Many mining machines are approaching the shutdown line. Will mining machines be sold by weight again in just half a year?

Since the secondary market started in April this year, the mining industry, which had been in a state of suspended animation for a year, has been completely awakened, and a retaliatory rebound by miners has erupted in the cryptocurrency circle.

The real data is that within half a year, the total computing power of the Bitcoin network has broken through from 38EH to the integer mark of 100EH, and is currently hovering around 95EH. Even at the moment when the secondary market has fallen sharply, miners are still running forward at a speed of 180 miles per hour, with no intention of stopping at all.

Behind the frenzy in the mining circle, potential risks are quietly approaching.

1. After only half a year of enthusiasm, several mainstream mining machines may become scrap metal again

From December last year to the beginning of this year, it was a cold winter for blockchain and the freezing point of the mining industry. The Antminer S9 series and Shenma M3 series mining machines, which represented the mainstream mining machines at the time, fell sharply below the break-even line. The loss of money as soon as the machine was turned on broke the last psychological defense of a large number of miners, and a frenzy of selling mining machines was aroused in the market in a short period of time.

At the end of December 2018, a large number of mining machines that had been removed from the shelves were sold at the price of scrap metal. The news of "mining machines sold by pound" spread to the mining circle and quickly attracted widespread coverage by mainstream media, and the theory of the collapse of the mining industry became popular for a while.

Judging from the intuitive feedback of the whole network data, the total network computing power was 86EH at the peak of the previous market. When the mining machines were sold off, the total network computing power was reduced to around 36EH. Machines with a computing power of 50EH were removed from the shelves or even sold off, which is equivalent to 4 million Ant S9 mining machines.

We have already seen the ending. A few months later, the industry hit bottom and rebounded, leaving many people behind forever. The more tragic the collapse, the more eager the miners are to regret this year. A large number of machines that were considered scrap metal were bought back by miners at high prices to provide them with positions. In order to cope with the enthusiasm of miners to buy, Bitmain, which has a serious shortage of new generation mining machine production capacity, had to develop the latest improved models S9K and S9SE based on S9.

On the one hand, the computing power of the entire network, which is piled up by the enthusiasm of miners, is constantly weakening the marginal effect of mining machine revenue. On the other hand, the large-scale correction of the secondary market has further depressed the legal currency revenue of mining machines.

Last week, F2POOL issued the first profit and loss warning since the bull market. The Shenma M3 and Avalon A741 mining machines had already hit the profit and loss line under the market conditions of the day, which undoubtedly poured cold water on the overheated mining circle.

Miners who are immersed in the dream of getting rich through mining have to admit that the shadow of the shutdown line has not gone away. What is more dangerous is that the shutdown line of the Antminer S9 series machines, which are the absolute mainstream, is $7,500, and it can only maintain a small profit at present. As long as the secondary market has another round of big plunge, the mining circle will be shut down again.

As long as the market continues to decline or the computing power of the entire network continues to rise, reports of mining machines being sold by the pound will appear in major mainstream media again. In just half a year, the Antminer S9 has gone from being wildly sought after to approaching the shutdown threshold, from being put back on the shelves to being taken off the shelves again. In just over half a year, the mining circle has gone through another cycle.

2. Mining competition is escalating, and the golden age of mining may be far away from us

Judging from the changes in the mining industry this time, the game in the mining industry is becoming more and more complicated. In the past, the idea that solving the problem of electricity would solve more than 90% of the problems may no longer be appropriate. Even in the flood season, the current situation of machines reaching the break-even point is presented before our eyes. The return model of mining has become complicated, and the golden age of mining that the first generation of miners often mentioned is gradually fading away.

The reason for this situation is not just one factor, but more of an inevitable outcome of the industry's self-evolution.

1) Cloud computing platforms may be the biggest disruptors

The speed at which cloud computing power leasing has risen in this round of market has forced miners to face up to its existence. This product, which rents out large computing power in a decentralized manner and lowers the entry threshold for the mining industry, is gaining recognition from investors outside the industry. In this round of market, cloud computing power, as the user's entry point, has contributed a lot of computing power to the mining industry and is also one of the important driving forces behind the growth of the computing power of the entire network.

Cloud computing power has entered a period of explosive growth this year. The business of various platforms in the industry has grown to varying degrees. Coupled with the emergence of a large number of new computing power platforms in a short period of time, cloud computing power has become a force in the mining circle that cannot be ignored.

At the Global Digital Mining Summit that just ended in Frankfurt, Germany, Bitmain founder Jihan Wu spoke on stage as a representative of the organizer. He emphasized that Bitmain's three core businesses are chips (including mining machines), digital currency financial services (DEFI) and mining farm services (including mining pools). According to insiders, the main business of Bitmain's mining farms has also transitioned from mining machine hosting to cloud computing power leasing.

The rise of cloud computing power is the biggest variable that miners did not expect, and now it is a practical problem that miners have to face.

2) Moore's Law takes effect, and the "generation gap" becomes unbridgeable

Another uncertainty in the mining industry this year is the sudden rise of high-computing mining machines. In 2018, the manufacturing process of mining machine chips advanced from 16nm to 7nm, and the computing power of a single machine jumped from 20TH/s to more than 50TH/s. However, the mining industry was depressed at that time, and miners were not very enthusiastic about updating their mining machines. After the birth of the new generation of mining machines equipped with 7nm process chips, they have not found an opportunity to display their capabilities.

As the market warms up, large-scale mining machines with high computing power are put on the market, and miners finally experience the fear of being dominated by Moore's Law. According to the data released by Dr. Yang Zuoxing, the founder of Shenma Mining Machine, in the computing power growth in the past six months, Shenma's high-computing machines alone contributed 30%-40% of the computing power growth. Since the beginning of this year, more than 100,000 Shenma M20S and M21S mining machines have been put on the market.

The computing power of Shemma m20s is as high as 68T/S, which is the model with the highest computing power among the mass-produced mining machines. The computing power output of a Shemma m20s is equivalent to that of 6 Ant T9+ (11.5T/S), while the power consumption is only 2.3 times that of the latter.

The generation gap between mining machines is a gap that cannot be filled by quantity. When new mining machines begin to be put on the market in batches, the last horn of the life of the previous generation of mining machines has been blown. There is a huge difference between 14nm and 7nm, but Moore's Law has obviously not stopped.

Bitmain launched the new model Antminer S17+ at the Global Digital Mining Summit. The computing power of a single machine can reach 73T/S, surpassing the Shenma m20S in one fell swoop, and it can be mass-produced in the near future. What is even more despairing is that according to Wu Jihan, the 5nm process chip mining machine is already in the final stage of research and development, and the 3nm process chip is the direction that the industry is working on.

The secondary market may not be the biggest threat to miners. The constantly iterating mining machines are the sword hanging over every miner's head. When the new generation of mining machines begins to become popular, the existing mining machines will begin to face elimination. This is almost a fate.

3. Breaking the dilemma of iterative cycles, all parties in the industry are looking for better ways

In fact, veteran miners are no longer surprised by this death cycle of mining machines. Miners are being driven to exhaustion by this cycle. If the machine iteration is late, the payback period may be extended for a long time, so they miss the next iteration. The law of slow steps is eliminating the previous batch of slow miners.

In addition to desperately speeding up the iteration of their own mining machines, miners are also constantly looking for ways to extend the life cycle of mining machines. Lower electricity prices can extend the life cycle of mining machines indefinitely. In theory, as long as the electricity price is low enough, any machine can make money. An old miner told us that the energy-rich Middle East has become the best destination for domestic second-hand mining machines.

We learned about the specific situation of second-hand mining machines going overseas from a mining vertical mall. According to the person in charge of the mall, machines like Shenma M3 and Ant L3+, which are close to being shut down in China, can be traded in large quantities on the platform every day, and these second-hand machines are mainly destined for the Middle East.

On the other hand, regarding the problem of iterative elimination of mining machines, a certain mine put forward a constructive idea: "Future mining machines should have the ability to be reprogrammed." The fundamental reason for the iteration of mining machines is that ASIC chips can only be used for the calculation of a single algorithm, and the use method is too single. Once mining has a negative return, the machine can only become scrap metal.

If retired mining machines can be reprogrammed and used to assist in areas that require massive computing power, such as AI deep learning, cloud rendering, edge computing and other services, the life cycle of the mining machines themselves can be extended by more than ten times.

Moreover, the ability of mining machines to switch computing power between cloud computing and mining at will is a powerful tool for miners to resist cyclicality. If programmable mining machines can be technically realized, there will be no such thing as a cold winter in the mining industry. The only difference will be the level of profits.

The pursuit of maximum certainty is the long-term pursuit of every investor and even speculator. Certainty comes from the instinctive aversion of human beings to risks, but a large part of the profits of mining depends on the volatility of the market. Miners who have already invested in it can only embrace uncertainty while looking for more possible ways to hedge risks. This is very similar to the adventurers in the Age of Exploration. As long as they believe that there is a new continent waiting to be discovered, they have a reason to set sail and risk their lives.

Editor’s note: This article has been edited without changing the author’s original intention.