Inside a Chinese Bitcoin Mine That's Grossing $1.5M a Month

http://motherboard.vice.com/read/chinas-biggest-secret-bitcoin-mine?gble

by wr1472 • 11 years ago

146 96 11 years ago

motherboard.vice.com

GlickWick• 11 years ago

Very misleading title. It's grossing $1.5M per month. You still need to subtract operating costs, which will be substantial in a bitcoin mine. I'm sure power/land/cooling/etc is cheaper in rural China than many other places in the world, but there's no way it's free.

wgx• 11 years ago

$80,000 per month electricity bill is mentioned in the video. Sheesh.

ShannonSofield• 11 years ago

$80K per site. They are running six sites = $480K

Cthulhu_• 11 years ago

Not to mention they should've just mentioned 4000 BTC/month, instead of matching it with an USD price. Bitcoin is a currency, its USD value is highly volatile.

BillinghamJ• 11 years ago

But also that changes as the difficulty factor increases.

downandout• 11 years ago

Let's not forget the likely multi-million dollar hardware investment as well. They have 3,000 ASIC miners (although investing in mining equipment that can be used for mining multiple currencies is far better imo than simply buying Bitcoins).

unreal37• 11 years ago

It's what they were making per month in October 2014. How is that misleading? Their costs don't appear to be that substantial if you watch the video.

sctb• 11 years ago

Thanks, we updated the title to be less misleading. The article states, "... generated 4,050 bitcoins a month, equivalent to a monthly gross of $1.5 million".

giarc2• 11 years ago

It's not really misleading since they say "grossing" 1.5M per month.

andrewchambers• 11 years ago

They changed the title, it used to say "making".

hristov• 11 years ago

And with current bitcoin prices they are now down to less than a million per month. These are the perils of bitcoin mining.

flatline• 11 years ago

Was making $1.5mm, in October of last year. There are some off the cuff calculations in the reddit thread [0] that indicate the same setup would currently be netting only about a tenth of that amount now.

0 - http://www.reddit.com/r/Bitcoin/comments/2v02n9/life_inside_...

etrain• 11 years ago

Based on the video, it looks like these guys likely swap out for the newest equipment as soon as it makes sense economically.

If I were making such an investment, I'd think carefully about the rate of computational depreciation (which is predictable) and probably hedge on the price of power. The only unpredictable thing in this setup is the price of bitcoin, which I believe they're extremely bullish on long term. You could probably figure out a way to hedge that, too, if you could find someone to take the action.

big_paps• 11 years ago

What a depressing business. Making money out of noise, and warm air ...

criloz2• 11 years ago

What a naive comment...

LunaSea• 11 years ago

Explain how he's wrong ?

imaginenore• 11 years ago

And processing transactions. And increasing security.

raverbashing2• 11 years ago

Increasing security how?

It seems a pointless waste of electricity and human effort, but justifiable with the current bitcoin prices.

ceejayoz• 11 years ago

And increasing security.

Only for the Bitcoin network, which is like saying that putting a fence and armed guards around a plot of industrial wasteland is inherently good because it increases security.

ryanlol• 11 years ago

You don't need miners to process transactions.

emiliobumachar3• 11 years ago

True enough, but how does it compare to literal mining, as in gold mines? I would guess that Bitcoin mining is greener.

lmm4• 11 years ago

Gold miners have incentives to be more efficient about it. And realistically the 21st-century alternative isn't gold bullion, it's Visa - which I'd submit is a whole lot greener.

wpietri4• 11 years ago

The difference being that the gold was put there by natural processes, whereas bitcoins are purely artificial. It's more like spending a lot of money to win an easter egg hunt.

exo762• 11 years ago

Comparing to amount of waste (cost of operations) of regular banking system and direct harm from banking system to society (influencing politics, strong-arming rest of players on the market), cost of bitcoin as network is a chump change. I'm not saying that it replaces banking system and two numbers should not be compared directly, but I believe that it can heal it banking system by introducing greater transparency and taking away control of money from banks.

kruczek• 11 years ago

Well, it's about as depressing as assigning arbitrary value to gold or silver (or paper!) and using it as money.

tacojuan• 11 years ago

The thing that interested me the most about this video was when they interviewed him on his thoughts of the future of bitcoin.

He didn't seem all that enthusiastic about bitcoin's prospects.

cheez• 11 years ago

A true businessman

1053r• 11 years ago

So since this video was made, the price has gone down by approx 35% and the difficulty has gone up by approximately 17%, for a total adjustment in revenue of about 50%, unless they added more machines, or upgraded their current ones. That's pretty brutal.

Ultimately (and not long from now if these rates of adjustment continue), mining will be a commodity business with a very small profit margin. When you consider that there are uses for low grade heat (like home and office heating), once the ASICs catch up with Moore's law, it seems likely that the profitability will be slightly negative for someone trying to run this kind of business. (As another reason, there will probably be people who have access to basically free electricity that would have been wasted, and just need to amortize the cost of the ASICS).

However, because mining is a zero sum game, we can conclude that the profitability of mining was very high at the time of the making of this video, or else the margins wouldn't have been able to drop as much as they did. This says that a rational large investor would choose to put their money into mining rather than directly buying bitcoins, if they were interested in getting into this space. That's probably why the price has been falling since the peak early last year.

jonas21• 11 years ago

there will probably be people who have access to basically free electricity that would have been wasted, and just need to amortize the cost of the ASICS

That's a really interesting point. I wonder if we'll see utility companies get into bitcoin mining as a way of profiting from their excess capacity during non-peak times.

beggi• 11 years ago

I don't quite see ConEd getting into Bitcoin mining :) However, it's possible for an entrepreneur to get discount off electricity during non-peak times.

wmf• 11 years ago

I've heard that spot electric prices can occasionally go negative if demand dips faster than power plants can ramp down. I don't know if that's worth exploiting with Bitcoin, since it's difficult enough for ASICs to pay for themselves even when running continuously.

RyJones• 11 years ago

Microsoft ran heaters at Quincy to avoid a contractual obligation. They could run ASICs.

http://www.nytimes.com/2012/09/24/technology/data-centers-in...

Then came a showdown late last year between the utility and Microsoft, whose hardball tactics shocked some local officials.

In an attempt to erase a $210,000 penalty the utility said the company owed for overestimating its power use, Microsoft proceeded to simply waste millions of watts of electricity, records show.

hurin3• 11 years ago

I don't think mining was ever that profitable once it reached industrial scale (it was always a bet on the future, in which case having actual bitcoins is significantly more fungible).

There is a reason cex.io / ghash.io (the biggest mining pool) contracted out their hash power to other suckers (err I mean buyers) instead of mining themselves.

destructaball2• 11 years ago

I used to know a fairly small miner, ~$2,000 a month turnover, who managed to rig his ASIC up to his heat pump in such a way that is heated his house and cooled the card. He lived in a fairly big house and it was always toasty even in the middle of winter.

It might still make sense for some people even when the margins are small

slester• 11 years ago

"the 400 bitcoin millionaires with at least BTC2,000 hold 40% of bitcoins" from https://bitcointalk.org/index.php?topic=316297.0

This is the main reason I'm highly skeptical of bitcoin, not to mention wildly fluctuating value, little if any privacy gains (http://www.forbes.com/sites/timothylee/2011/07/14/how-privat...), and a host of other problems.

jpatokal• 11 years ago

According to Reddit, the mine in question has been shut down already:

http://www.reddit.com/r/Bitcoin/comments/2v02n9/life_inside_...

pstrateman• 11 years ago

That isn't surprising.

You can deduce from the video that their utility rate is ~$0.09/kWh.

That's substantially higher than other major bitcoin miners are paying.

swatow• 11 years ago

yeah, he describes in the video how Dalian is a nicer location than the other buildings they operate. I imagine given the lower profits they could no longer afford the luxury.

kitcar• 11 years ago

One comment which I haven't seen come up much is bitcoin mining doesn't actually have to be "profitable" to be useful. For example, if you live in a country that has restrictions to prevent capital flight (i.e. extra taxes on money transfers to foreign accounts, etc...), ignoring the potential criminality implications, mining bitcoins at a "forex loss" and transferring those bitcoins may still be a better net financial option than just transferring the money in whatever your native currency is.

I believe China used to have some pretty significant restrictions to prevent capital flight - I wonder if that has something to do with this mining operation.

johnloeber• 11 years ago

This is actually a remarkably good point. The key concept here is that Bitcoin mining -- even at a "Forex loss" -- will essentially trade electricity for Bitcoins, which can be used to purchase other currencies. Depending on what the miner values their local currency at, this can still make financial sense.

As an example: suppose you are a resident of country X, and you have 1000 XUnits that are valued at 1000 USD, but there are capital flight restrictions such that you can exchange your 1000 XUnits for only 300 USD. And suppose that you need to exchange your XUnits to USD, for whatever reason. You then use your XUnits to buy electricity and mining hardware, and generate Bitcoins, and sell them for 750 USD.

Note that you could try to do the same with e.g. steel, barrels of oil, or widgets, but with hardware you'd be subject to import/export taxes, and the entire operation would have much higher overhead costs (comparatively, setting up a mining farm is pretty cheap).

narrator• 11 years ago

If you think about it, it's basically a tariff and tax free way to export electricity to any part of the globe.

pbhjpbhj2• 11 years ago

Also in some places you can probably [illegally] bypass the electric meter and leech someone else's electric supply - with bitcoin you can cash that electric in as money. Having seen images of the ratsnests of cables that festoon the pylons in some areas of China I can imagine it might be relatively easy to hookup a couple of jumpers and get some "free" bitcoins.

astrodust2• 11 years ago

Why not just buy Bitcoin directly? There's no requirement to mine these things in the first place if all you want to do is exchange them.

Someone could fly in via Hong Kong with a piece of paper that could unlock $100MM of BTC and nobody would know.

Meanwhile building a gigantic BTC mining facility will not go unnoticed.

hurin3• 11 years ago

Do you really think while China has been booming economically for decades - that those with money still didn't know how to off-shore it and were waiting like a bunch of patient school boys for the solution that is bitcoin?

Buying bitcoin might have made sense for a regular chinese lee, but it cannot actually handle any real transaction demands.

smtddr• 11 years ago

Doesn't matter if they already have the means; always helps to have a Plan-B... or C, D, E and F. I also suspect that not everyone knows every trick and/or some people are more comfortable with certain methods than others.

infinii• 11 years ago

The past was the past. Huge crackdown on corruption and graft is making it much harder to offshore. Even if they can get it out, people are watching their spending habits outside of China.

paulsutter• 11 years ago

Bitcoin is a lousy medium for illegal activity. Every transaction is logged for all eternity just waiting to be de-anonymized.

Besides, Singapore implemented this functionality long ago. Sell Chinese goods at breakeven (or even a loss) to a corporation in Singapore, which realizes the profits. Singapore is the busiest trans-shipment port in the world [1].

[1] http://en.wikipedia.org/wiki/Port_of_Singapore

ledzep2• 11 years ago

I'm Chinese and I don't think this is the case. Investing in mining bitcoins is just like investing in any other industries, in its nature. The reason why some Chinese businessmen prefer this over the others is that it's newer, less competitive, cheaper, more global and under no governmental regulation at all, which makes it a business-as-u-go or a gamble with great odds. Chinese are good at these kinds of things.

shubb• 11 years ago

I wonder if they get new ASIC designs before they ship to consumers. I'm remembering buying mining ASIC and then actually getting shipped them much much later. We thought at the time that they were being held back and 'burned in' at a big mine run by the manufacturers mates. This would explain why they are so hush hush about where the devices come from...

If the ASICs already bought and shipped to consumers later, they would be effectively free!

Alternatively they might be using the low chips that failed QC and never shipped - they might burn out eventually but if you are running them yourself you can be prepared for that.

wildchild• 11 years ago

BTC is still very overvalued if there is still surplus profit.

Inside a Chinese Bitcoin Mine That's Grossing $1.5M a Month

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