Miners’ Survival Story: What are the survival rules at the bottom of the “Block Food Chain”?

The crypto mining industry chain is long. On one end are the heavy resource links such as mining machines and electricity, and on the other end are the heavy operation links such as mining pools and wallets. Miners shuttle through the entire link to seek profits. The currency market is getting hotter and the flood season is coming. In the favorable situation, miners are still struggling to make profits.

"Miners have always been at the bottom of the mining ecosystem." Meng Kai, a miner who entered the market in 2013, said angrily, "Miners' lives are getting harder and harder, and they still have no say." With the interests of all parties entangled, how can the bottom-level miners avoid risks? How can they survive in the cracks?

Risk 1: Resource barriers, mining farms hold the initiative in electricity

Electricity is the core production factor of the mine, and it is also the most powerful bargaining chip in the cooperation between the mine and the miners. The surplus electricity in the north and south is in the hands of local people with resource connections, and then sold to the mine or miners. Most miners actually get "second-hand electricity" or even "third-hand electricity". The interests of the intermediary are ultimately borne by the miners, and the miners have no ability or opportunity to break through the resource barriers and obtain first-hand low electricity prices.

Low electricity prices are only one condition for miners to make profits. Factors such as electricity compliance and power supply stability are also key factors affecting profits, especially electricity compliance.

Since August 2018, Xinjiang and other places have successively issued policies to clear out illegal virtual currency mining companies. At the end of the year, the mines in Shihezi, Xinjiang suffered a "Waterloo", and a number of mines were closed and cleared. After the Spring Festival in 2019, the mining industry became increasingly active due to the flood, but Sichuan and other places had already issued policies to clear out illegal mines and refuse to add new mines, and policy risks increased sharply.

Electricity compliance is related to power supply stability, and some "reverse" operations in mining farms have caused miners to suffer losses.

At the end of 2017, the mine managed by Meng Kai suddenly encountered "maintenance" for half a month. At that time, the price of the currency was at the market high, and the daily losses amounted to hundreds of thousands. In desperation, he had to temporarily send people to the mine in Yunnan to check; coincidentally, shortly after the personnel were dispatched, the "maintenance" of the mine stopped and power supply was restored.

“When the market is at its peak, it is very common for the mining industry to engage in secret operations and raise prices arbitrarily,” said Meng Kai.

There are also more obscure "pitfalls". The computing power of mining machines is not stable. Factors such as the environment and working hours can cause fluctuations in computing power. Some mining farms even use reasons such as mining machine damage and maintenance to prevaricate miners, concealing the switching of computing power and malicious shutdown. When the computing power of mining machines fluctuates greatly, it is possible to determine whether the mining farm is cheating by checking for machine failures, power outages, and disconnections.

"Miners can tell whether a mine is shut down or not through mining pool data, but the mine can completely deny it, and it is difficult for both parties to reach an agreement." Han Bing, partner of DPOOL Longchi, said, "Prepaid electricity bills and mining machine transportation fees make it difficult for miners to easily change mines, and miners don't want their investment to go down the drain."

Miners are not powerless. Risk pre-positioning is a strategy to avoid risks. Experienced miners will give priority to mines with good relationships and previous cooperation experience; when faced with newly signed mines, they will carefully weigh the conditions of the mines and sign the contract after weighing the pros and cons clearly. Cai Jinhuang, co-founder of Panda Miner, suggested in an interview with ChainDD that "miners can put forward more conditions on operation and maintenance quality and stability, and implement them in the contract. It is recommended that it is best to implement it in numerical values ​​rather than vague text descriptions of concepts." The current market has not yet emerged from the downturn, and malicious breach of contract will also be restrained, and the effectiveness of the contract will be brought into play.

Risk 2: Mining pools vary in quality and there are many selection criteria

The essence of a mining pool is the role of a technical service provider in the mining ecosystem. After the BTC network's computing power has experienced an exponential surge, a single mining machine can no longer generate blocks. The role of a mining pool is to "group mining", gather scattered computing power, increase the probability of generating blocks, and finally distribute the profits to the miners according to the distribution model.

Compared with the many factors in the process of mining cooperation, the advantages and disadvantages of mining pools seem difficult to distinguish. In an interview with Liande, miner Meng Kai revealed some of his own experiences in choosing mining pools, "First, brand effect; second, computing power scale; third, personal connections." These three criteria also seem to coincide with the advantages of mining pools: brand effect implies the long-term value brought by technical capabilities; computing power scale refers directly to mining income; personal connections avoid subsequent disputes.

In the final analysis, there are only two reasons why miners choose mining pools: high returns and stability. For novice miners, they need to fully understand the total computing power, node layout, and service fee rates of the intended mining pool. The total computing power directly affects whether the mining pool can stably generate blocks.

In addition, the node layout of the mining pool is equally important. Mining has extremely stringent network requirements. Any delay will result in a waste of computing power. If the mining pool has fewer nodes and cannot process data from mines across the country or even overseas in a timely manner, a large amount of computing power will be invalidated, resulting in an increase in the rejection rate.

The rejection rate refers to the ratio between the total submitted computing power and the invalid computing power. A high rejection rate will lead to a decrease in the income of mining pools and miners. The factors affecting the rejection rate can be roughly divided into the following reasons: insufficient network speed, computing power expires after submission; insufficient server layout, data transmission delay, etc.

But even if the technology is up to standard, there are still many pitfalls in the mining field. Miner Meng Kai said, "The profit of the mining pool lies in the handling fee. If the price of the currency is not high, the mining pool cannot make money, so it is natural to have crooked ideas." Stealing computing power is a relatively common method. The mining pool deliberately conceals the computing power of the miners and steals a very small proportion from it, which is difficult for the miners to detect.

Han Bing, partner of DPOOL Dragon Pool, also revealed that there are indeed mining pools that steal computing power, but he also said that stealing computing power is extremely harmful to users, and most mining pools will not trigger landmines. "Stealing computing power will damage all future profits." At the same time, he also suggested that capable users can use third-party tools to monitor computing power data, and then compare it with the computing power data and revenue data provided by the mining pool to determine whether the mining pool has stolen computing power.

In a sense, mining pool monitoring does not come from miners, but from peer competition, which forces the entire mining ecosystem to become more transparent. "Mining pools are now facing the pressure of homogeneous competition, and breaking through still depends on service." Huang Meng, head of the Rawpool mining pool market, said. From computing power level and technical capabilities to after-sales response and App experience, all will affect the business of mining pools.

Risk 3: Miners’ rights protection, the difficult cry of the grassroots

Mining farms and mining pools are full of traps, and miners' rights protection journey is difficult. Similar to the regulatory gap faced by cryptocurrencies, the crypto mining industry is also in an awkward position. The imperfect legislation makes it difficult to protect the already vulnerable miners. Who to turn to for rights protection, how to protect rights, and how to recover losses after rights protection, a series of problems lie ahead.

Disputes caused by malicious power outages, theft of computing power, and price hikes are very common. In the interview, miner Meng Kai gave an example, "Miners negotiated with a mine for an electricity price of 0.35 yuan/kWh during the dry season. When the miners started to transport the mining machines, the miners changed their words and said that the price would rise to 0.36 yuan/kWh. In this case, the miners had to accept it." Although it was only a one-cent change in electricity price, it was equivalent to hundreds of thousands of dollars in expenditure in the face of huge electricity consumption.

It is not realistic to find a new mine. On the one hand, the prepaid electricity price and relocation costs may be wasted; on the other hand, the mine is shut down, and every second of delay means a loss of revenue. The urgency of time also makes it difficult for miners to choose to defend their rights through legal proceedings. "The current price of the currency is not high, so there are fewer evils; if the price of the currency is high, malicious breach of contract will be more rampant."

In addition, the irregularities in the early stages of the industry development are also an important reason for the difficulty in protecting rights. According to Liande, when miners cooperate with mining pools, the terms of service and rates will be announced on the official website of the mining pool, but the two parties often do not sign a written contract. In response to this situation, Lianfa lawyer Guo Yatao said that the establishment and signing of a contract does not require the signing of a paper contract, and evidence showing that the contract is actually performed is sufficient; but the lack of a written contract is prone to disputes, and the final result will be in accordance with the law. This means that miners, as the plaintiff, must provide sufficient evidence to obtain a favorable judgment, but evidence is not easy to find.

As the owner of power resources, the mine owner determines the right to speak on power. It is difficult for miners to distinguish whether the fluctuation of power prices is a "real price increase" or a "fake price increase". In the face of the reduction in computing power caused by the shutdown of the mine, the mine can completely use reasons such as policy tightening and routine inspections to prevaricate. "Miners cannot monitor the operation of the mining machine 24 hours a day, and cannot distinguish whether it is a manual shutdown or a machine failure." Huang Meng, who often visits the mine, knows the depth of the water. According to him, the protection of mining rights is more likely to be resolved by authoritative communities and individuals in private; at the same time, mining community organizations including the Mining Association will also expose some malicious incidents and scammers.

Mining is full of difficulties, and it is difficult to protect rights, so the survival of miners is worrying. At the end of the interview with miner Meng Kai, when asked whether he would continue to work in the mining industry, he was silent for a moment, "Many friends around me have changed their careers." The out-of-control currency price, the skyrocketing computing power, and the conflicts of interest from all parties will make the life of small miners more and more severe, but there will be more miners joining in because mining "makes money quickly."

Since the birth of digital currency, miners have become the cornerstone of the entire crypto market. Perhaps out of their original belief in technology, or perhaps out of their desire for profit, miners have never stopped working. Ten years later, massive amounts of capital have poured into the mining industry, but miners are still at the bottom of the ecosystem and lack a voice.