During the flood season, has the miners’ spring returned?

Author | Hash Pie - Unbroken

In April, a wall of mining machines was piled up at the mining machine stalls in Huaqiangbei again.

"S9 13.5T bare metal, official warranty, available in Shenzhen in January."

"Avalon 851 in stock, brand new, 6 months warranty."

"Z 11, the kind that is in stock in stores and can be shipped immediately after payment is made."

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The cryptocurrency mining industry is thriving again, and the era of mining machines costing 10 yuan per pound seems to have never come.

The entrance of Huaqiangbei mining machine store

In November last year, the price of Bitcoin was halved and then halved again. Miners turned off their mining machines while lamenting that the cryptocurrency circle was not worth it. Within a month, BTC computing power fell from its peak to the bottom. During this period, more than 2 million S9 machines were shut down. However, four months later, before the flood season, miners flocked to buy back the machines that they had sold by weight.

After all, the cryptocurrency world is not the human world.

In March this year, Bitmain took the lead in carrying the banner of "decisive battle during the flood season". First, it released news that it would deploy 200,000 Bitcoin mining machines in southwest China to use the excess hydropower during the flood season for mining; then, it launched a live broadcast to popularize mining strategies during the flood season; a week after the live broadcast, the 7-nanometer mining machines S17 and S17 pro were available for sale and sold out within four minutes . A mine operator told Hashipie that "Bitmain mainly sells machines, and the mining farms don't actually make much money."

Screenshot of Antminer’s official WeChat account

After ten years in the cryptocurrency industry, everyone has learned to stick to doing things that are good for themselves. Bitmain cut off its own arm and started to focus on selling mining machines again. Miners also stopped collectively shorting Bitcoin regardless of their future in the warming market. The computing power jumped back up, and the price of the currency fluctuated and rose. Is this a sign of spring?

1

Spring is the season when migratory birds return.

Since October last year, the southwest dry season has coincided with the cold winter of the cryptocurrency market. Electricity bills have doubled and cryptocurrency prices have halved. Miners who purchased mining machines worth 20,000 yuan have been unable to make ends meet and are preparing to shut down their machines. Even mine owners in Inner Mongolia and Xinjiang who rely on electricity for mining all year round are changing their careers one after another.

Miners who do not want to quit the market began looking for cheaper electricity, and second-hand mining machines quickly flowed to overseas markets.

At this time, Bao Erye Guo Hongcai shouted on Weibo that mining in the Middle East would pay off in one month. Some miners said that Bao Erye had taken people to Iran to build a mining factory, and would notify everyone when it was completed; at that time, news reported that Iran had officially recognized that cryptocurrency mining could exist as an industry, and the local electricity fee was equivalent to RMB 4 cents per kilowatt-hour.

Screenshot of Guo Hongcai's Weibo

All of a sudden, Iran's electricity resources were almost divided up by Chinese miners. Bao Erye, who claimed to be taking people to investigate and had lived in the United States for a long time but had not yet obtained an American green card, solemnly stated a month later, "I only heard about mining in Iran."

Sure enough, Master Bao is still the same Master Bao.

Later, a senior miner told Hashipai, "You can save electricity by mining in Iran, but you will lose your mining machines." His friend left behind dozens of mining machines that he had to go through customs and find factories to bring into Iran, and returned to China alone, ready to join the mining army in China during the flood season. Industry insiders believe that 90% or even 98% of people who go overseas to build mines lose all their money.

In the eyes of large mine owners, it has almost become an industry consensus that it is easy to send mining machines overseas but difficult to bring them back . An internal staff member of a mine with 30,000 mining machines in Kyrgyzstan said: "The mining machines that are sent overseas are those that are about to be eliminated, because they cannot be brought back once they go out, and they cannot be repaired if they break down."

At this time, the young miner said with a bleeding heart: " Most of the people who went abroad to mine have returned, waiting for the decisive battle during the flood season. "

2

With the arrival of the rainy season, the spring breeze of 2019 will wake up 1,419 rivers in southwest China and drive more than 3,000 hydropower stations to roar. "One million mining machines that were shut down during the dry season will be turned on again during the flood season."

Mining is a necessary process for the issuance of Bitcoin. Without miners, there would be no Bitcoin.

During the flood season last year, continuous heavy rains caused floods, 20,000 mining machines were flooded, some large miners lost tens of millions of dollars, and the total loss caused by the disaster was over 100 million yuan. After the flood, BTC computing power dropped from 44EH/S to 34EH/S. Bitcoin seems to have always shared the same fate with the deep mountains of Sichuan.

The report data released by the research organization Coinshares in 2018 verified a widely circulated saying in the currency circle: " 70% of the world's mining machines are in China, and 70% of China's mining machines operate in Sichuan ."

Data source: coinshares.co.uk

However, the source of the urgent need for cheap electricity is actually the price of coins. As the bear market continues, the mining industry is also constantly reshuffled, and the present is different from the past. During the flood season last year, the market was still in the afterglow of the crazy rise in coin prices. The electricity fee of Sichuan mining farms was 50 cents, and miners were scrambling to host machines; but this year, the electricity fee is 23 cents, and many miners are still hesitating whether to turn on the machines. The electricity fee of thermal power mines in the north has also been forced to drop from 45 cents to 39 cents, and those with more mining machines can continue to enjoy discounts.

In the eyes of mine owners, the flood season in 2018 was the Grand Slam. This year they are facing a situation with many machine sites, few customers, thin profits and fierce competition. As Jiang Zhuoer said, "there is a serious oversupply in the mines."

A mine in Kuitun City, Xinjiang, which has 90,000 machine positions and is currently in the second phase of construction, did not participate in the migration during this year's flood season. The mine operator said: "In terms of electricity prices alone, Sichuan is cheaper, but the network in the mountainous areas of Sichuan is unstable, and customers have a lot of feedback. Our mine in Xinjiang is built in an industrial park in the city, and the network is stable."

Although friends who run mines in Sichuan have different opinions on this.

"Private hydropower is like this, don't thermal power mines in Inner Mongolia also have power outages every day?"

But it is undeniable that this year's flood season is not as attractive as it seems.

At a Sichuan mining farm that specializes in providing mining machine purchase and hosting services, the cost of an S9i official refurbished machine with a power supply is about 1,500 yuan, and the electricity fee they charge for more than 100 hosted machines is 0.3 yuan; while the price of the same machine in the Xinjiang mining farm is 1,000 yuan, and the electricity fee for more than 100 machines is 0.36 yuan. The price difference of the mining machine cost is basically the same as the price difference of the electricity cost, and the payback period is about four to six months. For mining machines like Z11, which have a small proportion of electricity costs, the benefits of mining in the north and south are almost the same.

Small miners may be attracted by cheap electricity, but mine owners who move from the north to the south also need to consider the time cost during delivery, damage to the machines during the logistics process, and loss when turning the machines on and off. Industry insiders said, "Small miners can try it out during the flood season, but large customers generally choose stable electricity all year round."

Some people rely on the flood season to sell mining machines, while others rely on the flood season to attract new people to enter the market. No one can tell whether 2019 is an opportunity or a turning point.

3

A purchasing manager of a mining farm told Hashipie that the best-selling machine this year, apart from the S9i, is the Z11, which was newly released by Bitmain at the end of March and is capable of mining Zcash . It has a short payback period and high returns, and the electricity cost accounts for less than 10% of the total cost at a cost of 0.30 yuan, making it very popular among new miners.

Grandet, a friend of Hashi, also said: "We are preparing to launch a batch of about 30 Z11s, and the daily revenue can reach about 3,000."

Most of the new miners who entered the market in late 2018 and early 2019 mined Zcash, Bytom and Litecoin. In addition to the high returns, they were more optimistic about the hope that small currencies would soar several times. "If Bitcoin doubles, these small currencies will at least triple. There is no need to invest in a single currency, BTC, which has a long payback period and consumes a lot of electricity."

New miners, especially retail miners, generally have a positive attitude. When you ask them how they feel about the possibility of cryptocurrency mining being listed as an obsolete industry, their answer is "Bitmain's mining machines are still being sold."

People who are involved in the cryptocurrency circle often lack patience when it comes to making money, and they only look at huge profits in mining and investing.

4

However, mining is probably one of the few scenarios in the cryptocurrency circle where you can get rich not just by luck. Computing power, electricity costs, timing, and capital constitute the survival map of miners. After the mining bonus period, some people choose to go overseas to make a living, some return to China and plunge into the trend of the flood season; some are optimistic about the cheap electricity in the southwest rainy season, and some stick to the stable thermal power in the northwest; and more are small and scattered miners attracted by the gimmick of the decisive battle in the flood season.

Looking back at the mining history of elite miners in the industry over the years, from FriedCat to Wu Jihan, from Avalon to Bitmain, the rise and fall of the mining industry are almost as rapid. In 2014, Mt.Gox was hacked and 850,000 coins were lost. The price of Bitcoin fell from a high of $1,200. No one was willing to pay the expensive electricity bill to mine a cryptocurrency whose price kept falling. Bitmain's mining machines could not be sold, and they could only wait for the price of the currency to rebound to avoid bankruptcy. Wu Jihan said that was their darkest moment.

I wonder if Wu Jihan still thinks 2014 was the most difficult year.

Chinese writer Bi Feiyu said, "Living in an era of rapid development is no different from encountering a war." No one can control their inner desires. If they made millions in the last bull market, they must make tens of millions in the next bull market. Wu Jihan survived the bear market and became a big boss in the mining industry. Who doesn't want to be the next Bitmain?

But most people in the industry will eventually become a denominator or a leek. Even though most miners still believe that few businesses on the market can be as profitable as mining in the short term, who could have expected the outcome in such a chaotic era?

"Maybe in a few years there will be new industries and mining will be out of fashion," said a miner.

References:

[1] Ratchet and Pizza, “Miners Sweep Across Iran, Fighting for Electricity at a Price as Low as 5 Cents per KWh”, A Blockchain Journal

[2] Yi Xiaodian, “Mining Machines Migrating South: Shipping Cost Exceeds 10 Million Yuan, Breakage Rate Reaches 20%”, Deepchain Finance

[3] coinshares research, "The Bitcoin Mining Network", coinshares.co.uk