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2019Q1 CRYPTOCURRENCY MINING INDUSTRY QUARTERLY REPORT

April 2019

Analyst | Michael ZhongTokenInsight provides customized services such as commercial due diligence, project analysis, industry research, and more. For more information, please contact bd@tokeninsight.com or visit tokeninsight.com

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TABLE OF CONTENTSINTRODUCTION

1 Brief Introduction of Mining Pools and their Hashrate Rankings

1.1 Introduction of mining pools 4

1.2 Hashrate ratings 5

2 Is Mining Profitable at Present

2.1 Payoff periods of low power consumption miners 7

2.2 Prices of popular miners 8

2.3 Static payoff periods of popular miners 9

2.4 Dynamic payoff periods of BTC miners 10

2.5 Payoff periods of alternative coin miners 12

3 Cloud Mining VS Coin Purchasing — BitDeer and VeryHash

3.1 Costs of different cloud mining products 14

3.2 Clound mining VS Coin purchasing cost analysis 15

3.3 Innovative mining: cloud mining + contract hedging 16

4 Is Hedging Necessary When Mining in Bear Market

4.1 Why we need hedging? 17

4.2 How to hedge? 17

4.3 Where to hedge? 18

5 The Prediction on the Growth of Mining Diff iculty

5.1 30-50% rise in diff iculty and hash rate of BTC mining 19

5.2 30-80% rise in diff iculty and hash rate of ETH mining 19

5.3 20-80% rise in diff iculty and hash rate of LTC mining 20

5.4 60-20% rise in diff iculty and hash rate of DASH mining 20

5.5 300-700% rise in diff iculty and hash rate of ZEC mining 21

5.6 100-400% rise in diff iculty and hash rate of DCR mining 21

6 Hot Issues 22

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INTRODUCTION1. Innosilicon T3 43T is the best low power consumption BTC miner and has the

shortest payoff period among cryptocurrency mining machines, considering mining difficulties and the price of Bitcoin price on April 8th, 2019.

2. Given the severely fallen prices of some miners during this recent bear market and the low-cost of electric power, mining at the moment is highly profitable.

3. Taking both mining difficulty and rewards into consideration, the Antminer S17 currently has a relatively higher price and longer payoff period than the Antminer S15, which is the better choice at present. However, if the purchasing price of the Antminer S17 falls, it could be worth consideration.

4. The cost of BitDeer and VeryHash cloud Bitcoin mining are both less than $5,200, which means cloud mining is a better option than simply purchasing crypto. Meanwhile, in fear of a falling coin prices, profits can be ensured with a hedging contracts put into place.

5. Hedging is necessary when mining in a bear market.

6. The new mining regulation set into place by the National Development and Reform Commission, (NDRC), which might result in a large impact on hydro-mining farms during wet season, but only a small impact on thermo-mining.

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01.BRIEF INTRODUCTION OF MINING POOL AND HASHRATE RANKINGS

1.1 Introduction

1.1.1 DefinitionA mining pool, by definition, is the mining of resources by cryptocurrency miners, who work together to share processing power over a network. Mining rewards are then split equally according to the amount of work that contributed to the probability of finding a block. As more miners join Bitcoin’s network, the larger the hash rate increases, which in turn causes the hash rate of single pieces of mining equipment to be rather small when compared to that of the overall network, and therefore makes it more challenging to obtain block rewards. At the moment, the arrival of mining pools enables people to centralise their resources, produce faster blocks and fetch rewards in a timelier manner.

In a broad sense, mining pools can also be considered a platform, which people use to centralize their hashing power and share earnings accordingly. These services not only provided for cryptocurrencies using PoW (Proof of Work), but also for the cryptocurrencies using PoS (Proof of Stake) and DPoS (Delegated Proof of Stake) algorithms. Within AI computation, video card cloud renting services and sharing platforms, on which video card hash powers are centralized and computation tasks and profits are distributed, can be considered as a special mining pools.Even without blockchain technology, in AI computation, the video card cloud renting services and sharing platforms on which video card hash powers are centralized, and computation tasks and profits are distributed can be treated as special mining pool.

1.1.2 Major Clearing FormPPLNS (Pay Per Last N Shares)

PPLNS distributes profits according to miner workloads after blocks are found, which extricates mining pools from the risk of losing the mined Bitcoin paid in advance. However, with 144 BTC blockchain rewards each day, lower hashrates of mining pools may result in the instability of finding blocks and mining profits cleared through PPLNS.

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PPS (Pay Per Share)

After connecting their machines with a mining pool, people can distribute profits according to Proof-of Work. While profits are not related to block findings, but rather because of workload, the risk of instable block finding is now borne by the mining pool, rather than by miner owners, which, in other words, offers the owners a salary corresponding to their miners’ workload. Generally having a higher service fee than PPLNS, PPS distributes both block rewards and service fees to the mining owners.

1.2 Hash Rate RankingsAccording to TokenInsight analysis, BTC hashrate shares is regarded as a core metric for ranking overall comprehensive strengths of PoW mining pools. With BTC being the main cryptocurrency of pool-mining, most earnings of a mining pool usually depend on its BTC hash rate. Higher hash rates mean more capital is invested into a mining pool operation, which can result in better security, higher currency variety, more clearing forms, expanded ecosystem features such as wallet and exchanges, and more flow in advertising spending.

These advantages will correspondingly attract more hash power to join into mining pools, which is result in the so called "Matthew effect", which will eventually rule out those mining pools with a ranking outside of the top 15.

At the same time, while the trading volumes of the exchanges can be manipulated, the historical hash rates of the mining pools are recorded on blocks can hardly be tempered with. Therefore, BTC hash rates are an important core metric used for rating the comprehensive strength of a mining pool.

Some of the high-performance mining pools primarily provide services for video card miners on ETH and other cryptocurrencies such as Ethermine, SparkPool, Nanopool, and others.

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‣ Figure 1-1 The hash rate rankings of mining pools for BTC in the first quarter of 2019 until 2019/4/1

No.

Mining Pool

Hash rate Share

Hash rate Blocks Mined

Empty Blocks Count

Empty Blocks Percentage

Avg. Block Size (Bytes)

Avg. Tx Fees Per Block (BTC)

0 NETWORK 100.00% 45.81 EH/s 428 2 0.47% 0.385 3.08%

1 BTC.com 15.42% 7.06 EH/s 66 2 3.03% 0.376 3.01%

2 AntPool 14.02% 6.42 EH/s 60 0 0.00% 0.389 3.11%

3 Poolin 12.38% 5.67 EH/s 53 0 0.00% 0.375 3.00%

4 SlushPool 11.45% 5.24 EH/s 49 0 0.00% 0.386 3.09%

5 F2Pool 11.21% 5.14 EH/s 48 0 0.00% 0.377 3.02%

6 ViaBTC 6.78% 3.10 EH/s 29 0 0.00% 0.351 2.81%

7 BTC.TOP 6.07% 2.78 EH/s 26 0 0.00% 0.393 3.15%

8 BitFury 3.97% 1.82 EH/s 17 0 0.00% 0.489 3.91%

9 DPOOL 3.50% 1.61 EH/s 15 0 0.00% 0.419 3.35%

10 Huobi.pool 2.34% 1.07 EH/s 10 0 0.00% 0.369 2.95%

11 WAYI.CN 1.64% 749.22 PH/s 7 0 0.00% 0.537 4.30%

12 Bitcoin.com 1.40% 642.19 PH/s 6 0 0.00% 0.211 1.69%

13 BitClub 1.17% 535.16 PH/s 5 0 0.00% 0.187 1.50%

14 tigerpool 1.17% 535.16 PH/s 5 0 0.00% 0.491 3.93%

15 Bixin 0.93% 428.12 PH/s 4 0 0.00% 0.480 3.84%

16 sigmapool 0.47% 214.06 PH/s 2 0 0.00% 0.163 1.31%

17 KanoPool 0.23% 107.03 PH/s 1 0 0.00% 0.409 3.27%

18 unknown 5.84% 2.68 EH/s 25 0 0.00% 0.391 3.13%

Source: BTC. com

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02.IS MINING PROFITABLE AT PRESENT2.1 Payoff Periods of Low Power Consumption MinersIn the first quarter of 2019, leading manufacturers have released a lot of low power consumption miners. Here are the BTC miners with published prices, hash rates and power consumption figures:

At the current market rate, 1 BTC is roughly equal to $5,200 and the theoretical profit of 1T per day, thus being 0.00003933BTC of daily income, we can conclude that the miners with a power efficiency below 50J/T, like Innosilicon models, have the shortest payoff period at approximately 250 days. Ebang Ebit E11++ has an estimated 303-day payoff, and the Antminer S17 at 280 days.

Although, at present, the Antminer S17 and Ebang Ebit E11 both have better power efficiency, taking hash rate costs into account, the Innosilicon T3 43T, among those with a power efficiency less than 50J/T, remains the best choice.

‣ Figure 2-1 Payoff periods of low power consumption miners, (2019/4/8

Miner Manu-facturer

Power(W)

Hashrate(Th/s)

Power Efficiency(J/T)

Coin value ($)

Price(¥)

Unit Hashrate cost(¥)

Current Payoff Period: day

Antminer S17 Bitmain 2,520 56 45 5,200 15,960 280 280

Ebang Ebit E11++ Ebang 1,980 44 45 5,200 13,601 303 303

Innosil icon T3 43T

Innosil icon 2,100 43 49 5,200 10,618 250 250

Source:Bitmain official website, Innosilicon official website, Ebang Mall.

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2.2 Prices of Popular Miners

When mining the same cryptocurrency, miners with a lower power efficiency usually have a higher unit hash rate cost. For instance, the power efficiencies of Antminers S17 and S9 are respectively 45J/T and 100J/T, while the unit hash rate costs of each one is 285 RMB/T and 81 RMB/T, which means that better power efficiency is usually accompanied by more expensive hash rates, but not necessarily a shorter payoff period.

‣ Figure 2-2 Prices and power consumption of popular miners (2019/4/8)

Coin Miner Manu-facturer

Power: W Hashrate

Power Efficiency: J/T

Price: RMB

Unit Hashrate Cost: /T

BTC/BCH

Antminer S17 Bitmain 2,520 56 Th/s 45 J/T 15,960 285

Ebang Ebit E11++ Ebang 1,980 44 Th/s 45 J/T 13,601 309

Innosil icon T3 43T

Innosil icon 2,100 43 Th/s 49 J/T 10,618 247

Antminer S15 Bitmain 1,596 28 Th/s 57 J/T 5,230 187

MicroBT Whatsminer M10

PangolinMiner 2,145 33 Th/s 65 J/T 5,800 176

AvalonMiner 921 Canaan 1,700 20.0 Th/s 85 J/T 1,850 93

AvalonMiner 841 Canaan 1,290 13.6 Th/s 95 J/T 880 65

Antminer S9 Bitmain 1,350 13.5 Th/s 100 J/T 1,100 81

AvalonMiner 851 Canaan 1,450 14.5 Th/s 100 J/T 960 66

Antminer T9+ Bitmain 1,332 10.5 Th/s 127 J/T 550 52

ETH/ETC

Antminer E3 (190Mh) Bitmain 760 190 Mh/s 4.00 J/M 2,000 10.5

PandaMiner B3 Mute

PandaMiner 1,150 230 Mh/s 5.00 J/M 2,200 9.6

LTC

Innosil icon A4+ LTCMaster

Innosil icon 750 620 Mh/s 1.21 J/M 650 1.05

Antminer L3+ (600Mh) Bitmain 800 504 Mh/s 1.59 J/M 720 1.43

Antminer L3++ (596Mh) Bitmain 942 580 Mh/s 1.62 J/M 770 1.33

DASH

FusionSilicon X7 Miner

FusionSilicon 1,420 262 Gh/s 5.42 J/G 11,340 43.3

Spondoolies SPx36

Spondoolies 4,400 540 Gh/s 8.15 J/G 27,216 50.4

ZEC/ZEN

Antminer Z11 Bitmain 1,418 135 ksol/s 10.50 J/ksol 10,500 78

Innosil icon A9 ZMaster

Innosil icon 620 50 ksol/s 12.40 J/

ksol 5,300 106

Antminer Z9 Bitmain 970 42 ksol/s 23.10 J/ksol 3,700 88

DCR MicroBT Whatsminer D1

PangolinMiner 2,200 48 Th/s 45.83 J/G 5,800 121

Source: Nanchang Renuo official website, Bitmain official website, AvalonMiner Mall, Innosil icon official website, etc.

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2.3 Static Payoff Period of Popular MinersConsidering no difficulty in growth, this calculation was based off the electricity price of 0.35 RMB/KWh and the token value and difficulty calculated on April 8th, 2019.

We found that when taking no consideration of difficulty growth, the miners with the shortest payoff periods usually did not have the lowest power efficiency, and are often those on the edge of being eliminated, which, in most cases, have a rather low unit hash rate cost.

In BTC mining, AvalonMiner 841 has the shortest payoff period of 108 days.In ETH/ETC mining Antminer E3 Asic and PandaMiner B3 Mute, 132 days.In LTC mining Innosilicon A4+ LTCMaster, 70 days.In DASH mining FusionSilicon X7 Miner, 177 days.In ZEC/ZEN mining, Antminer Z11 published in March, 75 days.In DCR mining, MicroBT Whatsminer D1, 123 days.

‣ Figure 2-3 Static payoff periods of popular miners (2019/4/8

Coin Miner Manufacturer Power: W Hashrate

CoinValue

$

Static PayoffPeriod: day

BTC/BCH

Antminer S17 Bitmain 2,520 56 Th/s 5,200 280

Ebang Ebit E11++ Ebang 1,980 44 Th/s 5,200 303

Innosil icon T3 43T Innosil icon 2,100 43 Th/s 5,200 250

Antminer S15 Bitmain 1,596 28 Th/s 5,200 203

Whatsminer M10 Pangolin 2,145 33 Th/s 5,200 207

AvalonMiner 921 Canaan 1,700 20.0 Th/s 5,200 135

AvalonMiner 841 Canaan 1,290 13.6 Th/s 5,200 108

Antminer S9 Bitmain 1,350 13.5 Th/s 5,200 146

AvalonMiner 851 Canaan 1,450 14.5 Th/s 5,200 119

Antminer T9+ Bitmain 1,332 10.5 Th/s 5,200 158

ETH/ETC

Antminer E3 (190Mh) Bitmain 760 190 Mh/s 175 132

PandaMiner B3 Mute PandaMiner 1,150 230 Mh/s 175 134

LTC

Innosil icon A4+ LTCMaster Innosil icon 750 620 Mh/s 88 70

Antminer L3+ (600Mh) Bitmain 800 504 Mh/s 88 121

Antminer L3++ (596Mh) Bitmain 942 580 Mh/s 88 116

DASHFusionSilicon X7 Miner FusionSilicon 1,420 262 Gh/s 131 177

Spondoolies SPx36 Spondoolies 4,400 540 Gh/s 131 227

ZEC/ZEN

Bitmain Antminer Z11 Bitmain 1,418 135 ksol/s 70 75

Innosil icon A9 ZMaster Innosil icon 620 50 ksol/s 70 104

Bitmain Antminer Z9 Bitmain 970 42 ksol/s 70 95

DCR Whatsminer D1 PangolinMiner 2,200 48 Th/s 25 123

Source Nanchang Renuo official website, Bitmain official website, AvalonMiner mall, Innosil icon official website, etc.

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2.4 Dynamic Payoff Periods of BTC MinersTaking 1%, 2% and 3% difficulty growth rates into consideration respectively, these calculations are based on the electricity price of 0.35 RMB/KWh and value of the tokens and difficulty on April 8th, 2019.

Each time there is a 2% rise in hashing difficulty, it’s not hard to see that the lower power consumption miners have a better ability to gain back investment. Although their high consumption counterparts, among which the AvalonMiner 841 and 851 can be purchased at second-hand prices lower than Antminer S9, and therefore have a relatively shorter payoff periods at such prices.

‣ Figure 2-4 Dynamic payoff periods of BTC miners – with 2% growth in difficulty each time 2019/4/8

Miner Manu-facturer

Power: W

Hashrate: T

Coin Value:$

Power Efficiency J/T

Price Unit Hashrate cost /T

Payoff Period

day

Payoff/T

Payoff Percentage

Antminer S17

Bitmain 2,520 56 5,200 45 15,960 285 504 330 116%

Ebang Ebit E11++

Ebang 1,980 44 5200 45 13,600 309 603 330 107%

Innosil icon T3 43T

Innosil icon 2,100 43 5200 49 10,600 247 420 304 123%

Antminer S15 Bitmain 1,596 28 5200 57 5,230 187 309 251 134%

Whatsminer M10

Pangolinminer 2,145 33 5200 65 5,800 176 351 206 117%

AvalonMiner 921 Canaan 1,700 20 5200 85 1,850 93 211 118 127%

AvalonMiner 841 Canaan 1,290 13.6 5200 95 880 65 168 85 132%

Antminer S9 Bitmain 1,350 13.5 5200 100 1,100 81 ∞ 71 87%

AvalonMiner 851 Canaan 1,450 14.5 5200 100 960 66 224 71 107%

Antminer T9+ Bitmain 1,332 10.5 5200 127 550 52 ∞ 18 35%

Source: Nanchang Renuo official website, Bitmain official website, AvalonMiner mall Innosil icon official website, etc.

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When the hashing difficulty increases up to 3%, all miners fail to gain investment back. The low consumption miners, however, have an overall better performance than high consumption ones. For instance, Antminer S15 has a payoff percentage as high as 91%.

When difficulty grows moderately at approximately 1% each time, miners all produce considerable profits. Although, an exception can be made for the poor performance of the Antminer T9+.

Furthermore, with 1%-3% growth in hashing difficulty, the Antminer S15 performs better than S17, which reveals the low-cost efficiency of the S17. At this moment, we advise investors to buy S15 instead of S17.

‣ Figure 2-5 Dynamic payoff periods of BTC miners – with 1% and 3% growth in difficulty each time 2019/4/8

Miner Manufa-cturer

1% of diff iculty growth each time 3% of diff iculty growth each time

Payoff period: day

Payoff/T: RMB

PayoffPercen-

tage:

Payoff Periodday

Payoff/T

Payoff Percen-tage

Antminer S17 Bitmain 364 508 2 ∞ 224 79%

Ebang Ebit E11++ Ebang 393 508 2 ∞ 224 72%

Innosil icon T3 43T Innosil icon 322 481 2 ∞ 205 83%

Antminer S15 Bitmain 253 424 2 ∞ 170 91%

Whatsminer M10

Pangolinminer 266 369 2 ∞ 140 80%

AvalonMiner 921 Canaan 169 230 2 ∞ 80 87%

AvalonMiner 841 Canaan 140 166 3 ∞ 58 90%

Antminer S9 Bitmain 210 137 2 ∞ 48 59%

AvalonMiner 851 Canaan 155 137 207% ∞ 48 73%

Antminer T9+ Bitmain ∞ 35 1 ∞ 13 25%

Source: Nanchang Renuo official website, Bitmain official website, AvalonMiner mallInnosil icon official website, etc.

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2.5 Payoff Periods of Miners for AltcoinsHere is a list of the current and record-high difficulties introduced in the table below

We noticed that the current difficulties in mining ETH, DASH, ZEC and DCR are all lower than the record-high ones and due to the Constantinople update, the gap between the current and record-high difficulty of mining ETH is the largest.

However, whether in a bull or bear market, mining DCR and ZEC/ZEN is becoming more and more difficultly with a stable growth rate. As to LTC and Dash, with their given recovery to the market, mining difficulty is gradually approaching a record level high and still growing.

‣ Figure 2-6 The current and record-high difficulties of mining other PoW coins (2019/4/8)

Coin Miner Manu-facturer

Power: W Hash rate Current

Diff iculty

Record-high Diff iculty

Diff iculty Unit

Record-high Diff iculty/Current Diff iculty

ETH/ETC

Antminer E3 (190Mh) Bitmain 760 190 Mh/s

1815 3606 T 1.99PandaMiner B3 Mute PandaMiner 1150 230 Mh/s

LTC

Innosil icon A4+ LTCMaster Innosil icon 750 620 Mh/s

12 11.88 M 1.00Antminer L3+ (600Mh) Bitmain 800 504 Mh/s

Antminer L3++ (596Mh) Bitmain 942 580 Mh/s

DASH

FusionSilicon X7 Miner FusionSilicon 1,420 262 Gh/s

96 118.1 M 1.23Spondoolies SPx36 Spondoolies 4,400 540 Gh/s

ZEC/ZEN

Antminer Z11 Bitmain 1,418 135 Ksol/s

40 57.06 M 1.43Innosil icon A9 ZMaster Innosil icon 620 50 ksol/s

Antminer Z9 Bitmain 970 42 ksol/s

DCR Whatsminer D1 Pangolinminer 2,200 48 Th/s 28 34.31 G 1.24

Source: Nanchang Renuo official website, Bitmain official website, Avalonminer mall, Innosil icon official website, etc.

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With our calculations based on the electricity price of 0.35RMB/KWh and current token price, we can find out whether mining remains profitable when difficulty reaches a certain degree. Presume that the difficulty of mining POW becomes "n times" of record-high one:

When n<1.5, Innosilicon A4+ Antminer Z11, L3+ and L3++ have relatively shorter payoff periods.

When n=2.0, however, some miners will be shut down for their negative profit.

‣ Figure 2-7 Payoff periods of miners for other POW coins (2019/4/8

‣

Coin Miner Manu-facturer

Power: W Hash rate

When difficulty/record-high difficulty=n, Payoff Period: day

n=1 n=1.3 n=1.5 n=2.0

ETH/ETC

Antminer E3 (190Mh) Bitmain 760 190 Mh/s 450 1,027 2,390 ∞

PandaMiner B3 Mute

PandaMiner 1,150 230 Mh/s 637 5,166 ∞ ∞

LTC

Innosil icon A4+ LTCMaster

Innosil icon 750 620 Mh/s 70 115 159 438

Antminer L3+ (600Mh) Bitmain 800 504 Mh/s 121 239 419 ∞

Antminer L3++ (596Mh) Bitmain 942 580 Mh/s 116 234 429 ∞

DASH

FusionSilicon X7 Miner

FusionSilicon 1,420 262 Gh/s 228 319 389 600

Spondoolies SPx36

Spondoolies 4,400 540 Gh/s 301 446 568 1,019

ZEC/ZEN

Antminer Z11 Bitmain 1,418 135 Ksol/s 89 119 141 198

Innosil icon A9 ZMaster

Innosil icon 620 50 ksol/s 124 167 197 281

Antminer Z9 Bitmain 970 42 ksol/s 115 161 197 307

DCR MicroBT Whatsminer D1

Pangolinminer 2,200 48 Th/s 169 261 346 729

Source: Nanchang Renuo official website, Bitmain official website, Avalonminer mall, Innosil icon official website, etc.

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03 .CLOUD MINING VS COIN PURCHASING — BITDEER AND VERYHASH Bitdeer and Veryhash were some of the biggest representatives in cloud mining during the first quarter of 2019. Based on these two examples, we analyzed the cost and the service logic of cloud mining. Cloud mining lowers the threshold of mining and makes this industry become more and more user friendly.

Cloud mining platforms manage the entire mining process for their clients, including miner purchasing, logistics services, electricity supply, mining pool selection and machine maintenance. Furthermore, these packages are flexible, for instance, clients are free to choose favored mining pools with a 4% service fee on BitDeer and 1% on VeryHash. Now that cloud mining lowers the threshold for investors to obtain cryptocurrencies, as compared to directly purchasing coins from exchanges. Which is the better deal?

3.1 Costs of Different Cloud Mining Products‣ Figure 3-1 Prices of BitDeer and VeryHash products

Platform Machine model

Power Efficiency

Lease Term: day

Hash-rate:

T

Unit Hashrate rent: $ T/

day

Unit Hash rate Electricity Fee: $T/day

Total Rent: $

Electricity Fee: $

BitDeer S17 45 J/T 120 50 0.0882 0.0645 529 375BitDeer S17 45 J/T 180 50 0.0813 0.0645 732 563BitDeer S17 45 J/T 240 50 0.0755 0.0645 906 751BitDeer S17 45 J/T 360 50 0.0705 0.0645 1,269 1,126BitDeer S15 57 J/T 120 50 0.063 0.097 378 565BitDeer S15 57 J/T 180 50 0.0582 0.097 524 847BitDeer S15 57 J/T 240 50 0.054 0.097 648 1,129BitDeer S15 57 J/T 360 50 0.0504 0.097 907 1,694BitDeer S11 71 J/T 360 10 0.0289 0.100 104 349BitDeer S11 71 J/T 360 30 0.0289 0.100 312 1,048BitDeer S11 71 J/T 360 50 0.0289 0.100 520 1,746BitDeer S11 71 J/T 360 100 0.0289 0.100 1,040 3,492BitDeer S9 100 J/T 60 10 0.0185 0.130 11 76BitDeer S9 100 J/T 60 20 0.0185 0.130 22 151BitDeer S9 100 J/T 60 30 0.0185 0.130 33 227BitDeer S9 100 J/T 60 50 0.0185 0.130 56 390VeryHash S15 57 J/T 120 50 0.063 0.095 378 570VeryHash S15 57 J/T 180 50 0.0582 0.095 524 855VeryHash S15 57 J/T 240 50 0.054 0.095 648 1,140VeryHash S15 57 J/T 360 50 0.0504 0.095 907 1,710Source: bitdeer.com, veryhash.com

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A longer lease time indicates a lesser unit hash rate rental, which however, can be pushed up by renting more advanced machines. Taking different machine models and lease time into account, how much does mining BTC through BitDeer and VeryHash platforms cost?

3.2 Cloud Mining VS Coin Purchasing on Cost Level

How about electricity cost? We notice that for each different machine model, the electricity fee is charged differently. For the Antminer S17 and S11, it is 0.4 RMB/KWh while for S15, 0.48 RMB/KWh and S9, 0.36 RMB/KWh.

Setting aside growth difficulty, the cloud mining costs are all less than the current BTC price of $5,200.

Even with a 60% growth in difficulty (though the probability of that happening in 2019, as discussed in part 5, is small), that would mean the average difficulty going up 1.3 times of the current one, and we still would reach the same conclusion - that the cost of BTC mining is less than the current token price.

‣ Figure 3-2 Mining costs of 1 BTC of BitDeer and VeryHash products

Platform

Machine Model

Power Efficienc

y

Lease

Term: day

Numbers of

Hash

Pow

Electricity Price:

/KWh

Total Fee: BTC

Production

When Avg. difficulty/Current difficulty=n, the cost $

n=1.0 n=1.3 n=1.5BitDeer S17 45 J/T 120 50 0.401 905 0.227 3,993 5,191 5,990BitDeer S17 45 J/T 180 50 0.401 1,295 0.340 3,810 4,953 5,715BitDeer S17 45 J/T 240 50 0.401 1,657 0.453 3,657 4,754 5,485BitDeer S17 45 J/T 360 50 0.401 2,395 0.680 3,524 4,582 5,286BitDeer S15 57 J/T 120 50 0.476 943 0.227 4,161 5,409 6,241BitDeer S15 57 J/T 180 50 0.476 1,371 0.340 4,033 5,243 6,050BitDeer S15 57 J/T 240 50 0.476 1,777 0.453 3,922 5,099 5,883BitDeer S15 57 J/T 360 50 0.476 2,601 0.680 3,827 4,975 5,740BitDeer S11 71 J/T 360 10 0.394 453 0.136 3,334 4,335 5,002BitDeer S11 71 J/T 360 30 0.394 1,360 0.408 3,334 4,335 5,002BitDeer S11 71 J/T 360 50 0.394 2,266 0.680 3,334 4,335 5,002BitDeer S11 71 J/T 360 100 0.394 4,532 1.359 3,334 4,335 5,002BitDeer S9 100 J/T 60 10 0.364 87 0.023 3,830 4,979 5,745BitDeer S9 100 J/T 60 20 0.364 174 0.045 3,830 4,979 5,745BitDeer S9 100 J/T 60 30 0.364 260 0.068 3,830 4,979 5,745BitDeer S9 100 J/T 60 50 0.364 446 0.113 3,933 5,113 5,900VeryHash S15 57 J/T 120 50 0.467 948 0.234 4,058 5,275 6,087VeryHash S15 57 J/T 180 50 0.467 1,379 0.350 3,935 5,115 5,902VeryHash S15 57 J/T 240 50 0.467 1,788 0.467 3,827 4,975 5,740VeryHash S15 57 J/T 360 50 0.467 2,617 0.701 3,734 4,855 5,601VeryHash S15 57 J/T 240 50 0.467 1,788 0.467 3,827 4,975 5,740VeryHash S15 57 J/T 360 50 0.467 2,617 0.701 3,827 4,855 5,601

Source bitdeer.com, veryhash.com

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For instance, leasing the BitDeer S17 package for a duration of 360 days, the cost of mining 1 BTC will only be $4,582, even with an average difficulty 1.3 times higher than the current one, which illustrates that, while being fully aware of the growing difficulty, it is cheaper to mine with cloud hash power than to purchase tokens directly from exchanges.

3.3 Innovative Mining: Cloud Mining + Contract HedgingCloud mining is accompanied by two major risks, the rise in hashing difficulty and falling token prices. In a bear market, while the hashing difficulties typically grow at a small rate, token prices have a large possibility of volatility.

When the coin price falls, keeping a long-term rental contract of cloud hash power involves the risk of losing money. Given a lease time of 360 days, 1 BTC has been mined at a cost of $4,582, which means that all the mining will be non-profitable when the BTC price falls below $4,000.

Investors are allowed to hedge their input through a contract, if the extreme fear of falling coin price occurs. With the current rate of 1BTC=$5,200, selling out all mined BTC can directly ensure a gross profit of $618 ($5,200-$4,582).

When BTC price keeps declining and the network hash rate growth remains less than 60%, which is less than 1.3 times of the current one, we can mine 1 BTC with costs below $4,398, which means that through hedging, a gross profit of more than $618 can be ensured.

Of course, for those keeping a lasting optimistic attitude towards BTC price, hedging is not necessary.

Readers can get the information on hedging by referring to the following text.

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04 .IS HEDGING NECESSARY WHEN MINING IN A BEAR MARKET

4.1 Why Do We Need HedgingWhile a bear market is unpredictably unfathomable, temporary price rise does not ensure an overall warming of the market and is different from cryptocurrency trader, mining investors are mostly in pursuit of a stable and long-term profit.

The cost of purchasing miners could be taken as an option which allows the investors to obtain BTC at the mere cost of electricity which is normally less than that of exchanges. Though it is risky to hold cryptocurrency due to its unstable future price, selling the future-obtained cryptocurrency in advance, can ensure part of the mining profit in the future market.

4.2 How To HedgeFor example, assuming that an investor has a prospect of gaining 1 BTC in three months, with the current rate of 1 BTC to $5,000 and his cost of $3,500, he will have a theoretical gross profit of $1,500. However, the fact is that after 3 months, the BTC price has fallen to $2,500, which on the contrary leads to not only zero profits, but also a loss of 1,000$. If the investor wants to guarantee a profit of 1500$, what should he do?

He can follow the procedures of HBDM contract trading: in the case of 1BTC=$5,000, purchasing 50 contracts that have a face value of 5,000$ while each contract has a market value of $100.

Assuming that BTC price falls to $4,000 in three months

The profit of contracts could be 100 dollar face value /5,000 dollar settlement price -100 dollar face value /4,000 dollar open price *50 contract number =0.25 BTC, the number of BTC for sale is 1+0.25=1.25, which is worth 1.25BTC*$4000/BTC=$5,000.

Assuming that BTC price rises to $6,000 in three months:

The profit of contract could be 100 dollar face value /5,000 dollar settlement price -100 dollar face value /6000 dollar open price *50 contract number = -0.1667 BTC, the number of BTC for sale is 1-0.1667=0.8333, which is worth 0.8333BTC*$6,000/BTC=$5,000.

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In a bull market, it is not as suitable to hedge. Firstly, hedging means selling Bitcoins at a relatively low cost in advance. Secondly, mining difficulty grows quicker within the bull market, and the expected 1 BTC probably turns out to be 0.8, adding a 0.1667BTC loss caused by the coin price rising from $5000 to $6000, and the number of BTC being actually sold is 0.8-0.1667=0.6333, which is now only worth 0.6333BTC*$6000/BTC=$3800.

In fact, 40 contracts are adequate for hedging 0.8 BTC at a rate of 1BTC=$5000, which causes only a loss of 0.1333 BTC less than 0.1667BTC. A wrong estimate on BTC production will lead to a greater loss in hedging during a bull market.

In bear market, however, hedging is greatly advantageous as miner manufacturers lack the motive for over production, thus the growth of hash rate and difficulty is to some extent predictable, which can then facilitate the estimation of token production costs. Meanwhile, considering falling token prices, hedging can help investors to ensure their profit in advance, which makes life in bear market a little better.

4.3 Where To Hedge?While there are numerous contract trading organizations currently on the market, how can one make the right choices? Technically, we should choose those with a profound market share and a low service fee. Most importantly, those without malicious acts, such as HBDM, OKEx, BitMex, GAEA, Gate, MXC.

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05.THE GROWTH PREDICTION OF MINING DIFFICULTY

5.1 30%-50% Rise in Difficulty and Hash Rate of BTC MiningDuring wet season, thanks to the decreasing hydro-electric cost and warming of the token market, machines such as the MicroBT Whatsminer M3, the Antminer S9 and T9 were all shut down. At the end of 2018, operations will resume and manufactures will publish new models of lower consumption miners.

Difficulty adjustments during the first and second quarter of 2019 are to be expected. The last bull market period of BTC lead to a large remnant of hash power, which is impossible to be multiplied by the capacity of Samsung and TSMC chips.

BTC mining has an average network hash rate of 45.76EH/s and a current difficulty of 6.39T, which is expected to exceed its previous record-high of 7.46T, corresponding to an average hash rate of 53.33 EH/s

By conservative estimation, by the end of 2019, BTC mining hash rates could grow by 30% at most to 59EH/s with difficulties rising to 8.31T.

In optimistic estimate, by the end of 2019, BTC mining hash rate could grow by 50% at most to 68EH/s with the difficulty to 9.59T.

5.2 30%-80% Rise in Difficulty and Hash Rate of ETH MiningThrough calculations based on an electricity fee of 0.35 RMB/KWh and a 40% mining share of popular ETH miners, the payoff period of second-hand miners is approximately 150 days. And due to the price of second-hand miners around 2000 RMB, which is lower than the overall production cost, and manufacturers will not build new machines. Moreover, as Linzhi and Bitmain have not yet revealed their new production plans, we believe that it is less likely for ETH mining to go back to a record-high level hash rate.

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Current difficulties seen in ETH mining is about 1815T, corresponding a network hash rate of 135TH/s while the record-high is 295TH/s.

By conservative estimation, by the end of 2019, ETH mining hash rate could grow by 30% at most to 175TH/s with a difficulty of 2360T.

By optimistic estimation, by the end of 2019, ETH mining hash rate could grow by 80% at most to 243TH/s with a difficulty of 3267T.

5.3 20%-80% Rise in Difficulty and Hash Rates of LTC MiningIn response to the rapid growth of LTC price, second-hand LTC miners have seen a price upsurge. A second-hand Antminer L3+ is nowadays selling at about 700 RMB, which is still lower than production cost, adding to the LTC mining rewards, manufacturers have no interest in expanding production, which means that de-stocking LTC miners is currently one of the main emphasis of its market circulation.

Current LTC mining has a difficulty of 11.88M and a hash rate of 357TH/s. That is a little over the highest record of 343TH/s

By conservative estimation, by the end of 2019, LTC mining hash rate could grow by 20%, at most to 428TH/s with a difficulty of 14.26T.

By optimistic estimation, by the end of 2019, LTC mining hash rate could grow by 80% at most to 642TH/s with a difficulty of 21.38T.

5.4 60%-200% Rise in Difficulty and Hash Rate of DASH MiningDASH mining hash rates show an uptrend as its token price has been heavily increasing. The Antminer D5, was released by Bitmain in Novermber 2018. During this time, market prices were significantly lower and Bitmain was having trouble offloading these miners. Now that the market has recovered and Dash's token price has recovered extremely well, people are standing in line trying to get their hands on this machines. Based on 0.35 RMB/KWh, the D5 has an electricity fee accounting for 40% of total cost. DASH mining hash rates are expected to rise if Bitmain keeps restocking these machines. Furthermore, the delivery of FusionSilicon's X7 Miners in April, which have a power cost of 16%, will cause a massive increase to mining hash rates of Dash in 2019. The record-high difficulty of DASH mining is 118M and the corresponding hash rate is 3.24PH/s

Current DASH mining has a difficulty of 95.84M and a hash rate of 2.94PH/s.

By conservative estimation, by the end of 2019, DASH mining hash rate could grow by 60% at most to 4.7PH/s with a difficulty of 153M.

By optimistic estimation, by the end of 2019, DASH mining hash rate could grow by 200% at most to 5.9PH/s with a difficulty of 192M.

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5.5 300%-700% Rise in Difficulty and Hash Rate of ZEC MiningWith the warming of the current market, the hash rate of ZEC mining keeps increasing. The mainstream miners like innosilicon A9 and Z9, have their respective pricing of 5300 RMB and 3700 RMB, electricity fees accounted for 9% and 17% of their total cost and payoff periods of 104 and 95 days. As to the Antminer Z11 released by Bitmain in March 2019, it was selling at a price of 10500 RMB and has an electricity fee, with a rate of 0.35 RMB/KWh, accounting for 7.88% of its total cost and a payoff period of 75 days. As Antminer Z11 performs well in recovering investment, it is expected to bring forth large amount of ZEC hash rate while the record-high is 3.13GH/s, with a record-high difficulty of 57.06M

Current ZEC mining has a difficulty of 49M and a hash rate of 2.82GH/s.

By conservative estimation, by the end of 2019, ZEC mining hash rate could grow by 300% at most to 11.3GH/s with a difficulty of 160M.

By optimistic estimation, by the end of 2019, ZEC mining hash rate could grow by 700% at most to 22.6GH/s with a difficulty of 320M.

5.6 100%-400% Rise in Difficulty and Hashrate of DCR MiningDue to the improvement of DCR miners, in 2018, both in bear and bull markets, mining hash rates kept going up. At present, MicroBT Whatsminer D1, with the lowest power consumption, has an electricity fee accounting for 28% cost and a payoff period of 123 days.

In light of the sound ability of input retrieval through existing miners, DCR mining s and difficulty will probably continue to gather momentum fiercely in 2019. The record-high difficulty of DCR miner is 34.31G, with record-high hash rate of 493PH/s

Current DCR mining has a difficulty of 27.59G and a hash rate of 396PH/s.

By conservative estimation, by the end of 2019, DCR mining hash rate could grow by 100% at most to 793PH/s with a difficulty of 55G.

In optimistic estimate, by the end of 2019, DCR mining hash rate could grow by 400% at most to 2379PH/s with a difficulty of 166G.

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06.HOT ISSUES1. On April 8th, 2019, Bitmain officially released the Antminer S17 Pro, with the second

generation 7 nm chip into the market. The Bm1397, S17 in standard mode has a hash rate of 53 TH/s and an EER (energy efficiency ratio) of 39.5 J/T, which is the lowest at present.

2. On April 8th, 2019, the National Development and Reform Commission lifted its ban on <Industrial Structure Adjustment Guidance Catalogue> in which “virtual currency mining” was labelled as an illegal industry. The consultation period of this Exposure Draft is dated 2019/4/8 to 2019/5/7. In case of approval and implementation, tremendous impacts will be caused on the mining industry, especially on the hydro-electric mining farms.

3. On March 30th, 2019, the New Era Mining Summit was held in Chengdu, China, promoting the golden period of mining industry during wet season. At the summit, the Ebang Ebit E11++ was revealed. Applied with Samsung’s 10nm microchip technology, it was officially announced to have a hash rate of 44t and a power efficiency of 45W/T. The main participants were electricity suppliers, mining farm managers, miner agencies, power source maintainers, wallets, quantitative trading exchanges and other peripheral facilities.

4. On March 28th, 2019, the POW'ER Chinese Blockchain Contributor Annual Summit was held in Chongqing, China. Excellent speeches were delivered by guests around the topics of global development, business application, technology, consensus mechanism and other blockchain technology topics. During the summit, heated discussions were held about technology, participation of leading companies, stable tokens, platform tokens, blockchain investments, bitcoin price and other hot topics. Hereafter, <2018-2019 Yearbook of Chinese Blockchain Industry> was published.

5. On March 1st, the Constantinople network of Ethereum finished its update at 3:52 am Beijing time, with block rewards decreasing from 3 ETH to 2 ETH and mining reward shrinking by a third.

6. In February 2019, Innosilicon revealed its ASIC miners and put them on sale. The final specifications and delivery dates will be confirmed mid-to-end of April.

7. In January 2019, Beam and Grin which adopt Mimblewimble protocol were put online in mainnet.

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