A large amount of capital has poured into the Bitcoin mining field, the computing power has increased significantly, and the payback period is extending

As June began, Bitcoin soared and cryptocurrency funds began to get excited.

However, the prices of altcoins are weak and there is a shortage of high-quality projects. Therefore, the transition to mining is becoming a new trend in cryptocurrency funds.

However, mining is not an easy task. Faced with the crazy increase in mining difficulty and the volatile price of coins, it seems that the payback period and risk resistance of mining machines cannot be achieved at the same time.

Now that Sichuan's flood season is coming to an end, some people predict that low-computing mining machines represented by Ant S9 will soon be phased out.

After the flood season ends, the best time for cryptocurrency funds to enter the mining market may have just begun.

01 Entering the mining industry

" As far as I know, more and more cryptocurrency funds have entered the mining industry this year, " Mr. Chen, a partner of a TokenFund, told Yiben Blockchain.

In the industry, these mining funds are called "computing power funds." In May this year, the well-known blockchain investment institution Fundamental Labs launched a $150 million computing power fund, raising $44.5 million in the first phase.

“Fundamental Labs’ attempt represents a new trend in the digital currency industry—investment institutions are shifting from investing in projects to investing in computing power,” Chen said.

In his opinion, the biggest reason why investment institutions are transforming is that investing in projects is no longer profitable.

He observed that this so-called bull market was completely different from the previous bull market.

Previously, the star projects in the bull market were ETH and ICO projects based on ETH. The core of this bull market is Bitcoin. However, ETH has been falling, and ICO has almost been ignored.

"Except for Bitcoin, other currencies have not gained much growth or attention," said Mr. Chen.

Transitioning to Bitcoin mining has therefore become a common choice for many investment institutions.

Calculated at 0.35 yuan per kWh of electricity, the cost of mining one bitcoin with Antminer S17 is $1,966 at the current difficulty, which is far lower than the price in the secondary market. "Mining is more reasonable than hoarding coins," said Chen.

However, compared to buying coins in the secondary market, the process of mining and producing Bitcoin is longer.

The issue that computing power funds are most concerned about is the payback period of mining machines.

"The payback period is affected by factors such as the price of the currency, mining difficulty and electricity prices," said miner Wu Di. "We can only calculate a static payback period."

The so-called static payback period is the calculation result based on the current currency price, mining difficulty, electricity price and other parameters. The premise is that all parameters remain unchanged.

Taking the Antminer S17 as an example, based on the managed electricity price of 0.35 yuan/kWh, the daily coin production of an S17 is 0.00147854 BTC, and the daily electricity fee is 20.02 yuan. Based on the current coin price, the daily net income of an Antminer S17 is 79.81 yuan, plus 3% power loss, the daily net income of an Antminer S17 is 79.2 yuan.

In the current market, the price of Antminer S17 (August futures) is 24,000 yuan. Based on this calculation, the payback period of this mining machine is 297.7 days.

Yiben Blockchain uses Antminer S17, Innosilicon T20T, and Antminer S9k as representatives to calculate the payback period of current high, medium, and low computing power mining machines, as shown in the following table:

It is not difficult to see that compared with the high-computing power mining machines with higher prices, the payback period of low-computing power mining machines is shorter.

But there are risks. " Low-computing-power mining machines have a short payback period, but poor risk resistance. Once the price of the currency plummets, they will be the first to shut down. Although high-computing-power mining machines have a long payback period, they have a high risk resistance and can still generate profits in last year's bear market. " Wu Di told Yiben Blockchain.

Nowadays, in the mining circle, cryptocurrency funds have transformed into mining, and three models have emerged.

The first model is to package computing power into financial products - institutions promise investors a certain annualized return. If the market is good, institutions may get rich returns; otherwise, institutions need to bear the risks themselves.

The second model is to build a computing power trading platform. "Large funds generally choose this model, using the raised funds to purchase machines, find mining farms to cooperate with, and then sell the computing power through leasing," said Zhou Ping, the owner of the mining farm.

In the industry, this model is often referred to as a “cloud computing platform”, of which Niubit, Bitcoin.com Mining Pool, Hash Power Home, 58coin, and BitDeer, a subsidiary of Bitmain, are representatives.

The third model is joint mining - the fund cooperates directly with the mining farm, one party provides money, and the other party provides manpower, labor, and the mining farm; the two parties start mining after finalizing the model of the mining machine, and the income is divided proportionally.

“In addition, some companies package mines into company assets in order to make their financial reports look better and facilitate financing,” Zhou Ping revealed.

02 Risk

Investing always involves opportunities and risks, and Bitcoin mining is no exception.

In the mining industry, the price of mining machines, the price of coins, the difficulty of mining, and the price of electricity are all volatile. Any change in any of these factors will make the payback period of mining machines difficult to predict.

"The payback period of mining machines is the result of market dynamics," Wu Di said. "And we can only calculate the theoretical payback period."

Right now, the rapidly growing Bitcoin network computing power has become the number one problem faced by many miners.

On June 14 this year, the highest price of Bitcoin was $8,447, which had not yet broken through the $10,000 mark. At that time, the total network computing power was 56.77 EH/s and the mining difficulty was 7.4T.

After a month of bull market, on July 24, the total network computing power reached 63.93EH/s, and the mining difficulty also rose accordingly, reaching 9.01T, an increase of 21.8% from the previous level.

In more than a month, the computing power of the entire Bitcoin network has increased by 7.16EH/s, which is equivalent to 440,000 Ant S9SEs with 16T computing power entering the market.

"If the increase in currency prices cannot keep up with the increase in mining difficulty, the payback period for miners will be extended," said Wu Di.

In addition to the growth in computing power, there are many other factors that will affect the payback period of mining machines, such as natural disasters and man-made disasters.

Last June, a flood in Sichuan caused heavy losses to many Bitcoin miners. Mountain torrents destroyed several mining farms at lower altitudes, flooding more than 20,000 mining machines and causing losses of more than 100 million yuan to miners.

Some mining farms survived the flood, but received bad news from the power plant - the flood forced the power plant to stop supplying electricity. The mining farms were shut down, and the Bitcoin network computing power once dropped by 30%.

In addition to unpredictable natural disasters, losses to miners caused by man-made disasters may be more common.

How to find a reliable mine is the first lesson for many new miners.

“There are many pitfalls in the mining circle. Some mines will experience power outages for no reason.” Miner Wang Yong told Yiben Blockchain.

Frequent power outages are often caused by a game between mining farms and power plants. Power plants may cut off power to mining farms for various reasons, and there are even precedents of power plants forcibly annexing mining farms.

In addition, some miners also revealed that some mining farms would secretly transfer customers' computing power to their own accounts late at night to make a profit.

In the mining industry, hacker intrusion is common. Although the poisoning of mining machines can be directly repaired by flashing the machine, how to restore hundreds of mining machines in a short period of time and quickly resume production is still a great test of the operation and maintenance level of the mine.

“For newcomers entering the mining circle, it is important to find a reliable mine, otherwise they will encounter endless pitfalls,” said Wang Yong.

03 Future

At present, what miners can foresee is that the computing power of the entire Bitcoin network will continue to soar.

On July 20, Yuhong, the founder of the Three O'clock Community, revealed on Weibo that the weekly sales of mining machine manufacturer Shenma Mining Machine has reached 700 million yuan.

The Shenma Miner official website shows that the most powerful mining machine under Shenma, the Shenma M20S, has a computing power of 68T and is priced at 19,496 yuan. Based on this calculation, 700 million yuan can purchase 35,904 Shenma M20S units with a total computing power of 2.44 million T.

This means that from Shenma Mining alone, 2.44 million terabytes of computing power will enter the Bitcoin network every week. Coupled with the sales of mining machine manufacturers such as Bitmain, Canaan Creative, and Innosilicon, a surge in computing power is inevitable.

The surge in computing power will inevitably lead to an increase in the difficulty of mining.

"As a result, the extremely weak risk resistance of low-computing power mining machines such as S9 will also be magnified," said Zhou Ping.

Calculated at an electricity price of 0.35 yuan per kWh, the cost of "daily computing power per terabyte" for the Antminer S17 is 0.378 yuan, while the cost of the Antminer S9 is as high as 0.842 yuan, which is 2.2 times that of the former.

"Therefore, after the computing power of the entire Bitcoin network increases, once the price of the currency drops, low-computing-power mining machines such as Ant S9 will be the first to be eliminated," Zhou Ping explained.

The higher the computing power of a mining machine, the lower the mining cost per unit computing power, the stronger its risk resistance, and the longer the mining cycle.

The upgrading of mining machines is inevitable.

"After the flood season ends this year, the previous generation of mining machines may be eliminated in large numbers," said Zhou Ping.

This is because, after the flood season ends, a large number of flood-prone mines in Sichuan and other places will be closed, and the mining machines will be transferred to thermal power mines with higher electricity prices.

"Thermal power mining farms have limited slots, and miners also pursue cost-effectiveness. Therefore, smart miners will sell low-computing power mining machines and replace them with high-computing power mining machines." Zhou Ping said, "By then, the life cycle of the previous generation of mining machines will also be over."

Next year, Bitcoin will achieve a planned reduction in production, which will also promote the popularization of high-computing mining machines and the development of the next generation of mining machines.

In Zhou Ping's view, investment institutions entering the mining circle should first confirm their investment return cycle before purchasing mining machines - different investment cycles need to follow different investment logics.

He believes that for a fund with a six-month cycle, it is obviously inappropriate to invest in mining machines now. After the flood season, the cost of electricity will immediately increase, and with it, the investment risk will also increase.

As for funds with an investment cycle of one year, he believes that now is not the best time to buy mining machines.

"The most suitable time is October and November. After the flood season ends, the computing power of the entire network will decrease, old mining machines will flow into the market, and the price of mining machines will also drop." He said.

Bitcoin is skyrocketing, high-quality projects are scarce, and the best option for cryptocurrency funds is mining.

But they may find that this matter is not easy at all.

Even with a large amount of money, computing power funds may still fall into countless traps in the volatile mining industry.

*Some of the interviewees in this article are pseudonyms.

Text | Pizza