Bitcoin mining is suffering from a bear market crisis. After experiencing the madness of the Bitcoin price skyrocketing in the fourth quarter of 2017, the Bitcoin price continued to fall from the beginning of 2018, and the entire Bitcoin mining industry entered a freezing period. In March 2018 alone, the Bitcoin price fell from over $10,000 to under $7,000.
If the price of bitcoin falls below $8,600, large mining farms will face the risk of losing money, the world-renowned investment bank Morgan Stanley predicted in an April 2018 research report. As long as the price of Bitcoin stays around $5,000, it will not lose money. The breakeven points for large mining farms and retail miners are $8,600 and $10,200, respectively - the price of bitcoin has fallen below these two thresholds in March.
The Bitcoin mining industry has formed a complete upstream and downstream industry chain, consisting of mining machine manufacturers, multi-level sellers, mining pools and miners. Mining machine manufacturers are at the core, and all other links are building business models around mining machine manufacturers.
The three core elements that determine whether Bitcoin mining is profitable are currency price, computing power and electricity costs. When the price of Bitcoin irreversibly enters a downward channel, computing power and electricity costs become the factors that affect the survival of mining farms. Whoever has an overwhelming advantage in the competition of computing power and electricity bills is more likely to survive the cold winter and make a lot of money when the next bull market arrives.
From the birth of Bitcoin in 2009 to the present, the computing power of the entire network has increased by 30 billion times. The surge in computing power has caused the mining revenue of a single machine to nearly halve every two months. How to compete with the computing power of the entire network to mine more bitcoins is a key arena in this death game.
If the price of the currency and the price of the machine both fall, the price of electricity becomes the core factor for profit and loss. A difference of 1 cent to 2 cents in the electricity price can even directly affect the survival of the mine.
In addition to market volatility, Bitcoin mining is also facing another severe winter. On January 2, 2018, the Internet Financial Risk Special Rectification Working Group issued a document, requiring local rectification offices to comprehensively take measures such as electricity prices, land, taxation and environmental protection to guide enterprises within their jurisdictions to withdraw from the "mining" industry in an orderly manner.
crazy miner
The price of Bitcoin has continued to rise since September 2017, and with it the madness of the miner market. A Xinjiang mine owner bought a batch of mining machines for 10,000 yuan in July 2017, and the old machines that had been in operation for half a year were bought for nearly 30,000 yuan in December. The profit from selling the mining machine this time is close to the profit he earned from mining coins in half a year.
The dominant mining machine in global digital currency mining is ASIC mining machine. Bitmain occupies 70%-80% of the ASIC mining machine market share, and the revenue in 2017 was about 2.5 billion US dollars. Bitmain not only sells mining machines, but also has its own mining pools and farms, but more than 95% of its revenue comes from the sales of mining machines.
Although Bitmain claims to only openly sell mining machines from the official website, due to the limited production capacity of mining machines, the market is in short supply, and multi-level mining machine distributors have emerged. The fluctuation of the price of miners starts from the first-tier dealers. The first-level mining sellers get the mining machines from the manufacturers and quote according to the currency price every day, and each subsequent level of dealers will increase the price by 100-300 yuan in turn.
Shenzhen Huaqiangbei is one of the places where miner distributors gather. Customers who come to buy mining machines come from many countries around the world, including Russia, Serbia and other countries in addition to China. These countries have relatively cheap electricity bills and Bitcoin mining is prosperous. Mining machine sellers here often have warehouses in Shenzhen and Hong Kong. Shenzhen ships to domestic customers, and Hong Kong ships to overseas customers.
On January 17, 2018, Bitmain announced the limited sale of the A3 mining machine. The ex-factory price was set at 20,800 yuan, and 6,000 units were sold at home and abroad, and they were all sold out within an hour. Due to the shortage of supply, the price of the A3 mining machine in Huaqiangbei, Shenzhen at the end of January was fired up to a high price of 45,000 yuan.
However, as the price of Bitcoin has been declining, the price of A3 mining machines has also plunged since January 26, and it can drop by 1,000-2,000 yuan in one day. Some customers purchased the A3 mining machine at a high price of 45,000 yuan at the end of January, and got the mining machine in early February. Three days after getting the mining machine, the price of the A3 mining machine on Bitmain’s official website dropped to more than 7,000 yuan.
Affected by the fall in the price of Bitcoin, mining farms have also massively reduced the number of working miners. A mine owner with 50,000 mining machines in Xinjiang told the Caijing reporter that he is cutting down 90 mining machines at a rate of 100 mining machines, and has now reduced 50,000 mining machines to about 15,000. , and continues.
"The price of the currency changes every day, and it is useless to calculate the profit of mining on a daily basis. To put it bluntly, it is to gamble with money." The miner said.
Computing power dilemma
“Demand for mining machines has grown exponentially, but capacity has not increased exponentially.”
From 2017 to 2018, the price of Bitcoin has experienced two jumps of 4-5 times, and the price of mining machines has also jumped twice. But a closer look at the two phases reveals that Bitcoin has a very different magnitude of impact on the price of miners.
The first jump, the price of Bitcoin rose from $1,000 in February 2017 to $5,000 in October, and the price of miners rose from 8,000 yuan to 10,000 yuan, an increase of 25%. In the second jump, the price of Bitcoin rose from $5,000 in October 2017 to $19,000, and the price of miners rose from 10,000 to 30,000, an increase of up to 200%.
Bitcoin is a competitive game based on computing power. As a bitcoin miner, if you want to mine more bitcoins, it means that your mining machine needs to compete with the computing power of the entire network. Bitcoin based on blockchain technology has unique calculation rules: on average, a block is mined every 10 minutes, and each block contains more than 12.5 bitcoins. In order to maintain the block rate, Bitcoin increases the computational difficulty approximately every 13 days.
From the birth of Bitcoin in 2009 to the present, the computing power of the entire network has increased by 30 billion times. There are more than 2 million mining machines in dozens of mining pools around the world to conduct Bitcoin mining. The more computing power of the entire network, the less the income of a single mining machine. The total output of Bitcoin mining on the entire network is 1800BTC per day. The actual mining output will be more, about 2000BTC to 2200BTC.
The relationship between Bitcoin price and difficulty
Your mining machine computing power accounts for a fraction of the total computing power of the entire network, which means that you will receive a corresponding proportion of mining revenue in the output of more than 2,000 BTC. In the past year, the computing power of the entire Bitcoin network will increase by 8% on average every 12 days. At the beginning of 2017, the computing power of the entire network was 5EH/S. At the beginning of 2018, it increased by 5 times to 25EH/S, which is equivalent to 4 times more mining machine competition. The computing power of the Bitmain S9 mining machine is 13.5TH/S, and now about 1000 mining machines can mine 1 bitcoin.
Not only Bitcoin, but other digital currency miners are also facing the dilemma of skyrocketing computing power and sharp decline in mining revenue. An Ethereum miner basically takes 9-10 months to make a return. The surge in computing power will make the payback time drag on for more than a year.
Smart people invent "mining pools" - programs that combine distributed individual computing power to work together. After connecting to the mining pool, the computing power of you and others will be aggregated to become one-tenth or more of the entire network, which gives the mining pool the opportunity to obtain more mining revenue through the advantage of computing power. After the mining pool charges a 3%-5% fee, the profits are distributed to the miners.
In May 2011, Eligius, the world's first Bitcoin mining pool, was established. 2012 was called "the first year of mining pools", when the computing power of all mining pools accounted for 50% of the global total computing power.
In order to attract more miners to join the aggregate computing power, the mining pool will design a more generous reward mechanism. "If the mining pool can hold the incremental computing power, it will rise very quickly," said Zhu Li, co-founder of the Poolin Pool. He once co-founded BTC.COM. Launched in September 2016, BTC.COM is Bitmain's internal mining pool entrepreneurial project. Due to grasping the bull market dividend of the Bitcoin market in 2017, BTC.COM has become the world's number one mining pool from the top ten in 2016 to the end of 2017.
As Chinese miners grow in the world, Chinese mining pools are also rising. Considering the problem of network speed, miners will choose their own mining pools first, so mining pools and miners are one. According to real-time data from BTC.COM, in April 2018, the top ten mining pools in the world, Chinese mining pools, occupied eight seats, and held 75% of the computing power of the entire Bitcoin network. Among them, Bitmain’s two mining pools, BTC.COM and Ant Pool, firmly occupy the first and second positions.
The mining pool solves the problem of insufficient computing power of a single mining machine, but it also raises people's concerns - in theory, as long as someone can master 51% of the computing power of the entire network, they can launch a "51% attack" and control the entire Bitcoin network . At present, BTC.COM, the number one mining pool, has occupied more than 30% of the computing power of the entire network.
How to check and balance the power of mining pools has also become the next problem for Bitcoin mining.
power game
"The mining machine is worthless, and it will be cheaper than anyone's electricity bill."
Electricity price and machine price are the two core costs of Bitcoin mining. When the price of the currency and the price of the machine both fell, the price of electricity became the key to profit and loss. A difference of 1 cent to 2 cents in the electricity price can even directly affect the survival of the mine.
When individual miners are mining, the infrastructure is often substandard. A miner told reporters that he had set up more than 100 mining machines in rural Henan without even connecting the ground wire. In the beginning, when there were only 20-30 mining machines, the machines ran stably, but after increasing to 100 mining machines, many mining machines often crashed due to the increase of static electricity. He came up with a soil method to remove static electricity: dig a hole in the yard, buy a discarded triangle iron and throw it into the hole, and pour a dozen packs of salt into the hole.
Since there is no other power supply method, he can only use the mains electricity for mining, which is 0.76 yuan per hour. The total electricity cost of all mining machines in a month is more than 80,000 yuan. The mining income is 50 ETH, calculated at the current ETH4200 yuan. , the monthly income is 210,000 yuan, and the profit after deducting electricity costs is 130,000 yuan. At the same time, the total cost of purchasing the mining machine is about 1 million yuan, which means that it will take nearly a year to recover the cost. And the computing power continues to decline, and his return time will be longer - this does not include the risk of currency price decline.
"The income curve of a mining machine is continuously declining. When the income curve is equal to the electricity bill, it will reach the critical point of shutdown. Generally, the mining machine is sold in about half a year, the cost will be paid back in half a year, and it will be shut down in a year and a half. Only when your electricity bill is It is very cheap, so I can keep the mining machine on all the time." Zhu Li said.
Desperate for low electricity bills and professional infrastructure, the Bitcoin mining industry has gradually developed from individual miners to large-scale mining farms. "The mine has special requirements: the noise is as high as 100 decibels, and it is not suitable for the mining machine to be placed in the city. At the same time, the electricity bill should not be too high, and various facilities such as voltage stabilizers should be equipped. Retail investors cannot come to work, only factories are suitable for mining. " said a Xinjiang mine owner.
mine scene
The mine is divided into two modes : self-owned and managed . Since the self-owned model requires a large backlog of costs to invest in mining machines in the early stage, most mining farms currently adopt the hosting model - hosting mining machines for customers. The mining revenue belongs to the customer, and the mining farm only charges part of the management fee.
The cost of hosting the mine is 1,000 yuan per seat. If a small and medium-sized mine with 10,000 machines can save some costs, it also needs to invest seven or eight million yuan. However, the benefits of mine hosting are also considerable. Generally, mining farms will charge customers a service fee of about 200 yuan a month. If all 10,000 seats are filled, the cost can be recovered in about half a year.
When Bitcoin enters a bear market, whose electricity bill is cheaper also determines whether the mining farm can survive the cold winter.
A mining pool founder revealed that the current mining electricity consumption is divided into two levels: the normal industrial power supply is 0.6 yuan-0.7 yuan/kWh, but the electricity cost of many mines is only 0.3 yuan-0.4 yuan/kWh. There are many kinds of low-cost power sources, some of which are informal. For example, no network fee has been paid in a certain link, and some areas do not have state power. If you open a mine yourself, you need to talk to a unit that has the qualification to sell electricity. For example, Xinjiang has Corps, Inner Mongolia has the power grid of Mongolia and West. "No one wants electricity in these places anyway, so we can negotiate a better price. It's mainly thermal power, but also wind power."
In order to find cheap electricity, the Bitcoin mining farms have started a large migration of electricity that lasted for several years across the country.
A mine owner who started mining in 2014 told reporters that the first batch of mining people in China gathered in Shenzhen. At that time, Shenzhen electricity was used, and the price was close to 1 yuan/kWh. Many bitcoin miners were Migrant workers who work in Shenzhen have their hometowns in Henan, Anhui and other places. They then brought the mining machines back to their hometowns to start large-scale mining, and the mining gathering places were moved to Pingdingshan, Ma'anshan and other places. In order to reduce electricity bills, many people fiddle with electricity usage when mining, "basically using half and stealing half". After that, Pingdingshan and other places began to strictly control the behavior of electricity theft, and the electricity fee lost its low price advantage, and the miners began to transfer to Sichuan, which has a lot of hydropower.
daily life of miners
Sichuan is rich in hydropower generation, and power supply exceeds demand during wet seasons. Some mines can even directly contract the power supply of a small hydropower station, and the electricity cost can be as low as 0.1 yuan to 0.2 yuan/kWh. However, after entering the autumn and winter seasons, the power supply in Sichuan is unstable, and the mining industry has moved in and introduced fierce competition from power plants, and electricity prices have begun to rise. The corps of mines then moved further from Sichuan to the northwest. At present, many mines have been transferred to Inner Mongolia and Xinjiang, mainly for thermal and wind power generation. At the same time, some more powerful mines have begun to migrate overseas. Canada, Russia, Iceland and other countries with cheap electricity have become the destinations for Chinese mines to migrate.
Cross the bear market
There are cycles in the Bitcoin world - some people who lived through the 2014 Bitcoin bear market tend to make that judgment. At the end of March 2018, Zhao Dong, the operator of one of the largest Bitcoin mining farms in China, believed that the situation of Bitcoin’s sharp rise and fall from November 2017 to now is very similar to Bitcoin’s rise to an all-time high of RMB 8,000 in 2013. stage. A large number of mining machine companies, miners and speculators have lost all their capital in this round of skyrocketing and plummeting. Zhao Dong is also one of them.
“Bitcoin is about a four-year cycle, with the mining halving as the key time point. If we regard 2013 as the summer of Bitcoin, then 2014 is the autumn, and 2015 is the winter. I myself once froze to death. In the winter of 2015." Zhao Dong said. Based on this, he inferred that the halving of Bitcoin in 2016 started a new round of bull market, and by 2017 it will become a big bull market of Bitcoin.
Zhao Dong
In his community sharing, he mentioned that in 2014, he had a total loss of nearly 150 million yuan due to leveraged speculation and the opening of a bitcoin mine. At the most difficult time, he only had 100,000 yuan on him, plus 60 million yuan in debt.
The cruel bear market has also become an opportunity for some people. Currently, Bitmain, which has the largest market share in the global mining machine market, is also a survivor of the "cold winter" of Bitcoin in 2014. At that time, there were dozens of mining machine manufacturers in the market. Most of them closed down due to the broken capital chain when the currency price fell sharply. stand out.
Bitmain mine
Bitmain launched Antminer S3 and S4 in 2014. The sales of S3 mining machines were good, but affected by the market downturn, the sales of S4 mining machines were bleak, and the company suffered a lot. Fortunately, due to better cost control, Bitmain can still support the research and development of a new generation of mining machines during the downturn. In January 2015, Bitmain launched a new generation of Antminer S5. The Antminer S5 has been successful in the market as rivals mostly curtailed research and development due to the bear market. Zhan Ketuan, the co-founder of Bitmain, once said that the company will prepare three years of cash flow for the bear market.
Since April 2018, the price of Bitcoin has begun to show signs of recovery, rising from around $7,000 to over $9,000. Some people in the digital currency industry judge that this is a sign of Bitcoin's return to the bull market, and some people think that the bear market will last for a year or more - different judgments will determine their different fates.
In any case, only those who foresee the cold winter and prepare for it early are more likely to see the next bull market.
Chain Vision, a blockchain entrepreneurial platform integrating media, community, consulting, training, and funds. (Chain Vision ID: lsj_btc)