In 2021, are Chinese Bitcoin miners actively "marginalizing"? | Babbitt's year-end feature

In the past decade, too many legends have been born in the cryptocurrency mining industry.

For example, Pumpkin Zhang, also known as Zhang Nangeng, the founder of Canaan Inc., the first Chinese mining company, single-handedly built the world's first Bitcoin FPGA mining machine and the first Asic mining machine.

For example, Wu Jihan and Yang Zuoxing, the former was not only the first to translate the Bitcoin white paper, but also founded the giant mining machine company Bitmain. The latter, as a latecomer, established the Shenma mining machine that was able to compete for the first place.

For example, Shenyu, Pan Zhibiao and Xu Xin. The first two founded the world's first and second Bitcoin mining pools, F2Pool and CoinIn Pool, while the latter created the largest Ethereum mining pool, Spark Pool.

In Sichuan, Xinjiang and Inner Mongolia, a group of "unknown" mining owners control more than half of the world's Bitcoin mines.

Many big names active in the cryptocurrency circle also come from the mining industry, including Jiang Zhuoer, Zhu Yu, Yang Haipo, Zhuang Zhong...

Before 2020, these pioneers created a brilliant history of Bitcoin in China. It reminded me of Zweig's book "When the Stars Shine". From the iteration of mining machines to the Bitcoin fork, from the Bitcoin network update to the halving of Bitcoin production, Chinese miners have always been at the center of the global cryptocurrency main stage.

However, 2020 is a watershed year, and these top figures in China's mining industry seem to be withdrawing from the cryptocurrency discourse stage one by one. A series of new figures such as futures tycoons, investment tycoons, and DeFi masters have become the vane of the cryptocurrency world, leading the global discourse.

Does this mean that mining is becoming less and less important? Being marginalized? I prefer to interpret it as the era of cryptocurrency has changed. Cryptocurrency has entered a new era, and mining has also entered a new stage of development.

This is a mining reporter’s observation in 2020. It is very personal. I wonder if you agree?

At a turning point in the times, Bitcoin miners "retreat behind the scenes"

I have been planning my mining coverage for 2021 these days, and suddenly I feel that the mining circle in 2021 may be extremely boring.

Without halving, forking, and frequent updates to the underlying Bitcoin network, what chance do Bitcoin miners have to stand at the forefront of history? It seems that the only prescribed action in 2021 is the conversion of the flood season and the dry season, but this is just like the reports of typhoons, which are the same every year.

Suddenly, there is a feeling that mining is about to be marginalized, or at least is moving away from the center of discourse. Why? I think of two reasons.

1. Bitcoin is becoming more and more stable, and mining has become the guardian of the value network.

In the next four years, it can be foreseen that there will be no more halving of Bitcoin, and it is unlikely that there will be forks, and the Bitcoin basic network will become more stable.

Lightning Network? Although it has been under development, there has been almost no news about the Lightning Network throughout 2020. It can be said that with Ethereum's Layer 2, the value of the Lightning Network is no longer what it used to be. Bears can simply say: it is meaningless.

The only major upgrade may be Taproot, which improves the privacy, scalability, flexibility and network speed of the Bitcoin network. It will also bring a soft fork, but not many people will really pay attention to it.

This can be compared with Ethereum. On the one hand, Ethereum will gradually switch from POW to POS in 2021, the underlying code will continue to be updated, and the community will continue to split, so hard forks are inevitable. On the other hand, DeFi is advancing by leaps and bounds, and liquidity mining is becoming more and more intense. It can be said that Ethereum will lead the whole of 2021 without any suspense.

In 2021, perhaps Bitcoin will become an asset that can be configured by financial institutions. There will be countless interesting stories there, but that is not the stage for miners.

Miners are the maintainers of the Bitcoin network, and without suspense and new developments in the underlying network, there would basically be no stage for mining practitioners to perform.

2. Embracing new infrastructure and the transformation of Bitcoin mining, will it be “de-cryptocurrencyized”?

In July 2020, I went to Chengdu, Sichuan, and saw the largest hydropower mine in Sichuan. The total investment reached 180 million yuan, with a construction land of 52.8 acres, 15 planned computer rooms, and an estimated load of 300,000 kilowatts.

When people stand under the computer room, the shock is indescribable. Taking the largest computer room as an example, it is about 5-6 stories high and over 100 meters long. The entire wall is covered with circular fans, and the buzzing sound is deafening.

A young girl who works in real estate said, "I just came to see what is behind Bitcoin. Today I saw it and I choose to believe it."

I also believe that if you have seen the mining farms and the mining machines that are constantly flashing green light, you will believe that behind the virtual crypto world is a huge and tangible industry. Someone is responsible for making the latest and most powerful mining machines, someone is responsible for building huge mining farms, someone is responsible for operating them, and someone will repair the machines if they break down.

Since 2020, the hydropower consumption park policy is being gradually implemented in Ya'an, Ganzi, Leshan and other places, which means the gradual relaxation of policies, which may be the best news for the mining industry.

If you have any impression of mining activities in 2020, you will find that people in the mining industry like to talk about new infrastructure.

Zhu Yu, co-founder of Yinbit, said that the current mining industry is not compliant, but not all links are not compliant. The biggest impact of the new infrastructure on the mining industry is to introduce new infrastructure funds into the mining industry under the premise of compliance. Moving towards compliance is a major trend in the development of the mining industry. All links from electricity use, mine construction, to fire protection, environmental protection, land, and taxation will be compliant.

Today, many Bitcoin mining farms are seeking financing, and some are even seeking to go public. This was completely unimaginable in the past. Therefore, instead of thinking of it as a Bitcoin factory, it is better to think of it as a computing power center in the blockchain world. This is a vast blue ocean market.

Although mining practitioners cannot erase the label of Bitcoin, the mining industry is indeed becoming more and more like a traditional industry. De-coining, mining and making money in a stable manner, and making a fortune in silence may be the general mentality of mining practitioners. Do they need to speak out in public? No. This is my biggest feeling in 2020.

Two things to look forward to in the mining industry in 2021

1. Will the mining tycoons return to the arena?

In 2020, the biggest focus of the mining industry was the dispute between the founders of Bitmain. As a result, Wu Jihan faded out of the stage. The last time many people saw him in public was in April 2020, at the 421 Flood Festival hosted by BitDeer. At that time, Wu Jihan said that he hoped the market would give Bitmain another chance.

At the end of the year, the dispute finally came to an end. There were rumors that Bitmain started a major split, with Bitmain returning to the hands of Zhan Ketuan, and Wu Jihan leaving with BTC.com, BitDeer, and overseas mining businesses.

On the other hand, after Yang Zuoxing of Shenma Mining Machine was involved in a lawsuit, COO Chen Jianbing stepped on stage. Recalling the time when I saw Yang Zuoxing at the 2019 Chengdu Computing Summit, he frequently drew warm applause from the miners below the stage. Shenma Mining Machine also lost its halo in 2020, but with the gradual development of overseas markets, its shipments in 2020 are already comparable to those of Bitmain.

Let’s look at Canaan Inc. After its listing, the company also experienced a farce of “seizing the official seal”. Zhang Nangeng continued to keep a low profile, while Kong Jianping, who was good at handling media business, left to start his own business.

As 2021 approaches, Bitcoin mining machines are hard to come by, and futures mining machines have already been sold out until the middle of the year. What we can expect is that as the turmoil in their respective companies subsides, opinion leaders may return to the arena. By then, we wonder if they can make a voice from the mining industry.

2. With the rise of overseas forces, how can China’s mining industry maintain its position?

In September 2020, staff from Enegix, the leading mining farm in Kazakhstan, contacted Babbitt through Twitter and asked if they could introduce the mining situation in Kazakhstan to Chinese miners.

So, through an exclusive interview, we unveiled the mystery of the mining industry in this Central Asian country. Few people know that Kazakhstan's Bitcoin hash rate accounts for 6.17% of the world's total, which makes it the fourth largest in the world, after China, the United States and Russia. Specifically, in the seven months from September 2019 to April 2020, Kazakhstan's Bitcoin computing power increased by 334%, leading the world.

In 2020, one of the biggest feelings was the overseas expansion of Chinese miners and the entry of overseas companies into mining. For example, at a computing power conference in Chengdu, Sully Yu of Shenma Mining Machine told me that Shenma's overseas orders were rising rapidly, including North America and Europe, accounting for about 40%.

Recently, there have been more news of this kind, including Nasdaq-listed companies such as The 9, Marathon, Core Scientific... companies that have been heard of or not, are all planning to build mining farms and purchase mining machines.

Previously, the buyers of mining machines were small and medium-sized miners, and everyone wanted to get their money back quickly and was keen on calculating the payback period. Today, the payback period for mining machines has been greatly extended, and big capital has entered the market. Capital focuses on annualized returns, which means that the basis of calculation has changed. Capital values ​​long-term mining, but the future is a world of large-scale, intensive, and sophisticated mining. The expectation of a quick payback is unrealistic.

From crypto finance to crypto mining, the United States has begun to charge ahead. Today, China is still the absolute overlord of Bitcoin mining. Will this trend change in 2021? What interesting things will happen is worth looking forward to.