
Inside a Chinese Bitcoin Mine That's Grossing $1.5M a Month - wr1472
http://motherboard.vice.com/read/chinas-biggest-secret-bitcoin-mine?gble
======
kitcar
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
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).

~~~
astrodust
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.

~~~
ukigumo
Because the local currency would have to go trough the banking systems and if
the seller's account is in any other country, then exchange restrictions are
applied just the same.

~~~
astrodust
They have paper money, which you can exchange for BTC. Money exchangers have
been doing this for _centuries_ with different commodities to skirt around
regulations, and BTC, gold, or jade figurines are all the same at the end of
the day if there's an agreed value for them.

~~~
ukigumo
Well, yes.. but the person giving you paper money in exchange for BTC will
make their own exchange rate based on the capital risk incurred in transacting
volatile goods, which is very different than transacting gold or jade
figurines. Unless of course you meet a BTC collector who has no immediate
plans on capitalizing on his investment.

------
1053r
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
> 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.

~~~
RyJones
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...](http://www.nytimes.com/2012/09/24/technology/data-centers-in-rural-
washington-state-gobble-power.html?pagewanted=all&_r=0)

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.

~~~
juliangregorian
That article is pretty damning of the power company, not Microsoft. They
issued a fine for not using as much electricity as they estimated, what's the
logic there? And then the "utility commissioner" (unclear if he works for the
utility itself or not) has the gall to blast them for "not being green"? Plus
they are trying to paint the narrative as a "megacorp vs aw-shucks local
farmers" that just rings hollow in light of the company's exorbitant fine.

~~~
eigenvector
The reason why this is done is because major industrial customers (e.g. data
centers) often require upgrades to utility-owned infrastructure when they set
up shop. Utilities will typically require what they call a 3rd party capital
contribution (i.e. upfront cash payment) for some portion of the total cost,
with the remainder to be recovered via their margin on the additional
electricity consumed over the lifetime of the facility. You would also have
the option of paying the full cost and making no commitment as to whether
you'd actually use it.

If a customer moves in and says "oh yeah, I'm gonna need an average of 100 MW
24/7 for the next 20 years" and then turns out to only use half that, the
utility is now short a bunch of a money that it spent upgrading its
distribution infrastructure for that customer's supposed needs.

~~~
juliangregorian
Yeah, that's fine if you had a contract committing to a certain minimum, but
any ideas how they are justifying asking for 3x the difference though?

------
slester
"the 400 bitcoin millionaires with at least BTC2,000 hold 40% of bitcoins"
from
[https://bitcointalk.org/index.php?topic=316297.0](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...](http://www.forbes.com/sites/timothylee/2011/07/14/how-private-are-
bitcoin-transactions/)), and a host of other problems.

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

[http://www.reddit.com/r/Bitcoin/comments/2v02n9/life_inside_...](http://www.reddit.com/r/Bitcoin/comments/2v02n9/life_inside_a_chinese_bitcoin_mine/codps2q)

~~~
pstrateman
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
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.

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

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

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flatline
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_...](http://www.reddit.com/r/Bitcoin/comments/2v02n9/life_inside_a_chinese_bitcoin_mine/codf387)

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

~~~
imaginenore
And processing transactions. And increasing security.

~~~
ceejayoz
> 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.

~~~
vertex-four
If there wasn't demand for Bitcoin (no matter how misguided you might think
that demand is), Bitcoin would not be worth anything, and so mining it would
be pointless as it would get you something that is not worth anything.

~~~
lmm
Sure. Bitcoin provides value for criminals (it may provide a little value for
some legitimate use cases, but they're very marginal in comparison to the
criminal uses). Those running the system are providing a service to criminals
and receive a proportion of their criminal profits in return. Still a very
depressing business.

~~~
gnaritas
That's like blaming cash for crime, it's just ignorant.

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

------
shubb
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.

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tacojuan
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
A true businessman

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

