Enthusiastic about Filecoin Crypto Mining in China

As Filecoin nears a blockchain mainnet launch – after several delays since its $ 200 million increase in 2017 – investors in China are again speculating heavily about the network’s mining hardware and token prices.

Since Protocol Labs, the foundation of Filecoin, launched a “Testnet Incentives” program on June 9th, slated to start in a week, more than a dozen Chinese companies have started selling cloud mining contracts and physical hardware – although important details such as the economics of mining incentives on the mainnet are not yet complete.

The past sales volume for each of these companies can range from half a million to tens of millions of dollars. This is evident from self-reported data on these platforms submitted by CoinDesk and interviews with several manufacturers of mining hardware.

Filecoin’s goal is to build a distributed storage network with token rewards to incentivize hosting storage and drive wider adoption. Protocol Labs launched a test network in December 2019. However, the tokens obtained so far in the test environment do not represent the real Filecoin that can circulate when the main network is put into operation. In addition, the economics of the mining incentives in the test network does not reflect how the final block rewards will be available on the main network.

However, data from Filecoin’s Testnet blockchain researchers shows that currently eight of the ten largest miners with the greatest effective mining performance on the testnet are Chinese miners.

These eight miners have an effective memory mining performance of around 15 petabytes (PB), which is more than 85% of the total of 17.86 PB of the test network. For context, 1 petabyte of disk space = 1,000 terabytes (TB) = 1 million gigabytes (GB).

The Filecoin craze in China may be largely related to the longstanding popularity of crypto mining in the country in general, which is estimated to be around 65% of Bitcoin’s computing power. In addition, there has been a lot of hype about Filecoin mining in China since 2018. Companies were promoting all types of hardware when the network was in development mode.

Read more: Bitcoin Miners saw sales decline 23% in June

“Crypto mining has always been a popular thing in China,” said Andy Tian, ​​co-founder of 1475, one of the many Filecoin mining hardware manufacturers backed by well-known Chinese VCs such as Fenbushi and Hashkey Capital.

“Although the Filecoin mining process is much more technologically complex, the idea of ​​mining with hard drives instead of specialty machines like a Bitcoin ASIC miner may be a lot easier for retailers to understand,” he said.

According to Feixiaohao, a Chinese service comparable to CoinMarketCap or CoinGecko, nearly 50 Chinese crypto exchanges – mostly little-known as well as some more notable ones, including Gate.io and Biki – have listed trading pairs for filecoin futures against USDT.

Since the main Filecoin network is not yet active, the token traded on these exchanges is only a promise for the future, without it being clear how or when it can be billed when the network goes live.

Even so, the self-reported 24-hour trading volume on these exchanges on July 8 was around $ 100 million, data from Feixiaohao shows. And the prices for Filecoin futures rose from around USD 11 in early June to around USD 28 on July 8, and are now at USD 18 at the time of going to press.

Uncertain returns

Juan Benet, co-founder and CEO of Protocol Labs, confirmed in an Ask Me Anything hosted on June 25th that the Testnet Incentives program will start on July 20 after the testnet has been running for months, although it is still unclear exactly how Economics is incentives for Filecoin would work. But that could be delayed.

When asked when miners should expect to “get the detailed parameters for Filecoin’s crypto-economic constructs,” Benet said Protocol Labs is finalizing the parameters that will evolve.

“We want to consolidate further final parameters at the end of July. Let us know if you have any further questions about the structural mechanisms themselves, ”he told community members.

The incentive program invites miners to compete for 4 million Filecoin tokens that will be mined in the test network but only distributed after the main network has gone into operation. The aim is to stress test the network infrastructure before the expected start of the mainnet in August if there is no further delay.

However, since July 11th, the team has started measuring community feedback within its official Slack channel to the effect that testnet incentives, as well as the mainnet, may be postponed for a week or two.

Just having more hard drive space does not necessarily mean more effective mining in the network.

Although Filecoin testnet explorers are currently displaying information about all of the Filecoin mined in the testnet, as well as the reward of each block, these numbers are at most a reference point as the final parameters have yet to be determined in the main network.

Therefore, investors who buy either forward-looking cloud mining contracts or physical hardware cannot be sure how their investment will pay off at this point, as there is no clear equation for calculating a corresponding mining result on the mainnet.

“For now, [Filecoin] Cloud mining is still a pseudo-proposition before all incentive economies are completed, ”said Tian.

He said 1475 sells mining solutions and physical hardware as a whole, but these machines could cost more than $ 30,000 per set to get effective mining performance. Partners who bought from them sell compute power to retailers for around $ 300 per TB in cloud mining contracts.

For example, Mars Finance, a Chinese crypto media company that Binance has invested in, has launched a cloud mining distribution platform called Mcloud.io. Bitcoin mining contracts aside, various types of Filecoin cloud contracts are advertised that advertise an annual return of up to 300% but do not specify how much Filecoin can be mined with each TB of storage purchased.

Buy in

Still, these emerging questions don’t seem to have slowed speculation in China, especially at a time when the bitcoin and cryptocurrency market has remained relatively static.

6block, a China-based mining pool, told CoinDesk that it has amassed at least several hundred million yuan (over $ 15 million) of hardware and software in multiple Filecoin mining pools for self-mining and sale to investors were.

Some larger bitcoin mining farms in China, such as RRMine, also bought hardware to prepare for filecoin mining and sold cloud computing contracts based on that hardware. The company announced it had sold out contracts valued at more than $ 15 million in minutes in two of the four sales phases that began in June.

Even some Chinese crypto exchanges like BKEX and ZB have teamed up with Filecoin mining companies claiming on their website that Filecoin cloud mining contracts worth over USDTTT 1 million sold out within minutes last month.

But there is another nuance: just having more disk space does not necessarily mean more effective mining performance in the network. This logic is different from Bitcoin mining.

In Bitcoin mining, at the current level of difficulty, a terahash per second (TH / s) hash rate is expected to generate approximately 0.000008 BTC in 24 hours. The more TH / s there are, the more Bitcoin a miner should be able to produce proportionally.

Continue reading: Filecoin sends hard drives with climate data to start its file storage network

In Filecoin, however, a miner’s effective mining performance depends on the volume of sealed data on a hard drive, not the total volume of a hard drive.

In order to save data on a hard drive, a Filecoin miner still needs computing power, ie a CPU or GPU and RAM. More powerful processors with optimized software can save data to a hard drive faster, so a miner can consolidate a more effective mining performance faster on a given day.

This is similar to the idea of ​​a customized PC with no exact specification standard, although Protocol Labs has a recommended specification for a starter.

“Huge amount of hard drive space alone is not the point,” said Tian of 1475. “What matters is the combination of hardware — core processors, RAM, memory, and software optimization — to determine the speed of acceleration that gets you over time Build effective mining performance. “

At this point in time, there does not seem to be a transparent way for retail investors at the network level to determine how much of the storage hard drive they have purchased is actually effective mining performance.


US-based Protocol Labs was behind Filecoin’s first coin offering for 2017, which raised a staggering $ 200 million.

This was on top of a $ 50 million private investment fundraising backed by well-known VCs such as Sequoia, Andreessen Horowitz, and Union Square Ventures. CoinDesk’s parent company, Digital Currency Group, also invested in Protocol Labs.

Colin Wang of The Force Partners, who has been mining Bitcoin for three years and who has followed Filecoin developments since 2018, also said that the idea of ​​mining with a hard drive is more intuitive for ordinary investors to understand, although the mining hardware is actually more than just a hard drive.

“As of 2018, there have been some filecoin-related media coverage in China and so many machine sales companies have been set up,” he said.

At that time, however, Protocol Labs was still a long way from introducing the test network. As a result, there was a great deal of uncertainty about a suitable specification for the mining hardware.

While the mainnet’s launch kept investors waiting, Wang said some Chinese companies had taken advantage of this information gap and used misleading claims to sell substandard machines to ignorant investors in China.

Wang even went so far as to estimate that “unencoded mining machines have sold for more than 30 billion yuan [$4 billion] in China ”in the past two years.

While an actual number may be difficult to verify, such activity was so widespread that Protocol Labs issued an anti-fraud statement in December 2018 warning communities in Hong Kong and mainland China not to be associated with such miner sales are investors should beware of possible risks.

In one case, local Chinese media reported in March 2019 that a self-alleged Filecoin hardware maker allegedly exploited more than hundreds of people with an estimated $ 300 million for their fake Filecoin miners through an alleged multilayered marketing program.

After rounds of delays, Protocol Labs announced in September 2019 that the start of the test network would be live in December 2019 and that the mainnet would be introduced in the first quarter of 2020.

The test network went live as promised, but the main network has been delayed again and is expected to start in August 2020.

Jaspreet Kalra contributed to the coverage

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