What happened to Bitcoin mining machines as they dropped from 140,000 to 10,000 in three months?

On May 4, a mining machine stall in SEG Electronics Market posted an advertisement for mining machine hosting. After the mining machine profit declined, some merchants chose to speculate in cryptocurrencies and hosting to expand their income.

From 140,000 to 10,000, what happened to Bitcoin mining machines?

When the mining machine business in Huaqiangbei was the hottest, people were still trying to get one for 100,000 yuan. After the price dropped, some merchants opened mining farms to "save themselves", and supervision was difficult.

Shenzhen Huaqiangbei, a pedestrian street more than 10 meters wide and more than 200 meters long, is home to more than a dozen electronics markets, and is known as the "No. 1 Electronics Street in China." Walking into the SEG Electronics Market, the stalls that originally sold computers now put "iron boxes" of various models in the most conspicuous position on the counter. From time to time, you can also see some blond-haired, blue-eyed Russians and dark-skinned South Americans - all of them are here to buy mining machines.

The "iron box" is a popular product in Huaqiangbei at present - a virtual currency mining machine. It is called a mining machine, but it is not as big as an excavator. Instead, it is a machine similar to a smaller version of a computer host. After being connected to the power supply and debugged, the machine can calculate day and night through the built-in chip, and then obtain a certain amount of virtual currency. The whole process is like "mining".

Cryptocurrency speculation is generally recognized as a speculative behavior. The mining machine business is like a speculation on speculative behavior.

According to statistics, Huaqiangbei is the distribution center for about 90% of the world's mining machines. Various types of mining machines are sent from here to the world. While consuming large amounts of electricity day and night, they create value that may be destroyed at any time.

On December 18, 2017, when the real-time price of Bitcoin reached an all-time peak of $19,442.1, the market price of the Bitcoin mining machine White Card B, which had a shipping price of more than 30,000 yuan, was once hyped up to 130,000 yuan.

However, as the pace of national supervision accelerated, the price of Bitcoin began to fall after climbing to a high point, and the mining machine business also ushered in losses after the prosperity, with profits falling by 90% after three months.

"Magical," merchant He Guowen described this wave of market as "magical." After the craze subsided, some merchants resumed their computer parts business, some opened "mining farms" part-time and used the machines they had lost to mine, and some gave up completely and switched to online car-hailing.

Analysts believe that as Bitcoin's roller coaster market continues, the mining industry is growing, and regulatory pressures are tightening. For individuals, the difficulty and risk of entering this market to seek gold are gradually increasing.

On May 4, digital currency mining machines and Bitcoin models were displayed at a stall in SEG Electronics Market in Huaqiangbei, Shenzhen.

"Abnormal market conditions"

"How much is a 13T Ant S9 mining machine?" "Futures price is 7,300 yuan, and there is no spot stock. This model can mine Bitcoin." Merchant He Guowen came to ask for business.

SEG Electronics Market is home to more than 4,000 shops, more than half of which sell computer-related products, such as accessories, assembly, and repair. When Tianyu Mining, where He Guowen worked, moved into the fourth floor of SEG in early 2017, there was no stall specializing in mining machines on the entire floor.

In the following six months, the price of Bitcoin rose to 20,000 yuan, and more and more mining machine sellers settled in SEG. Some stalls that previously operated computer businesses also quietly changed.

The stalls no longer display computers and monitors, but Bitcoin models and digital currency mining machines. The KT version of the billboards for computer repair and assembly has been moved to the elevator, and the most conspicuous position on the market's load-bearing columns has been replaced with a multi-meter-long giant mining machine advertisement.

The appearance of a mining machine can be large or small. The common appearance is similar to a smaller version of a computer host, with a power input cable or interface on one end and a network interface on the other end. It must also be equipped with one or more large fans.

Its internal structure is slightly complicated, consisting of an integrated circuit board (motherboard), chips, network cards, etc. Its principle is to perform a large number of parallel calculations through graphics cards or chips to adapt to the rules of virtual currency mining.

In the early days, Bitcoin was very easy to mine. It could be done with an ordinary computer CPU. You only needed to download software to automatically "solve the problem." As the price of the currency rose, more and more people wanted to "solve the problem," the problems became more and more difficult, and the equipment required became more and more "professional."

The mainstream mining machines in the current market are Ant S9, Ant T9, White Card B, L3, D3 and other models. Among them, Ant S9 and Ant T9 are mainly used to mine Bitcoin, L3 mines Litecoin, D3 mines Dash, and White Card B can mine Bitcoin and other digital currencies.

"The mining machines last year were a bit abnormal." He Guowen commented on the mining machine market at the end of 2017. "When the White Card B mining machine came out, the official website price was only more than 30,000 yuan, but the market had already driven the price up to more than 130,000 yuan, and there were still a lot of people buying it." He Guowen said.

The same machine was sold for 140,000 yuan by Li Zijian, the owner of another stall during that period. "At that time, the price of the currency rose to more than 100,000 yuan, and the daily income of a mining machine was more than 5,000 yuan. We got the first mining machine and ran it for one night, and earned more than 2,000 yuan," said Li Zijian.

At the craziest moment, some people even wondered how business could be so good.

Huang Yuhao of Xingjia Mining recalled that buying mining machines at that time was a matter of snatching. "The net profit of a mining machine was several thousand yuan, and some could reach 10,000 or 20,000 yuan. The machine arrived in the morning, and there was no need to leave the office. Once it was posted in the miner group, the machine was gone in the afternoon. Moreover, the minimum order of the machine was 50 or 100 units, and the mining machine would be sent to whoever paid first."

Simply selling goods can no longer satisfy this sense of making money. Therefore, the game of selling futures mining machines has emerged. That is, paying a part of the deposit, buying the mining machine 10 days later. However, with the sharp fluctuations in prices, many people "lose all their money if they are not careful."

"At that time, the price of the Ant S9 mining machine was 11,000 yuan. Later, the price rose to 25,000 yuan when it arrived. As a result, our supplier stopped supplying the goods, and the customers forced us to supply them. We compensated the customers more than 2,000 yuan per unit based on the order quantity, and the total loss was hundreds of thousands of yuan," said Li Zijian.

There was a merchant in the industry who received a deposit of 300 million yuan from a customer, but ended up not placing an order with the customer, hoping to make more money when the price went down. However, when the delivery time came, the price of the mining machine went up instead, and the merchant ran away with the money and has not been found to this day.

Supervision has not kept up, and incidents of running away and default have made the mining machine market even more chaotic. Many people feel the crisis behind the madness for the first time.

The price of a mining machine worth 140,000 yuan fell below 10,000 yuan in three months

The huge profits did not last long after all, and the sharp drop a few months later was equally "heart-stirring".

On December 18, 2017, the real-time price of Bitcoin reached an all-time peak of $19,442.1, and then the price began to fall.

On January 2, 2018, the Leading Group of the Internet Finance Risk Special Rectification Office issued a document requiring local governments to guide enterprises under their jurisdiction to orderly withdraw from the "mining" business and report work progress on a regular basis.

According to the notification document, the Internet Finance Regulation Office requires local regulation offices to fill in relevant information about the "mining" companies within their jurisdiction. Specifically, it includes basic information about the company such as the number of mining machines and power consumption, operating income, tax payment and other revenue information, as well as preferential conditions such as electricity prices and site rental conditions, and environmental protection and security inspection conditions. The document shows that based on the investigation, local regulation offices need to comprehensively adopt measures such as electricity prices, land, taxation and environmental protection to "guide relevant companies to exit in an orderly manner" and report the basic situation of the "mining" companies under their jurisdiction and the guidance of exit before January 10.

Over the next 20 days, Bitcoin’s $200 billion market value quietly evaporated, and the mining machine business also declined.

"The White Card B mining machine that sold for 140,000 yuan in December last year, as the price of coins plummeted and the difficulty of mining increased, saw its daily income drop from 5,000 yuan to a few hundred yuan two months later, and the price of the mining machine also fell to tens of thousands of yuan. A month later, the price dropped to less than 10,000 yuan," said He Guowen.

Other types of mining machines have also dropped in price. According to reports, at the end of January, the price of A3 mining machines began to fall, and could drop by 1,000 to 2,000 yuan a day. In April, the price of B3 mining machines also dropped from 17,000 to 11,000 yuan.

In less than three months, mining machines have become a hot potato. “As long as we keep the stocks in stock, we will lose money,” said a shop owner.

The merchants doing futures trading were the most affected. One merchant said that his client bought futures of A3 mining machines at a price of more than 40,000 yuan at the end of January. After receiving the mining machine in early February, the price on the official website fell to more than 7,000 yuan.

Under such circumstances, some trustworthy customers had no choice but to accept the goods with great reluctance, while others who had only paid a deposit, when they saw the price drop so much that their losses exceeded their deposit, finally ran away without even paying the deposit. "Sometimes, after paying the deposit in the morning, the customer disappeared in the evening," said He Guowen.

Other merchants who hoarded machines also became "leeks".

Merchant Huang Yuhao told reporters that in March this year, a stall stockpiled more than 2,000 mining machines. As a result, the price of mining machines dropped directly from more than 6,000 yuan to more than 3,000 yuan, resulting in a loss of 3,000 yuan per machine, and a total loss of five to six million yuan.

The risk is too great, and mining machine merchants are "changing careers"

When the mining machine business was difficult to do, cryptocurrency speculation and custody became the way for operators to save themselves. Now in SEG, more than half of the mining machine stalls also run mining machine custody business, and some even put up "custody" advertisements in front of the counter.

The so-called mining machine hosting means that after the customer purchases a mining machine, if he is unable to mine by himself due to various reasons, he entrusts the mining machine to a professional mining farm to manage the mining. The customer needs to pay electricity and management fees.

“The price of mining machines dropped in April and they were too cheap to sell, so I hired some people to open a mining farm and do the mining myself,” said merchant Mr. Hu.

Currently, he controls four mining farms, some of which are opened in partnership with others, while others are purely engaged in mining machine hosting business.

"Our mining farm with more than 8,000 slots is almost full, and all of them are managed mining machines," said Mr. Hu. The mining farm charges 0.5 yuan per kWh of electricity for external management, and the management fee for each machine is 1 yuan per day. In this way, the management fee alone can earn 8,000 yuan a day.

Generally speaking, the mined bitcoins are circulated throughout the entire network through virtual currency exchanges registered abroad. Of course, it is not ruled out that some miners "hoard coins" and wait for the right time to sell them.

Why are there still mining farms even though the Leading Group of the Internet Finance Risk Rectification Office has called for the orderly exit of mining-related companies?

An industry insider said that currently domestic mines are mainly concentrated in remote areas with rich electricity resources such as Sichuan, Inner Mongolia, Xinjiang and Gansu. There are also some small mines that are relatively hidden and difficult to identify from the outside.

Xiao Lei, a digital currency analyst and director of the 500 Gold Research Institute, believes that although the country "cleared out" industries such as "mining" at the beginning of the year, it has not issued an order to ban the mining industry since then, which has allowed industries such as mining to exist to this day. "In fact, mining itself is a high-risk business, but the virtual currency mined is difficult to regulate and may be used for illegal purposes such as money laundering."

Despite this, apart from questions about noise and power consumption, there has been no large-scale negative information about mining. "This has allowed the mining industry to continue in China to a certain extent," said Xiao Lei.

Compared with Mr. Hu’s mining business, some small businesses seem to be more “Buddhist”.

"Nowadays, when things are good, I can make 100 or 200 yuan from one machine, but most of the time, I can only make a few dozen yuan from one machine," said merchant Mr. Lin. "No matter what, it's better to make some money than to lose money."

"Last year, we heard that the mining machine business was doing well, so we also put some mining machines on the shelves, but we didn't have enough funds to operate too many, and we didn't make much money. Now we mainly rely on the old business to maintain it." A merchant selling computer accessories on the fifth floor said. The tenant of her neighboring shop did not renew the lease after the lease expired last year, and switched to become an online taxi driver. "The mining machine business is too risky and not as easy as imagined."

Domestic transactions of virtual currencies are banned, but mining machine manufacturers are going public

Faced with price fluctuations of mining machines, some mining machine manufacturers have adopted the method of issuing coupons to major customers as compensation.

Take Bitmain, one of the world's three largest mining machine manufacturers, for example. Currently, Bitmain's mining machines are sold in limited quantities on the official website, and whoever grabs them can buy them. Some people who are not well-informed missed the official website sale and can only buy them at a high price in the market. But now everyone knows that if you buy on the official website, there is limited room for market speculation.

In fact, many mining machines on the market are currently priced lower than the official website price. Because the price of mining machines dropped so much a few months ago, mining machine manufacturers will return coupons to customers who bought mining machines at high prices after the price drop.

These coupons will be used to deduct part of the price when you buy a machine next time. For example, a mining machine worth 4,200 yuan will be worth 3,600 yuan after using a 600 yuan coupon. After getting it, you can sell it in the market for 3,800 yuan and still make 200 yuan.

For customers who don’t have a lot of coupons, they can only get discounts by placing large orders on the official website. In this case, the profit is meager and they can only rely on volume.

Bitmain staff confirmed the claim of mining machine discounts, saying that direct sales on the official website is the only channel for its mining machine sales, and "if the purchase of mining machines reaches a certain quantity, the price will be automatically adjusted when placing an order on the official website, and a discount will be given."

In addition, the product pricing of its Antminer is affected by many factors such as market conditions, mining difficulty and competitive environment. "We will carefully consider each price adjustment and issue reasonable compensation based on actual conditions," the staff member said.

In addition to Bitmain, the world's largest mining machine manufacturers include Canaan Creative and Ebang Technology. According to data, these three mining machine manufacturers account for more than 90% of the global market share.

On September 4, 2017, the People's Bank of China, the Cyberspace Administration of China, the Ministry of Industry and Information Technology and other seven departments officially stopped virtual currency ICO financing, stating that no organization or individual may illegally engage in token issuance and financing activities, and defining ICO as illegal financing. Since then, digital currency exchanges closely related to ICO have also received a ban, and major digital currency trading platforms have been closed or moved to overseas markets.

Although the trading of digital currencies such as Bitcoin has been banned, the manufacturers of mining machines that produce digital currencies such as Bitcoin have been in a regulatory vacuum.

On the afternoon of May 9, Canaan Creative, China's second largest Bitcoin mining machine manufacturer, announced that it was planning to go public in Hong Kong. Relevant sources revealed that if the listing is successful, Canaan Creative will become the first blockchain-related listed company on the Hong Kong Stock Exchange.

Previously, in an exclusive interview with the media, Jihan Wu, co-founder of Bitmain, another mining machine manufacturer, revealed that Bitmain's revenue in 2017 was approximately US$2.5 billion (approximately RMB 15.8 billion).

On May 4, at SEG Electronics Market in Huaqiangbei, Shenzhen, some foreign customers were inquiring about the prices of mining machines.

Waiting to speculate in the next bull market

The magical virtual currency is connected to the real world through mining machines. On one side, the virtual currency is experiencing a surge and plunge in the bull and bear markets, creating a speculative myth; on the other side, the stalls and markets operating mining machines are still eager to try and speculate.

On May 2, when the reporter arrived at SEG Electronics Market for the first time, two newly opened mining stalls had just been renovated and were particularly eye-catching among the old stalls.

Zhou Guangfu, born in the 1990s, is the boss of one of the mining companies, Bull Mining. Although there is no time to put mining machine samples on the table, Zhou Guangfu is already busy on his mobile phone. He often posts various mining machine information in his circle of friends and occasionally receives some consultation calls.

In his opinion, there is no so-called "mining accident". "I used to work on mining machines, and now I am making some money, not losing money. There are still opportunities." As he spoke, he posted another wave of advertisements in his circle of friends.

"In the past two years, the market trend of digital currency has been falling in the first half and rising in the second half. These newly opened mining machine shops are waiting for the opportunity of the next bull market," said He Guowen.

Not only are the stall owners waiting for opportunities in the mining machine business, but even the market investment department is also waiting for the next opportunity for mining machines.

On the ceiling next to the elevator on the fourth floor of SEG, there is still a billboard that reads "Mining machine shops are now available for rent." Rows of original grid shops are being renovated into door partitions next to it. "Door partitions are more suitable for the mining machine business, they look classy, ​​and of course the rent is higher," said Li Jianping, a staff member of the investment promotion department of SEG Electronics Market.

He told the Beijing News that there are more than 50 mining machine shops in SEG Electronics Market, and about 10 new mining machine shops were newly opened in the week from the end of April to the beginning of May. "Most of the newly added mining machine shops after the renovation have been rented out," said Li Jianping.

Talking about the previous document on "orderly exit" from mining, the staff of SEG's marketing department believes that this has little to do with the sale of mining machines. First, the country has not explicitly banned mining, and second, operating a mining machine is just a commodity, which is "not the same concept" as trading digital currency.

Analysts believe that compared with the ups and downs of the cryptocurrency market and the unknown time for the application of blockchain technology, Bitcoin "mining" is more like a business that already has a mature chain. However, as Bitcoin has experienced a roller coaster market, the mining army has become increasingly large, and the regulatory wind has tightened, for individuals, the difficulty and risk of entering this market to seek gold are gradually increasing.

Written and photographed by Beijing News reporter Liu Jingfeng