30% of the mining machines in the entire network have moved south. Is this year's flood season the "last dinner" for small and medium-sized miners?

In more than a month, the Yunnan, Guizhou and Sichuan regions will enter the flood season. Cheap hydropower will become a precious resource that Bitcoin miners will scramble for.

At this moment, the miners are already gearing up for the action. Mining machines that account for more than 30% of the total network computing power will be transported to the hydropower area and be ready to go.

However, it is not easy for "outside" miners who are unfamiliar with the area to share the cheap hydropower in Yunnan, Guizhou and Sichuan.

Not only do they have to pay huge transportation costs and sunk costs, but they also encounter countless "pitfalls": price increases by intermediaries, lack of professional knowledge... These may all cause them to suffer losses. Some miners even fall into the embarrassing situation of shutdown and liquidation due to negligence.

What costs will the miners pay during this flood season migration, what traps will they encounter, and how should they deal with these issues?

1

Migration to the South

According to incomplete statistics, in 2017, 55 billion kilowatt-hours of excess hydropower was abandoned in Sichuan Province alone. This provides a prerequisite for miners to obtain cheap hydropower.

In August 2018, the Sichuan Provincial Government issued Document No. 26, which clearly stated that power plants were allowed to directly supply electricity to enterprises without adding grid connection fees. The policy "tilt" has further increased the miners' "desire" for hydropower.

"When the flood season comes, up to 50% of the total network computing power will migrate to Sichuan in the past, but this year it is expected that mining machines accounting for 30% of the total network computing power will move south." Zhao Yun told 31QU.

Zhao Yun is the president of Sichuan Mining Association. He came into contact with the cryptocurrency industry in 2013. In 2016, by chance, Zhao Yun entered the mining circle and became a miner. As a local in Sichuan, Zhao Yun had access to a large amount of cheap electricity. Over the years, he witnessed the scale of the mines grow from a small operation with thousands of mining machines to a large-scale operation with tens of thousands of machines.

What does it mean for a mining machine to account for 30% of the total Bitcoin network computing power?

At present, the maximum computing power of the Bitcoin network has reached 60EH/s. Assuming that we convert all of this computing power into the most common Antminer S9 on the market (assuming the computing power is 13.5TH/s), it is equivalent to having 4.4 million units of this type of mining machine in the entire network.

30% of the mining machines move south, which means that more than 1.3 million mining machines will leave Xinjiang and Inner Mongolia during the flood season and be transported to Yunnan, Guizhou and Sichuan.

Hashrate unit conversion rules: 1EH/s=1000PH/s; 1PH/s=1000TH/s

The road transportation distance from Xinjiang to Sichuan is nearly 3,000 kilometers, and the first problem the miners face is the transportation cost.

"On average, the transportation cost of a mining machine is 20-30 yuan. If there are 10,000 mining machines, the transportation cost alone will be 300,000 yuan." Zhao Yun told 31QU, "Nowadays, it is normal for a slightly larger miner to have 10,000 mining machines."

According to the migration scale of 1.3 million mining machines, the logistics costs that miners must pay are close to 40 million. However, transportation costs are only part of these necessary expenses. The greater "hidden expenses" are the "sunk costs" caused by the shutdown of mining machines during the relocation process.

"On average, the mining machine needs to be shut down for 12 days from the time it is taken off the thermal power grid to the time it is put on the hydropower grid," Zhao Yun said. The cost of shutting down the machine for more than 20 days is actually very high. This is slightly better when the price of the currency is low. When the price of the currency is high, the cost is quite high.

According to the current calculation that 1TH/s computing power produces 0.00004141 BTC per day, if 1.3 million mining machines are shut down for 20 days (based on the calculation of 13.5TH/s per mining machine), miners will lose 14,500 BTC. According to the current price of a single Bitcoin of 26,000 yuan, all miners who migrated south will lose 370 million yuan.

Another algorithm: In 20 days, the total number of bitcoins produced by the entire network will be 36,000. The miners who migrate south will lose 30% of these bitcoins, or 10,800 bitcoins, worth 280 million.

"In fact, mining machines may break down during transportation, with a damage rate of about 1-3%," Zhao Yun told 31QU.

With 40 million in transportation costs, more than 280 million in sunk costs and losses caused by damage to mining machines, the cost of the miners' migration to the south will exceed 300 million yuan.

Of course, the reason why miners are willing to spend such a huge amount of money to migrate south is that they are attracted by the cheap hydropower in Yunnan, Guizhou and Sichuan during the flood season. As Han Bing, the head of the Bitcoin mining pool Longchi, said: "Mining is all about electricity. Whoever has the cheapest electricity will make money."

2

"Haggling over every penny" on electricity bills, even if it's a 1 cent price difference

"In the case of bare electricity (only electricity charges are counted), the annual electricity price of thermal power is 0.28 yuan, while hydropower is only 0.13~0.18 yuan." Zhao Yun said.

In addition, President Zhao Yun also introduced that the water and electricity charges during the flood season plus the custody fee are basically 0.26~0.28 yuan, which is also the electricity fee for mining farm investment.

The electricity price has dropped from 0.28 yuan to 0.13 yuan. What does this mean?

"For example, if the power load of a mine is 10,000 loads and other conditions remain unchanged, when the electricity price cost is reduced by 0.01 yuan, the photovoltaic power bill can be saved by 1 million yuan in 365 days a year." When calculating the specific electricity cost, Zhao Yun told 31QU, "The price difference of 0.13 yuan between hydropower and thermal power is a cost difference of more than 10 million yuan a year."

Load: how many KW·h of electricity can be consumed per hour. 10000 load means 10000 KW·h of electricity is consumed per hour.

"A mining farm with a power consumption of 10,000 loads has a capacity of only 7,500 S9s, but now it is normal for a mining farm to have tens of thousands of machines, and the price difference is even greater," Zhao Yun told 31QU.

In fact, according to the current daily coin production of 0.00055908 per S9, the total annual revenue of 7,500 S9s is less than 40 million.

The cost savings from using water and electricity is more than 10 million.

This is why miners haggle over electricity bills, even if it’s a 1 cent difference. It’s also why miners are willing to travel thousands of miles to Yunnan, Guizhou and Sichuan to look for abundant water and electricity resources.

However, miners from other places who are unfamiliar with the local area often encounter numerous pitfalls in their search for cheap electricity. The price increase by the intermediaries makes them miserable.

3

The pitfalls of migration south

"Agents usually add one, two, or even three cents to the price," Zhao Yun said when talking about the price increase that miners are bound to encounter. "They will add this price based on different resources and different customers."

Higher electricity costs will inevitably lead to lower miners’ profits. However, these small differences can sometimes be the key to a miner’s success or failure.

According to Zhao Yun, "Under last year's market conditions, general intermediaries increased the annual custodial electricity price from 0.36 to 0.37-0.38, which was normal."

People may think that this little change does not have much impact, but in extreme cases, this little fluctuation in electricity prices can cost the miners their lives.

"At the end of last year, the price of Bitcoin fell from 46,000 to just over 20,000. For many mine owners, the extra one or two cents added by the intermediary was very disadvantageous to them. It even caused some miners to stop working and eventually choose to shut down their machines," Zhao Yun told 31QU.

"If the electricity bill increases by 1 cent, a miner with a power consumption of 10,000 loads will have to pay an extra 100,000 yuan per month. This is a very real problem for miners," Zhao Yun added.

Of course, it is good if the electricity price increase can get things done. Some agents will even resort to fraudulent behavior to defraud a large amount of agency fees.

A similar thing happened to Zhao Yun.

In 2018, in Delingha, Qinghai Province, an intermediary offered an annual electricity fee of 0.24, which attracted many miners to pay the intermediary fee. However, it was later discovered that the intermediary had forged the local government's investment documents. In fact, the local government did not offer such a cheap electricity fee. In the end, the intermediary took the intermediary fee and ran away.

"This incident caused the miners who participated at the time to lose tens of millions of yuan," Zhao Yun said. "Not only did they lose the agency fees, but the miners also wasted a lot of valuable time."

In addition to the pitfalls dug by the intermediaries, power transmission is also something that miners must pay attention to.

"High voltage electricity is divided into 10KV, 25KV, and 115KV. After passing through the substation, it becomes 380V industrial electricity before it can be used by the mine. However, there will be about 3 points of power loss during the transformation process, so the high voltage end will be several percentage points lower than the low voltage end." Zhao Yun told 31QU, "At this time, when you sign the electricity contract, you must distinguish whether it is high voltage or low voltage electricity."

"In addition, the power transmission distance and the material of the wires will also affect the power transmission efficiency," Zhao Yun added.

In actual electricity use, according to public data, the loss of electricity during transmission is quite large, with the total power grid loss being 6-7%, and the rural low-voltage power grid loss being more than 20%. Under the same conditions, the transmission efficiency of aluminum core cables is lower than that of copper core cables.

It can be seen that when miners sign electricity contracts, these details are points that need to be paid attention to.

At the same time, the operation and maintenance level of the mine is also crucial.

“With good operation and maintenance, we can ensure that the mining machines are 100% online. If the operation and maintenance is not done well, the mining machines may only be 90%-99% online. If there are only 100 mining machines, the impact will not be big, but some mining farms host tens of thousands of mining machines, and the impact will be quite large.” Zhao Yun told 31QU.

With so many pitfalls, are the miners going to give up?

"There are indeed many pitfalls. Only with professional guidance from senior practitioners can we avoid falling into the pitfalls and save a lot of costs. Otherwise, it is easy to fall into them." President Zhao Yun said.

4

Looking ahead to the flood season: the last chance for small miners

"This flood season will be the last chance for small miners."

Zhao Yun gave his own judgment on how the mining ecology will change after the flood season. In his opinion, the mining industry will develop in a more professional and large-scale direction after the flood season. "The era of barbaric development is gone forever."

As for why this happened, Zhao Yun gave his own explanation.

"As the industry grows in size, the state may conduct further supervision. For example, taxation will be standardized and the entry threshold will be raised. After large-scale operation, it will be very unfriendly to small miners." Zhao Yun said, "In the past, you could start with a few million, but now you have to invest tens of millions or even hundreds of millions."

"Only through large-scale operations, standardized operations, and unified investment promotion can we reduce rates and maximize profits," Zhao Yun told 31QU.

▲ The left picture shows the growth trend of Bitcoin's total network computing power, and the right picture shows the trend of Bitcoin mining difficulty changes

At the same time, according to Zhao Yun, the flood season may also push the computing power of the entire network to a new height. On October 4, 2018, the computing power of the entire Bitcoin network soared to an unprecedented 53.33 EH/s, and the domestic flood season electricity was the most direct driving force.

With the continuous increase in computing power, the elimination of old mining machines is inevitable, and the living space of small miners will also be squeezed.

"During the flood season, the computing power will be increased by more than 30EH/s on the basis of the existing computing power. The more computing power there is, the less bitcoins each mining machine will get. If the price of the currency does not rise, the survival of many miners will be in question," said Zhao Yun.

"If the eliminated miners and mining machines cannot stay in China, they can only choose to go to countries such as Iran and Russia where electricity is cheaper," Zhao Yun said. "Once they leave the country, these mining machines are on a path of no return. It is impossible for them to come back."

Conclusion

In any case, the mystery of the mining industry has been unveiled again, and the story of 1.3 million Bitcoin mining machines heading south has been circulating in the currency circle.

Yunnan, Guizhou and Sichuan have become a new stop for mine owners to pan for gold.

Author: 31QU Guofeng