February 13, 2020

How coronavirus can interfere with digital asset development

It won’t be a surprize to anyone that the outbreak of coronavirus in China has now attracted the attention of many media. But it may be news that it was because of this event that the situation of Bitcoin mining for many miners became more complicated. The reason for this is a delay in the supply, production, and loading of new equipment due to the quarantine regime currently existing in China.

The deceleration rate in Bitcoin mining can be determined in specific figures: on January 14, the percentage was adjusted by 7.08, 24 4.67, and already on February 11 the figure fell to 0.52 percent.

It is worth paying attention to such a simple rule: the more miners take part in the race, the more the amount of computing power increases, the opposite effect also works here in direct proportion. Considering the situation of reducing the amount of the reward for mining, and this should already be 6.25 Bitcoins by May (already a 3 decrease in rewards), before the slowdown, the miners were preparing for a new reality: their industry should have become fundamentally less profitable.

Because of this, many miners do our best to upgrade their equipment to improve the efficiency ratio of virtual assets extraction.

We work with what we have

There is nothing left but to simply continue to use the old equipment models, because the mining process does not stop, due to the expectation of new mining equipment.

But speaking about the consequences of the virus and its impact on the cryptocurrency business, we have in mind its more direct impact on miners.

“While most mining farms remain open during the Chinese New Year, there have been incidents where mining farms are shut by local governments due to the outbreak,” — said Aries Wang, co-founder, and CEO of crypto exchange Bibox.

One mining farm owned by mining pool BTC.top’s CEO Zhuoer Jiang was shut down by the local government in an unnamed area in China, Jiang said on Feb. 4 via the social media network Weibo. Among the largest crypto exchanges to come out of China, Bibox (now based in Estonia) has invested several million dollars in the mining industry, according to Wang.

“Many investors such as crypto funds and exchanges expect the halving would increase bitcoin price and they are putting their money in mining,” — Wang said.

These investors would buy new machines as well as slots and maintenance services from a mining farm, where they can operate the machines.

Take a break from the arms race

The situation has given incumbent miners a respite from the ever-fiercening competition.

“The slow growth in mining difficulty is good news for existing miners,” — said Abe Yang, chief operating officer at PandaMiner, a Shenzhen-based manufacturer and operator of mining farms.

Mining is like an arms race, the slow growth in general mining difficulty means these miners are likely to get higher returns from their mining investment.

“While almost all miner makers have halted production due to the coronavirus outbreak, the low inventory makes new machines even scarcer,” — Yang said.

“We could have produced more if it were not the stagnant bitcoin price before the Chinese New Year,” — which fell on Jan. 25, Yang said.

Furthermore, we did not make any machines during vacation. Although the bitcoin price started to rise after the holiday, there is typically a delay between market price moves and equipment orders, Yang added. The outbreak already slowed logistics, and the fact that many mining farms are located in isolated, remote areas makes it even harder to deliver the machines to these sites. 

An elaborate equation

To be sure, mining is a complex business and many different variables can influence decisions.

“For each miner, they have their own equation that includes factors beyond the mining difficulty,” — Lingxiao Yang, chief operating officer at crypto hedge fund Trade Terminal, said.

A drop in mining difficulty growth does not necessarily lead miners to turn on more mining machines and increase their computing power at a faster pace. As some deliveries of new mining machines with higher computing power have been delayed, Yang said one of the options to boost mining power growth is to put older machines back into operation. That might not be in the best interest of some miners.

“The decision on whether to increase hash power faster depends on whether miners can make a profit,” — Yang said.

If you consider other factors such as the operating cost, some miners might not have that much to gain by turning on the older machines.

“Many mining farms tend to have a mix of new and older machines as they phase out the older vintages while buying the new ones that are more energy-efficient with higher capacity, ” — Yang said.

It won’t be a surprize to anyone that the outbreak of coronavirus in China has now attracted the attention of many media. But it may be news that it was because of this event that the situation of Bitcoin mining for many miners became more complicated. The reason for this is a delay in the supply, production, and loading of new equipment due to the quarantine regime currently existing in China.

The deceleration rate in Bitcoin mining can be determined in specific figures: on January 14, the percentage was adjusted by 7.08, 24 4.67, and already on February 11 the figure fell to 0.52 percent.

It is worth paying attention to such a simple rule: the more miners take part in the race, the more the amount of computing power increases, the opposite effect also works here in direct proportion. Considering the situation of reducing the amount of the reward for mining, and this should already be 6.25 Bitcoins by May (already a 3 decrease in rewards), before the slowdown, the miners were preparing for a new reality: their industry should have become fundamentally less profitable. Because of this, many miners do our best to upgrade their equipment to improve the efficiency ratio of virtual assets extraction.

We work with what we have

There is nothing left but to simply continue to use the old equipment models, because the mining process does not stop, due to the expectation of new mining equipment. But speaking about the consequences of the virus and its impact on the cryptocurrency business, we have in mind its more direct impact on miners.

“While most mining farms remain open during the Chinese New Year, there have been incidents where mining farms are shut by local governments due to the outbreak,”— said Aries Wang, co-founder, and CEO of crypto exchange Bibox.

One mining farm owned by mining pool BTC.top’s CEO Zhuoer Jiang was shut down by the local government in an unnamed area in China, Jiang said on Feb. 4 via the social media network Weibo. Among the largest crypto exchanges to come out of China, Bibox (now based in Estonia) has invested several million dollars in the mining industry, according to Wang.

“Many investors such as crypto funds and exchanges expect the halving would increase bitcoin price and they are putting their money in mining,” — Wang said.

These investors would buy new machines as well as slots and maintenance services from a mining farm, where they can operate the machines.

Take a break from the arms race

The situation has given incumbent miners a respite from the ever-fiercening competition.

“The slow growth in mining difficulty is good news for existing miners,” — said Abe Yang, chief operating officer at PandaMiner, a Shenzhen-based manufacturer and operator of mining farms.

Mining is like an arms race, the slow growth in general mining difficulty means these miners are likely to get higher returns from their mining investment. While almost all miner makers have halted production due to the coronavirus outbreak, the low inventory makes new machines even scarcer.

“We could have produced more if it were not the stagnant bitcoin price before the Chinese New Year,” — which fell on Jan. 25, Yang said.

Furthermore, we did not make any machines during vacation. Although the bitcoin price started to rise after the holiday, there is typically a delay between market price moves and equipment orders, Yang added. The outbreak already slowed logistics, and the fact that many mining farms are located in isolated, remote areas makes it even harder to deliver the machines to these sites. 

An elaborate equation

To be sure, mining is a complex business and many different variables can influence decisions.

“For each miner, they have their own equation that includes factors beyond the mining difficulty,”— Lingxiao Yang, chief operating officer at crypto hedge fund Trade Terminal, said.

A drop in mining difficulty growth does not necessarily lead miners to turn on more mining machines and increase their computing power at a faster pace. As some deliveries of new mining machines with higher computing power have been delayed. One of the options to boost mining power growth is to put older machines back into operation. That might not be in the best interest of some miners.

“The decision on whether to increase hash power faster depends on whether miners can make a profit,” — Yang said.

If you consider other factors such as the operating cost, some miners might not have that much to gain by turning on the older machines. Many mining farms tend to have a mix of new and older machines as they phase out the older vintages while buying the new ones that are more energy-efficient with higher capacity. The cost of operating a machine is based on factors such as spot electricity price at the moment and how many coins the machine can mine. Many mining farms in Sichuan province rely on hydropower that changes seasonally, leading to differences in the electricity price over time. When hydropower is harder to come by, some of the farms might go to Xinjiang and Inner Mongolia autonomous regions for coal-fired power plants. Even in the same region, mining farms might agree on different electricity rates with the local government since they negotiate separately. Another factor that a miner takes into consideration is the expectation for future bitcoin prices.

“Miners make revenue by selling the bitcoins they mine,” — Yang said. “They could make a profit at a price higher than $10,000, but lose money when the price falls below that.”

Many mining farms tend to have a mix of new and older machines as they phase out the older vintages while buying the new ones that are more energy-efficient with higher capacity.

The cost of operating a machine is based on factors such as spot electricity price at the moment and how many coins the machine can mine. Many mining farms in Sichuan province rely on hydropower that changes seasonally, leading to differences in the electricity price over time. When hydropower is harder to come by, some of the farms might go to Xinjiang and Inner Mongolia autonomous regions for coal-fired power plants. Even in the same region, mining farms might agree on different electricity rates with the local government since they negotiate separately. Another factor that a miner takes into consideration is the expectation for future bitcoin prices.

“Miners make revenue by selling the bitcoins they mine,” — Yang said.

They could make a profit at a price higher than $10,000, but lose money when the price falls below that.

Disclaimer

This article is intended as a news item to inform our readers of various events and developments that affect, or that might in the future affect, the value of the cryptocurrency described above. The information contained herein is not intended to provide, and it does not provide, sufficient information to form the basis for an investment decision, and you should not rely on this information for that purpose.

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