You know about Bitcoin mining, but do you know the game behind Bitcoin mining?

🧵Here are the stories behind mining that you don’t know👇

🌱Personal background🌱

I am an old man who entered the circle in 2013 and went all in in 2017. I have experienced and seen many things in the cryptocurrency circle.

Now let’s talk about the underlying logic of mining. As a former miner, small mine owner, and person who has sold mining machines, I should have some qualifications to tell the story behind it.

1️⃣ Let me first tell you how I mine step by step

This was when we first started mining. We built a micro mine in a resettlement house. We assembled and configured every piece of equipment ourselves.

We originally built three sets of such shelves, and they were all filled.

And calculate the total load of the current wires, and assume that the cables alone meet safety standards.

2️⃣Took my friends to trade cryptocurrencies and accidentally met graphics card resources

It was discovered that he was the child of a graphics card agent in a certain province, so he was qualified to do the graphics card mining machine business.

The small mining farm we are working on now should have less than 1,000 P104 and P106 GPU mining machines.

The performance of P106 is equivalent to that of NVIDIA 1066 graphics card, and that of P104 is equivalent to that of NVIDIA 1080 graphics card. Basically, they are groups of 6 or 8 cards.

This is the furnishings inside the mine. It looks very simple, after all, it is just starting out.

This is the exterior appearance of the mine. It is unremarkable, but there is a separate transformer not far away for power transformation.

3️⃣Where did I go to expand electricity?

Later, in order to expand the power limit of the mine, I went to Horgos in Xinjiang, the Yunnan Hydropower Station, the Daya Bay Nuclear Power Station, etc.

The picture below shows Horgos in Xinjiang, the largest transit station for natural gas from Kazakhstan entering China.

This super-large natural gas transmission channel will generate a lot of heat itself, and can also generate a lot of electricity.

So when we were looking for relatively cheap and abundant electricity resources, this was one of the sites, but of course we didn’t choose this one in the end.

The above is my background in mining, so I should be qualified to talk about the underlying logic.


🌱What is the essence of POW mining🌱

1️⃣Mining machines are essentially buying forward options, which can obtain a certain amount of BTC options. Mining is essentially a process guarantee to ensure that options can be delivered smoothly.

2️⃣Because the final result of mining is currency, the price of Bitcoin fluctuates all the time.

In order to ensure that they can eventually exercise their options and obtain relatively large profits, many miners will choose to open forward short contracts on exchanges.

3️⃣The mining machine obtains the corresponding currency at the cost price, and the forward contract is simultaneously shorted to lock in profits.

Usually those who do this are mature large miners, because they have experienced the pain of losing money on electricity bills and have also experienced the darkest moment when the price of mining fell below the cost of mining.

🌱What is the shutdown coin price🌱

1️⃣ The income from mining cannot cover the electricity cost, and the input-output ratio is negative. The corresponding mining machine is turned off and mining is stopped.

As long as the coin price drops to a certain level, there will always be a situation where some models cannot pay the electricity bills. The price at this time is the shutdown price of the corresponding mining machine.

2️⃣The most controversial shutdown coin prices in the market currently refer to the shutdown coin prices of the previous generation of models.

For example, Ant S19Pro, Shenma M53, Avalon A1346, etc.

You should know that the S19s are all mining machines shipped in 2020, and they should have completed their corresponding service time long ago.

3️⃣Today's main models, such as Bitmain's S21, Shenma's M63S, etc., are all products released in September 2023.

The corresponding shutdown coin price is between 20,000 and 30,000 US dollars. For them, it is far from the shutdown coin price.

The above data can be found at @f2pool_official.

🌱What is the essence of computing power fluctuations?🌱

1️⃣When the corresponding old model mining machine encounters shutdown price.

The collective shutdown of large numbers of old models will lead to a decrease in the computing power of the entire network, which will cause large fluctuations in computing power.

2️⃣ Because the computing power is reduced, the computing power held by the remaining miners can be allocated to a larger proportion of Bitcoin.

Then when the mining machines behind this group of people are shut down, the price of the corresponding coins will also drop accordingly.

3️⃣ At the same time, we will also notice that the computing power in the market will return quickly and continue to grow.

Because computing power has been reduced on a large scale, some old machines can become profitable again.

Then it will be turned on again to fill the corresponding computing power until the market forms a new balance point.

🌱Why in the long run, computing power will always grow🌱

1️⃣Because mining machine manufacturers are always manufacturing mining machines with better performance, the corresponding production lines will never stop producing mining machines.

2️⃣The new mining machines will definitely replace the ecological niche of the old mining machines, and the corresponding computing power will also be supplemented by the new mining machines.

3️⃣ Even in extreme situations, such as the price of the currency falling below 30,000 US dollars, the computing power will still increase.

Because the production costs and sales prices of mining machine manufacturers are different, the corresponding mining farms of mining machine manufacturers will also fill this market.

4️⃣ Under the condition of the same electricity bill, everyone is competing to see whose mining machine has the lower cost. In this case, mining machine manufacturers have the advantage.

When the cost of mining machines is the same, everyone is competing to see who has lower electricity costs. In this case, the powerful mining farms have an advantage.

🌱Does the shutdown price affect the coin price?🌱

1️⃣ Let me first state my opinion, the impact is not that big.

2️⃣Whether Bitcoin will rise or not is determined by the amount of funds in the market and whether the US dollar raises or lowers interest rates.

3️⃣The entire cryptocurrency is still an asset dominated by the US dollar.

I don’t know if you still remember the 312 incident in 2020. In essence, there was a liquidity shortage in the U.S. stock market, and large funds sold Bitcoin to fill their positions in U.S. stocks.

4️⃣This round of cryptocurrency performance is not as good as in the past. The biggest reason is the general background of AI narrative. A large amount of funds have gone to AI-related US stocks, especially Nvidia.

5️⃣ If you want the currency price to rise, at least one of the two major countries, China and the United States, must choose to flood the market with money.

Only in this way can the extra cash find a corresponding container in the market, and Bitcoin is undoubtedly a relatively good choice.