New Order of the Mining Industry: What Will Small and Medium-Sized Miners Do When the Top Mining Enterprises Go Overseas?

After one of the craziest half years, China’s crypto mining industry entered a period of sharp turbulence in May and June. Under the crackdown of local governments, the vast majority of domestic mines were shut down. Miners just entered during this year’s highpoint suffered huge losses. The panic selling of some miners under economic pressure also led to a sharp correction in the crypto market.

Nowadays, it is a fact that Bitcoin mining consumes a significant amount of energy, and the government’s crackdown is a foregone conclusion. The transformation to clean energy should be a long-term solution for the mining industry to seek sustainable development. At present, how to deal with this batch of downtime mining machines and reduce loss to the maximum extent are the most pressing problems for both big and small miners.

Going overseas was one of the miners’ best hopes. However, after a period of exploration, the road has not been as smooth as expected. Meanwhile, some small miners are still trying to find a way to stay.

Author | Richard Lee

Editor | Quanyu Gong

01

Most Small and Medium-Sized Miners are Still Watching As the Giants Head Out to Sea

Liang Xu’s nearly 20, 000 Ant S19 mining machines have been out of service for at least half a month, but he is in no hurry to send them overseas.

Since the policy of shutting down mines was introduced in succession, going overseas is the most popular choice in the domestic mining industry. The domestic leading mining enterprises acted quickly. For example, Kanan Yunze announced the establishment of its mining base in Kazakhstan, The Ninth City announced the acquisition of the Canadian Bitcoins mine Montcrypto and invested in another mining company Skychain. Bitmining also invested in the establishment of mines in Kazakhstan and has successively transferred thousands of mining machines. The rest will be shipped “in the next few quarters,” it said.

However, in practice, mining machinery going overseas means that the local policy is uncertain, the local social environment is unstable, the mine capacity is insufficient, and the transportation cost is high, as well as many other problems. Just recently, Kazakhstan enacted a new bill that would charge cryptocurrency miners a surcharge of around $0.0023 per kilowatt of power.

Maybe for that reason, wait-and-see is still the dominant attitude for more small and medium-sized miners and miners.

A certain number of Mr. Xu’s mines are located in Xinjiang and Sichuan, with 250,000 and 30,000 kilowatts of load respectively. They are mainly Bitcoin miners, but there are also a small amount of Ethereum graphics card miners. Mr. Xu is also looking overseas after the local government closed down his mines.

In terms of going overseas, the most important two things for Mr. Xu are: first, there must be a certain site or government resources in the local area; on the other hand, electricity must be stable enough. His team is currently focusing on New York and Canada, while central Asian countries such as Kazakhstan are not considered due to social security issues.

“Going overseas must be a self-built process unless there is a local load, otherwise it is impossible to immediately resume operations,” Mr. Xu said. At present, it takes at least three to six months to build new mines overseas, and as long as eight months. The cost of building a new mine is about six or seven million.

“Why am I not in a hurry to go out now? I’m waiting to see how many people get hit in the first wave.” The nearly 20,000 Ant S19 is not an asset that can be easily transferred at risk. Mr. Xu and his team started investing in bitcoin mining in 2019 and have since paid back their money.

Such a mindset is not alone. Cloud computing platform Yizhiwa also announced on June 22 that it will stop hosting mining machines in the mainland indefinitely after the shutdown of its mine in Xinna Park, Sichuan Province, and will focus on overseas cloud computing services as the next step. But in terms of going overseas, the statement said: “Yizhiwa is following the strategy of the leading companies in the industry, waiting for domestic peers to solve the problems related to operation and maintenance of overseas mining before going overseas to avoid unnecessary losses.”

02

Some Small and Medium-Sized Miners May Benefit

Due to the shutdown of a large number of mining machines in China, the average daily calculation power of the Bitcoin network has fallen to 96.49EH/s as of July 6, close to the end of 2019 level. The long journey of large mining companies going overseas is likely to prolong the correction cycle of Bitcoin calculation power. At the same time, some previously disadvantaged miners are trying to seek more profits during this period.

A senior industry expert told ChainCatcher journalist that there may have been a lot of new small miners in the country, many of whom may have been small miners before or participated in the joint mining of large mines. “The miners didn’t get up because they had a big cost gap compared to the big mines,” the senior expert said.

Influenced by the low computing power of the whole network, the difficulty of the whole network of Bitcoin has been successively lowered. On July 3, the difficulty of mining Bitcoin has been lowered by 27.94% to 14.36T, which is the largest decrease in history. By making it easier to mine, all online miners will be more profitable, including smaller miners who were previously relatively passive in the cost of electricity.

He also added that due to the global chip shortage in the past year, the computing power has not increased much. Thus, even for the Ant S9 mining machine six years ago, its electricity cost is still not high. That is to say, the mining machine on the market is basically “electricity cost insensitive”, and even the household electricity price of 0.6 yuan can still be profitable. Warehouse rent and noise reduction costs are almost negligible relative to profits.

Boss Zhuang, a distributor of mining machines in Beijing, also told ChainCatcher that sales of mining machines “are still going up” due to the recent surge in profits. Previously, models that were difficult to receive in the market, such as M20 and M21, “have been rising in price in the past two days”, and the price has rebounded from the low point on June 18 after the Sichuan policy news was released.

For the small bitcoin miners who remain in China, it is unclear how long the upward trend in earnings during the recovery period can last. The above industry expert explains that under China’s latest regulatory policies, the future structure of computing power may become more complex.

On the one hand, if some domestic small miners with power resources advantages use small hydropower stations or isolated network electricity to operate mining machines, their mining costs are not necessarily lower than that of those overseas. On the other hand, it is relatively cheap to build mines in China. Overseas mines, such as those in the United States, cost four to five times as much as those in China.

Therefore, the expert predicted that in the future, domestic small miners whose electricity cost is less than 50 cents per kilowatt-hour can still occupy a certain living space in the expansion of overseas mines. Small miners with a power gradient of 50 fens/kWh to 1 yuan/kWh also have an advantage for at least the last year, but after a year when the overseas mining industry develops, domestic retail miners with this power gradient may still face the fate of being eliminated.

03

Ethereum Mines Got Hit, Yet Are Still Popular

While local governments are mainly cracking down on Bitcoin mining, many Ethereum miners are also being hit by the fact that a large number of Ethereum miners are operating alongside Bitcoin miners in mines such as Sichuan.

Hao Liao, who became a miner in November, runs hundreds of Ethereum mines in a state grid hydropower park in Liangshan prefecture, Sichuan province. In the first half of this year, the price of the coin went up all the way. Liao Hao also followed the market and bought hundreds of new sapphire 588 machines at a price of more than 30,000 yuan per set. After the Sichuan Provincial Development and Reform Commission issued the withdrawal notice on June 18, the price of the same type of mining machine immediately dropped to less than 13,000, a decline of more than 50%.

“The depreciation of mining machinery is too severe, now it is equivalent to working for nothing.” Hao Liao has just paid the bank loan of 500,000 yuan in March and April, now the mining machine shuts down, the cash flow got interrupted. “If (mining machine prices) fall again is a loss”, he shares. But in the vast mine with more than 100, 000 machines, Hao Liao is in good shape.

“Just think about how many people are doing cloud computing here. (Some) borrow money (to buy mining machines), which is a big burden. Many people lose all their money and have no time to cry,” Hao Liao said. In addition, this year, four or five small scattered investors who just “rushed into the field” also suffered serious losses. They bought the mining machines at a high price of three to four thousand yuan, mining less than three months, then immediately encountered shutdown. In Liao’s park, there are “more than hundreds” of such people.

For now, “wait-and-see” and “distributed” mining have become strategies of Mr. Liao and others of the same business. They are waiting to see whether the follow-up policy implementation will come loose, at the same time passing on idle graphics cards, mining machines to game players or other small retail investors. Whether the implementation changes or not, what Liao knows is that big domestic mines no longer dominate.

“Run as long as you can”. Even if the situation does not change, Liao Hao still plans to try to find a place for the mining machine to continue operation — his own home, relatives’ home, joint mining, and other options are all considered. “Or you can install a solar power site, and then put 10 or 20 mining machines.”

Liao has also set his sights on the small hydropower station in his village. The 500-kilowatt hydropower station in Heyuan, Guangdong province, had a private price of 3 million yuan, which Liao couldn’t afford alone. In addition, after the regulatory policy was defined, Liao Hao also worried about the perspectives of people in his hometown: “Now they say that mining is illegal. It would be bad if people in his hometown who don’t know anything about it thought we were doing something illegal.”

“Our miners’ “ identity has gone from holding their heads up to feeling down in the dumps.” Liao laughed at himself.

Taking Liao’s experience and countermeasures as an example, the trend of further decentralization of Ethereum and small currency mining in China may be occurring. Min, the boss of a mining machine dealer in Chengdu, told Lincatcher that since the Financial and Banking Commission of the State Council called for a crackdown on cryptocurrency mining in May, the price of mining machines has gone down all the way, but the sales volume has not been affected, because Ethereum and small currency mining machines are still popular in the market.

“With such a low price, mining machines gonna sell well,” boss Min said. According to him, many retail investors cannot afford to buy mining machines at high prices and can only sit by and watch. “Now wait till the time is right, and then buy those machines. Finally, mining can start. This is their psychology.” For example, the machine Ant L3+ used for mining Litecoin sold at a high price of eight or nine thousand during its prevailing time now can be bought at two thousand.

According to Min, compared with Bitcoin mining machines, mining machines for Ethereum, Litecoin, and other currencies consume less power and make less noise, so ordinary families “have no problem with two or three”. However, due to the huge energy consumption of Bitcoin mining machines, families’ houses cannot bear the load and are prone to power failure. Most of their recent sales targets are overseas mines.

Compared with the long cycle of Bitcoin miners going overseas and the difficulty of computing power recovery for a long time in the future, Ethereum miners’ choice of staying put also reduces the decreasing computing power of the Ethereum network. Meanwhile, the recovery cycle is shorter. Ethereum’s average daily computing power has rebounded in recent days after falling to a March low of 477,535GH/S on June 26, according to Etherscan data.

The most tumultuous period in the history of cryptocurrency mining in China has largely come to an end, and with regulations showing no signs of easing, miners hoping to get away with it have largely lost hope. As bitcoin mining becomes more difficult in the future, miners on the sidelines will have a window of no more than six months, at most, before a new Bitcoin computing landscape takes shape.