The Spring and Autumn Period of Mining: More expensive than privilege, new coins are fighting for supremacy

Digital currency mines all over the country have been shut down and reopened, just like the crazy pace of this era. When the price of the currency is high, everyone rushes in, and when the price drops, everyone leaves.

Today, the price of Bitcoin (at $7,000) has increased 100,000 times compared to 8 years ago, and 70 times compared to 5 years ago. In 2010, 10,000 Bitcoins could only buy a pizza worth $25. Behind these amazing increases, what has been overlooked is the even more terrifying growth in computing power.

Compared to 9 years ago, the total computing power of Bitcoin network has increased by 1 trillion times; compared to 5 years ago, it has increased by 260,000 times. In mid-June 2009, the computing power was only 3.6MH/s; in June 2013, this number became 140TH/s; this year, the total computing power of the network is about 36EH/s.

History always repeats itself. In the eyes of the old man, the grand occasion of the past two years is like the first surge of Bitcoin five years ago. The surge in the price of the currency has led to the "prosperity" of the entire industry. Mining is the industry that responds to the price of the currency the fastest after speculation.

"As long as the price of the currency goes up, many people will come in to mine," said Sun Xiaoxiao, former head of HAO's BTC mining business. "They think buying coins is too vain. They can have machines for mining, but the income from mining also depends on the price of the currency."

Since last year, as coin prices have risen and the concept of blockchain has become popular, the mining industry is waiting for an opportunity to move.

Unlike the madness five years ago, the mining craze has now expanded to cover a much wider area: big capital has come in, and so have newbies.

In the past, Bitcoin mining practitioners could only admire themselves. Mainstream capital looked down on them, and ordinary people could not understand them.

Today, the threshold for mining is extremely high. You need to have hundreds of millions of funds to mine Bitcoin. Today, the threshold for mining is extremely low. Even if you know nothing about blockchain, you can still mine coins.

Mining has changed from a utopia with only believers and geeks to a world that attracts big capital, with mining machine overlords, mining pool bosses, and large mine owners chatting and laughing, new entrepreneurs fighting with water deliverymen, and wage earners struggling. In this article, Odaily Planet Daily will write about the origin and twists and turns of the mining industry, the glory and bitterness of old miners, and present the historical context of the industry's development and today's pattern.

Mining development stage

1. The war of computing power: the Bitcoin mining industrial revolution is gaining momentum

Mining began with the birth of Bitcoin.

Bitcoin mining can earn new coins and bookkeeping fees. The Bitcoin network generates a random number every ten minutes, and whoever calculates the random number first can get the current profit. This is a random collision process. In theory, the greater the computing power, the more Bitcoins can be mined.

The godfather of the industry, Xingkong (Wu Gang), was one of the first people in China to come into contact with Bitcoin. According to GQ, he mined 7,000 Bitcoins with a laptop in the year Bitcoin was created, attracted by the freedom, democracy and strictness of Bitcoin. But unfortunately, he did not expect Bitcoin to become popular at that time. So another 7,000 Bitcoins were buried in the ground.

ASICs are released: getting rich overnight is a reality, and the computing power war begins

Mining became an industry when ASIC mining machines came out five years ago.

Previously, Bitcoin has gone through CPU, GPU, and FPGA mining.

These are the types of chips. CPUs and GPUs are good at linear logic operations and large-scale parallel computing respectively. FPGAs have a programmable framework and can be understood as semi-custom circuits; ASICs are highly customized integrated circuits. Once the circuit leaves the factory, it cannot be changed, but it has high performance and low power consumption.

Bitcoin mining is simply a crude collision of random numbers, so GPU is more efficient than CPU. And because it only uses the SHA256 algorithm, if the chip is designed to only do this type of calculation, it will greatly improve efficiency. The development of mining machine chips can be understood as the specialization of chip functions.

In 2012, the American team Butterfly announced that it would launch a Bitcoin ASIC mining machine. Pumpkin Zhang (formerly known as Zhang Nangeng), the founder of Avalon Mining (Canaan Creative), said that he had sensed the danger of Bitcoin being monopolized, so he joined the team to develop ASIC mining machines "for the sake of world peace."

The revolutionary ends up becoming the very thing he opposes.

In January 2013, the first Avalon mining machine was unboxed. Pumpkin Zhang developed the ASIC mining machine before Butterfly, starting the battle for Bitcoin computing power.

The "nano-level competition" has thus begun.

At that time, the mining circle was still a niche, and the birth of ASIC mining machines was not expected by everyone, but was born out of countless controversies and doubts. Before the birth of the mining machine, the community was still arguing about whether such a machine should and could be manufactured. The first batch of ASIC mining machine pre-orderers were ridiculed as crazy people who actually spent tens of thousands of yuan to buy so many air-making machines, and the machine might not even be manufactured.

The founders of Xingkong and Aisike Technology, Pangzi, were the first group of crazy people. Pangzi spent about 170,000 yuan to buy 18 units. Xingkong bought 10 units.

Fatty was originally an engineer at Foxconn and had previously mined with a graphics card at home. Xingkong was an investor in Avalon and Baked Cat, the first generation of ASIC mining companies, and his experience meant that he would not miss this opportunity. In 2011, he spent 300,000 yuan to buy a large amount of Bitcoin, and after making money, he began to spend money, and was called the "Gandalf" of the Bitcoin world.

According to the terms at the time, there were no refunds for pre-sold mining machines, no sales customer service, and the delivery address could not be changed, with almost no guarantees.

It looks quite "dominant" today, reflecting the incomprehensible faith of this group of initial investors.

It turned out to be a money-making machine.

Fatty got the first batch of Avalon mining machines

In the spring of 2013, Avalon was shipped. One mining machine can mine about 3 coins a day, and Fatty can mine about 40 coins a day. Before that, he used more than 30 graphics cards to mine at home, and only mined 3 coins a day.

When Fatty used ASIC to mine, he earned about 40 bitcoins a day.

Before mass production, there were only 300 Avalon mining machines in the world. On the first day that Fatty received the goods, a friend spent 250,000 yuan to buy one from him, not only making back his investment but also making a net profit of 80,000 yuan. Afterwards, the Avalon mining machine was once sold for 400,000 yuan.

The angel investors of FC were another group of crazy people of that era.

In August 2012, the genius boy Friedcat (Jiang Xinyu) announced the development of ASIC mining machines and raised funds through a community "virtual IPO". Antminer founder Wu Jihan and Xiaoqiang (Xie Jian), founder of Xiaoqiang Miner, each spent 1,000 bitcoins to buy more than 10,000 shares. Sun Xiaoxiao "used all the money he could move to buy coins, and then all the money he could use to buy Friedcat stocks."

BakedCat's mining farm in Shenzhen is located between a garment factory and an electronics factory, and passers-by know nothing about it. According to GQ, in July 2013, the mine was able to mine nearly 40,000 coins per month; the company's stock price also rose from 0.1 bitcoin to 5, with a market value of more than 130 million US dollars.

"I am standing at the forefront of the world, in this seemingly inconspicuous place." Xiao Qiang described his experience of visiting the Fried Cat Mine.

Pre-sale (crowdfunding) was a common financing method for the mining industry at that time. Mining machine manufacturers such as Shenyu and Longkuang accepted customer reservations and then pre-ordered chips from chip manufacturers. This made the mining industry more risky. The computing power of the entire network was growing rapidly. Once chip or mining machine manufacturers defaulted on their payments, it was likely that investors’ money would be wasted.

Delinquency is not uncommon. Avalon was mainly launched in the form of futures, and several delays caused serious losses to investors; Fried Cat mainly sold in the form of spot goods, and later also experienced research and development failures and chip explosion problems.

No matter how high the risk is, many people will enter the market due to the huge profits.

In May 2013, CCTV reported on Bitcoin for the first time, and investors flocked to the market. The price of Bitcoin soared fourfold in November. Mining machines were in short supply.

The mining machine industry is flourishing, including the Cat Miner, Pigeon Miner, Bitmain Miner, Rand Mining Bureau, Little Bee Miner, Avalon original factory and various OEMs, Garden Miner, Smart Miner, etc.

The computing power war is heating up, with Baked Cat and Avalon at the two poles, while Antminer is still immersed in research and development.

The first cold winter of the mining industry: confusion, departure and perseverance

The mining boom is a microcosm of the first wave of cryptocurrency entrepreneurship in 2013. After Liu Zhipeng founded Babbitt, Lao Mo founded BTC123, and Yang Linke founded Bitcoin China in 2011, Bikan was founded in 2013, Wu Jihan founded Bitmain in May, and Li Lin and Xu Mingxing founded Huobi and OKCoin in May and October respectively...

Mining is the infrastructure of the digital currency industry, and most of the early entrants into the mining industry set up their own mining farms.

Later, Fatty moved bricks and cement to build a mining farm in Huadu District, Guangzhou. Sanjin (Ye Hanxin, founder of ChainPool Technology), which was engaged in mining machine OEM at that time, also deployed thousands of mining machines.

The prosperous business turned into nothing in the next year or so.

On December 5, 2013, the People's Bank of China and five other ministries and commissions issued the "Notice on Preventing Bitcoin Risks". The price of the currency, which had risen to its peak, was quickly cut in half within 20 days. It continued to fluctuate and fall over the next year, and after the beginning of 2015, it was sideways for 10 months.

The price of coins plummeted, entrepreneurs could no longer continue, and many left the market.

"There was no way to make money. In 2014, countless information and exchanges came out, but all died." Sun Xiaoxiao recalled the situation at that time. The mining industry, which was once the most profitable in the industrial chain, was not spared. "In 2013, the price of coins ranged from a few hundred to eight thousand (RMB), and everyone rushed in. In 2014, it was a bear market, and miners died miserably, and mining machines were not easy to sell. At the beginning of 2015, the price of coins fell to more than 900 RMB. Many people were afraid that it would return to zero, so many mine owners began to sell off their mining machines." Mining machines that were once bought for tens of thousands or even hundreds of thousands of yuan were now regarded as scrap metal and sold at a low price.

At this time, the R&D bottleneck of the FriedCat mining machine was encountered, and the company's stock price continued to plummet. Finally, FriedCat also mysteriously disappeared in this mining accident, becoming a major unsolved case in the cryptocurrency circle.

Xiaoqiang was completely disappointed by the disappearance of FriedCat. The mine continued to lose money, the market was in a bear market, and he had a baby at home, so he decided to quit his job and return home.

Sun Xiaoxiao, who invested all his fortune in FC stocks, is experiencing a double plunge in the price of Bitcoin and FC stocks. In 2014, he sold out his position when the stock price was at its lowest point and bought Bitcoin, but then Bitcoin plummeted while the A-share market surged to 5,000 points. By the Spring Festival of 2015, he could barely afford a ticket to go home.

“This is the most difficult time, and I feel particularly confused.”

Cryptocurrency entrepreneur Seventeen Decimal once described the situation during this period:

When the price of Bitcoin was 4,500 (RMB), Bitcoin entrepreneurs gathered together to eat barbecue.

When the price of Bitcoin was at 3,500, you could still find a group of people to get together with in Beijing, Shanghai, Shenzhen and Hangzhou.

When the price of Bitcoin was at 2,000, many Bitcoin entrepreneurs started selling Bitcoin for a living.

When Bitcoin was trading at 900, no one talked about Bitcoin anymore.

A few believers persisted.

When the market was sluggish, the world's largest mining farm at the time (Inner Mongolia Yihang Cloud Computing Technology Co., Ltd.) appeared.

According to Odaily Planet Daily, the mine is located in Dalate Banner, Inner Mongolia, and is jointly invested by giants such as Avalon, Ant, and Huobi. Sanjin is one of the suppliers. According to GQ, the mine can produce 130,000 bitcoins a year and consume 5 million kilowatts of electricity per year, which is equivalent to the electricity consumption of a medium-sized city for one month.

Today, the project has been buried in the dust of history, but it is of great historical significance. It originated in May 2014, when the price of the coin was around 2,000 yuan, and Bao Erye organized a closed mining conference in Shenzhen. The market was very sluggish at the time, and the meeting lasted from morning to night. One of the topics that impressed people was: who will die first in this industry?

“It was later verified that 100 mining machine foundries in Shenzhen had closed down.”

Early aerial photography of Yihang Cloud Computing Mine in Inner Mongolia

Inside the Inner Mongolia Yihang cloud computing mine

It is said in the industry that miners have no faith. If there is a contempt chain in the Bitcoin industry, miners are at the end of the contempt chain. This "mining disaster" is like a test for miners. Some are eager to clear their positions because they are afraid of zero, some can't hold on, and some travel all over China to find low-cost electricity. Sun Xiaoxiao, Fatty, and Sanjin are all people who persisted at that time.

When the price of currency is low, cost becomes the key to profitability.

Hydropower stations in Sichuan, Yunnan and other places have a large amount of excess hydropower. Mining farms can get electricity as low as 0.25 yuan by cooperating with hydropower stations privately, which is much lower than the normal price of 0.45 yuan. After Sanjin almost cleared its own inventory, it devoted itself to mining Litecoin and Bitcoin for a year. Fatty paid the electricity bill on credit for two years with the help of his friends in the mining farm. "This industry can no longer support so many people." Sun Xiaoxiao recalled that Xingkong's "help" was indispensable to his survival. He was invited by the latter to join HaoBTC and became the sixth employee. Later, he was in charge of mining business.

Bitmain, which had not yet achieved hegemony, had just tasted a little sweetness in 2014, but also encountered the freezing point of the industry. In order to overcome the difficulties, Bitmain even sold some machines at that time.

“The price fell too fast at that time, but our entire business plan was made when the price of the currency was high,” Wu Jihan said. “So when the price fell, the demand for our Bitcoin mining machines was not great - at the end of 2014, we ushered in the most difficult time.” Bitmain co-founder Zhan Ketuan said, “If the price continues to fall, maybe Bitmain will go bankrupt.”

2. Clash of Kings: Bitcoin mining enters the era of large-scale machine production

The story that followed has been told many times.

In 2015, the price of coins rose and miners returned to the mines. Bitmain developed the Antminer S5, which helped it to revive. According to Zhan Ketuan, the profit margin of the mining machine reached 50%.

Bitmain not only survived, but also launched the Antminer S9 in 2016, which has dominated the mainstream market ever since.

The miners who persisted in the early years finally made it. The recovery of currency prices brought in new leeks, and the mining industry and related industries began to recover.

On June 19, 2016, Bitcoin's monthly increase was nearly 80%, reaching a two-year high, but it is still some distance away from its historical high in November 2013.

"Crazy Bitcoin is back again?" Du Jun, who was still working at Huobi at the time, exclaimed in the WeChat group.

The mine, like a spring breeze that came suddenly overnight, gave a positive answer to this question.

Next to hydropower stations and oil fields across the country are mines of all sizes.

The small mine by the Dadu River in those days Source: Sina

Some cooperate with local governments, or are affiliated with state-owned enterprises, or enter the country in the name of cloud computing centers through investment promotion channels; some mines bypass the national power grid and directly negotiate with power stations for low-cost electricity.

Some people even use electricity illegally. "The end of 2015 and 2016 were the craziest times in China. Electricity theft was everywhere in Ma'anshan," Sun Xiaoxiao described the small factories taking risks in the energy-rich province. Simple board houses are located in the mountains, and the iron frames are filled with mining machines with messy wires. They are connected to transformers and steal electricity from high-voltage cables next to oil fields and mines.

This chaos has existed for a long time. Complex hardware equipment and advanced cryptographic knowledge have become a mixture of the greed of gold diggers and the selfishness of local governments.

The mining machines that once displayed themselves in Shenzhen and left people confused have finally been recognized by thieves for their value.

At the beginning of 2016, thieves were preparing to go home for the Chinese New Year. More than 130 Bitcoin mining machines and power supplies were stolen from a factory in Maanshan, with a loss of more than 1.6 million yuan. Such cases were common at the time. The factory that was built without permission and illegally stole electricity was sealed off, and a large number of Antminer S9s were seized. "The police didn't know at first that it was valuable and that they could get the machine back by spending some money; then, what was even worse was that they took your S9, and when you asked for it back, they gave you a batch of S7s and S5s, and sold the S9 for money."

These anecdotes are full of the flavor of the countryside.

Now all this is becoming a thing of the past.

Against the backdrop of dramatically increased difficulty, weak coin prices, stricter domestic regulation, and higher electricity prices, Bitcoin mining has entered an era of mass machine production, pursuing economies of scale with large capital investments.

The "industrial revolution" of mining has entered another stage, and Bitcoin mining shows two major trends: one is scale, intensification and formalization; the other is internationalization.

Traditional capital enters the market with billions

If the "mining machine revolution" that began in 2013 changed the productivity of the mining industry, today's large-scale operations have upgraded the industry's management capabilities.

Dong Yu's mine is a typical pioneer of the "industrial revolution" in mining. His mine in Xinjiang is equipped with 100,000 mining machines, of which more than 70,000 are Bitcoin ASIC mining machines and more than 20,000 are graphics card mining machines for mining Ethereum.

Such a large-scale mining farm makes the above-mentioned "guerrillas" pale in comparison. Dong Yu said that the mine owners who once deployed thousands of mining machines were also very surprised when they saw their mines.

Even so, Dong Yu dare not say that the scale of his mine is among the top three or five. "No matter how big a mine is, it is just a wallet on the Internet. You don't know how many machines it has." The low-key nature of the mining industry makes it difficult to count the real bosses. It is rumored that the world's largest mine is owned by Bitmain, which deploys more than 200,000 machines, but Bitmain has never publicly admitted it.

The astonishing installed capacity is the result of traditional industrial capital entering the market.

They have changed the way mining is played. In the past, most of the old hands in the cryptocurrency circle used their own funds to mine and gradually expand; now industrial capital treats mining as factories, and invests billions of dollars at a time. The high returns make them ignore the huge risks.

The current cryptocurrency market is actually in a bear market, but traditional capital is still enjoying it. "After the Spring Festival, traditional capital came in, they took on projects, entered the mines, and spent money lavishly." Dong Yu said that their mines have received several large sums of money in recent years. "As far as I know, the consortiums in Jiangsu and Zhejiang have invested 500 million or 1 billion in Xinjiang. For traditional businessmen, a return rate of several tens of billions is already very high." Odaily Planet Daily learned that several large funds with state-owned backgrounds are interested in entering the mining industry. Its fundraising cost has reached 5%, and the real economy can no longer meet the needs of such funds.

The traditional real economy is in a recession. In 2016, the return on industrial investment fell to 4%, and the Shanghai Composite Index hovered around 3,000 points. The annualized return on digital currency of several hundred is unimaginable in the real economy. "These traditional bigwigs are actually better at finding electricity than people in the cryptocurrency circle. They know some places, have some resources, and think that this matter should be done by themselves."

“New large miners are coming in, and the small and scattered miners in the past are retreating. Bitcoin has entered the era of institutionalization and scale.”

The small retail investors he mentioned are those miners who have dozens to thousands of machines, that is, the local gangsters mentioned above. Their electricity is irregular and unstable. "If the price of the currency drops a little more, they can't hold on at all." The price of the currency is falling, the price of the mining machine is falling, and the low-cost electricity price is no longer there. However, "the infrastructure of the factory and each machine is all money."

Big capital has the capital and means to withstand the decline in the price of coins. Everyone believes that this is just another trough. "As long as you can hold on to the coins, money is not a problem." Just like Bitmain, Avalon and a group of mining farm owners back then, it is actually hard to say what they did right, they just persisted.

First, it depends on the size of capital . Dong Yu's Xinjiang mine has invested more than 2 billion yuan. Since he has invested billions, what does it matter if he loses tens of millions just to survive the cold winter? "We are bound by the scale of our own machines... We spend too much money. There is no way to withdraw."

Second, it is technology-intensive . In order to improve efficiency, Dongyu's mine has adopted unique technology, which has improved the hardware design of heat dissipation, routers, circuits, fans, etc., and also ensured the stability of power supply and continuous heat dissipation.

Finally, it is about careful management . Most small investors cannot hold onto their coins. Some people sell their coins immediately after mining them to pay for electricity bills or expand. A more rational operation would be to use the market's fluctuations to manage assets. When the market is good, you can sell the machines to make money. "We prepared six months of electricity bills during the Spring Festival."

"All of this is meaningless." If the price of Bitcoin remains flat for a few more months, no one will be able to sustain it. He told Odaily Planet Daily that historically, the price of Bitcoin would fall every Spring Festival, rise every November, and rise in the spring and summer before each halving. "It stands to reason that there is a bull market now, but it has not appeared yet."

According to him, the annualized rate of return of his mine last year was 400%, which means that the investment can be recovered in three months; in March this year, the rate of return was only 100%. For miners, it is not profitable anymore.

Transfer abroad and cooperate with the government

The scale of the mines also provides them with the conditions and reasons to go out to sea.

Domestic electricity prices have been following the price of currency closely, and coupled with the fact that regulators are too erratic, going overseas has become an inevitable choice.

According to the Daily Economic News, on January 2, 2018, the Internet Finance Regulation Office issued a document requiring all localities to guide enterprises under their jurisdiction to exit the "mining" business in an orderly manner. According to Caijing, the regulatory authorities have plans to gradually cancel preferential policies such as electricity prices, taxes, and land. Cao Yin, chief strategy officer of the Energy Blockchain Laboratory, believes that this has no fundamental impact on the mining industry, but is just an increase in electricity, taxes, land and other costs. In fact, a policy barrier has been established, which is beneficial to large miners.

But just in case, the miners still choose to go to sea.

In addition to tightened regulations, the increase in domestic electricity costs is also a major driving force for going overseas.

Dong Yu concluded that the price was 2.5 to 2.8 cents per kWh last year, but now it is more than 40 cents, and even more expensive places may have reached 60 cents. With the escalation of supervision, the cost of power providers is increasing, and they are unwilling to sell electricity when they are panicked.

Bitmain, which owns two major mining pools, has set up a regional headquarters in Singapore and has carried out mining operations in the United States and Canada. The mining pool ViaBTC has also set up operations in Iceland and the United States. In addition to places with developed hydropower such as Canada, countries in surrounding areas such as Southeast Asia and Central Asia are also popular destinations for mining farms to go overseas. The big mining farm owners that Odaily Planet Daily has contacted are all considering setting up mining farms in Russia, Mongolia, Kyrgyzstan, Japan and other countries.

A Russian "miner" posted a picture of his Bitcoin "mine" online. Source: Global Times

The first advantage of setting up a branch abroad is the low electricity cost. Ren Mingyue, the founder of Kuangshiyun, revealed that when they go abroad, the lowest electricity price is 8 cents, and the monthly salary of a local miner does not exceed RMB 2,000. However, Dong Yu said that although electricity costs may be saved a little abroad, there are still many hidden costs. Hydropower in Canada is cheap, but the costs of logistics, compliance and environmental assessment are very high.

"Electricity in many places is not that reliable. Although electricity is cheap at one or two cents, it has a high environmental cost. The machines have to be specially transported there, and even the shelves for placing the machines have to be imported from China. Unless it is smuggled, it will increase the cost." 70% to 80% of the world's mining machines are produced in China, and logistics and tariffs have become inevitable issues. At present, there are already special service providers who help mines transfer machines abroad. "A machine costs about 80 US dollars, and you don't have to worry about the rest. Just tell the service provider how many machines there are in total, and they will help you with international logistics."

The reason for choosing neighboring countries is that the operation and maintenance and circulation of mining machines are convenient. Mining machines are difficult to sell abroad, and there may not be professional repairers, so they can only be shipped back to China for processing.

The low labor cost may only look good. "No matter where you are, you need people to operate it, and it may not be possible to use local people. Russians don't work at 5 o'clock every day, and they don't work for two months every year. It may be illegal to ask them to work overtime."

Low electricity prices are just a basic requirement. Dong Yu summarized the three major requirements of mining farms for electricity resources:

First, the cost of electricity is low. This is a necessary but not sufficient condition.

Second, the electricity must be stable. The technical facilities for power supply must be sufficient, the number of maintenance and overhauls should not be too many, the duration should not be too long, and the voltage and current should be relatively stable; in fact, this is difficult to achieve, especially for hydropower stations in the southwest, which have a dry season. In the past, there were not many people mining, and they all migrated like migratory birds, but this is obviously unrealistic for large mines.

The third most important thing is safety. For example, no one can disturb us. This is a very profitable business, and the local tyrants cannot come to blackmail us. Others know that you are mining. Each machine has a fan for heat dissipation. The entire factory has fans for ventilation. There are many devices densely arranged, and we cannot attract complaints from residents.

Once the above conditions are not met, a mining accident may occur. Small and medium-sized mines that have moved to Southeast Asia are the victims, and most local mine owners are facing losses. Miner Zhang Han said that the local maintenance hardware costs and downtime losses are three times that of China; in addition, the intermittent supply of electricity and frequent failures of the power grid have caused cost increases and efficiency losses. At the same time, mine owners are also facing "fancy reports" from local people and peers.

Mines in Southeast Asia are often reported in various ways

Therefore, the big mine owners that Odaily Planet Daily has contacted all have certain background support abroad.

"I found someone with a background in Russia through my classmates, who is equivalent to the second generation of officials in China. I found several places in Novosibirsk, and I had to explain all kinds of relationships with the local power supply department and gangs." Dong Yu is still making initial deployments in the mine in Russia, and plans to install more than 100,000 units. "Russia is a bit chaotic, and I feel a little more at ease after buying a gun and putting it in the car. A gun worth more than 2,000 yuan, plus 1,000 yuan, can be sold to people without a gun license..."

Ren Mingyue said that they have direct contact with the Minister of Energy in Kyrgyzstan and have obtained qualifications in electricity and land. This is the first country where they have obtained full licenses. They plan to land 150,000 kilowatts in the local area (Antminer S9 power consumption is 1.3KW). "The mine is located abroad, and safety is our first consideration, followed by electricity. The local standard for us is national-level armed security."

Of course, retail investors never have such an option, as the costs and funds required to go overseas are out of reach.

3. A Feast for Crows: New Currencies Become Opportunities for Newcomers

Under the pressure of big funds, mainstream currencies such as Bitcoin have almost no chance for new miners.

Paradoxically, in 2017, when the classic Internet people turned against the blockchain and advocated the blockchain bubble, blockchain suddenly became a well-known word. Even those who knew nothing about it wanted to come in and mine after seeing the crazy price of the currency.

These new miners are real small-time investors. They are just like the old miners 5 or 6 years ago. They bought less than 10 or dozens of graphics card mining machines to mine at home. San Jin, an old mining veteran, was even a little surprised: "I thought no one mined like this now." The difference is that most of them do not have the faith in Bitcoin that they did back then; in the final analysis, they are profit-seeking, and they mine whichever coin has the highest return. Most of these people sell coins regularly. According to one retail investor, "I make so little money every month, and I have to pay off my loans, so I can't hold on to my coins."

High yield: new currencies with small market cap and high volatility

They can’t afford to mine Bitcoin, and the stable fluctuations can’t stimulate small investors. However, the second stage of blockchain development has given them new opportunities. In the previous stage, various forked coins appeared, and many people made money from mining. Now, all public chains are talking about the dream of becoming blockchain 3.0, and the speed of new currencies emerging makes forked coins feel helpless. These new currencies require less computing power, and graphics card mining machines can still mine them. They also have large fluctuations and high returns.

Xicheng, who is from Hebei, is an employee of a state-owned enterprise in Beijing. He has a stable job but a meager income. He feels that the pressure of survival is great and has always wanted to find a way to make money. In 2016, he came into contact with blockchain. At first, he just speculated in coins, but felt that "speculating in coins is relatively risky, so he started mining."

This perception is probably a myth among the new investors. He ignored his family's objections and spent 120,000 yuan to buy six graphics card mining machines and placed them in his hometown in Hebei.

At the beginning, he "mined in a fool-proof way" and mined Ethereum and Zcash. "After a long time, I met technical experts who would teach me how to mine higher-yielding coins. The coins I mined also changed accordingly."

XDAG is a small currency that has been sought after by small miners recently. The XDAG browser shows that the current network computing power has reached 110TH/s. This is a currency with a circulation market value of only 100 million yuan. It was launched in January this year and is only available on a few exchanges such as BBX, VB, Bifei, and Firefox. It uses the DAG+POW consensus mechanism, claims to have high TPS, and supports mining. The main network has been launched with a TPS of about 2,000. At the same time, the public chain claims that there is no project party, no ICO, no private placement, and no pre-mining.

XDAG price trend Source: AICoin

If we calculate based on the current difficulty and electricity price of 0.5 cents, 6 1070 graphics card machines can mine about 70 XDAGs per day, with a market price of 0.7 cents, and a daily income of 50 yuan. If there are more machines, the monthly income can be 10,000-20,000 yuan. This doesn't sound much, but if you imagine that you do nothing and a bunch of mining machines are printing money every day, you may feel like you are making money without doing anything.

Xicheng hated himself for choosing the wrong industry. Now he does not have enough knowledge to choose currencies and can only follow those who know the industry. "I met some people who wrote their own pools (mining pools) and found that technology is the primary productive force." When a new currency comes out, some people will write a mining pool pre-mining, waiting to make a fortune after the currency is listed on the exchange.

Of course, there are quite a few cases where the price falls below the issue price, and the initial cost is wasted. "Mainstream coins are fine, but most of the small coins are just gambling." Xicheng now seems to have seen through the transactions he has made. "Everyone in this circle knows this. It's enough to bet on one coin a year."

"This industry, to put it bluntly, is a gambler's industry." Just like a gambler cannot guarantee that he will win every round, when asked about the income from mining, no new miner can give you a fixed number, everything is related to the price of the currency. "This year's market, if you can get your investment back in half a year, it's already very good. Last year in April and May was the craziest time for Ethereum, and it paid back in 40 days."

The equally crowded new currency mining industry

Mainstream currencies are pursued by big capital, while new currencies are bet upon by small players.

Xicheng's "fool-proof coin mining" and technical experts may give you a glimpse of this scene - with the emergence of new currencies, miners, mining pools, and mining machine manufacturers are overwhelmed and flipping through the currency brands.

A mining industry chain has emerged, which is an industry chain targeting novices.

Even if you don’t understand the principles of mining machines, the mechanisms of tokens, or basic system installation, you can still mine.

Meiying Technology is a company that specializes in serving novice miners. CTO Kong Chan said: "We are just helping novice miners with little technical skills to mine other altcoins." They have developed a set of super fool-proof software that supports more than ten currencies. After the user accesses the software, he selects the mining pool and currency in the graphical interface, and the graphics card parameters will be automatically adjusted. Meiying takes 10% of the daily income as service fee, and settles it daily.

Meiying Technology provides one-stop service, with dedicated customer service and technical support throughout the process. As mentioned above, it doesn’t matter if you don’t even know how to install the software after buying the mining machine. Kong Chan explained, “Of course, our income after the draw is still much higher than that of Ethereum, and we also settle RMB every day, so they don’t have to go through the trouble of selling coins themselves.”

The threshold for such services is not high, but the founder Meiying does not seem to care too much, after all, there are always novice miners. He lives in Jiangmen, like a young man from a small town who is content with a small business. He is good at "low threshold and fast money". At present, he plans to make some money and live a simple life. "If one day the country does not allow us to do it, we will go bankrupt."

In addition to novice services, mining pools have also become a battleground for new currencies.

Shi Ke is one of the "mining pool experts" mentioned by Xicheng. However, he was quite surprised to hear this "title". "The mining pool codes are all open source, there is no threshold."

A mining pool is like an alliance, which brings together these scattered mining machines to mine together and distributes profits to miners according to their computing power ratio. This can not only increase the probability of mining coins, but also stabilize the income of miners.

Shi Ke is a programmer at an Internet company. In February this year, he and his friends created an XDAG mining pool, Fat Pool. Fat Pool once occupied 70% of the computing power of the entire network. Entering the market early gave them a first-mover advantage, but also experienced early twists and turns. In early May, the XDAG network was attacked by DDos, causing the entire network to shut down. "We lost communication with foreign networks. The fund asked several mining pools to shut down their mining pools first, and we shut down ours. As a result, several of them were not contacted. They were mining frantically and became the longest chain. Our miners had to roll back, and we had to chase them. If I had known earlier, I would not have shut down, and now I would be the longest chain." Shi Ke looked regretful.

New currencies bring countless opportunities. Some people are content with the status quo, while others dream of betting on the next Bitcoin. It is a pity that things are different now. The cryptocurrency world is no longer the idealistic and little-known world of the past.

Sentiment is out and speculation is in.

Miners in the past would persist for their beliefs, but today’s miners switch at any time, aiming for profit, and don’t care what they are mining at all.

As one of the two most profitable links in the industry chain (exchanges and mining), the mining industry is highly anticipated and the competition is unprecedentedly fierce.

There are more and more companies similar to Meiying Technology. Another software called Wuyoubit that Odaily Planet Daily came into contact with specifically supports mining XDAG and does not charge a commission. However, the former is a "customized tour" and the latter is "Ctrip". In the field of mining pools, XDAG has even been targeted by the earliest mining pool in China, F2Pool, and has been listed in the innovation zone of F2Pool. Shi Ke said, "When we first entered, there were no more than 10 in the world, and now there are 41." With the entry of large companies, the upward channel for newcomers is becoming narrower and narrower.

There are many newcomers to new currencies, and "rights protection" is probably the only way

Maybe you are curious, since the returns of new currencies are so high, why don’t large mines mine them?

It’s simple: they can’t mine. Small miners have lost their ability to mine Bitcoin, and large mining farms can’t join the mining of new currencies with super high returns.

The reason why traditional funds can come in to mine Bitcoin today is because the Bitcoin market is finally large enough to accommodate funds of this scale.

The world's largest mining pool, BTC.com, currently has about 640,000 connected devices, accounting for about one-third of the total Bitcoin network computing power. Based on this calculation, there are about 2 million mining machines in the world mining Bitcoin.

BTC three-day computing power distribution chart Source: BTC.com

Looking at the growth of computing power in the future, you will find that the "surge" in computing power in 2013 is just a smooth line.

Bitcoin computing power growth Source: bitcoin.com

With this kind of computing power, even if 100,000 machines are added instantly, it will not have much impact on the computing power of Bitcoin across the entire network. The new currency is like the early Bitcoin. If this amount of funds comes in, you can "play" this currency and you can also play it to death.

"Your trading volume is only a little bit, how can I cut it?" Dong Yu, the owner of the big miner, sighed. It is a greedy decision of human nature; the same is true for large miners to not mine small coins. Small coins cannot carry the computing power of large mines at all. Imagine that as soon as they come in, they will increase the difficulty of the entire network and completely explode the computing power of the entire network. If they do not mine the entire network, the holding of the currency will be completely centralized, and there will be no opponents on the exchange. The currency will be almost dead; more likely, the network is paralyzed, and the mine owner's machine may be stopped. "It is difficult for us to turn around. We cut a little bit, but the profit cannot be paid; once it is unstable, it may be stopped in half an hour."

According to this logic, the recent Antminer B3 rights protection incident seems to have become natural.

Small coins with extremely volatility are exclusive games for small scattered ones.

This means that qualified investors are all in low-risk currencies such as Bitcoin and Ethereum; new currencies are all small scattered. In the eyes of the old people in the currency circle and the big miners I interviewed, the latter are all "unqualified investors."

To talk about losses, investors who pre-purchase mining machines and missed tickets five years ago were seriously losing money. Many investors lost the opportunity cost of thousands of bitcoins because of mining machines and missed tickets, but they thought they were unlucky. "At least our mentality is that I made this decision, and I transferred the money. No one grabbed you by force." Pangzi got the first batch of mining machines when he admitted the overlord terms. "In the past, no matter what kind of coin price, everyone was prepared, but I feel that the people who invest in mining machines now did not expect that the coin price would fall in the future."

"As soon as wealthy overnight brought too many new leeks, they were completely unwilling to do their homework." Sun Xiaoxiao, who has been in the mining industry for 6 years, said that these things actually happened in the early days, but early miners at least did some homework. They understood that once ASIC mining machines appear and miners increase, the difficulty will inevitably increase in a short period of time. "The most precious thing about mining is time. Now many people don't understand these things and do not consider the price of currency falling, and the difficulty will increase."

There is no business in this world that only makes money but not lose money. But this is probably the special thing about Chinese leeks. The profits are not enough, so we can make up for it by protecting our rights.

Perhaps this is the only way for China's digital currency financial market to grow. Large institutional investors have come in, and there are also niches.

(In the article, Dongyu, Xicheng, Phantom, Kongchan, and Shike are all pseudonyms)