Millions of mining machines are shipped back to China: shipping costs exceed 10 million yuan, and the damage rate is 20%

1 million mining machines may restart in May

"It is estimated that 1 million mining machines that were shut down during the dry season in Sichuan will be turned on again during the flood season," Xu Feng told Shenzhen Chain Finance.

Xu Feng is from Ma'anshan, Anhui, and has more than five years of experience in operating mines in Sichuan.

At the end of October 2018, when Sichuan and other places entered the dry season, the mining machine hosting business basically stopped. Xu Feng also chose to sell all his S9 mining machines, directly shut down the mine, and went on vacation.

Entering 2019, with a full quarter left before the flood season in Sichuan, business started coming in again. All the hosting slots for Xu Feng's existing mines and mines under construction had been booked.

What Xu Feng feels most deeply about Bitcoin mining in recent years is that more and more people are participating.

Currently, Xu Feng has three mines in operation and under construction in Sichuan.

Among them, the initial investment of the mine under construction exceeds 10 million. The total scale of the 6 mines is , which can accommodate 100,000 S9 mining machines.

Zhu Jie, a miner who owns several mines in Sichuan, said that Sichuan is the place with the most hydropower in the country. The half-year flood season is equivalent to the whole year of dry season, so Sichuan has the most mines in the country.

On December 17, 2017, the price of Bitcoin reached its highest point of $19,875.85, and mining machines began to be snapped up crazily. In February 2018, the most expensive Bitcoin mining machine S9 soared to 27,000 yuan per unit.

In 2017, Bitmain's net profit was US$1.1 billion, Ebang International's net profit was US$380 million, and Canaan Creative's net profit was RMB 360 million.

At that time, a miner with 100,000 mining machines had assets worth 2.7 billion yuan. However, in February 2019, as of February 25, the price of Bitcoin was $3,795 per coin, and the price of a second-hand S9 was 850 yuan per unit, or 85 million yuan, a 96.85% decrease in total assets.

The miners’ daily net profit is less than 10 yuan per unit.

"I don't expect to make money this year. I'll wait until the production is halved next year." Xu Feng, who has experienced the ups and downs of the cryptocurrency market, believes that the halving of Bitcoin in 2020 will bring about a sharp rise in the market.

Bitcoin is halved every four years. On January 3, 2009, the Bitcoin Genesis Block was mined and 50 bitcoins were given to miners as rewards. Since then, the reward has been halved twice.

The first time was on November 28, 2012, when the reward for mining a block was reduced from 50 bitcoins to 25 bitcoins; the second time was on July 10, 2016, when the reward for mining a block was reduced from 25 bitcoins to 12.5 bitcoins.

The third halving will be in 2020, when the reward will be reduced from 12.5 bitcoins to 6.25. Halving means changes in supply and demand, which in turn leads to changes in the price of bitcoin.

Therefore, miners are willing to pay for the future value of Bitcoin that they firmly believe in.

The construction sites of mines are generally distributed in Sichuan, Guizhou, Yunnan, Xinjiang, and Inner Mongolia. Sichuan and other places are mostly hydroelectric, while Xinjiang and Inner Mongolia are mostly thermal. These places are all places where industrial electricity is abundant and cheap.

The advantage of hydroelectric power generation is that the electricity price is very cheap, and it uses the surplus wind and water energy in nature to generate electricity. But the disadvantage is that it is highly seasonal, divided into normal water season, flood season and dry season; while the cost of thermal power generation is higher, but it can ensure electricity throughout the year.

It seems that the difference in electricity bill is only a few cents, but in fact it is a huge expense.

"10,000 units means 15,000 loads, a difference of 0.1 cents, 0.1 yuan/kWh*24h/day*10,000 units*30 days=720,000 yuan, and the difference in electricity bills for one month is 1 million yuan." Xu Feng calculated the difference in electricity bills between Xinjiang and Sichuan for 10,000 mining machines in one month.

Miners go wherever there is electricity and cheap electricity. Therefore, many miners are worried about competing for the electricity price during the flood season in Sichuan.

During the flood season, miners in Sichuan receive electricity at 0.09-0.18 yuan/kWh, and trusteeship at 0.25-0.28 yuan/kWh. In Xinjiang and Inner Mongolia, miners receive electricity at 0.24-0.28 yuan/kWh, and trusteeship at 0.33-0.34 yuan/kWh.

The hosting price for Sichuan miners during the flood season is even cheaper than the electricity price for Xinjiang miners, which determines the miners' choice of mining locations for the six-month flood season.

20% relocation damage rate

"In early May, we will start by moving at least 500,000 machines from Xinjiang and Inner Mongolia," said Xu Feng while summarizing past experience.

Strictly speaking, mid-May is the flood season in Sichuan and other places, but of course it also depends on the specific water conditions.

During the flood season, in order to reduce electricity costs, some miners will choose to move their mining machines to mining farms in Sichuan and other places for hosting, or build their own mining farms in Sichuan and other places.

Those are 13.5m*9.6m trucks with a capacity of 3,000-5,000 units/vehicles. They form a transport team that will travel 3,000 kilometers from Shihezi, Hami, Changji, Yili and other places, via the Beijing-Xinjiang Expressway, Lianhuo Expressway, etc., and rush from Xinjiang to Sichuan.

"All the machine positions have been booked." Xu Feng, who expects to complete the construction of the mine in mid-April, is not worried about not being able to rent out the mine's machine positions.

Xu Feng started building the mine in January. In fact, after the power plant contract was signed, before the mine was even built, all the machine positions in his mine had been reserved by miners from Xinjiang.

His clients are basically veterans in the industry, and he has a stable customer base.

Half a month before the flood season, miners will send mining machines to Sichuan mines in advance. Miners hire trucks to transport mining machines, starting at about 10,000 units, and charge a transportation fee of 20 yuan per unit, which directly blocks small mine owners from entering.

The mines that use Feng Shui to generate electricity are relatively remote and the terrain is rugged, so trucks cannot reach them directly. They also need to hire people to put the machines on the shelves, and the transportation fee of 10 yuan per unit is another considerable expense.

In one week, all the mining machines can be put into operation. However, machines that have been in operation for more than half a year will easily break down when they are put back into operation after a power outage, and they will be bumped during transportation, resulting in a breakage rate of up to 20%.

"When moving mining machines, the issue that miners are most concerned about is machine damage." Xu Feng said that on-site maintenance personnel at the mine will repair damaged machines, but if they cannot be repaired, new ones will need to be purchased.

The basic travel and transportation costs of transporting 10,000 mining machines to Sichuan alone will exceed 300,000 yuan.

Xu Feng believes that at least 500,000 machines will be transported from Xinjiang and Inner Mongolia, which means the cost of transportation will be as high as 15 million yuan a week.

This great migration is just for Sichuan's six-month flood season.

When the dry season comes, miners have to choose whether to shut down and rest, or go to Xinjiang and Inner Mongolia where thermal power generation is abundant and electricity prices are low. If the machines are old, they may not return.

Small miners who can't afford the shipping costs

For large mine owners like Xu Feng, the cost of transporting mining machines is insignificant compared to the electricity bill.

But Li Ping, a small miner from Xinjiang, was blocked by the freight.

Li Ping has two mines, one in Hami and one in Shihezi, with a total of 5,000 S9 mining machines. Later, he moved the mine in Shihezi to Hami. These mines built in containers are easy to disassemble.

In the near future, Li Ping plans to build a mining farm with 10,000 S9 mining machines in Hami, with a cost of about six million yuan. The electricity price is still being negotiated.

The price range of thermal power that Li Ping can accept is: 0.05 yuan/kWh more expensive than hydropower.

The price of coins and electricity prices determine whether miners stay or go. At the moment when the price of coins has not broken through the electricity price, Li Ping has considered building a mine in Sichuan.

"A large number of miners made their fortunes in Sichuan. They enjoyed the low cost of water and electricity and caught up with the good market conditions. A flood season made them rich. They no longer cared about mechanical wear and tear and transportation." The necessary wear and tear and transportation costs for the round trip are not worth it for Li Ping.

Previously, when Li Ping moved the mining machine from Shihezi to Hami, he had to pack it in boxes and could not turn it on for a week. The machine was damaged, and it was too troublesome for him to put it on and take it off the shelves.

The most important one is that the shipping cost is too high and the shipping time is too long.

"From Xinjiang to Sichuan, Deppon Logistics charges 40 yuan per unit for delivering mining machines, which means a round trip of 800,000 yuan (excluding fees for loading and unloading), and the round-trip transportation cycle may be nearly two months. How much do you think I will lose in these two months?" This is the transportation cost that Li Ping found out.

In fact, Li Ping was also worried that as a miner from Xinjiang, he was unfamiliar with Sichuan and lacked local connections, so he would not be able to get cheaper electricity to build a mine. And if he transported the mining machines to Sichuan, he would also face the risk of being priced out.

Big miner Zhu Jie experienced this kind of thing personally last year.

"A lot of people were cheated last year in Kangding, Sichuan. After the machines were pulled in, they were not allowed to be taken away at the end of the flood season." Although Zhu Jie got his machine back seven days after the seven vehicles were detained, the incident left a deep impression on him.

Source: DeepChain

Author: Yi Xiaodian