Assets depreciated and millions of small miners became cannon fodder. Is the trend of mining groupization?

December 18, 2017 was the most glorious day in the history of Bitcoin. On that day, the real-time price of Bitcoin reached a peak of 19,442.1 US dollars, equivalent to about 120,000 RMB. Like Bitcoin, the price of mining machines also soared. Mining machines are machines that mine Bitcoin. Data shows that the net profit of mining machine manufacturer Bitmain in the first half of 2018 was as high as 950 million US dollars, which is about half of Baidu's net profit in the same period.

Lu Xun said that tragedy is to tear beautiful things apart for you to see. In 2018, the Bitcoin market took a sharp turn for the worse, depreciating by more than 80%. Those miners who rushed into the Bitcoin mining industry for wealth are now experiencing the huge gap between heaven and earth. Perhaps Bitcoin can really become a "free currency" in the future, but now, the losses and pain caused by asset depreciation are real.

Today I will tell you a story. The protagonist entered the mining industry at the end of 2017. In November this year, 115 Antminer S9s in his hands were taken away by the mine owner. Although it is an individual case, it also shows the madness and cruelty of this industry.

Bitcoin peaks, 115 Ant S9 mining machines purchased for 3.3 million

Shenzhen Huaqiangbei has a "China's No. 1 Electronics Street". On both sides of the more than 10-meter-wide and 200-meter-long street are more than a dozen electronics markets, the most famous of which is SEG Computer City. In 2017, as the price of Bitcoin soared, Bitcoin mining machines emerged, and SEG became China's most famous mining machine sales base.

The madness of the mining machine market is that the shipping price is 30,000 yuan, and the market price can be speculated to 130,000 yuan, and payment is made first and then delivery. Even so, buyers are still coming in an endless stream.

Zhang Qiang used to work in P2P sales. In October 2017, he entered the "hot" mining machine industry under the recommendation of a friend, buying low and selling high to make a profit. As his understanding of digital currency deepened, Zhang Qiang found that mining was more profitable than reselling mining machines. When the price of a coin exceeded 100,000 yuan per coin, the daily income of a mainstream mining machine could reach thousands of yuan, and the cost could be recovered in a few months. If Bitcoin can continue to soar as expected by the bigwigs in the currency circle, the benefits of mining will be even greater.

On December 26, Zhang Qiang used his own funds and borrowed money by paying interest, raising a total of about 3.3 million yuan. He bought 115 13.5T Antminer S9s from SEG Computer City in Futian, Shenzhen at a price of 29,350 yuan per unit. Zhang Qiang hoped that these mining machines could bring him endless wealth like a laying hen, as having a mine at home was a recognized symbol of wealth in the circle at that time.

From $20,000 to $3,500, miners’ dreams of wealth are shattered

After deciding to buy a mining machine to mine, Zhang Qiang was busy looking for a mining site. In the cryptocurrency world, "time is money" is fully demonstrated.

At that time, mining farms in areas with abundant electricity and cheap electricity prices such as Sichuan, Xinjiang, and Inner Mongolia were springing up like mushrooms after a rain. Zhang Qiang did not dare to be careless, so he went to Hunan to look for mining farms, but he looked more at mining farms in Sichuan. Finally, a mining farm in Hongbai Town, Shifang City, Deyang, Sichuan, came into his reference range.

This mine can accommodate about a thousand mining machines and is medium-sized. Previously, the site was an abandoned coal mine with flat terrain, spacious machine rooms, neat iron racks for placing mining machines, and perfect heat dissipation equipment. Zhang Qiang is very careful. He stayed in Hongbai Town for several days and had dinner with the person in charge of the mine. He concluded that the mine is formal and professional, and the team has strong technical strength. Given that the price of the currency was still very high at the time and the mine was hard to find, on December 28, the third day after buying the mining machine, Zhang Qiang signed the "Digital Currency Computing Service and Technical Service Agreement" with the mine.

According to regulations, the mine charged Zhang Qiang a service fee of 20 yuan per machine per day, and the monthly hosting fee for 115 machines was about 70,000 yuan. The contract expired on December 31, 2018. After prepaying one month's fee and a deposit of 138,000 yuan, Zhang Qiang left the mine.

After the mining machines arrive at the mine, the mine is responsible for providing all technical services such as listing. Once the mining machines are online, Zhang Qiang connects them to the selected mining pool and deploys the software at home. Through his computer, he can remotely monitor the mining behavior of these 115 mining machines. The mining pool will pay Zhang Qiang mining income, that is, Bitcoin, according to the proportion of computing power.

Zhang Qiang entered the game at an unfortunate time. On December 18, the price of Bitcoin peaked and fell. In January 2018, the leading group of the Internet Financial Risk Special Rectification Office issued a document, and the country began to rectify illegal mining farms. Even so, the enthusiasm for Bitcoin entrepreneurship has not diminished. During the Spring Festival, the "3 o'clock sleepless blockchain group" became popular. The comments of Xue Manzi, Li Xiaolai, Chen Weixing, Shuai Chu and other bigwigs in the group discussing blockchain were constantly amplified by the media. In addition, the gossip about sending red envelopes of more than one million in seven days made the word blockchain break out of the currency circle and attract the attention of the general public. Whether it is Zhang Qiang or the entire circle, more people believe that the decline in the price of the currency is just a correction.

But the market soon took a sharp turn for the worse, and the price of Bitcoin continued to fall after three pullbacks. By November, the price had dropped to $3,500, a depreciation of more than 80%.

Shen Yu, founder of F2Pool, said that the current shutdown price of mainstream mining machines is about 30,000 yuan, and since late November, 600,000 to 800,000 mining machines have been shut down, and the Bitcoin computing power of F2Pool has dropped by 10%. According to Yu Yang, one of the founders of the Mining Association, small miners with high costs will shut down their machines, and large miners will choose to hoard coins. "Staying up" has become a common consensus in the mining circle.

The shutdown price of Zhang Qiang's Antminer S9 is about 26,000 yuan, which means that once the price of Bitcoin falls below this value, even without considering the initial investment in mining machines, the operating cost alone will be higher than the income, and miners can only shut down the machine to stop losses. At this point, Zhang Qiang's expectation of making a profit in a few months at the beginning of the year has completely gone down the drain. He sold the Bitcoins he earned from mining to recover the funds, but he also hoarded some Bitcoins waiting for the market to pick up.

115 mining machines are offline, the mine has run away

At 11pm on November 6, Zhang Qiang, who wanted to go to bed, lost his sleep. The computer software kept sending him alerts that the 115 Antminer S9 mining machines he hosted at the mine were offline. He called the mine's technical service group to inquire about the situation, but there was no response. "Maybe it was a power outage. Anyway, disconnections happen occasionally. Besides, it's been almost a year since the hosting. What can go wrong?" Thinking of this, Zhang Qiang went to bed.

The next day, the machine was still offline. He called the mine owner several times, but there was no news. He was anxious and asked a local friend to go to the mine to take a look. That night, the friend replied: "The door was closed, it was dark, and the machine was gone." Zhang Qiang could only believe that the mine had run away with the mining machine. He calmed down and looked up the original contract again. After checking, he found that the company named Chongqing Campas Enterprise Management Service Center that had signed the contract had problems. The company address shown in the contract, located in Zhengyang Industrial Park, Chongqing, turned out to be a motorcycle production workshop.

On the third day after the incident, Zhang Qiang rushed to Shifang, but the mine was deserted. Unable to contact the mine owner, he had to call the police. According to the local police investigation, the State Grid electricity that the mine owner had repeatedly confirmed to Zhang Qiang was actually a small hydropower station. After recording the statement, the police suggested that Zhang Qiang go to court to sue the other party.

▲The deserted mine

At present, with the price of coins cut in half, the second-hand price of Ant S9 mining machines is less than 1,000 yuan. The market value of the 115 mining machines that originally invested more than 3 million yuan is about 100,000 yuan. In addition to the advance payment of about 200,000 yuan, the total amount of funds that Zhang Qiang lost by the mining farm is about 300,000 yuan. Zhang Qiang did some calculations and found that his investment loss exceeded one million yuan this year after deducting the mining income. At present, in order to make up for the loss, he can only try his luck in court, but when he thinks that the mining farm deliberately concealed the real information, the chances of successfully defending his rights are slim. Even if he succeeds, the cost, including time, is too high for Zhang Qiang.

Mines are not standardized? Is formalization the way forward?

After the mine ran away, Zhang Qiang also sold all his GPU mining machines at a low price, temporarily quitting the mining circle. Some of his friends also sold their mining machines at low prices, either because the mining business was becoming increasingly difficult or because they were worried about the mine running away.

After experiencing the ups and downs of this year, Zhang Qiang felt that in the mining circle, everyone prospers and suffers together. What he could not accept was that he found that mining was an unregulated industry and miners were a more vulnerable group in comparison.

At present, the Bitcoin mining industry may be in the most difficult time. The price of the currency and the policy are swords hanging over the heads of the mining farms. Small miners are unable to resist the risks and are bound to lose money and go bankrupt. Zhang Qiang estimates that as the price of the currency continues to fall, the mining farms that grew wildly at the beginning of the year may expose more problems.

Previously, when Babbitt interviewed Shenyu, Shenyu believed that virtual currency was de-bubbling, and only mining farms with high efficiency could survive, and centralized mining groups with stronger funds could survive the cold winter. Yu Yang of the Mining Association believed that mining farms would develop more diversified in the future, such as merging with mining machine factories and miners.

YUKI, vice president and operations director of New Color Technology, told Babbitt that from a global perspective, the United States is showing significant characteristics of standardization, industrialization and branding in terms of mining, which is very different from the development model of small mining farms in China. "The early development of the mining industry may be a rapid reproduction of small workshops, but its development direction must be clear and standardized. Mining is becoming a long-term and stable investment," she said.

Shenyu also analyzed that as the process of nano-chips approaches its limit, chip iterations will not be as fast as in the past, and the life cycle of mining machines will also be extended. In the future, mining machines are likely to become part of home appliances. Miners will no longer mine for the sake of mining, but will mine while using home appliances. Previously, Canaan Creative launched a mining TV and a mining heater, while Bitmain has a mining Wi-Fi router.

It is not difficult to find that the rise of Bitcoin mining originated from small miners like Zhang Qiang, but as the industry moves forward, some of them may become cannon fodder for the industry's development, and the entire industry is likely to move from being unruly and irregular to being standardized. However, this process is not easy.

(At the request of the interviewer, Zhang Qiang is a pseudonym)