except for the birth of three new Chinese mining pools: HaoBTC, ViaBTC and BTC.com.

emm, I feel like this is basically like the top 20 mainstream coins on our platform. Except for the emergence of one or two newcomers, the status of others will basically not be shaken. It seems that there will be a "class solidification" effect in every circle~

So, from individual miners to mining pools, what benefits have evolved that are more beneficial to the cryptocurrency ecosystem? Here we need to popularize the main functions of mining pools.

The basic function of a mining pool is to gather the computing power of its users, miners, to mine together. A mining pool can be understood as a training institution that specializes in teaching mining, responsible for helping miners to mine better in theory and practice.

In addition, mining pools also have the functions of stabilizing miners' income, speaking and voting on behalf of miners, etc. Therefore, the development trend of the mining industry is similar to that of other industries, which are gradually evolving from individuals and amateurs to professional institutions and scale.

We start with two maps, and the rest depends on editing... emm, editing is impossible, we have to let the data speak for itself.

Let’s first take a look at BTC’s computing power difficulty growth curve and currency price trend curve.

(BTC computing power difficulty increase curve from May 2013 to September 2019)

(BTC market trend curve from May 2013 to September 2019)

Before 2016, the correlation between the increase in computing power difficulty and the price of Bitcoin was not particularly strong, perhaps because at that time, neither the scale of mining nor the computing power difficulty had reached a white-hot stage.

But after 2017, the two curves have been relatively close. An analysis report from an institution previously pointed out that with the halving of production in May 2020 and the increase in the number of mining machines, the BTC computing power difficulty in 2020 will exceed the peak of 80EH/S in July this year and rush to 100EH/S, and the price of Bitcoin will also increase to around US$30,000.

However, when the computing power difficulty increases, many mining machines may face the situation of being unable to make back their investment and shut down. Here is the conclusion of TokenInsight's data research: when the computing power increases by an average of 4%, nearly half of the mainstream mining machines cannot make back their investment; and when the computing power increases by an average of 5%, most mining machines cannot make back their investment.

The Bitcoin economic cycle is mainly driven by two main factors: mining costs and computing power, forming a dynamic cycle. As shown in the following figure:

It is precisely because of such a cycle that someone told Xiaohaojun that the big plunge that started on Wednesday this week is to attract big money to enter the market. After everyone buys the bottom of BTC, the price of the currency will rush to a new peak when the halving comes, and the sharp drop in the price of the currency will also cause many mining machines to be unable to make a profit and shut down directly, thereby reducing computing power and reducing competition. When the flood season comes next year, after the miners squeeze out some competitors, the coins mined during this period can be shipped in large quantities at high prices.

Of course, this is a bit too much of a conspiracy theory... I found that the Bitcoin dealer is the invisible hand in the market, making the leeks toss and turn and live a life worse than death. (A small trumpet gentleman here reminds you that the contract is fun for a while, but it will be a funeral home after the liquidation, so try not to touch the BTC contract.)

Understanding such a Bitcoin economic cycle will help everyone further discover and observe which information has a crucial impact on the price of Bitcoin, thereby clearing the fog and gaining insight into some truly related information.

For example, among the factors that affect the price of Bitcoin, which ones are variables and what are their weights; which ones are quantitative and what are their weights?

The reason why the price of Bitcoin is difficult to predict is not because there is no news, but precisely because there is too much news.

After talking about the computing power difficulty, let's take a look at the mainstream mining machines and miners' income. The healthy development of the Bitcoin ecosystem is inseparable from these mining machines and Bitcoin mines that run day and night. So, in the case of a sharp drop in the price of the currency, can these mining machines and miners still break even?

Xiaohaojun has conducted an inventory of the 20 most mainstream mining machines on the market, including new and old mining machines launched from February 2018 to October 2019, and sorted out their selling prices, computing power, average daily income and shutdown coin prices.

Note: The above mining algorithms are all SHA-256/(BTC); the electricity fee is 0.04＄/kWh; the exchange rate is 1＄=7.00￥; data sources: btc.com, f2pool.com, bitmain.com, avalonminer.shop, microbt.com, ebang.com, bitfury.com, innosilicon.com, strongu.com, hummerminer.com, bitfily.com, bitinfocharts, and some are from the Internet; time: before 2019/9/25 16:00:00.

Related formulas in the table:

Payback period = machine cost / (number of coins mined per day by the machine * coin price - daily electricity cost per machine)

Shutdown coin price = electricity cost * power consumption / 1000 + rewards mined per hour * 2%) / rewards mined per hour.

(There is a systematic error between the shutdown coin price here and the actual situation. It is for reference only and does not constitute any investment advice.)

I have highlighted several data in yellow that highlight the powerful performance of the mining machines in the table, so that you can see more intuitively which mining machines are more outstanding in individual dimensions.

In addition to the statistical comparison of various parameters of the mining machines, the most important thing is that the highest shutdown coin price is only US$5,630, and the lowest is even only US$1,758.

If the data in the table is not too biased, then based on the current price of Bitcoin, the 20 mining machines listed, whether new or old, can basically guarantee mining profits. (Even if the computing power difficulty rises to the expected 100 EH/S, these mining machines can still make a profit)

From the perspective of mining machine inventory, the impact of mining revenue and computing power difficulty level on the price of coins, the current opinions are basically divided into two camps:

Either it is bullish or bearish. (Isn't this nonsense?)

The main points of the bullish camp:

After the Bitcoin halving cycle arrives, the computing power difficulty will increase significantly. Historically, the price of the currency has risen every time the computing power difficulty has increased, so there will definitely be a big market this time, and it will not be a problem for Bitcoin to reach $30,000.

The main points of the bearish camp:

The payback period for mining may increase by 30%, and the current price of the currency has already overdrawn part of the halving expectations. The price of Bitcoin after the halving may still be around US$10,000.