The currency war behind the chip cut-off: Bitcoin’s two-pronged attack on finance and industry

A hot virtual currency “digital game” is impacting the real world financial order and industrial resources.
Over the past few days, the prices of virtual coins such as Bitcoin have been soaring and plummeting. At the same time, following the launch of OTC trading and futures contract trading products by virtual coin exchanges, various so-called “financial”, “lending” and “fixed income” products around virtual coins are also emerging. These virtual currency “financial services”, which are similar to traditional finance but not provided by licensed institutions, have become more and more popular.

The currency war behind the chip cut-off: Bitcoin's two-pronged attack on finance and industry

A hot virtual currency “digital game” is impacting the real world financial order and industrial resources.

Over the past few days, the price of Bitcoin and other virtual coins has been soaring and plummeting. At the same time, following the launch of OTC trading and futures contract trading services by virtual coin exchanges, various so-called “financial”, “lending” and “fixed income” products around virtual coins are also emerging. These virtual currency “financial services”, which are similar to traditional finance but are not provided by licensed institutions, have become more popular than ever.

In addition, the original means of acquiring virtual coins directly – “mining” – has also come back into focus. The “mining machines” that were shut down during the bear market in the past few years have become the meat and potatoes again, and some A-share listed companies have spent tens of millions of dollars to lay out the coin mining market. In the major mining pools (collection of computing power) and mining farms (collection of hardware equipment) under the struggle for computing power, not only chips, hard drives, graphics cards and other resources are quickly swallowed, around the fire, water and other power resources also annihilated in the “mining machine” rumbling computing sound.

An “involute” coin mining market is having a serious impact on the real world ……

The Hype: Virtual Coin Madness Expands

The “rise” of financial derivatives in the cryptocurrency world began with the boom in virtual currency exchanges around 2015. The virtual currency exchanges launched virtual currency-related derivatives, mainly in the form of futures-like contract trading to go long or short virtual coins and a host of other virtual currencies.

But then came the continuous high-handed regulatory control on virtual currency trading, including the 2017 central bank and other seven ministries and commissions’ strict orders to ban virtual currency fundraising issuance and shut down domestic virtual currency exchanges.

Under the continued regulation, a number of virtual coin exchanges went underground and kept a low profile. However, since 2021, after the price of bitcoin continued to exceed the $50,000 and $60,000 mark, major platforms claiming to be “digital financial service providers” could not hold back and solicited customers in a high profile online and offline without obtaining regulatory approval.

The China Business News reporter got a virtual coin trading platform’s leaflet from the offline promotion channel, which shows that it carries out financial services around virtual coins such as investment and finance, leverage trading and lending, including DeFi mining, debt, options and other multi-asset combinations.

Unlike the past simple contract trading speculation, the virtual currency trading platform provides dual currency finance, pledge lending, zero-interest lending, funds, demand deposit business as a reason to absorb the virtual currency in the hands of users, claiming that “can help users to complete the virtual currency as the subject of the investment interest or lending consumption”.

In its claimed lending business, the principal and interest are denominated in TEDA coin USDT (a coin that links virtual coins to the legal currency US dollar), and users can pledge virtual coins to borrow money for the purpose of buying mining machines, daily consumption, decoration, travel, and medical treatment. The reporter checked the loan agreement and found that the loan contract with the user was signed by an offshore company.

For the above claimed business content, Beijing Jincheng Tongda (Shanghai) law firm senior partner Peng Kai lawyer told reporters, “First of all, this is a lending business, and is a cross-border lending to bypass foreign exchange regulation, and involves both financial licensing (lending business qualification) and foreign exchange regulation; secondly, the use of USDT for decoration, daily consumption, such as this kind of The use of USDT for renovation and daily consumption is unbelievable and self-defeating. Domestic consumption scenarios such as renovation, travel, etc., can only be used with fiat currency that is legally circulating in the country.”

When it comes to the boundary between this kind of coin raising and illegal fund raising, Peng Kai said straight away that there is no boundary between the two, and it is unrealistic to try to bypass fiat currency through “coin trading” to achieve the purpose of not involving fiat currency trading. From the source, the majority of people hold virtual currency, are purchased through fiat currency rather than mining or other original acquisition. It is too naive to hope that “coin trading” will lead to a bypass of the criminal regulation of fund raising.

“In addition, it is important to note that most of these business entities are currently set up outside the country, but have ‘branches’ within the country. This ‘branch’ may be a newly established company, or may be no company entity office and personnel. The obvious purpose of opening such a ‘branch’ in the country is to develop business for the domestic customer base, which is the same as when the ICO switched to overseas but the target of business development is still mainly for the domestic population.” Peng Kai added.

Land grab: capital rush into the coin mining market

As this “financial” game of chasing wealth intensifies, a bitcoin on the secondary market has reached a price of hundreds of thousands of yuan. So, the “mining” operation, which is located in the upper reaches of the virtual coin industry, has logically entered the public eye.

As we all know, the key to mining virtual coins is computing speed, or “arithmetic” for short. If you have more powerful and advanced hardware and low and stable electricity compared to others, you can allocate more virtual coins, and the amount of arithmetic power is directly proportional to the possibility of miners (investors) successfully mining new coins.

Under the lure of several hundred thousand yuan a virtual coin, “mining machine” has become the only choice for capital and public companies to rush into this virtual coin game. First, there are A-share listed companies spend ten million dollars to invest in cloud mining is “mining circle” cited as a typical case to avoid regulation spread, and then there are additional shares, cash and other ways around the “mining” whole industry chain layout of the U.S. listed companies.

“We have spent hundreds of millions of dollars to layout a lot of hydropower mines, but also acquired a manufacturer that has developed a 7nm ‘mining’ chip, and scrambled to buy a lot of second-hand ‘mining machines’. ” A person from the investment department of a listed company told reporters.

However, such an investment is not a big deal under the bitcoin mining industry.

“This is one of our mining sites laid out in the prefecture-level city of Hami in Xinjiang Uygur Autonomous Region.” A mining pool founder took out a photo and said that the spacious square in the photo has a capacity of 120,000 kilowatts, and if priced at 500 yuan per kilowatt, the cost of building this mining site alone plus the cost of electricity would require 60 million yuan. If you fill (put full) on the top end of the “mining machine” need 2 billion yuan, the worse (arithmetic power is relatively small) “mining machine” need 500 million to 1 billion yuan.

Wang Peng, an assistant professor at Renmin University of China, pointed out that “in the field of virtual currency mining such as bitcoin, the requirements for arithmetic power and algorithms are strict, and the speed of updates and iterations is fast. This means that even if huge amounts of money are spent on mining machines, there is a risk of losing the advantage within a short period of time and a high degree of wear and tear on the machines. Operating a ‘mining machine’ business requires a relatively good long-term performance in the ‘mining’ field to be able to mine new coins to cover costs and gain revenue.”

Wang Peng also stressed that, in addition to financial strength, there is another major threshold for entering the “mining” industry – the control of the supply chain. Wang Peng said, for example, that the current bitcoin market is hot, and capital is rushing to professional “mining machines”, and companies around the world interested in investing in them want to buy professional “mining” equipment. “The ability of a company to purchase and acquire computing equipment in the fastest possible time directly determines the size of its revenue. At the same time, the cost of the ‘mining’ industry will become higher and higher, thus forcing the ‘mining machine’ to iterate in a shorter period of time, and the cost of inputs will rise.”

“Everything also depends on the price of the coins, if it goes to $100,000 or a million dollars a piece, the competition for mining will only get crazier.” Industry insiders said.

Internalization: controlling industry resources

What is clear is that the “in-roll” race to compete for input has not yet reached its endgame, and the carnival of catching up and catching up has already begun to have a huge impact on the industry.

“Our company can no longer buy graphics cards, double the original price can not receive, the supplier said all virtual currency mining machine manufacturers ordered away.” One gaming company’s purchase asked a reporter: Isn’t bitcoin a string of code? Why are these invisible and untouchable things in the virtual world crowding out industry resources?

On February 9, data from the China Association of Automobile Manufacturers showed that in January, automobile production and sales completed 2.388 million and 2.503 million units respectively, down 15.9% and 11.6% ringgit. The association reminded that the production fell faster than the ring, reflecting that the lack of supply of auto chips affected the production pace of enterprises.

In stark contrast to the gaming and automotive industries worried, the mine owners are somewhat elated about the chip shortage. In their eyes, the world’s chip shortage on the “mining” is beneficial, as long as the arithmetic does not rise bear market “mining” also make money. “Now the car companies due to the lack of a few chips the entire production line shut down, but we have mining machines on hand (not short of chips), we can always make money.” A mine owner said.

“At that time everyone was not optimistic about xxx coins, we were the only one (optimistic), so we hoarded a lot. Now we think that the bull market has come, flocked to mining coins, of course, is to do everything possible to collect mining machine ‘raw materials’, mining industry gross profit of 200% or more, (graphics cards, hard drives, chips), we measured the bitcoin mining machine (specifically mining bitcoin mining machine) shutdown price (earnings can not cover the cost of electricity, hardware costs) in 20,000 U.S. dollars / piece or so, and now the price of bitcoin is at $50,000 per piece, what price do we need that we can’t afford to pay?”

After a shortage of chips, graphics cards as mining machine “raw materials” prices have skyrocketed, hard drives are also in the crosshairs. “Manufacturers direct supply of hard disk, there is stock, the same day payment the same day the order.” –This is an advertisement of the mining pool in the circle of friends.

Recently, Chia Chia coin “mining” has suddenly become hot, using idle hard disk storage space rather than graphics card computing power for “mining”. The main Chia website went online in mid-March (the main website means that the blockchain project opened the blockchain to the public and started using it on a large scale), and sales of large-capacity hard drives on major domestic e-commerce platforms surged. The sales of high-capacity hard drives on major domestic e-commerce platforms surged. But after the price went up, it dropped sharply, trapping a bunch of hoarders.

According to media reports, with Chia coin mining enthusiasm, hard drives and SSDs have seen prices skyrocket and plummet in the short term. “The price of 8T (hard disk) reached 1730 yuan, and is changing every day, before the highest reached 2999 yuan.”

In the “raw material” prices soaring, the industry chain originally to other companies supplying power products companies, chip manufacturing companies are also scrambling to give high prices with the mining machine manufacturers.

According to incomplete statistics, the current domestic A-share market has more than ten listed companies have begun to provide services or output products for virtual currency mining machine, many of the company’s top five customers have appeared in the figure of virtual currency mining manufacturers.

In addition, it is difficult to escape the clutches of the data centers. Previously, a data center announcement stated that the company’s cloud host shall not engage in activities that violate national policies and regulations, as bitcoin mining is not recognized by relevant national laws and regulations, while mining will also cause massive loss of hardware resources, resulting in the impact on the stability of the cloud server, in order to protect the stable operation of the user’s cloud server and avoid the legal risks brought about by this, please do not use the company’s cloud host to engage in related activities. activities. If found, directly shut down, and no refund.

High energy consumption: devouring natural resources

More important than raw materials to the “mining” industry is electricity, and mining farms filled with the roar of running machines consume a lot of power.

According to the “mining machine” manufacturers revealed to reporters, the electricity consumed by virtual coin mining in 2020 is equivalent to the total electricity consumption of Thailand in 2020.

The scale of electricity consumption for virtual coin mining shows that the ASIC (Application Specific Integrated Circuit) mining electricity consumption from 2013 to 2021 is 1.8 billion, 2.3 billion, 5.4 billion, 13 billion, 41.5 billion, 55.3 billion, 71.3 billion and 137 billion respectively. 2017 to 2021 GPU (a more powerful “graphics processing unit”, often used for gaming and 3D rendering) mining electricity use is 6.2 billion kWh, 16.9 billion kWh, 7.9 billion kWh, 9.1 billion kWh, 20.1 billion kWh respectively (Note: 0 kWh in 2016 and before).

“What is the local electricity price?” A coin VC investor mysteriously asked the local city investment company that was attracting investment. Upon receiving a reply of 0.26 yuan per degree of electricity, she said to the reporter with some excitement but some concern, “The local government can only dig in secret if they don’t agree, it’s too unstable.”

In fact, for such investments around the regulatory authorities have begun to alert. 24 December 2019, located in the western Sichuan Province, Ganzi Tibetan Autonomous Prefecture People’s Government issued a “Ganzi clean-up and rectification of bitcoin mining work program”.

At the end of February this year, the Inner Mongolia Autonomous Region Development and Reform Commission issued “on ensuring the completion of the “14th Five-Year” energy consumption double control target task of a number of safeguards (draft for comment)” proposed a comprehensive cleanup and shutdown of virtual currency mining projects, all out by the end of April.

In the context of the policy withdrawal, mining farms either choose to continue “mining” in secret, or choose to migrate to areas where the domestic attitude towards bitcoin mining is not yet clear, or even claim to be “going abroad”. While the choices vary, their immediate goal is strikingly the same – to attract investment by hook or by crook. They repeatedly emphasize that “now almost no retail investors can earn money, retail investors to invest their money in the hands of the mine, professional, large-scale ‘combat’, the initial investment of funds, to the contract period dividends”. Some even boast that they provide such arithmetic demolition and sale services for domestic A-share listed companies, absolutely safe.

“Choose the domestic commercial banks’ business loans, credit loans or the coin circle’s mining loans to buy mining machines, which are relatively much less risky than speculating on a coin blowout. The actual fact is that you can find a lot of people who are not able to get a lot of money from their friends and relatives. In a “mining” conference, the reporter saw the founder of a mining pool encouraging “miners” to use the loan to start mining machines to mine coins.

“90% of the people who speculate in coins lose money, speculation is equal to online gambling is equal to drug addiction, while mining machines have compliance contracts and VAT invoices, more compliance ……” Now, virtual coin mining (mining pools, mining farms, mining machine manufacturers composed of industry) people can be said to give investors over and over again brainwashing. However, for the investment disclosure issues involved, the authenticity issues, and the illegal fundraising risks that exist under this direct fundraising mining model, no one has ever taken the initiative to mention to the dumb investors outside the circle.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/the-currency-war-behind-the-chip-cut-off-bitcoins-two-pronged-attack-on-finance-and-industry/
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