Cost, market battle: a text to understand the true truth of the mining circle

After the development of the past ten years, the main body involved in mining has changed from a dispersed miner to a mining pool with concentrated decentralized power. The unit that constitutes the industry ecology has also been enriched from miners to mining machine manufacturers, chip manufacturers, mining machine custody institutions, etc. The evolution of individuals to organizations and the refinement of the industry's ecology mean that the mining industry is maturing.

A round of bull market has made a profit for the mining industry enterprises in the upstream of the industry. When the market turns sharply, the mining companies are the first to bear the brunt. From the barbaric growth to the dangerous organic, what is the picture of the mining industry? During the 2019 Global Blockchain ( Hangzhou ) Summit Forum, PANews interviewed the CEO of BTC.com, a large mining pool accounting for about 19% of Bitcoin's total network computing power. He revealed that BTC.com also plans to enter the PoS mining pool business. Currently, we are working on some hosting cooperation. In the interview, he also revealed the past, present and future of mining development from the perspective of industry participants.

You can make money by booting, "cost advantage" determines business life

In 2018, three mining machine manufacturers, Yibang International, Jianan Zhizhi and Bitian, successively went to Hong Kong to submit their prospectus. Although they have all been discounted, it can be seen from the disclosed prospectus that mining machine manufacturers are the mining upstream enterprises in the past. In a round of bull market, the income was quite high. Only in the first half of 2018, the revenue of a bit of mainland China reached 743 million US dollars.

The solemn admits, "The cost of early mining is still relatively low. Basically, it can definitely earn money (money)." He believes that this stable situation may be related to the size of the industry. Users who invest in cryptocurrency are directly involved in digging. There are not many people involved in mine or mining related activities, and the current industry is still relatively small. In addition to the peak of the bull market, the foam of the mining machine is relatively small. This is equivalent to the fact that while the cake is getting bigger, the people who eat the cake have not grown on a large scale, so those who eat the cake will naturally get more cakes.

Therefore, in the past, mining basically did not need to consider the cost issue, or that there is no need to carefully consider the cost issue. In a bull market that can make money at startup, small pools with little computing power can survive. But when the market turned from bull to bear, barbaric growth was unsustainable, and the contradiction between cost and profit began to become sharp.

Photo courtesy Bitcoin Mine BTC.com

"At the end of last year, there were indeed many mining machines that were approaching the shutdown price. Even some mines with relatively high electricity costs were unable to make ends meet." Faced with the sharp decline in the price of coins, many miners began to actively save themselves by using unofficial versions of down-clocking firmware. Extend the life of the mining machine.

There is actually a "cost advantage theory" here. Solemnly believes that there is a balance between computing power and currency price. "After part of the mining machine, the mining difficulty is reduced and the income is increased. So as long as your mining cost is ahead of other users, you can dig it all the time." In other words, in other words, regardless of the bull market or the bear market, as long as the miners' own shutdown time is later than the competitors, they can always get the benefits. From this perspective, the cost determines the length of life of the mining business.

In the three-year industry cycle, the lag risk of market regulation is inevitable

According to PANews data news column PAData earlier in the "4 minutes short video to understand the mining law, the flood season is "heart-saving pills"? According to the statistics in the article, in the past ten years, Bitcoin's mining industry has presented a three-year periodicity, consisting of a main profit period of about 1 year and an adjustment period of about 2 years.

The main profit period refers to the period during which the growth rate of the calculation power is less than the growth rate of the currency price, and the mining can obtain excess profits. Otherwise, the mining profit decline is an adjustment period. From January 2010 to June 2011, from May 2013 to December 2013, and from January 2017 to December 2017, it is the three main profit periods in the past ten years. It will enter the latest one in January 2018. The adjustment period of the round.

As an insider, Zhuangzhong believes that “the surface mining industry does have such a cyclical law, but the formation mechanism behind it is very complicated.” This complexity is largely due to the fact that the market regulation of freely competitive markets is often obvious. Hysteresis, and the cause of this lag is diversified.

First, the uncertainty of chip development and the periodicity of chip and miner production will affect the lag of market regulation. "The development cycle of the chip is very uncertain, especially in the climbing stage of some new technologies, it is easy to see that the development is not smooth, or the cost of developing new products is not as good as the old products (causing to be abandoned). Even if the development is smooth, there are There may be cases where the chip production capacity is insufficient or the mining machine capacity is insufficient." Based on this, solemn judgment, the manufacturer may see a lag of half a year from seeing the market price rise to the completion of the mine production increase feedback. By the same token, the capacity and R&D adjustments brought about by falling prices will also lag behind for some time.

This kind of lag is also reflected in the mining pool. According to the solemn observation, “From last year everyone saw this opportunity (the price of the currency rise) began to do the mining pool, and the small mining pool really appeared, there will be about two to three in the middle. The time deviation of the month, of course, also includes the delay in the disappearance of the small ore pool after the calculation of the power loss."

The lag of market regulation is a problem that any industry operating in a free market economy will face, but the current mining industry is not mature enough to effectively prevent lag risks.

For example, the recent wave of rally, the mining machine manufacturers did not expect, so did not expand production capacity in advance. The miners did not expect it, so there was not a large number of miners deployed before the flood season. The lag of market regulation may cause resource mismatch. Since the decline in the currency price has hindered the emergence of new computing power in the market, when the currency price recovers, the new computing power is too late to enter the market. This is the actual period of the current flood season. The reason that the computing capacity of the computing power is less than the hosting ability of the hosting party. As a large mining pool, faced with the lag risk of market regulation, Zhuangzhong also admitted that BTC.com can do as much as possible to contact customers, understand the demand, on the other hand to ensure the stability of technology and control business costs.

Mainstream mining competition is fierce, large-scale pool scale effect has been highlighted

Mining is a highly competitive industry with a relatively frequent share. Although the dominance of the head pool is relatively stable, the head position is also alternating. On the other hand, there are more players entering the market to get a piece of cake, but in fact only a small number of mines can eat excess profits. It should be said that the scale effect of the mining pool has been highlighted.

The scale effect of the mine pool referred to here is actually a Matthew effect of a positive cycle. The large mining pool gathers more computing power in the market, and has a natural advantage in the block. Even in the case of simultaneous competition, the large mining pool is more likely to be in the conflict block because of the high computing power. Out of the competition in the block. Therefore, in the long run, the lone block rate of the large mining pool will be lower, and the rate that can be given to the user will also decrease. This large pool can attract more users, gather more computing power, get more lucrative revenue, and then have better resources to invest in the business, such as increasing deployment nodes to improve the broadcasting efficiency of the block. and many more.

Zhuang Zhong believes that "the large mining pool has formed a relatively large scale effect in some currencies, which is not very obvious in Bitcoin, but in some currencies with relatively short intervals, the effect is quite obvious."

However, at present, the scale effect of large mining pools cannot form differentiated competition between mining pools. The reason is that the currency that can be mined is limited.

"In fact, there is not much room for everyone to choose. There are many currencies that are difficult for the mining pool to be profitable because some currencies have a high market value, but the value of newly generated tokens is not high every day." These currencies, solemnly further explained, "assuming you have a 20% market share and a rate of 3%, then your actual income is only a few thousandth of the newly generated token value of this token every day. The market value ranks a dozen. In the future currency, the amount newly generated every day may be tens of thousands of yuan, or an order of magnitude of several hundred thousand yuan."

Therefore, the mainstream currency mining business in the market capitalization is inevitably the “land of the military” in the major mining pools, because it is equivalent to being eliminated or defeated.

Expand the scope of business, plan to enter the PoS mining

Faced with the fierce competition in the mainstream currency of the PoW currency, it seems logical that the mine intends to enter the PoS mining and expand its business scope. Zhuangzhong revealed to PANews that BTC.com also plans to enter the PoS mining pool business and is currently cooperating with some hosting cooperation.

Recently, the concept of “PoS mining” has been heated up, but in fact, there is no miner in the PoS consensus mechanism, but the node bears the responsibility equivalent to the miner. “PoS mining” is analogous to “PoW mining”. "A concept that extends." Why can the two be analogous? The reason is that, to a certain extent, the essence of the two is the same. They all gather some form of computing power to reach a consensus. PoW gathers tangible computing power, and PoS gathers intangible computing power. It is expressed as the interest of the token held by the user.

Photo courtesy Bitcoin Mine BTC.com

At present, the proportion of PoS currency in the whole market can not be ignored, and the governance mechanism of some currencies naturally combines PoW and PoS, like Dash and DCR, which itself has both mining parts and can be saved. To get the proceeds, PoW mining pools to PoS mining itself are also users' demand for mining products.

But this does not mean that the advantages of the PoW mining business can be copied to the PoS mining, which is two completely different subdivisions. The ecology of PoW is open. For the PoW mine, as long as the coin can be dug, it can be done. However, mining in PoS is usually closed, the ecological status of the mining pool is different, and the entrance to the computing power becomes the exchange and wallet. The mining pool needs special attention to maintain the relationship with the project party and the community, or more straightforward. It is said that in the PoS mining, the will of the project party itself has a relatively important position.

The mining pool business has a dependence, and “mining + financial products” is the development direction.

At present, the business model of PoW mining is mainly to realize the cryptocurrency obtained by mining, so the whole industry is greatly affected by the secondary trading market. But solemnly optimistic about the future expansion of PoW mining in the business model.

In the view of solemnity, the business of the mining pool is currently less differentiated, and each mining pool has a certain degree of business dependence, not a 100% independent business. For example, the mining pools such as BTC.com and Antool have certain dependence on the mining machine manufacturers. The fire currency mining pool, OKEx and ViaBTC mining pools are the businesses of the exchange. For the latter, the business model that is easy to develop is to introduce the platform currency of the exchange. For other mine pools, in addition to the competition in the rate, it may actively cooperate with some financial products in the future.

"In essence, we hope to be able to go beyond the mining pool business itself, help users to connect more upstream and downstream resources, and solve more problems." Zhuangzhong believes that this is also what every mining pool may want to do now.