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Analysis & Opinion

Bitcoin Mining: Current Situations of the Industry and the Miners

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Bitcoin Mining: Current Situations of the Industry and the Miners

Looking at the present stage of Bitcoin Mining the chip giant’s inventory liquidation in bitcoin mining, computing power will remain stable in the second half of the year. Unlike speculators, miners with stable profitability are facing the opportunity to “bottom out.” Bitmain who is the manufacturer of bitcoin mining machines plans to submit its initial public offering application to the Hong Kong stock exchange at the end of August and will complete its listing by the end of 2018, valuing it at $35 billion. Chain DD initially reported on “grabbing the growth potential of AI chips and the battle between the beasts of the mining machinery industry.” Canaan, ebon technology, and Bitmain have entered IPO one after another or are using high valuations to get out of the bear market as soon as possible. Behind this, are the miners entering the bull market? Over the past six months, however, they have been beset by reduced production capacity from mining machinery manufacturers, a plunge in the price of bitcoin, a steady increase in computing power and a volatile domestic regulatory environment.

 

In a bear market, bitcoin mining is the best of business

Mining machinery manufacturers are at the heart of the bitcoin mining industry, with miners, mines and multilevel distributors operating around them, and the whole industry has benefited from bitcoin’s boom. Entering the second half of 2017, bitcoin continued to perform well for a long time and towering above any challenges it faced. It reached $20,000 at the end of December, and no doubt, the continuous rise in currency prices has directly driven the sales of mining machinery. Just like in the case of Canaan, a bitcoin mining machine of about three thousand and five hundred yuan was once heated to two or three thousand yuan. The instantaneous change of currency price directly affects the return cycle of the mining machine, so it also leads to the future business of the mining machine. By 2018, when the cryptocurrency was in a bear market, it was quite hard to hide the “cliff-edge” decline of bitcoin over the past six months. Up to July 31, the price of bitcoin fell below $8,000 again. By the end of June, bitcoin had dropped below $6,000. Therefore, as a result of the dual influence of currency price and computing power, miners often sell cryptocurrency to cover the cost of bitcoin mining, and this explains why the sales volume of cryptocurrency has exceeded that of mining according to cryptocomposite.com.In recent days, miners have sold about $10 million in stocks, less than their daily income, according to Charlie Morris, who is the director of the site’s development team. Although the cryptocurrency market has rebounded recently, bitcoin mining companies’ profit margins have shrunk, and expectedly, forcing some miners to leave the market.

 

The miners are running with scissors under the regulation

What has alarmed the miners was some regulation from the state. On January 2, 2018, the leading group of the Internet financial risk special remediation office issued a document asking local governments to guide their enterprises to exit the “mining” business.According to Caijing, the central bank said that for bitcoin mining, the greatest risk is squeezing the real economy. The ultimate idea of regulation is to want it to disappear, not to regulate it, because there is no need for it to exist.According to an analysis by Cambridge University, China accounts for 71 percent of the world’s virtual currency pools, which are mostly located in Sichuan, Yunnan, Guizhou, Xinjiang and Inner Mongolia with convenient hydropower or wind power, and low power costs are the main reason for the cluster of the miners.

bitcoin mining In a recent online circular from the Xinjiang’s economic and information technology commission (EIS), Xinjiang will clear out bitcoin mining companies with illegal virtual currencies by the end of August.Since last year, as it were, on September 4, the people’s bank of China, the China banking regulatory commission and other seven ministries jointly called ICO have come onboard. This year the country is cracking down on the mining of virtual currencies. Under the attack of their regulation, cost, and market, the miners’ seized with the idea of “putting to sea.”

 

The life force of the computing power game

The PoW mechanism makes bitcoin mining a computing power game, with miners struggling to get more units of computation and more computing power. For instance, in addition to selling mining machines, Bitmain also owns Antpool and BTC.com, accounting for nearly 30% of the global bitcoin network’s computing power.As initially set out by satoshinakamoto, the first block was created in January 2009, with each block awarded 50 bitcoins, then halved production per 210,000 blockchains (about four years), and halved to 25 bitcoins per block in November 2012, and then split to 12.5 bitcoins per new block in July 2016. Based on this consensus, bitcoin mining incentives will be phased out until 2140, when all of the 21 million bitcoins will be released. By then, the miners could only charge a fee for recording the blocks. The cost advantage of the initial offering, combined with the attractive price of bitcoin, has allowed miners to flock in for a short time. As of July 31; the network had mined 17 million bitcoins, with the remaining 4 million, which means that less than 20 percent of the net’s bitcoin was still to be mined. Since the birth of bitcoin in 2009, the total online computing power has increased to 30 billion times.With total limits and increased computational power, miners need to buy more powerful machines, in addition, to concentrate the devices on off-site storage. On July 31, Canaan launched its new Avalon 7nm A9 series of bitcoin mining machines with a computational power of 30T. Assuming that the price of A9 is 5,000 yuan, the electricity fee is 0.5 yuan, the net daily income is 44.21 yuan, and it will take 114 days to return this cycle. Ant S9J takes 242 days, however, during last year’s ideal market environment, bitcoin would take only 60 days to recover. Therefore, the technical iteration of the mining machine is an essential factor to solve the bitcoin mining of miners with low power consumption. In the chip industry, 7nm’s chip production has become the core competence of the semiconductor companies. However, this cycle is only the theoretical days, and the bitcoin quotation, calculation difficulty, and other factors are always changing, so it is difficult to calculate the accurate cycle.

 

“The bull market is about capacity; the bear market is about power,” Lin Nianlong said.

 

For a mining machine, the two core keys are calculating power and power consumption.

Mining machine 1: [calculating power] 13.5t, [power consumption] 1350W, [result] 10G/W per watt.

Main stream miner ii: [calculating power] 12T, [power consumption] 2100W, [result] 5.85g /W per watt.

 

“There’s no Matthew effect on mining,” Lin said. Under the same model, the comparison between one mining machine and ten mining machines is only “1:10”.And that’s why the overall drop in the value of bitcoin corresponding a sustained increase in computational power. Big orders are being whittled down, and computing power remains stable The chip industry is mainly divided into “design, manufacture and test seal” and other major links, and most enterprises cannot afford the high cost of manufacturing chips. Therefore, companies such as Bitmain, Canaan need to buy OEM chips from chip companies such as AMD, TSMC, and Samsung Electronics.

 

But as demand for mining machines wanes, the giants are cutting back on orders for chips.

“Some chip companies received very few orders for the second half of the year in the first half,” Lin said, “indicating that mining machinery makers didn’t ship much in the second half. So over the next few days, the computing power of the entire virtual currency market will not soar, which has nothing to do with the actual price of bitcoin.”

Over the past year <2017.08.01 — 2018.08.01> bitcoin K diagram; Unit: US dollar

The net work force over the past year

According to the analysis of the figures, the real influence on the trend of calculating force is the operation input of the mining machine, in which the virtual currency acts as the catalyst, higher prices will encourage more miners to join. Lin admits that retail investors still account for the majority of the market, but unlike speculators, mining is a business that continues to make money, albeit with a different earnings cycle.  Whoever enters first must be the one who earns the most. But for miners who miss out on early bonuses, it’s an excellent chance to hit bottom.

 

 

 

Ashton Felix is currently a contributing writer for multiple crypto news sites. He got his big break when he mined his first bitcoin back in 2012. He enjoys learning about new technology and travels throughout Asia in his spare time. Ashton immediately fell in love with the culture and people of China. He is currently based out of Shenzhen and is fluent in Mandarin.

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