Data reading: The mining industry’s bonus period is over. Is the flood season a “life-saving pill” for the mining industry?

According to media reports, because the electricity fee may be as low as 0.1 yuan during the flood season, it is expected that 1 million mining machines will be turned on again. When the flood season arrives, the computing power of the entire network is expected to increase by nearly 50%. There are also reports that the cooperative mining farm of the "mining tyrant" Bitmain has urgently deployed 100,000 Bitcoin mining machines in Sichuan.

Is the deployment of mining machines during the flood season a turning point for the mining industry amid the sluggish market, or is it a collective suicide attempt for miners?

The price of coins is highly correlated with computing power, and the mining bonus period is over

From January 2010 to June 2011, when Bitcoin was first launched, the price of the currency increased more than the computing power (in order to more clearly present the development trend of the currency price/computing power, the broken line in the figure is the logarithm of the currency price/computing power, and the slope of the point-to-point broken line represents the increase. The larger the slope (the larger the inclination angle), the faster the increase).

The expected returns from mining at this time were considerable, but due to the low price of Bitcoin at the time, mining was not yet a profit-making activity to a large extent.

From July 2011 to April 2013, the price of Bitcoin increased in a similar manner to the computing power. During this period, Bitcoin was still known to only a very small number of people. There were no crazy speculators, only firm believers.

From May 2013 to December 2013, the price of the coin increased slightly more than the computing power. In 2013, the price of the coin broke through the integer thresholds of $100 and $1,000, and miners gained certain excess profits.

From January 2014 to December 2016, the price of the coin increased less than the computing power. The excess profits attracted other miners to join quickly, and the supply and demand balance in the free competition market quickly returned to normal, the excess profits disappeared, and the market entered a stable period.

From January 2017 to December 2017, the price of coins increased much more than the computing power. The mining industry officially entered a period of dividends, and miners obtained rich excess profits through mining.

From January 2018 to now, the price of the coin has increased less than the computing power. The myth of getting rich like the "gold rush" attracted a large number of miners to join the market, and the computing power of the entire network increased rapidly, but the price of the coin could not support it. At the end of 2018, the price of the coin fell back, and the miners were caught off guard and lost all their money, and the mining machines could only become scrap metal.

Historically, the development of the mining industry has formed a three-year cycle, consisting of a one-year profit period and a two-year adjustment period. When the price of the currency increases more than the computing power, miners can earn excess profits, but the free competition market will automatically adjust supply and demand. When more miners enter the market, the excess profits disappear, and the miners' income decreases. If the price of the currency cannot be supported, the miners may shut down and go bankrupt at any time. This means that if the price of the currency returns to rationality, then at the same time, the elimination of the remaining computing power is also in line with market laws.

According to the current coin price, the computing power in the current market is sufficient. If you want to make profits by taking advantage of the low cost during the flood season, you still need to bear great risks. On the one hand, the profitability of the mining industry is not as good as before. On the other hand, if the coin price cannot keep up with the increase in computing power, coupled with the increase in mining difficulty, it is likely to dilute a large part of the profit space brought by low electricity costs. In the long run, the mining industry without the support of the coin price will still eliminate the remaining computing power, which is tantamount to drinking poison to quench thirst.

The position of the top mining pools is stable, and new players continue to enter the market

Before June 2011, mining was mainly done by individuals, and mining pools/mining farms had not yet appeared. In June 2011, the first mining pool, Eligius, appeared.

In the second round of mining profit period from May 2013 to December 2014, Eligius and GHash.io took turns to occupy the main computing power and obtain the main profits. Then the mining industry entered a period of adjustment, but the computing power share of the main mining pools remained relatively stable. The well-known mining pools F2Pool and Antpool began to lay out during this period.

2015.1-2016.12 was still in the adjustment period, and F2Pool, Antpool, BTCC, BitFury and BWPool occupied the main computing power in the market.

In the third round of profit in 2017, Antpool always occupied the main computing power share and reaped the most dividends. Bitmain behind it occupied the top of the mining industry chain by selling mining machines and obtained lucrative profits. This year, the "mining tyrant" was formed. F2Pool, which had a strong momentum in the early stage, had part of its computing power divided during this period. New entrants BTCTop, BTC.com, ViaBTC and the old mining pool Slushpool all occupied part of the computing power.

Since 2018, the market has entered an adjustment period. BTC.com has the largest computing power share, but its computing power has decreased compared to Antpool, BTCTop, ViaBTC, and Slushpool, which made a lot of profit in the previous bonus period. F2Pool has regained the computing power share it lost before, and new players such as Poolin and Huobipool have entered the market and occupied a place.

Mining is a highly competitive industry, with frequent changes in market share. On the one hand, the dominance of the top mining pools is relatively stable, but the top rankings are also changing. On the other hand, more players are entering the market to get a piece of the pie, but in fact only a few mining pools have reaped excess profits, such as Gash.io in the first round of dividends from May to December 2013, and F2Pool and Antpool in 2017.

Mining is also a capital-driven industry. The layout of a mining farm requires high fixed costs. For example, during this flood season, miners need to hire trucks to transport mining machines to Sichuan. The cost is 20 yuan per unit. If 10,000 units are transported, the transportation cost alone is nearly 200,000 yuan. The PoW mechanism is dominated by computing power on the surface, but in fact, behind the computing power is the surge and pursuit of capital. Behind every hash computing power is money.