F2Pool Exclusive: Chinese Electricity for Mining Costs Between .04 to .06 USD per Kilowatt

By LongHash and Coinpost


Below is an interview with Mao Shixing, the co-founder of F2Pool, one of the world’s largest mining pools.

Last November, you said that declines in price and hashrate caused 600,000 to 800,000 Bitcoin miners to shut down. How did miners adjust to this and what impact did it have on the overall mining industry?

The rapid decline in price last year did result in marginal costs exceeding marginal incomes for many miners, a lot of them couldn’t make ends meet. Therefore, many miners were shut down. Other miners have moved from relatively high electricity cost [areas] towards lower electricity costs. And some mining machines are in a state of shutdown, waiting for cheaper electricity costs at the end of April and early May. For the mining industry, this has resulted in a significant drop in production capacity.

Miners are cautious about the future and the whole industry is being pushed to lower electricity costs. Only low electricity costs can ensure that the mining industry survives in a bear market.

What is F2pool’s business strategy, and what advantages do you have that other pools and operations do not?

The first great advantage is that we are a startup company born from this industry, and developed to our current stage step by step. Therefore, we have a very keen sense of the technological development of the entire industry. History has proven that we have achieved very good results with a wide variety of cryptocurrencies. It is this keen sense that allows us to choose the most technologically advanced and well-developed currencies.

The second is that we have formed our own unique upstream and downstream advantages in the industry, which have a synergistic effect.

Recently, the hashrate has been increasing again. Have you seen confidence returning from other miners?

We think that the hashrate is increasing for two reasons: First, the rise in the price has led to higher mining profit margins, so many miners have increased their computing power. Second, many miners' mining machines were being relocated, and now the relocation is completed, so that computing power is back online.

The ratio of "unknown" Bitcoin mining pools (individuals) appears to be increasing. But are individual miners really increasing, or are these unknowns actually pre-existing mining pools?

The “unknown” mining pools may not be individual ones, but a combination of large miners. What happened with ASICMINER in 2013, where 30% of network computing power was controlled by a single entity, isn’t going to happen again in the future. Now what we’re seeing more often is a more averaged share among mining pools, and a higher level of decentralization.

How much does your electricity cost? What are your profit margins?

The electricity costs in China are between 0.26 RMB (.04 USD) and RMB 0.38 (around .06 USD) per kilowatt. This is only the cost of electricity itself, not including other mining costs like labor. In the bear market of last year, most of the mines lost money if you factor in depreciation rate of the mining machines.

What is the current break-even point for Bitcoin mining?

The chart below shows the break even point for many currencies at the current level of difficulty, including Bitcoin.


Why do you think you can create a sustainable business from mining?

Since the beginning of 2011, the industry has gradually developed into a complete software and hardware integrated industry, including chip production, mining system manufacturing, mine hosting, and mining services. It is an industry that has been tested by time. And in the future, it may not be just mining that requires software and hardware integration to provide computing power. Big data and AI also need computing power. Therefore, we believe that we can create a sustainable business from mining.

Where is most of your mining taking place?

At present, our mining business is mainly based in China. This is because China has a unique human resource advantage and a large amount of power redundancy. The electricity costs are low, too, which is suitable for mining. However, many other countries and regions are also very suitable for mining.

Is China still the most important country for Bitcoin mining? What are your thoughts on the future of mining in China?

China still holds an important position in Bitcoin mining. First of all, it has very strong industrial cohesion due to its geographical advantages. From the production of chips to the assembly of machines, China has a large amount of low-cost labor to produce mining machines fast. In addition, China has many natural low-cost energy reserves.

As for the future of mining in China, I believe that the bear market of 2018 will lead to improvements in mining industry infrastructure, as well as the further reduction of industry costs. We may see industry leaders with self-supplied power stations in the future.

In January, privacy coins Grin and Beam became the latest craze. F2pool was among the first mining pools that listed these two coins. Besides them, F2pool includes a large number of less popular mining coins on its home page. What’s your opinion on privacy coins, including Grin, Beam, and the mainstream currencies such as Monero and Dash?

It’s true that we listed privacy coins Grin and Beam very early. From the perspective of a mining pool, we are very optimistic about the development of privacy coins in these segments, because there is indeed a lot of market demand. On the other hand, the technology of these privacy coins is still at a very early stage, and their presentation is very “geek”, which is not particularly friendly to ordinary users.

As for the mainstream privacy coins like Monero and Dash, there are many uses for them, and they have real positions in the market. However, they also need to continually update technical iterations, because the development and iteration of these technologies is very fast.

When the price falls, some mines will hedge the loss of the value of cryptocurrencies held. Does F2pool hold crypto tokens, or do you cash out the fees collected into fiat immediately?

The mining business model relies heavily on price changes, which miners can’t control. Therefore, they need to find ways to hedge risk. As for F2pool, we are industry practitioners, and we are very optimistic about the future development of the industry. We prefer to hold these currencies instead of cashing them out.

What impact will ProgPow have on Ethereum and how strongly is the mining pool supporting it?

With the continual reduction of Ethereum being created, the current algorithm makes mining with GPUs with less memory untenable, which has greatly impacted graphics cards. On the one hand, the new algorithm of ProgPow allows these old machines to continue mining. On the other hand, it is more ASIC-resistant, because some ASIC mining machines have been used to mine Ethereum, leading to the centralization of Ethereum ecosystem. We have visited many miners and found that they are basically supportive of this algorithm. And we also supported this algorithm in a recent vote.

This interview is a collaboration between LongHash and CoinPost, Japan’s leading crypto media site.

Follow on Twitter: @longhashdata and @coin_post

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