Bitmain Invests over 8 Billion Yen into Mining Equipment! Exploring the Mining Risks Behind It
While Bitmain has announced a total investment in more than 200,000 mining devices, some have even questioned its growth. Behind this aggressive investment, large-scale restructuring is in progress, and because Bitmain is becoming more mainstream in equipment sales than mining, there is a dark cloud surrounding cryptocurrency mining.
Mining is seen as easy to join even with one PC and is known as a topic where anyone seems to be able to earn cryptocurrency. However, the fact is that there are many factors that threaten its future. In this article, I will talk about the risks of cryptocurrency mining.
Large scale mining farm “Bitmain” with approximately 8 billion Yen in additional investment
A major mining firm (trader) “Bitmain” invests approximately $80 million (approximately 880 billion Yen) and plans to deploy large-scale mining equipment in China. The number of devices will reach a total of 200,000, gaining even a stronger position in the cryptocurrency mining market.
(Reference: https://crypto-times.jp/bitmain-200000-unit-deployment/CryptoTimes, 2019/03/23, mining major Bitmain, it turns out that it plans to deploy mining equipment equivalent to $ 80 million)
Speaking of mining, it is a very familiar topic for cryptocurrency investors. Like Bitmain, large-scale mining firms borrow PC specs (computing capabilities) from such individual investors and win intense mining competitions for rewards.
These mining farm services are called mining pools. Users (individual investors, etc.) install software that mining farms have made easy, and then the calculation process will proceed automatically just by leaving a PC turned on. Then, according to the specifications of the PC, it is a system that pays out rewards for each miner. This mining pool can be used as an asset management vehicle with less risk, as (a part of) the mining rewards can be received even by people who only have one PC.
However, it is most important to consider the growth potential of the investment when conducting mining and trading cryptocurrency. For example, when buying a particular cryptocurrency, you will look into and find out more about that currency. Similarly, mining also has the risk of loss with no profit and failure if you are not careful and consider the risk potential. In that sense, it is true that there is a lot of information in mining that threatens growth potential. We will explore the risks below.
Really scary! Mining risks
Many people may think of mining when referring to cryptocurrency. Cryptocurrency mining has been widely recognized. What’s more, as long as you have a PC or smartphone, anyone can download and use the dedicated software, so the barrier for entry is low for a simple cryptocurrency investment.
However, mining also has major pitfalls and it is important to keep such risks in mind. Let’s talk about the risks in the next sections.
The mining rewards are cryptocurrency that is newly distributed (issued) in the market. For example, the maximum amount of Bitcoin issued is 21 million of which 80% is already in circulation.
If there is no halvening event as above and we are issuing new Bitcoin one after another and passing them on as mining rewards, it would reach the max limit of 21 million in just a few years. Therefore, about once every four years, the blockchain reduces the reward by half and adjusts it so as not to reach the max limit too quickly.
Mechanisms that cannot be earned as there are many market participants
In the current mechanism called mining pools, a major mining farm receives rewards and distributes part of it to each miner. As time goes by, the rewards received by each miner decreases and the costs (such as electricity bills) will eventually exceed the income (reward) resulting in a deficit. Even now, it is difficult to profit as the number of miner participants has increased and the per capita rewards has decreased.
Mining farm continuous restructuring
Bitmain, introduced at the beginning of this article, is restructuring which means they are reducing the number of employees while making a large investment in equipment as introduced earlier. In particular, three restructurings were conducted in a short period from December 2018 to February 2019 where 50% to 70% of employees were laid off.
(Reference: https://glotechtrends.com/bitmain-lay-off-190227/Glo Tech Trends, 2019/2/27, large restructuring on a bit main! Will cryptocurrency charismatic “Cold Jihan Wu” also say goodbye?)
Of course, the adoption of mining farms also adversely affects individual investors (miners). For miners who do not have large-scale facilities, high dependency on mining pool services provided by mining farms is a must. If profits from mining firms are lost, then the rewards received by the miners will be reduced or even become zero.
It can be seen that there are many major hurdles in the future of mining, such as the halvening events which occur once every four years, and restructuring of a major mining firms represented by Bitmain. Mining has exploded with the notion that cryptocurrency can be easily earned, but in reality is still not easy to profit from.
If you intend to invest in mining from now on, you can expect the future prospects to conduct asset management via lending (cryptocurrency lending) and funded investments. These methods, like mining, are less risky and are more stable than cryptocurrency trading. If you are finding it hard to make a profit in mining, why not switch to another method?