Winter is coming, mining industry seeks exploration | 2019 "Big boss says"

The bell of the new year has rung, and the hustle and bustle, madness, miracles and touching moments of 2019 are about to begin.

In 2018, as a blockchain industry media, Odaily Planet Daily not only accompanied the blockchain industry's crazy rise from zero to one, but also witnessed the bubble burst of irrational prosperity. Some people lamented that this short but wonderful era can never be replicated again.

Therefore, we hope to record the true voices of those industry witnesses and pioneers, and to guide the way forward for the industry's explorers and guardians.

"2019 Big Boss Says" is a blockchain interview column launched by Odaily Planet Daily. We interviewed more than 50 leaders in the blockchain industry and compiled the essence of the interviews into a series of articles.

Text | Xue Jiao, Wu Yan

Produced by | Odaily Planet Daily (ID: o-daily)

Follow the huge waves into the market and retreat with the foam.

This may be the image of the mining industry last year. The rise in the price of coins at the end of 2017 and the beginning of 2018 attracted people from all walks of life to the mining industry. They rushed to buy mining machines and electricity to build factories regardless of the cost, but they could not get their money back in the sharp increase in computing power. The sharp drop in the price of coins at the end of the year plunged the industry into the abyss. Countless miners shut down their machines and cleared the field, and mining machine giants also laid off employees and reduced their cash flow.

Winter is here, and mining accidents can happen at any time. In this issue, we invite frontline practitioners in the industry to see how the mining industry survives in the dark night.

Guests of this episode:

Canaan Creative Technology Director Chen Feng

Zhang Li, co-founder of Langshen Miner

Zhu Yu, Co-founder of Biyin Mining Pool

Chu Tao, owner of a 200,000-slot mine

11-year veteran miner Wang Weinan

Zheng Xun, CEO of Hash Era, a comprehensive mining machine hosting service platform

Li Risheng, CEO of Minebank, a computing power asset allocation platform

Five questions and five answers

1. What is the most heartbreaking thing in 2018?

Wang Weinan: Many of my friends who sell mining machines have gone into micro-business or selling oranges.

Chu Tao: Mining machines are sold as scrap metal.

2. What are your tips for surviving the winter?

Chen Feng: Mining saves me money on heating.

Wang Weinan: Find cheap electricity.

Chu Tao: To borrow a famous saying from a big shot - there are three treasures in a bear market: mining, fixed investment, and cold wallets.

3. Yibang has applied for listing again. Is there any hope for this kid?

Wang Weinan: Companies that still want to go public in a bear market have their own aspirations.

Chen Feng: Have a pleasant journey!

4. Are you ready to donate the mine to the country?

Wang Weinan: At any time, but the country currently encourages private enterprises and innovation. Mines also drive the real economy and employment in border areas. A lot of electricity in border areas is abandoned and waste electricity, and labor-intensive enterprises and factories are reluctant to move there.

Zheng Xun: We will actively respond to the country, but strictly speaking, the mine is private property.

Chen Feng: Everything I own belongs to the country, except the mine.

5. Finally, what do you want to say to your fellow brothers in the underworld?

Wang Weinan: Brothers, greatness comes from perseverance! A widow will eventually become a mother-in-law. If you can’t bear the loneliness of being a widow and want to remarry, I hope you will be happy in the future!

Chu Tao: The road is long and arduous, but I will search for it up and down.

Zhu Yu: Look for old teams and old brands. Some companies started to cheat after they had cash flow problems in the bear market. If you meet someone who has only been in this industry for two or three years, you should think carefully and not be cheated by someone you trust.

The interview is as follows

Q: What do you think is the major event in the mining industry in 2018?

Wang Weinan: On December 3, the difficulty of Bitcoin mining dropped by more than 15%. This means that a large amount of computing power was cut off or even the mining machines were shut down. This has never happened since the advent of ASIC mining machines, not even during the last bear market.

Chen Feng: First, the advent of 7nm ASIC chips. Second, the BCH fork. Bitmain and Craig Wright disagreed on the development direction of BCH and engaged in a costly computing power war. There was no absolute winner in terms of the result, but it had a profound impact on the entire cryptocurrency, and it may have become the trigger for the short-selling forces to trigger this round of plunge.

Chu Tao: 2018 was a very embarrassing year for the mining industry. The rapid rise in the price of coins last year attracted a lot of investment enthusiasm from inside and outside the industry, pushing up the prices of mining machines and electricity. Investors entered the market regardless of the cost, and then left the market with heavy losses when the price of coins fell.

I would like to mention two major events. One is that mining machine manufacturers are going public in Hong Kong. The main reason for mining companies to go public is to obtain more funds to develop new mining machines, purchase raw materials, and ensure cash flow. In the previous bear markets, some manufacturers that collapsed before dawn were mostly due to the depletion of R&D funds and working capital, and could only go bankrupt and liquidate. From another perspective, if they can go public, it can also be a disguised advertisement for the popularity and market recognition of mining machine manufacturers.

The second is the supervision of mining farms. In 2018, the frequent inspections and exit documents of mining farms in Xinjiang, Yunnan and other places made the owners and miners of mining farms all over the country panic, fearing that the policy would be one-size-fits-all and their investment would be lost. Therefore, a large number of miners planned to choose to go overseas.

Q: Does the low point of the coin price mean the beginning of a mining disaster?

Wang Weinan: Mining investment means going long in a sense. The low price of coins is indeed difficult for most people, but those with low electricity costs and low mining machine costs are still fine. After most people have survived, the difficulty of mining will decrease and the income will return. For example, when planting wheat, the price has decreased, but the yield per mu has increased.

Zhang Li: 2018 can be called a bear market at best, but 2014 was a "mining disaster". Mining in a bear market means losing profits, and when a "mining disaster" comes, there is no profit at all. Some big guys went bankrupt due to insolvency, like in 2014. In 2018, some people cut their losses, but they haven't collapsed yet.

The current situation is that many retail investors pack up and leave when they lose money. But in 2014, the computing power was small, and if there was a mining accident, the network would be very dangerous. So, a group of people raised money to mine in order to protect the security of the network. By 2017, the wealth of these believers had increased significantly.

Q: What is the difference between this year and the bear market in 2014?

Wang Weinan: The bear market in 2014 cannot be compared with this bear market in terms of capital volume and number of users. The circle in 2014 was much smaller, mainly geeks, technology enthusiasts, and some investors who like high risks. This bear market also includes a group of new P2P entrants, traditional power energy, traditional Internet cafes, computer hardware transformation bosses, etc., and a large-scale industrial chain has been formed.

Zheng Xun: The bear market drove a small number of people out, but part of the money they invested stayed. The influence of the industry or computing power consensus is much greater than the previous bear market.

Q: Talk about the overall fluctuations in computing power in 2018 and the industry changes behind it.

Wang Weinan: The computing power increased from about 13EH/s at the beginning of the year to a peak of about 51E in October, and now it has dropped to about 38E. The change in the industry is that more and more people are entering the market. Mining machine manufacturers are in fierce competition, and technology is also being updated and iterated. In 2018, 7 nm mining machines were launched. Although it is a bear market, 30W/T mining machines are likely to be released in 2019, and the competition will be more brutal by then.

Chu Tao: This process is actually a market reshuffle. Small and medium-sized miners choose to shut down or liquidate their positions to stop losses at the bottom, while powerful large miners and large mining farms can buy at the bottom and expand steadily. As mentioned above, as some people leave the market, mining in a bear market may also be profitable. On this basis, the reshuffle of mining farms may be more intense, and the future should be a path of large-scale, professional, industrialized, and compliant operations.

Q: Why do large mining companies have to go public?

Chu Tao: The main demand of mining machine manufacturers to go public is to obtain more funds for the research and development of new mining machines, purchase of raw materials and sufficient cash flow. In the previous bear markets, some mining machine manufacturers collapsed before dawn, mainly because the research and development funds of mining machines and their own liquidity were exhausted and could not support them, so they had to go bankrupt and liquidate. From another perspective, if they can be successfully listed, it is also a disguised advertisement for the popularity and market recognition of mining machine manufacturers.

Zhu Yu: Avalon was the first manufacturer to announce its IPO, mainly because they have very close interactions with the traditional capital market. Going public is also one of the means of capital market operation, which is normal. After Avalon announced its IPO, Ebang and Continental also followed suit. The main reason is that they are both mining machine giants, and since you have gone, I will go too.

Zhang Li: It is quite difficult for manufacturers to go public. This industry has too many ups and downs and is too unstable. If people heard that manufacturers were going to go public last year, they would think it was more funny. But in 2018, there seems to be hope. But when we look at the financial reports of these manufacturers over the past year, it is like a roller coaster ride. So when the Hong Kong Stock Exchange sees the data of this industry, it is a monster stock. Why would they want to go public?

Q: What will mining machine manufacturers do in 2019? Will they engage in large-scale mining? Will they transform into service providers?

Zhu Yu: Mining is definitely necessary. It is hard to say what the layout of large companies will be. But if they want to transform, they will not make much money. For example, if they reduce the frequency of a mining machine, it will only be 30 yuan. As for financing, traditional capital can see clearly that they will not send charcoal fire at this time. If they want to take over, they would rather wait until the manufacturer is willing to sell it. Isn’t it more cost-effective?

Chu Tao: I think there are three main aspects:

1. Provide one-stop hosting services for miners, so that customers at home and abroad can solve the problem from buying mining machines to mining farm hosting in one stop.

2. The large mining machine manufacturers that can survive actively choose to have long-term cooperation with mining farms that have undergone "compliance" processing.

3. Direct-operated mining farms may be used to absorb their own inventory and computing power, operate as mining pools, or split and sell computing power to external parties.

Q: What will be the core competitiveness of the mining industry this year? Will there be any changes in the halving of Bitcoin production in 2020?

Wang Weinan: The core competitiveness of the mining industry lies in three aspects: the first is electricity, the second is the power consumption rate of mining machines, and the third is the cost-effectiveness of mining machines; this is still the case in 2020 and will always be the case in the future.

Chu Tao: Regarding the halving of Bitcoin production in 2020, most people have a view that history can serve as a mirror, and pay attention to the big bull market that occurs after each halving, and the doubling of the currency value.

Zhu Yu: (For manufacturers) in a bear market, there is a lack of market for new machines. In other words, the performance of old machines that are still in production is similar. This tests the supply chain management and cost control capabilities of manufacturers. If you do well, you will live well. I think the market confidence in the halving of Bitcoin production is too high, and it may not be the case when the time comes.

Question: Is it possible for the domestic mining industry to embrace regulation?

Li Risheng: I think it is difficult for mining farms to comply with regulations. If they want to comply with regulations, the government, central enterprises and other "national teams" must do this. Why do you say that? Investing in mining with RMB, exchanging Bitcoin for legal currency such as the US dollar. For countering US policy risks, it is undoubtedly a strategic reserve, just like missiles, oil and other industries. If it rises to this level, it must be in the hands of the state.

Zheng Xun: There are several problems with the mining circle embracing regulation. The biggest problem is that it is not clear which department is in charge. The Economic and Information Commission, the State Electricity Regulatory Bureau, the Taxation Bureau, the Central Bank, and the Internet Finance Office all seem to be somewhat linked.

Secondly, there is no way to regulate how to prevent people from using mining to evade taxes or even launder money. Because the coins produced by mining are clean and can flow globally, it is difficult to trace the source of funds, thus becoming a gray area. To achieve compliance, these processes must be regulated. We have actually thought that since monitoring of legal currency can be done, starting from this area may prevent illegal income from flowing into the mining industry, thereby meeting the needs of supervision. At that time, there may be hope for compliance.