Bitcoin Mining 2020: Wall Street enters the market, mining centers move abroad

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At the beginning of 2021, Bitcoin has broken through a new high, reaching $32,000, and a number of cryptocurrencies have also launched an impact to the high point.

As a miner at the top of the food chain in the currency circle, what have you experienced in the past year?

In this year, the mining output plummeted from 312 to the halving of mining output, from the DeFi wave to Bitcoin’s new high, from Bitmain infighting to reconciliation and separation… The mining industry is undergoing quiet and dramatic changes.

These changes are geographical. The center of Bitcoin mining is gradually shifting from China to Northern Europe, North America, Central Asia and other places. It is also psychological. The cost of entering the market for new miners is getting higher and higher. The old miners are “waiting for nothing” and are ready to deal with the reefs and vortex of the currency market.

These changes are concrete. The Ant S9 mining machine has gone from a hundred-yuan-level “retired” scrap to its renewed popularity; at the same time, it is also abstract, a huge change in the status of miners from no one cares to everyone.

What is left of the crypto mining circle in 2020? The editor summarizes 5 major changes.

Bitcoin halving: insufficient supply of miners or reasons for Bitcoin growth

On May 12, the Bitcoin block reward dropped from 12.5 BTC to 6.25 BTC. After the halving, Bitcoin’s annual inflation rate fell from 3.7% to 1.8%.

The lack of supply has contributed to the rise of Bitcoin. In order to pay electricity bills or buy new machines, bitcoin miners regularly dump the mined bitcoins on the market. After the halving, output and selling pressure were cut in half, and Bitcoin’s annual inflation rate dropped from 3.7% to 1.8%, lower than most central bank fiat currencies in the world.

At the end of October, after PayPal launched its bitcoin service, its purchases of bitcoin have exceeded 100% of the new supply.

At the same time, institutional funds from the United States are constantly buying bitcoins, raising the price of the currency.

On December 11, the Wall Street Journal reported that MassMutual, one of the top five life insurance companies in the United States, has purchased $100 million worth of Bitcoin through the New York Digital Investment Group (NYDIG) for its general insurance account. .

Another crazy public company is MicroStrategy. Beginning in July this year, MicroStrategy began to buy bitcoins on a large scale. Through several uninterrupted continuous purchases, 40,824 bitcoins were exchanged for US$475 million.

According to statistics from Bitcoin Treasuries, there are currently more than 16 listed companies holding Bitcoin on the market. In addition, the trust company Grayscale Investment bought 350,000 bitcoins in the second half of the year.

In 2020, Bitcoin has tripled and the “halving market” predicted by crypto analysts at the beginning of the year has been fulfilled.

Major Chinese and American companies enter Bitcoin mining

As Bitcoin leads the major cryptocurrencies to take off, crypto mining has become a business coveted by big companies.

On January 4, the Ninth City, a NASDAQ listed company, announced its entry into cryptocurrency mining. “The desired goal is to contribute 8-10% of Bitcoin’s global computing power, 10% of Ethereum’s computing power and 10% of Grin’s computing power.”

The ninth city is an online game operator, which was the sole agent of the operation of “World of Warcraft” in China from 2004 to 2009.

Before the Ninth City, Wall Street Capital had already aggressively entered the Bitcoin mining industry.

In 2020, American mining companies are the largest customers of mining machine manufacturers such as Bitmain. According to incomplete statistics, in 2020, Bitmain and American companies have reached a cooperation of 200,000 S19 mining machines.

According to Bitmain’s official website, on December 18, Bitmain announced the signing of a subscription agreement with North American blockchain custodian Core Scientific. Until September 2021, Bitmain will deliver more than 58,000 S19 series ant mining machines.

In the past 12 months, Core Scientific has purchased 76,024 S19 series ant mining machines, valued at more than US$129 million.

Core Scientific has won cheap electricity in 5 cities in the United States, and the project covers an area of ​​more than 600 acres.

American listed company Riot Blockchain, Inc. has ordered more than 30,000 S19 series mining machines from Bitmain this year.

After purchasing 10,500 S19 Pro Miners in August this year, Marathon, also a listed company, announced in October that it would establish a 105 MW Bitcoin mining data center in a joint venture with Beowulf Energy. In the same month, it signed a new contract with Bitmain and purchased another 10,000. S19 Pro mining machine.

Why are these big companies stepping into Bitcoin mining? In addition to the benefits of Bitcoin mining, its excitement on the stock price may be an important reason for large companies to deploy mining.

Bit Digital’s (NASDAQ:BTBT) share price has risen more than 70 times in the past 12 months.

The financial report for the first three quarters of 2020 disclosed by Bit Digital shows that as of September 30, 2020, the company has operated 22,869 mining machines, of which 16,964 were added in the third quarter, and the cumulative output of bitcoin was 814.23, of which the third quarter Added 739.51 new ones.

On the other hand, after Bitcoin hit a new high of $24,273 on December 20, Bitcoin mining listed companies have risen to varying degrees in US stocks: Marathon rose 24%, Riot rose 10%, Bit Digital rose 12%, and CleanSpark rose 18 %.

In addition to raising the stock price, behind the above-mentioned company’s entry into mining is also the battle of the US consortium for the mining center.

“The United States is rapidly developing into the world’s major bitcoin mining center. The country’s bitcoin mining power and energy account for 14% of the world’s total.” It accounts for about 50% of the world.

One month before the report was released, Fidelity was exposed to participate in a $6.1 million public offering of Canadian mining company Hut.

Earlier this year, the mining company Layer 1, invested by PayPal co-founder Peter Thiel and DCG (Digital Currency Group, the parent company of Grayscale Investment) started operations in Texas and will cover dozens of acres.

The purpose of Layer 1 is “to change the situation in which the mining industry in the United States is far behind China”, and plans to control 30% of Bitcoin’s computing power by the end of next year and become the world’s largest mining farm.

The manipulator behind Core Scientific is an organization called Foundry, and the $23 million in financing just announced by Core Scientific comes from Foundry. And Foundry is a subsidiary of Digital Currency Group (DCG).

Although some of the early dividends of mining have been missed, the determination of American companies to enter the mining industry should not be underestimated. The Americans want to take back the initiative of Bitcoin from the Chinese miners.

It is not difficult to find that DCG has appeared behind Core Scientific and Foundry, which is the parent company of Grayscale Trust.

In addition to controlling Grayscale Trust, DCG is also the parent company of Genesis, one of the largest cryptocurrency over-the-counter trading and lending platforms, the well-known blockchain media Coindesk, and the parent company of the exchange Luno, and directly invested in cryptocurrencies such as Bitpay, Circle, CoinList, and Coinbase. mechanism.

DCG is planning a big game in the encryption ecosystem. As a source of supply of Bitcoin mining, DCG has obviously considered well.

Transfer of mining centers abroad

In 2020, an easily overlooked phenomenon is that Bitcoin mining centers have quietly moved from China to foreign countries.

According to the Bitcoin mining map designed by the Cambridge Alternative Finance Center, in the second quarter of 2020, the mining industry in Kazakhstan accounted for about 6.17% of the average monthly hash rate of Bitcoin, only slightly lower than Russia (6.9%) and the United States ( 7.24%), while China is still the undisputed number one (about 65%).

In September 2019, China’s mining accounted for 75.62%.

In half a year, China’s mining share fell by 10%. This part of China’s loss is divided among the aforementioned North America, as well as Northern Europe, Central Asia, Southeast Asia, Iran, and Russia.

For Bitcoin mining, the cost of electricity is the key to the rate of return. The lower the electricity bill, the greater the return.

Recently, Genesis Mining operations director Philip Salter revealed to Bloomberg that miners are moving from China to the Nordic countries, namely Sweden and Norway, because “these countries are considered safer and more stable.”

He explained that the profitability of the company’s data center in Boden, Sweden has more than tripled due to wet weather and the continued rise of Bitcoin.

“If you do not consider fees and taxes, the electricity price here is the lowest in the world, and it is almost carbon-free, mainly composed of water, nuclear and wind energy.” Bloomberg said in an article.

In addition, in November this year, the Dutch blockchain company Bitfury Holding BV announced an investment of 35 million US dollars to expand the Norwegian mine.

In addition to Northern Europe, Kazakhstan has also become a new center for Bitcoin mining.

In June of this year, Bagdat Mussin, the Minister of Digital Development of Kazakhstan, announced that the ministry plans to attract US$738 million in investment by 2023 for activities related to cryptocurrency mining.

According to Zhumagaliyev, there are currently 14 cryptocurrency mining farms that have cumulatively brought in approximately US$201.7 million in investment.

Kazakhstan, which is dominated by thermal power, has a surplus of 4000MW (megawatts) of electricity. The cost of electricity per kilowatt-hour is around US$0.03.

“There are a lot of local mining people in Kazakhstan now. The president and his brother are digging, and there are people from Greece, Germany, Japan, South Korea, and Iceland.” A Kazakhstan miner said.

The main mining companies in Kazakhstan originate from China, South Korea and other countries, including the aforementioned Genesis Mining and Bitfury, which have deployed mining in Central Asia.

On the other side, the location was pulled to Siberia. At the beginning of this year, the Russian nuclear power leader Rosatom was exposed by Coindesk to open its energy supply to Bitcoin, and on December 30, a subsidiary of the Russian gas giant Gazprom announced the opening of a Bitcoin mine.

In July of this year, Abdolnaser Hemmati, Governor of the Central Bank of Iran, issued a statement: “The Government Economic Committee has approved a mechanism for digital currency mining, which will be discussed at a cabinet meeting later.”

And three months later, the Republic of Iran News Agency (IRNA) reported that Iran amended the country’s cryptocurrency regulations, requiring licensed Bitcoins to sell their Bitcoins directly to the Iranian Central Bank for import funds.

Iran has issued 1,000 licenses to crypto miners, including licenses from Turkish mining giant Iminer. Iran’s power plants are allowed to mine cryptocurrency, and Bitcoin miners are granted exclusive rights to use the electricity produced by three of these power plants.

In November this year, the Venezuelan army posted a video on Instagram, turning the camp into a mining center. Prior to this, the Venezuelan government clearly stipulated the legality of crypto mining.

In December, the Venezuelan Crypto Assets Regulatory Authority (Sunacrip) and Venezuela’s National Electricity Company (Corpoelec) signed an agreement to improve the development of Bitcoin and other cryptocurrency mining activities nationwide by establishing guidelines.

………

Low electricity tariffs, policy encouragement, clean energy, and giants’ entry… These conditions are enough to give birth to batches of mines and new mining centers.

Will China lose its dominance in Bitcoin mining? Due to China’s unique advantages in the hardware industry, cryptocurrency mining has risen rapidly. Mining machine manufacturers, mines, miners…China covers an entire cryptocurrency mining industry chain. Bitcoin was once called “Chinese currency” by Americans.

On the one hand, it is the encouragement of foreign policies and the rise of local miners; on the other hand, the transfer of domestic miners abroad. In the future, can China still maintain its lead?

Miner attitude: not recommended, but newcomers are welcome

According to Tokenview data, Bitcoin mining revenue reached a new high of $0.209/day/T hash per second on December 29.

But this is a far cry from last year’s highest of $0.498/day/T hash per second, and 2018’s $3.839/day/T hash per second.

For Ethereum miners, 2020 is even more thrilling. With the popularity of DeFi, Ethereum miners earned US$295.1 million in August, an increase of 98.2% from the previous month, a two-year high.

In September this year, Ethereum mining revenue reached $0.103/day/M hash per second. “You can pay back in one month, and the rest is the residual value of the machine.” Miner Xiaoming said.

On January 4, as the price of ETH exceeded US$1,100, the income of major mining machines also soared. OKLink of Oukeyunchain showed that the fee income of Ethereum miners was the block reward (2 ETH). 3 times (6 ETH).

In the past three months, the computing power of Bitcoin’s entire network fluctuated in the range of 120-160 EH/s. In the past three weeks, the fluctuation range showed signs of narrowing.

According to past statistics, the price increase of Bitcoin will lead the computing power by about half a year. This wave of Bitcoin prices rose in mid-October this year and has risen by more than 150% so far.

Therefore, some institutions predict that the next six months will be the golden period of mining.

Is the mining golden period really coming?

But it is not the case. Bitcoin miner Xiaoming revealed that mining in 2021 will be more difficult, because a large part of the mining machines and mining farms are still in a dormant state, and the income will start when the income rises, and then the income will fall.

“Many S9-level mines with a slightly higher electricity bill and poor environment are not running. If the income is appropriate, the startup will suppress the income.” Xiaoming said.

As Bitcoin broke through $34,000, the price of Ant S9 also rose from 110 yuan of “scrap” to 600 yuan in one month, a five-fold increase.

“Recently, a Russian miner directly placed an order for 10,000 S9s.” Xiaoming revealed.

Jiang Zhuoer of the Litecoin mining pool also said recently that he still has “a vast number of BTC mining machines, and there are nearly 100,000 S9s alone to find a place to start.”

But this is still a money-making business, but it is not as profitable as expected. No more riches, Bitcoin mining is a red sea.

Xiaoming’s current attitude is: welcome new miners, but do not recommend it. “Whether a newbie buys a machine or builds a mine, it is good for the old miners. Otherwise, when the market is bad, how can there be cheap mining machines? When the market is good, who will sell high-priced mining machines?”

05 Looking forward to 2021

Take the Antminer S19 95T as an example, the official website futures price shows 19200 yuan, but the lowest OTC transaction price has reached 25000 yuan.

According to media reports, mining machine manufacturers such as Bitmain have already scheduled their mining machines in July next year.

Is now a good time to start mining?

For the purchase of new mining machines, the investment of 20,000 to 30,000 per machine is also accumulating costs and risks.

“The power consumption ratio of the S19 is too good. I’m betting that other people won’t follow up with this level of machine.” Xiaoming explained that once the large computing power machine is put in, the computing power skyrocketed. However, based on the current increase in computing power and currency prices, he expects to pay back in one year, “the remaining machines are even profit.”

On the other hand, the influence of the technological improvement of mining machines on the industry is decreasing, and the energy consumption of mining machine iterations before S9 has more than doubled.

For Ethereum miners, the average payback period for buying graphics card machines at this moment is also about one year. According to Wu said, there are still more than 10 mining machine manufacturers manufacturing new Ethereum mining machines, and many of them are powerful ASIC machines.

Ethereum 2.0 was launched on December 1. According to the roadmap formulated by Ethereum co-founder Vitalik Buterin, Ethereum 2.0 will be implemented in the next five to ten years.

Technological iteration is no longer rapid, and the return period is longer, and this is precisely the premise for the institutional entry mentioned in the second part.

In the early days, Bitcoin mining did not require complex and high-performance equipment. As long as the CPU of a personal computer was used, Bitcoin could be mined. With the expansion of the Bitcoin network and the increase in computing power, the cost has been rising, generation after generation The miners were eliminated.

In the next few years, as the Bitcoin halving process advances, Ethereum mining machines are gradually turning to POS, and the number of cryptocurrencies that miners can dig is less and less. In this smaller and smaller world, miners can hope And what is expected is that the currency price maintains the status quo or keeps rising.