Comment: Is mining a good business?

What made me want to talk about this is that there was a report a few days ago that Canadian gas companies are now using large amounts of retained natural gas to mine Bitcoin, creating a useful use for these illiquid energy sources. If these gases are not used effectively, they will be burned into the atmosphere.

In addition, I saw this news a few days ago:

Fidelity is a large company, and is well-known in the investment field. Why did it take a fancy to the "backward industry" that we despise?

(The term "backward industry" comes from a draft proposal from the National Development and Reform Commission some time ago, which listed "cryptocurrency mining" as an industry to be eliminated.)

:

Although it caused an uproar and sparked a lot of discussion at the time, subsequent developments also proved that this incident did not have any particularly big impact on the mining business.

But what’s interesting is that this incident caused a lot of controversy in China, but it really caused controversy and panic abroad. Many people are worried that this is a sign that the Chinese government is going to crack down on Bitcoin mining...

Facts have proven that there is not only a huge information asymmetry between overseas and China, but also between China and overseas. Due to years of propaganda, many foreigners actually have similar views on the Chinese government as the fat man next door. In addition, China has a large number of mining farms and mining machines. If something really goes wrong, it will easily lead to an avalanche in the price of Bitcoin, so they are particularly worried that we will do something weird.

Now that the hype has passed, let’s take a look back and ask ourselves whether mining is a good business or not.

Of course.

This is especially true for large companies that don’t understand Bitcoin but want to enter this industry.

If there is anything in the cryptocurrency world that the bigwigs and big companies in traditional industries can understand and think this business can be done, it may be mining and opening exchanges. Because these two are the industries that are easiest to understand profit models and cost/risk control, but compared to opening exchanges, mining is a business that is easier to generate cash flow and has no legal risks.

As for other businesses in the cryptocurrency industry, whether it is media, projects, incubators, or capital, there is actually no fixed profit model, because the source of cryptocurrency does not have any profit model. When you start a project, you may not be able to explain why you want to issue coins, let alone why your coins are valuable and why your coins are becoming more and more valuable.

If these are not clear, these businesses will be difficult to sustain. Of course, most of the capital and enterprises active in the cryptocurrency circle are "native cryptocurrency circles", rather than those who entered the cryptocurrency circle after success in other industries.

Mining is different. The mining business can be simply understood as doing one thing: looking for the cheapest possible energy around the world, and then turning it into US dollars through mining machines.

Although mining machines represent computing power, the most powerful guardian of the Bitcoin world, and the beauty of mathematics... for mining businessmen, it is simply a matter of turning "electricity" into "money".

If you understand this, then you should also be able to easily understand why the statement that "mining damages the environment" is not tenable at all. Although we do not know the proportion of thermal power, hydropower and other energy sources in mining, we can be sure that the proportion of thermal power is not that high, otherwise the impact of the "flood season" would not be so great. In addition, in the face of the low cost of hydropower, thermal power is difficult to support, and capital will naturally flow to hydropower and abandon thermal power.

And when the profit margins of Bitcoin mining become smaller and smaller, many small countries overseas will also create new mining paradises. There is no lowest cost, only lower costs.

There is a very important factor that satisfies the condition of "extremely low energy prices", that is, the energy is "surplus resources" in the local area. Just like you cannot build a mining farm in places like Beijing, Shanghai, Guangzhou and Shenzhen, the price can only be cheap in places with surplus electricity. Using these resources that would otherwise be "wasted" to mine and turn these energies into real US dollars, what a good business!

After the reform and opening up, there was almost no foreign exchange reserve in China, so one of the popular things at that time was to "earn foreign exchange through exports". Whoever could sell domestic products abroad and convert them into US dollars flowing back to China was a remarkable person. Of course, after joining the WTO, my country's foreign exchange reserves soared to the point where it was once questioned as "excessive reserves", but for many small countries, especially those and regions with energy surpluses, they are also very interested in this matter. Many places are suffering from the fact that there is nothing to "sell" in China.

So what kind of business is mining? I think it is the only business in the cryptocurrency world that can be "quantified".

When you invest in cryptocurrency, only the mining business can allow you to calculate how much cash flow return you will get every day after investing a certain amount of cost and time, and the risks are controllable. There are no risks such as team running away, fund freezing, and lawyer's letter warning. After investing in the mining business, you can be regarded as entering the cryptocurrency circle.

It's good business for the big guys and big companies, isn't it?

In addition, there are many places in the world, like Canada mentioned at the beginning, with a lot of "waste energy". Of course, the waste here is not necessarily real waste. Some of it may be "wasted", such as hydropower during the flood season, and used to maintain the Bitcoin network, turning "waste" into treasure, isn't that great?