Dialogue with the Minerals Club Yu Yang: The Rules, Opportunities and Trap of Bitcoin Mining


In the past six months, Bitcoin (BTC) has doubled from the bottom, and the whole network has reached a record high. The summer flood season is approaching and the mining industry chain is fully warming up. Bitcoin mining, a controversial industry, attracts many industry chain participants such as miners, mining pools, and power equipment manufacturers to play in many factors such as policy, currency price, and precipitation. Recently, Guosheng Securities Block Chain Research Institute (hereinafter referred to as “Guosheng Blockchain”) visited a number of professionals in the Bitcoin mining industry chain and organized the “Nuggets Flood Season: Mining Dynamic Tracking” campaign. Issue relevant reports to connect capital markets with emerging industries and tap the value of investment. The following is a dialogue record between the Guosheng Blockchain and the COO Yuyang.

1. About the Minerals Association

Guosheng Blockchain: When did you enter this circle?

Yu Yang: It is very early to understand Bitcoin. From the forums that I went to in 2010, some people started to pay attention to it. When the Bitcoin white paper was released, I still didn't recognize the deflationary currency concept defined by this total amount. I started to enter the market in the second half of 2016. At that time, there was a blackmail virus incident, and then I started to really read the white paper. For the first time, I felt that its technology is still It's great, but still disagrees about whether Bitcoin is a currency. However, I recognize that Bitcoin is a general equivalent and I think its value is comparable to gold.

Guosheng Blockchain: When will the Minerals Sea be established? What is its nature?

Yu Yang: Established in mid-2018, it is a miner, a mine owner, and a mining pool community. Guosheng Blockchain: What was the original intention of the establishment of the Minerals Association? Yu Yang: Avoid everyone stepping on the thunder, because in 2017 and 2018, the miners and mine owners of the big and small have stepped on a lot of thunder, such as electricity is not in compliance, it is pitted by power plants, and it is not reliable when it is managed. When pits and mine machines were bought, they were badly trafficked. For example, electricity, price increases today or tomorrow, or directly power off. Many of these, for example, the mine's custody agreement usually writes for 48 hours a month to power off, but generally does not deliberately lose power, there is no need to power off, this practice is to reserve some margin for coping Some accidents. However, in the bull market, the bad mine owner will force a power outage for 48 hours. In fact, it is the calculation power of the miner mining.

In the past, the circle was small, and these negative effects were still not obvious. As the scale expanded, some industry's drawbacks began to be exposed. The main reason was that everyone's information was opaque, that is, the pit that one stepped on. Others continued to step on, and the liar was very arrogant. In addition, local governments at various levels have different policies on blockchain, and some are still not very friendly. Later, we set up such a head organization. Everyone exchanged information about the industry and shared resources.

Our initial thought was to promote the openness, transparency and sharing of information. Later, we began to promote the entire mining compliance.

2. About Bitcoin mining industry chain

(1) About the industry overview and overseas mining

Guosheng Blockchain: How much can China account for global computing power?

Yu Yang: It should be about 60% now, less than before. If the country rushes out, the industry will not die, but if the country rushes out, China will have no big advantage. Because the calculation power can promote the upgrading of mining machine manufacturers, the research and development of various technologies, the cultivation of talents is also very important, and the brain drain, plus the mining machines have gone overseas, the mining machine manufacturers naturally go overseas is also the most suitable, to In the end, the country is completely completely gone. Guosheng blockchain: mining or making money, right? Yu Yang: It can't be said that mining makes money. It has one of the most obvious benefits. There is a problem in the traditional industry. That is, everyone is in the traditional industry. It is difficult for Party B to be difficult. The problem of accounts receivable is difficult. solved. The other is that interpersonal relationships are difficult to deal with. There has never been an industry like a mine. You pay for it on time every month. If you go mining, you will pay for it at eight o'clock every day. This is very comfortable. The industry is very risky and has high volatility, but everyone who enters the industry does not regret it, because they feel that the industry is more dignified and does not need to deal with people, especially if some people have social barriers, maybe business. It’s not good, but if he does this industry, he doesn’t have to deal with complicated interpersonal relationships . This money comes directly. At 8 o'clock every morning, how many coins you dig the day before, the next day you follow this score. I will not say that I will give you money after one month or six months. Guosheng Blockchain: Which countries are developing overseas in the blockchain industry?

Yu Yang: Africa, Middle East, Central Asia, Southeast Asia, North America, South America, Northern Europe, Western Europe, Eastern Europe. These areas have low electricity costs, such as Africa and the Middle East, but the risks are also high, including policy risks and business environment. There are risks, and the scale is not up, so we don't have to touch them. In addition, in Malaysia, the source of electricity is mostly stealing electricity, and the risk is high. North American construction and operating costs are high, and in a market with a relatively mature legal environment, the cost will be relatively high.

Guosheng Blockchain: Like Central Asia, how about the mining environment in overseas?

Yu Yang: At present, there are several countries in the world that really prohibit mining. Iran, Venezuela and North Korea generally support other overseas countries because they hope to use this to drive investment. But at the same time, there are a lot of pits overseas, and I accidentally stepped on the pit, and tens of millions or even hundreds of millions of dollars. Big mine owners can't say that they must make money.

Relatively backward areas pay more attention to what physical investment brings to the local. What they need is to develop entities. Like China in the 1970s, what facilities are backward. For example, in the case that there is no profit in China's domestic ton of steel, in the middle of Central Asia, the electric arc furnace melting iron technology that has been eliminated by domestic small steel mills can also have a profit of one thousand dollars. This is hard to imagine. Their infrastructure is very scarce and they are basically dependent on imports. We promote the change of the whole world by developing the mining industry in the local area, introducing other entities to invest, and promoting the development of the local economy and employment.

Because of the lack of US dollar foreign exchange, the legal currency of some small and weak countries cannot be exchanged smoothly, which limits the investor's interest in investing in the entity. However, simply using bitcoin exchange, there is also the problem that the foreign exchanger needs to digest the local legal currency, but the industry The logic of mining, based on the global circulation of Bitcoin, we can not only repatriate investment profits to the country without consuming the dollar foreign exchange in the country where the mining is located, but also increase the dollar foreign exchange in the country where the mining is located, and also develop The local economy has created a win-win situation.

(2) About mining machines and mining machine manufacturers

Guosheng blockchain: In the cost of mining, is the electricity cost the most critical?

Yu Yang: Low electricity bill is actually a defense. It is only in the bear market. The high power consumption is higher than the cost of the mining machine. The electricity price is more important, but in the bull market, the price of the currency is far away. Far more than the electricity bill, it is not important at all.

Guosheng Blockchain: There are rumors in the market that the chips developed by Bitland are better than Huawei's Hess.

Yu Yang: Right. In the mainstream market, some real powers have been blocked by the patents of Western powers. You can't look for more efficient implementation ideas. When you switch from another place, they will do it. Better. We can only achieve the overtaking of the curve after having mature experience.

Guosheng Blockchain: The development of this industry has indeed played a greater role in the chip industry, and has trained a number of private chip manufacturers.

Yu Yang: Nowadays, people generally have misunderstandings about virtual currency and mining industry. We are willing to tell these misunderstandings and hope that we can more objectively recognize this industry in the future.

Guosheng blockchain: How to solve the problem of transparency when the mining machine is managed?

Yu Yang: Now it is through the software to check the status of the access platform mining machine, plus camera monitoring.

Guosheng Blockchain: The price of the currency is in a state of decline in 2018, which will cause the miners to shut down. At the same time, the power adjustment is close to the historical high, but it is completely out of sync with the bitcoin price, and the individual feels that the adjustment is relatively shallow and restored. It’s very fast, what is the reason?

Yu Yang: First, when the flood season is over, the computing power will rise. Second, the machine with great computing power will gradually come out. Third, many machines have not been eliminated, but flow to the value of the land, that is, the place where the electricity price is lower. .

Guosheng blockchain: After the currency price is low, is it cheaper to mine, and mining is also a loss?

Yu Yang: Look at the machine. In the case of S9, the net income per day was one or two dollars. I saw the value calculated by the website. I remember that it was a short period of time. One month or half a month was a loss. In other cases, it was positive. On the other hand, the mining revenue is affected by the electricity price and is affected by the difficulty. When the difficulty reaches the start and does not make money, some people will choose to shut down. The other part will choose to keep the boot, and the shutdown will avoid the loss, but some people who are booting It is not necessarily a loss, because there are more coins. Some people in the mature financial circle came to build mines to mine, and some mine owners on the Wall Street background began to hedge in January 2018.

Guosheng blockchain: The market is not good in 2018, mainly using second-hand mining machines to dig?

Yu Yang: I will buy it, I will buy S9, because I don’t know when the bear market will end. At that time, the investment return of S9 is better. The return cycle is shorter and cheaper. At that time, it is about seven or eight hundred, and the lowest time is six hundred. More, the return is very fast. Still others are buying others to change hands at low prices.

Guosheng Blockchain: In 2017, the mining machine that everyone bought at a high price was still using it two years later. The price of the coin fell, and the speed of the mining machine was not so fast. Have you experienced a bear market, has the competition pattern of entrepreneurship changed?

Yu Yang: Some small supports can't be washed away, and some big ones are washed away, because the bigger the scale, the greater the risk. In fact, the medium is the most comfortable. Just like the scale of the calculation power just mentioned, it is not that you count as much as possible. On the contrary, it is the most comfortable at a certain scale, because the renewal process is more in line with the natural scale.

Guosheng Blockchain: What is the current mining machine with a high market share?

Yu Yang: The mainstream mining machine is still S9, about two or three million units. There is no accurate number. It can only be reversed by the calculation difficulty of the whole network. There are some offline equipment, so it can only be speculated. Other mining machines can be neglected. If the whole network computing power is pushed according to S9, S9 is calculated according to 13.5T, and now 52E hash/s, there are more than two million units pushed down.

Guosheng blockchain: When will the ant S9 generation be completely replaced?

Yu Yang: There are about 550 billion yuan in the market. How many years will it take to replace the funds that need to be entered? I think at least three or four years, this may be said to be less.

Guosheng Blockchain: What are the main domestic manufacturers of mining machines?

Yu Yang: Bit Continental, a single big, accounting for more than sixty-seven percent, and then there is a part of Shenma, a little bit of core. Bit Continental, Core Dynamics, and Shenma are all designing their own chips, but if you compare the amount of orders, it is definitely better than Bit China. Bitcoin has a first-mover advantage in it. It has its own system. At the beginning, the Bitland is very chaotic, and the whole line is not clear. It is particularly confusing, but now it is clear that the streamlined streamlined Optimization is optimized and positioning is clear. In the second half of 2018, I said that Bitcoin died, and the bear market will end. As a result, layoffs began in October. Now the Bitland has become clearer and the staff is relatively streamlined and in good condition. The Jank Group has been working on the mining machine, and it has returned to its main business, producing and selling mining machines.

Guosheng Blockchain: When the bull market was in 2017, the mining machines were all ordered after three months. What is the market now?

Yu Yang: It is still three months later, it depends on who receives the goods early. Ordering from Bitcoin, there is no way to get a face brush, everyone is still shopping with the double eleven, and grab it on the official website.

Guosheng blockchain: Is the current mining machine good to sell?

Yu Yang: I have to look at what machine to buy, and divide it by the manufacturer. If it is a normal machine, many people will sell it to you, but the hot machine is not good to buy, non-hot is good to buy. There are also some discount machines on sale, noisy machines. But prices are currently rising.

Guosheng blockchain: Is there any overseas to buy a machine?

Yu Yang: Iran has come a lot, and there are Russians. Mainly to go to Huaqiang North SEG. Nowadays, distributors who really take money to buy new goods in the world are mainly Tiantian, Guihua, Fuxin, and others are mainly used.

(3) About miners and hedging

Guosheng blockchain: friends who engage in mining machines and mines, do you have more coins in the secondary market?

Yu Yang: There are not many old miners. The old miners are mainly based on coins, but the new miners have some speculative coins. Many of them are overseas funds. I know that there are many mines and mining machines on Wall Street. They will generate sources. Constantly, for them, there is a big advantage in operating in the secondary market.

Guosheng Blockchain: According to your understanding, is there a mining in the traditional financial circle?

Yu Yang: In fact, fund mining is the most appropriate. In terms of process, it can be invoiced all the time. The whole process is legal and legal, but it is very difficult to speculate, because the account of the speculative coin is a personal account. In 2018, a lot of funds were mined.

Guosheng Blockchain: How do you view the relationship between POW, POS and miners?

Yu Yang: First, no matter how you make POW, everyone will get the same cost for Bitcoin. It will not be like POS. There is a suspicion that the pioneer will cut the leeks. Second, POW is the safest because it is not a technical issue and an economic issue. Because the calculation is more than 51%, the risk is very high, and it requires a long-term, large-scale investment, which is costly. In fact, a few percent of the computing power is the most comfortable, and the return on investment is optimal.

POS is a natural MLM model. Every currency holder wants to let more people hold the currency and never raise the price of the coin. The POW is a natural anti-MLM. The pow miners hope to mine as little as possible. The proportion of their own computing power to the total network computing power is high.

Guosheng Blockchain: How do you view Bitcoin's lightning network expansion method?

Yu Yang: Personally think that the logic of BSV is in line with the white paper. It puts all the benefits to the real miners. The operations are also on the underlying operation, and the profit right of this part of the package is owned by the miners. The price of BTC is high. Everyone is not willing to take the BTC network. Whether it is the current BTC lightning network or the BCH secondary agreement, the income is on the second floor. It has nothing to do with the miners, so the miners are not interested.

The large block is beneficial to the miners to a certain extent. It is conducive to trading. When the time is over 21 million, the miners can only rely on the transaction fee. The miners will rely on the handling fee of the large block in the future.

Prepare to use more computing power to support BSV. All are SHA256, cut directly on the mine pool.

Guosheng Blockchain: How is the frequency of miners selling coins?

Yu Yang: You must pay the electricity bill every month, and sell at least once a month. Or you are optimistic about the high point of the past two months, and you will come out for two or three months.

Guosheng Blockchain: Is the decline in the price of coins related to the miners' cash?

Yu Yang: First, the miners are generally off-site, because its volume is relatively large, it does not have much impact on the market. Second, the miners' time for paying electricity is not the same. Some people sell coins earlier and some people are late, so the decline in the price of coins is not much related to the miners' cash.

Guosheng blockchain: How to do the insurance?

Yu Yang: Hedging (hereinafter referred to as “hedging”) is a relatively mature financial method in traditional financial markets. If you use futures hedging, you can create an opposite empty order in the coin cycle to hedge the current income. In addition, there is also an option to hedge by means of an option. The advantage of option hedging is to offset the losses caused by the extreme market through a lower fee.

Guosheng blockchain: In fact, the mining machine is similar to the call option. The hedge can cope with the decline in the price of the currency. But when the price of the coin falls a lot, then considering the cost of electricity, mining will be a loss?

Yu Yang: There are several misunderstandings here.

First of all, mining is the lowest cost way to get Bitcoin, no one (the lowest point to buy Bitcoin is very difficult for many people, and if the amount of funds is too large, it is difficult to low point The market receives a large amount of coins, while paying too much attention to the secondary market, it is difficult to keep enough calm to execute the trading strategy, it is easy to cause the coins obtained at low prices to be sold in a relatively low market.)

Second, when the price of the currency falls and the difficulty is reduced, the number of coins won by each machine will increase, and the remaining machines will benefit more. From 2017 to 2018 as a whole, only November 2018 is a loss (s9), many miners lose their margins and no longer start. But at other times, you still earn money when you turn it on.

Third, when in the early stage of the downtrend, if the hedging strategy is adopted, it is equivalent to selling the coins at a high level during the entire policy execution period, and there is no case that the money cannot be turned on.

Guosheng Blockchain: Do small mine owners also go for a set of insurance?

Yu Yang: Actually, I think this is something that every miner should learn. Some old miners have a real coin-based thinking. They prefer to reduce the legal currency, but also increase the digital currency. They are not willing to sell. Through the hedging, the low position can be avoided. Time was forced to realize too much digital currency.

There are also some new miners who are thinking about the legal currency. Everything is based on the value of the legal currency. Through the hedging, many uncontrollable risks can be reduced, so the new miners will really do the hedging. Some financial teams have done a good job, and the form of hedging is also very diverse. There are many ways to use futures for hedging and options, and there are many professional teams to provide professional services.

Guosheng Blockchain: What other value is the computing power?

Yu Yang: The white paper said that to promote the competition of miners, the overall computing power has a benign upward cycle. By updating the low-power mining machine, the overall computing power will increase. The high-power consumption that has been eliminated has flowed to low-priced regions such as Iran. Iran should have more than 300,000 mining machines, mainly m3, t9+ and e9+.

In addition, we are still pushing the logic of computing power to let companies motivate employees, which is better than the combination of corporate options and stocks. Computational power will become a more effective reward for future companies, and will greatly encourage core employees.

First of all, the calculation power is essentially the dividend right. The generated bitcoin is the dividend income. If it is applied to the team option reward, it will be very direct. Every 8 o'clock every morning, the mines will settle the income of the previous day and distribute it directly to the personal account. It's not like the option is for the poetry and the future of the future, but there is no wine and rice in front of you.

Compared with stocks, the calculation power is very light. A big problem for traditional startups is how to deal with the departure of core team members. How is the equity structure designed? The calculation solves this problem. When the core member leaves the job, he only needs to cut his calculation power, which not only recognizes the labor contribution of the core team, but also avoids the equity fluctuation caused by the departure of the core team.

(4) About the relationship between the mine and the government

Guosheng Blockchain: At present, are these stable calculations in our country still maintained by large mine owners?

Yu Yang: No, it is actually quite scattered. Because some large mine owners can't output so much power, the cost is too high.

Guosheng blockchain: The mine can support a small hydropower station, bring them income, and also create a fiscal revenue for the local government. If the government “eats the card,” it is not conducive to attracting resources for a long time.

Yu Yang: On the one hand, our country has not yet defined what kind of business behavior as mining. It is unclear whether it is legal or illegal, because this field is too far-fetched, and how to collect taxes on the value created in this field. The country has not yet issued relevant policy documents. If there is no tax entry, it means that the mine has no way to pay taxes to the local government. The mine only pays the electricity bill. But if you think of it as big data or cloud computing, there is a tax. Mine owners can also provide 6% value-added service invoices to managed mines.

On the other hand, many mines, such as hydropower mines, are suitable for establishing in remote areas because of the low cost of water and electricity in remote areas. Where we develop industries, we can increase consumption, promote local GDP development, and drive local poverty alleviation. Other physical industries may not be suitable for investment in such remote areas because there are more links to be needed, but our industry is naturally suitable for remote areas.

In most domestic governments, the perception of this industry is quite obvious, and many local governments actually have a vague understanding of blockchain bitcoin. Some local governments think this is MLM. However, these governments have not really realized that the development of the mining machinery industry can drive the rapid development of China's chip manufacturing. We have already contacted many chip teams. They have bypassed the traditional x86 and ARM to design unique ASIC chips or FPGA chips. Because traditional x86 and ARM chips have been monopolized by Intel and other large companies for many years, they can only It is through other ways, the niche market is looking for the possibility of overtaking in a corner. Therefore, we believe that if the country wants to bend the overtaking chip industry, it should encourage the development of this industry.

Guosheng Blockchain: Does the big mine owner have problems with the local government?

Yu Yang: Yes. Because this industry is affected by the policy, then the government has not yet thought of the deeper things in this industry. I am flying to Central Asia tomorrow to promote this thing, which is what really makes Bitcoin worthwhile. We are going to do industrial mining and can play the role of exporting excess capacity in China like the “Belt and Road” initiative. After our output, there was a problem. The local government is less likely to accept the renminbi because people have their own legal currency, especially in places where the dollar is strong. Everyone thinks that foreign exchange reserves should be dominated by the US dollar. Therefore, at present, our country's investment in foreign countries is invested in infrastructure. After the completion of the infrastructure, domestic people can invest excess capacity overseas. However, the private economy is profit-oriented, and its overseas risks are higher than domestic ones, earning less than domestic ones. These private manufacturers certainly cannot go overseas easily. Therefore, how to make domestic enterprises go overseas is a key point.

In fact, there are many opportunities overseas. In the developing countries where we go, the return on the real industry is very high. From several times to ten times the rate of return, this opportunity has not been found in China. Then, after arriving overseas, the US dollar reserves of these developing countries are not much more earned by us, and they cannot be exchanged for US dollars. What should we do? It is through the overseas investment of infrastructure by the government, the traditional industrial and commercial chambers of commerce to invest in entities, we support the establishment of mines, use local profitable French currency to pay electricity bills, the local legal currency is legally and legally converted into bitcoin, because Bitcoin is circulating and recognized worldwide. Enterprises can be exchanged for US dollars and RMB in legal compliance.

Guosheng blockchain: It is to spare a bit through the mine. However, I feel that the foreign exchange channel has not really opened up, because we handed them Bitcoin, how do they use Bitcoin to exchange the local legal currency, this process still needs cooperation and compliance issues.

Yu Yang: Bitcoin is exchanged for US dollars. This is compliant throughout the world. As long as there is no problem with bank certification, the money is clean and there is no problem. But why do you want to hold bitcoin? Because in this investment mining industry, this way can ensure that my investment can come back. Going back to the private enterprise, holding Bitcoin will allow him to switch back to the renminbi.

Guosheng Blockchain: This is equivalent to everyone's lack of understanding of the digital currency. The worry is directly digested by the mine. Those outside the contact are entity-to-entity, and have nothing to do with the digital currency. .

Yu Yang: Yes, this gives play to the true international value of Bitcoin, which avoids the dollar system. Bitcoin investment in the entity is equivalent to equity investment. When the bitcoin is bought, the value of the currency itself is higher after the price is raised, so that the currency required for the entity to operate is less, and the whole transaction is more convenient. It's smoother, and that's what we do now. More importantly, this is a down-to-earth direction in which we can really promote the expansion of the “Belt and Road” overseas. After this road goes smoothly, it can provide a better reference experience for the country's RMB digitization and internationalization.

Guosheng blockchain: Bitcoin, a virtual currency, seems to be more invisible. From this point of view, the use of transactions may be more worrying to traders.

Yu Yang: I know that many old-school people are rejecting this, but overseas commodity trading has begun to use bitcoin to pay. Its trade friction is very low and the deal is very fast. Unlike the original oil, the price is good, and you need to find a suitable bank to open an account for capital verification. Now Bitcoin is just a matter of seeing that your account has money.

Guosheng Blockchain: Is there any local government that particularly welcomes the development of this industry and provides a better platform?

Yu Yang: I haven't met it yet, but I have it overseas. Domestically, I think the Zhejiang government's perception of this is very high. The development of the blockchain in Hangzhou is also very good, but now we are still going overseas. Although there are risks overseas, it does not mean that there is no risk in the country. Some time ago, a local government in Xinjiang said that there was no electricity, and all the local mines were closed.

Guosheng Blockchain: Do you know that the vacancy rate of mines in Sichuan is high now?

Yu Yang: Some new mines in Sichuan have high vacancy rates. Nowadays, there are more Xinfeng water mines this year. And this year the water is coming too late.

Guosheng blockchain: What is the reason for the high vacancy rate during the wet season?

Yu Yang: The machine is not enough. During the period from last year to this year, many machines have flowed to Iran and Central Asia. So many machines were originally in China last year, and now they are no longer in China. This year's bear market capacity is not high, mining machine manufacturers do not dare to place orders easily, the manufacturer's chips from tape production to finished products, it takes about half a year, so in this case, manufacturers do not dare to gamble easily after six months. Quotes, mass production must be lagging behind, so there are very few machines on the market today. Under the bear market, everyone is afraid to buy a new machine, and the cost of trial and error is higher.

(5) About the mining pool

Guosheng Blockchain: How does the mine pool work?

Yu Yang: The mining pool is equivalent to a large CPU super power cluster, which is a full account node. The mining machine connected to the mining pool below is the light node saved, and the mining pool is the main node packing data. Force, connected together, form a large CPU, the coins that are dug are allocated according to a certain mode. For example, the FPPS mode is allocated according to the contribution size.

Guosheng blockchain: For example, I am in a coffee shop, want to access the mining pool, is it demanding high network conditions?

Yu Yang: Not high, 4G can be, because it is not a full node.

3. About the status quo and the market outlook
Guosheng Blockchain: Do you think this situation is a bull market? Yu Yang: I think the bull market is a bit early, we have all been prepared for three years, and this time we will get up in half a year. There are many factors in the black swan. Guosheng Blockchain: How to treat the late currency price? Yu Yang: Long-term optimism, it is difficult to predict in the short term. Long-term optimism is because more and more people accept, the number of bitcoins is getting smaller and smaller, and the number of users is gradually increasing. Source: Ji Shi Communication