Cryptocurrency mining "Battle Royale", grassroots "miners" at the end of the year

Image source: Visual China

"I have lost a total of more than 7 million yuan in the cryptocurrency and mining circles this year. I borrowed more than 1 million yuan from family and friends, and I still owe 800,000 to 900,000 yuan outside." Wang Qiang smiled bitterly and regarded it as paying a high tuition fee.

Wang Qiang had mixed feelings when recalling the changes in Shenzhen Huaqiangbei Electronics Market over the past six months. He told the ChainDD App that in June 2017, he quit his job at a traditional logistics company and took out hundreds of thousands of yuan of savings to join the mining army, hoping to catch a wave of gold rush in the cryptocurrency boom.

What he didn’t expect was that the mining farm had been in operation for less than a year before it fell into the nightmare of the deteriorating global cryptocurrency market.

"Around June 2018, I felt something was wrong. The entire market continued to fall. I thought I had to sell my phone quickly to cash in, and then look for an opportunity to buy at the bottom. Who knew that while I was buying, I would end up buying myself in."

Faced with increasingly fierce market competition, the costs of electricity consumption, equipment depreciation, and manual maintenance required for mining have continued to rise, and the cost of mining for miners was even higher than the market price of Bitcoin at one point.

"Some time ago, I just sold 100 S9 13T Antminers at a price of 400 yuan each. I bought this batch of mining machines in early 2018, at a price of about 16,000-17,000 each. Because of its high power consumption, it is not profitable to mine now anyway, so it is better to cash it out."

In the past few months, Wang Qiang has been constantly selling information about second-hand mining machines in various mining circle groups, and his negotiation method is extremely convenient and fast: "921, 30 units in stock", "S9, 14T sold at a low price", "Snow Leopard A1, 49T sold".

"As long as the price is not too ridiculously low, I am willing to sell it quickly. Only when the money is circulated can I make money faster. If I can't survive the winter, then I will just 'die'."

The miners interviewed by Liande.com are all experiencing the same situation as Wang Qiang, suffering heavy losses from virtual currency and having to sell old mining machines at low prices - they even have to be vigilant at all times to prevent dishonest merchants from running away.

Selling second-hand mining machines at low prices, miners transform into "middlemen"

"Last year, it was normal to make a few hundred yuan a day from mining with any machine; now it's a big deal to make 20 or 30 yuan. In the past, I woke up with at least tens of thousands of yuan in my account every day; now I'm basically living off my savings, and many miners and mines are still losing money."

In addition to selling mining machines from his own mine, Wang Qiang is also helping other peers sell second-hand mining machines. The Liande App noticed that the price difference for a second-hand mining machine sold by market dealers is generally between 8 and 10 yuan, while previously they could make 1,000 to 2,000 yuan per machine.

Wang Qiang misses the era when people would never bargain, but that era seems to be gradually fading away, and what greets them is the cold reality.

"First, survive the cold winter. You can't die in the winter."

Compared with "miner" Wang Qiang, "mining machine merchant" Cai Sheng has obviously more resources, but he cannot escape the turmoil in the cryptocurrency industry.

Cai Sheng’s company was once a well-known domestic mining machine manufacturer. After experiencing a “cliff-like” drop in currency prices, sales of mining machines became a problem.

"Second-hand mining machines have a bigger market than new ones. We now rent out our office workstations to allow our technical team to take on work from other industries and find projects to share with people in the industry."

Since he had accumulated a lot of big customer resources in the circle before, Cai Sheng chose to provide them with some financial services, such as doing a good job in capital allocation-related business and connecting with high-yield mining pools.

In recent months, the transaction fees of second-hand mining machines accounted for the vast majority of the company's revenue. Cai Sheng admitted that the profit was not high and he was basically carrying it.

The price of second-hand S9 mining machines has dropped from around 1,400 yuan a month ago to a few hundred yuan now. Everyone is helpless.

(Second-hand mining machines waiting to be sold)

"It used to be hard to find a 'mine'. Now, selling mining machines by pound is not a joke, it is a fact. We even considered whether selling them at the price of copper, iron and aluminum would be more profitable than selling mining machines now."

The digital currency market fell further sharply in the second half of 2018, leading to a "mining disaster" in the industry, and the sales of mining machines dropped sharply. Some brands of mining machines could not be sold at the original price, and could only be sold at a discount. Some merchants with assembly business chose to disassemble the new accessories in the mining machines, especially graphics cards, and sell them individually.

For miners or merchants, selling any machine that is about to rot in their hands is called stop loss.

But no one can tell how far this winter is from ending.

Profits plummeted, and small and medium-sized miners left the market one after another

Unlike the "holdouts" mentioned above, most small and medium-sized miners and miners chose to evacuate.

There are many ways to withdraw. Some are to sell at a low price and leave the market sadly after suffering a loss; others are to "run away with the money" and completely abandon the credit they have accumulated.

"After we clear out the inventory of these mining machines, we will no longer be in this business." Wang Fang smiled bitterly. In the first half of 2018, the Bitcoin market was booming, and there was a mining craze in the market. Many Huaqiangbei merchants followed suit and stockpiled a lot of mining machines, hoping to sell them at a good price. Wang Fang and her husband also increased their purchases at that time.

Although she is not making money now, Wang Fang has no intention of quitting the business. She can only do other business while keeping an eye on the turnaround in the digital currency market.

Whether it is the digital currency investors who once chased highs and bought lows, or the Bitcoin miners who followed the trend, or the mining machine merchants who blindly pursued profits, no one can escape the clutches of the overall profit collapse, and everyone has directly or indirectly become a driving force behind the "mining accident."

Wang Qiang was busier than ever this year. On the one hand, he was looking for merchants to sell second-hand mining machines, and on the other hand, he was preparing materials to appeal to the court.

"Nowadays, many businesses are dishonest. Some have started to 'run away' and disappear with the money, while others shamelessly owe us goods. Even though I have paid them the money, they still refuse to deliver the goods."

According to the Liande App, Wang Qiang had ordered over 600,000 yuan worth of mining machines from a Beijing manufacturer, but the goods have not been delivered yet. The company had cooperated with him many times before and had always had a good reputation. However, there has been no news about the latest transaction, with no refund or delivery. Wang Qiang had no choice but to call the police, but the police replied that they needed to go to court to resolve the issue.

He could not hide his anxiety. "I have already paid my clients more than 500,000 yuan. I don't think it's possible to get the compensation back through a court lawsuit, but at least I have to get the principal back."

In 2017, Bitcoin experienced a surge, approaching the $20,000 mark on multiple trading platforms in mid-December. Human desire and greed for money attracted a large number of successors to continue to enter the market, and they persisted in the argument that a new wave of "market" was about to come. Most of them were not believers in blockchain, but simple business speculators.

What do those who left the mining circle do?

Cai Sheng said: "One day, I suddenly found out that there were so many micro-business people on WeChat, including those selling underwear and e-cigarettes. I was puzzled at first, but later I found out that they were selling mining machines and mining peers. They started to transform so quickly."

Learning from history, why are veteran miners trying to acquire second-hand mining machines?

Liande App noticed that there are mainly two types of people who are still buying mining machines in large quantities: one is the owners of "cheap electricity". At present, the domestic electricity price is generally between 30 cents and 40 cents. The lower the electricity price, the greater the profit margin can be earned.

The other type is the old miners and old investors in the industry. They have experienced the bear market in 2014, are well aware of its rules and characteristics, and have accumulated a lot of resources in the industry.

Lin Yu is a veteran miner who started operating Internet cafes on a large scale around 2013 and entered the mining industry after noticing changes in the sales of GPU graphics cards. In his opinion, the current bear market is not as "bearish" as in 2014, when he really felt that there was no way to turn the tide.

He recently bought 2,000 second-hand S9 Antminers. At the peak of mining, one unit sold for 20,000 yuan, not counting the price abroad. Now it only costs a few hundred yuan.

If the vertical dimension is extended long enough, history seems to be a cycle.

2013 was the year when Bitcoin exploded. As the concept of Bitcoin was gradually accepted by people, the price of Bitcoin rose from more than ten dollars to 1,000 dollars. However, on December 5, 2013, after the People's Bank of China and five ministries jointly issued the "Notice on Preventing Bitcoin Risks", the price of Bitcoin plummeted all the way until January 2015, when it fell to a low of 185 dollars, a drop of more than 80%.

The year 2014 was the darkest and most difficult time for miners. The market was bearish, and people withdrew, left, and sold their mining machines as scrap. At that time, not many people paid attention to Bitcoin, and even fewer people understood the living conditions of miners. Therefore, during that period of history, no one cared about the plight of miners.

(Bitcoin price K-line chart from 2013 to 2015)

2017 was a very important year in the history of Bitcoin development. The price of the currency increased by 1,700% throughout the year, with the highest price reaching US$18,674 (currently also the highest price in history). The entire price trend chart was like a thrilling roller coaster, making investors crazy.

According to ChainDD data monitoring, as of January 7, 2019, Bitcoin is currently adjusting around $4,000. Compared with its highest price in 2017, it has dropped by 78.58% and is hovering near its previous maximum drop.

(Bitcoin price K-line chart from 2017 to date)

When Lin Yu was asked whether the current acquisition of mining machines was a good opportunity to buy at the bottom of the bear market, he was silent for a while and replied with a smile, "It's only a few thousand units."

Lin Yu introduced that the people around him who are currently purchasing second-hand mining machines are all veteran miners. Rather than waiting for an opportunity to buy at the bottom, it is more of a market intuition and configuration attempt. Buying a batch of cost-effective products at a unit price of several hundred yuan can be put to good use if the bull market appears early; if the bear market continues, it will only lose part of the funds.

This risk is within his tolerance. Both Lin Yu and Wang Qiang were open-minded when talking about the loss of several million yuan. In the eyes of people who have experienced several rounds of bear and bull cycles, this may just be a way of "paying tuition".

The mining circle is a world of martial arts, and Lin Yu likes to study the psychology of people inside and outside the circle. He runs a small teahouse, which is like a martial arts inn in the martial arts world, where miners often drink tea and gather.

"Recently, there are definitely more people 'getting off the mining circle' than 'getting on the mining circle', but there are also a lot of people outside the door peeking in. They are waiting for an opportunity to strike, and if a bull market really comes, these people on the sidelines will often be the ones who get harvested." There was a hint of irony in his words.

In addition to old miners, overseas is also the main market for second-hand mining machines. Bao Erye, as a representative, has strongly called on miners to go to Iran and other places to survive.

Cai Sheng did not respond to this "national salvation" approach. He judged that in overseas markets like North America and Indonesia, the price of second-hand mining machines would be higher than that in China. After all, information is relatively lagging. However, since the price of the machines fell too quickly, the cost of overseas transportation, plus depreciation and damage, it would be okay to sell dozens or hundreds of machines, but it would not be cost-effective to ship thousands of machines.

"Isn't the current situation in China enough for me to worry about?"

Where is the future for those who stick together and hold on?

In just less than a year, mining machines fell from the altar due to the "mining accident". From a money-making tool that once earned millions of yuan a month, it has become a second-hand accessory or even scrap metal that is now sold for hundreds of yuan.

Some people say that in the mining craze, miners and merchants are all victims of gambling; but for this industry that will continue to develop in the long term, many people are still sticking to it, and summarizing experiences has become a topic that every miner must discuss when they get together.

“This round of bear market has put higher demands on miners.”

Lin Yu shared his experience. First, mining should be done carefully. More mining theory should be mastered to adjust the proportion of mining coins in time. He revealed that in addition to ASIC mining machines and GPU mining machines, he is currently using graphics cards to mine Monero.

The second is financial mining. He repeatedly stressed the importance of financial knowledge for miners, and even began to talk about practical cases: "For example, when investing a lot of money in mining, you can do a financial hedging (hedging) to lock in the mining profits in advance, so that no matter how the market changes, miners can hold on for a while longer."

In addition to theoretical lectures, there are also practitioners who are developing innovative mining models.

Wang Qiang is one of the practitioners of the new type of mining. Traditional mining requires individuals to buy mining machines, find cheap electricity locations, and build mining farms; or hand over mining machines to small and medium-sized mining farms for hosting, and users pay for electricity, maintenance and subsequent management fees.

However, emerging mining farms have already adopted the cloud mining model of computing power leasing. Users no longer need to consider issues such as electricity prices and mining site selection. Through the APP, they can directly rent the computing power of Bitcoin mining machines.

In this model, the mined coins are equally shared between the user and the mining farm. The user's mining income will be directly allocated to the personal account and can be withdrawn freely.

"However, this method is very difficult to scale and control costs." He fell into deep thought.

After ten years, the mining industry has experienced a new round of reshuffle. Some people in the market believe that a decentralized world is like an unattainable utopia. Facing the cold winter, many players are withdrawing, but some miners are still stubbornly guarding their last "belief".

It is still difficult to determine whether it is right or wrong, success or failure. However, when the dream of the blockchain world no longer exists, who will remember those mining practitioners who once went all in?

Note: "Wang Qiang", "Cai Sheng", "Wang Fang", "Lin Yu" and other names in the article are all pseudonyms.