TI-2020 Q1 Cryptocurrency Mining Industry Report EN

Home , Binance, Canaan Creative, Cloud mining, Huobi, Mining pool, OKEx

2020 Q1 Cryptocurrency Mining Industry Research Report

May 2020

ANALYSTS

Johnson Xu, Harper Li, Cecilia Jiang, Fanger Chou [email protected] TI Research

TokenInsight.com [email protected] Find, Create, and Spread Value in Blockchain. 2 3 4 5 17 19 20 22 10 14 Mining Farms Financial Products Financial Products Standardised Financial Products Structured Altcoin Mining Cloud Mining Analysis Cloud Mining Profitability Cloud Mining Algorithms Mining Pool Mining Pool Hashrate Distribution Miner’s Profit Margin Profit Miner’s Mining Hardware Mining Chips Manufacturer Hardware Mining Machine ROI Analysis Industry Dynamic Industry Updates Global Policies Market Overview Hashrate Bitcoin Market and Network Executive Summary Summary Executive RESEARCH

Content tokeninsight.com RESEARCH

ACKNOWLEDGEMENT

MEDIASUPPORT

tokeninsight.com 3 4 As a specially

Although the : Older generation ASICs’ : Older generation uncertainty surges. The future The future uncertainty surges. on mining farms globally, mining on mining farms globally, At present, the majority of players who At present, in the near future while the bitcoin in the near future 2020 Q1 was an extremely volatile session volatile was an extremely 2020 Q1

Affected by the delivery of Handshake ASIC by the delivery of Handshake ASIC Affected Handshake network in Q2 2020. production, and selling bitcoin at a favorable price. and selling bitcoin at a favorable production, Filecoin mainnet delayed once again: market conditions, broader depends on the Filecoin market direction and the overall confdence in for the mainnet launch, the actual result the mining community post-launch. Handshake ASIC mining: will mining machine Mars H1 in Q2 2020, the income of GPU miners continue to shrink, and phasing-out after ASICs fully enter to the rst quarter in the past three years. with the frst quarter in the past three numbers when compared fnancial products: Structured institutional players. are fnancial products have adopted structured are nancial products f believes that these structured TokenInsight in terms of fcult to understand, thus they may face some resistance dif the adoptions in the market. COVID-19 has a negative impact: cost of farms the west is leveraging various strategies to lower the from TokenInsight believes ASIC will keep grasping its overall share in the grasping its overall share believes ASIC will keep TokenInsight mining market. Market volatility is expected: in the short termnetwork experiences a chaotic period to adjust itself and ultimately achieving a back to an equilibrium state post-halving, fcient blockchain network. ef more the past 3 years: Highest No. Of ASICs in Q1 in mining machine models launched in Q1 number of newly released it is the highest in Q4 2019, by nearly 60% from 2020 has decreased Older generation ASICs are phasing-out ASICs are Older generation being squeezed out by the S9s are such as Antminer ft margin pro at maintained positively ft margin miners, its pro newer generation quickly turned during into negative territory March, 35% before roughly to average of 20% partially recovered market crash and the March during April 2020. Bitmain is still leading: ASIC is dominating the market, fc demand, ASIC is far superior to customized chip to meet a speci FPGA and GPU in performance, volume, and power consumption. Extremely volatile session: volatile Extremely ~70 EH/s. and briefy touched at 100 EH/s, hashrate ranged for bitcoin, ⑧ ⑨ ⑥ ⑦ ④ ⑤ ② ③ ① RESEARCH

Executive Summary tokeninsight.com RESEARCH

Mining Pool Industry Landscape

ASIC Miners

Mining Farms Cloud Mining

Altcoin Mining

Financial Products

tokeninsight.com 5 RESEARCH

INDUSTRY Industry Updates DYNAMICS ① Innosilicon announced that it will soon launch a new generation of bitcoin mining machine T4 + 75T.

② In early March 2019, affected by the bearish report released by the investment analysis platform Marcus Aurelius Value, some law frms in the United States successively investigated Canaan Creative (NASDAQ: CAN) and fled a securities class-action lawsuit, asked the company to compensate investors for losses caused by violations of federal securities laws.

③ On March 12, the BTC price closed at $5,500 for the day, touched $3,800 at its lowest. Many mainstream mining machines reached the shutdown price.

④ On March 19, Bitmain launched the new Antminer Z11.

⑤ On March 23, Bitmain launched the S19 series of new miners. The new machine S19 Pro has hashrate of 110 TH/s and an energy effciency ratio of 29.5 J/TH ± 5%. S19 has hashrate of 95 TH / s and an energy effciency ratio of 34.5 J/TH ± 5%.

Global Policies

① On January 16, Uzbekistan to create national mining pool, launching licensed exchange. Establishing a “national mining pool” has been declared a priority in Uzbekistan. Miners who join the pool will enjoy lower electricity rates, announced the country's agency overseeing the crypto industry.

② On January 22, the results of the RFP or only released recently with Hydro-Québec granting one-ffth of total block set aside for crypto mining.

③ On February 8, Ukraine’s Manifesto of the Virtual Assets Ministry, Ministry and Committee of Digital Transformation of Ukraine have concluded that Bitcoin’s protocol and enforced consensus rules are enough to regulate the onchain activities, it does not need government oversight or intervention.

④ On March 27, The Missoula County Board of Commissioners in Montana, United States, has extended its green regulations for cryptocurrency miners, which are designed to control the energy consumption of the industry in the county. tokeninsight.com 6 RESEARCH

Bitcoin Market and Network Hashrate

Q1 2020 was an extremely volatile session for bitcoin, hash rate ranged at 100 EH/s, and briefy touched ~70 EH/s.

As the market is gearing towards the bitcoin network 3rd halving, coupled with the COVID-19 pandemic and the global market downturn. The cryptocurrency market has experienced an extremely volatile session during Q1 2020.

Bitcoin started off the year from the $7K range, peaked in mid-February at just above $10K, reached its quarterly low at sub $4k due to the market wide panic. Bitcoin’s rolling 30-day ROI was in extreme positive territory before the end of February, reached extreme negative return during March 2020.

‣ BTC Rolling 30-Day ROI Source: TokenInsight

40% 20% 0% -20% -40% -60% 1/1 1/10 1/19 1/28 2/6 2/15 2/24 3/4 3/13 3/22 3/31

The network hashrate fuctuated around 100 EH/s, peaked at roughly 136 EH/s, and reached its lowest point during the March 12 market plunge to 76 EH/s. The network hashrate during Q1 2020 did not change much compared to Q4 2019.

‣ BTC Price and Hashrate Source: TokenInsight

Bitcoin Price Hashrate (Right Axis) $11,000 140EH

122.5EH $8,500 105EH $6,000 87.5EH

$3,500 70EH 1/1 1/9 1/17 1/25 2/2 2/10 2/18 2/26 3/5 3/13 3/21 3/29 tokeninsight.com 7 RESEARCH

Miner’s Profit Margin

Older generation ASICs are phasing-out from the network, miner’s revenue still heavily depends on the block reward.

TokenInsight uses the below formula to calculate marginal cost of creation for 1 bitcoin.

1 * Ha shrate * Power E f f icienc y/1000 * Electr icit y * 24h * (1 + Operat ion Costs) Block Re ward

Where Block Reward represents the daily block reward generated by the Bitcoin network (expressed in the number of bitcoins, this value is 1800, but it varies according to the situation); Hashrate is the hash power for the entire bitcoin network. This formula shows the production cost of one bitcoin. The miner's proft margin is the proportion of bitcoin price minus the cost of production.

Miner’s proft margin (S17+, $0.04 electricity, 15% operation costs) stayed at roughly 70%, reached its lowest point of 45% during the market downturn, creeping back up to the 65% level after the market plunge, and stabilized during April 2020.

‣ BTC Marginal Cost of Creation (i.e., Antminer S17+) Source: TokenInsight

Marginal Cost of Creation Bitcoin Price Proft Margin (Right Axis) $11,000 80%

60% The profit margin (orange $7,667 line) for Antminer S17+ experienced a volatile 40% session during March 12, but still stayed above 45%. $4,333 20%

$1,000 0% 1/1 1/11 1/21 1/31 2/10 2/20 3/1 3/11 3/21 3/31

The marginal cost of creation for 1 bitcoin (S17+, $0.04 electricity, 15% operation costs) based on the network diffculty started with $2.2K in the beginning of the year, reached 2.9K at the peak due to upward diffculty adjust based on an increase of network hashrate. tokeninsight.com 8 RESEARCH

Older generation ASICs’ proft margin such as Antminer S9s are being squeezed out by the newer generation miners, its proft margin maintained positively at roughly 35% before March, quickly turned into negative territory during the March market crash and recovered partially to average of 20% during April 2020.

‣ BTC Marginal Cost of Creation (i.e., Antminer S9) Source: Coin Metrics, TokenInsight Marginal Cost of Creation Bitcoin Price Proft Margin (Right Axis) $11,000 50% 37.5% 25% $8,667 12.5%

The profit margin 0% (orange line) for -12.5% Antminer S9 dropped $6,333 sharply on March 12 -25% and fell below 0%. -37.5% $4,000 1/1 1/11 1/21 1/31 2/10 2/20 3/1 3/11 3/21 3/31 4/10 4/20 -50%

Before the market wide panic on March 12, the marginal proft gap ‣ Profit Margin Comparison Source: TokenInsight between the two generations of mining machines was 35%, after the market plunge, although the the proft margin bounce back signifcantly, S17+ S9 Difference the marginal proft gap between the two generations of hardware increased to 40%. Before 70% 35% 35% 0312 Miner’s proft still heavily depends on the block reward rather than the After 65% 20% 45% network transaction fees. Miner revenue from fees only accounted for 0312 average of 1.5% from total mining reward (Block Reward+ Transaction Fees), increased 5x to roughly 5.55% at the peak and returned to a lower level in April 2020.

‣ Miner Revenue From Fees Source: Coin Metrics, TokenInsight

1/1 1/8 2/5 3/4 tokeninsight.com 1/15 1/22 1/29 2/12 2/19 2/26 3/11 3/18 3/25 9 RESEARCH

Average block interval Block time has been slowly increasing from 550 seconds to 622 seconds and reached its peak of more than 800 seconds after the March market downturn. Theoretically, bitcoin network propagates 1 block on an average of 600 seconds.

‣ BTC Price & Mean Block Interval Source: Coin Metrics, TokenInsight

Mean Block Interval Price (Right Axis)

1,000s $11,000 $8,250 667s $5,500 333s $2,750

1/1 1/11 1/21 1/31 2/10 2/20 3/1 3/11 3/21 3/31 4/10 4/20

Industry hype on the bitcoin 3rd halving resulting in an unhealthy state of the market.

TokenInsight observes signifcant industry hype in the beginning of Q1 2020 on the topic of halving, some market participants were over-reacting to the bitcoin 3rd halving event, resulting irrational decisions and behavioral biased in believing when it comes to the bitcoin halving, the price of bitcoin will highly likely to appreciate signifcantly due to lower supply from the block rewards, and directly reducing the selling pressure from the miners.

However, several studies from Blockware Solutions1, Coin Metrics2 believe that further analysis are needed in order to capture and understand the game theory behind the bitcoin network and the fnancial market. The studies believe that in a short term if the miner’s proft margin were not suffciently high, miners need to sell greater portion of the bitcoin they mined to recoup the costs of producing the block. In other words, the halving itself could result a stronger selling pressure in a short term while 1. Blockware Solutions’ Halving Analysis: https:// the network tries to re-adjust, due to the fact that the short-term proft www.blockwaresolutions. margins for miners are in an unhealthy state. com/research-and- publications/2020- rd halving-analysis As the market is fast approaching to the bitcoin 3 halving, market volatility is expected in the near future while the bitcoin network 2. Coin Metrics State of The experiences a chaotic period in the short term to adjust itself back to an Network: https:// equilibrium state post-halving, and ultimately achieving a more effcient coinmetrics.io/pubs/? blockchain network. tx_category=state-of-the- network

tokeninsight.com 10 RESEARCH

MINING Mining Chips

HARDWARE The mining market is heavily dominated by ASIC mining machines.

At present, GPU mining and ASIC mining machines are the mainstream mining hardware in the market, CPU and FPGA mining account for a relatively smaller share. GPU mining can support multiple algorithms, and ASIC mining hardware usually supports a particular hashing algorithm, each with its own advantages and disadvantages.

ASIC As a specially customized chip to meet a specifc demand, ASIC is far superior to FPGA and GPU in performance, volume, and power consumption. TokenInsight believes ASIC will keep grasping its overall share in the mining market.

The ASIC Miner Value website has disclosed a total of 182 ASIC mining machines. TokenInsight analysed these 183 mining machines which support a total of 24 algorithms. There are nearly 50% of ASIC mining machines on the market which supports the SHA-256 algorithm. In addition, the website also shows that the number of ASIC mining machines released in 2018 increased sharply, and the number gradually declined in the following two years.

‣ ASICs Algorithm Distribution ‣ ASICs Release Timeline Source: ASIC Miner Value, TokenInsight Source: ASIC Miner Value, TokenInsight SHA-256 Others 3% 97 16% 86 25% 80 ‣ Mining Chips Comparison 2017 40 2018 Source: TokenInsight 2019 55% GPU FPGA ASIC 0 2020 One Time High Low High Cost GPU & FPGA

Producti The consumer-level GPU market is an oligopoly market. The three major High High Low on Costs giants are Intel, NVIDIA and AMD. Among them, AMD and NVIDIA have Market the largest market share of independent GPUs, and are currently the main Low Low High Risk suppliers of upstream chips for mining machines.

Very R&D Short Long Short Chip manufacturers Xilinx, Monad, SQRL, Bittware, TUL, HashAltcoin, Minor Boards provide FPGA chips for mining machine manufacturers.

tokeninsight.com 11 RESEARCH

Hardware Manufacturer

The market continues to see updates on the SHA-256 mining machines, Bitmain is still the dominant player in the market.

TokenInsight conducted an analysis on the mining machines that have not yet been fully phased out from the market. Since July 2016, Bitmain launched the Antminer S9 (13 T), and there have been nearly 90 mining machine products. These mining machines are manufactured by 14 different hardware manufacturers, and the number of mining machine product models launched by Bitmain accounts for 30%, followed by MicroBT and Canaan Creative.

‣ The Manufacturer Distribution of SHA-256 Miners Source: F2Pool, TokenInsight

10% Bitmain MicroBT 6% 27% Canaan Creative Ebang 11% Innosilicon Zhichen Others

14% 16% 16%

In addition, although the number of newly released mining machine models launched in Q1 2020 has decreased by nearly 60% from Q4 2019, it is the highest in numbers when compared with the frst quarter in the past three years. In Q1 2020, only three manufacturers launched next- generation models, including Bitmain, Canaan Creative and Zhichen.

TokenInsight believes that Bitmain will continue to lead the way in this research & development heavy mining market, while the industry will continue having other challengers to inject fresh energy to the market.

‣ Release Timeline for Different SHA-256 Models (Vertical Axis Unit: pcs) Source: F2Pool，TokenInsight Bitmain Canaan MicroBit Others 16 13 10 6 3 0 Pre- 2017 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 tokeninsight.com 12 RESEARCH

Canaan Creative is the only listed company among mining machine manufacturers. In addition, Ebang International plans to list on the NYSE or NASDAQ. On April 9, 2020, Canaan Creative's newly released fnancial report showed a net loss of US $ 148 million in 2019, including a loss of US $ 114.7 million in the fourth quarter. After the fnancial report was released, Canaan Creative (NASDAQ: CAN) plunged nearly 7% on the day.

The fnancial report stated that due to the impact of the COVID-19 pandemic in Q1 2020, the company has lowered the estimated revenue for Q1 2020, with just over 60 million yuan.

‣ Comparison of average Although deeply affected by the pandemic, the industry has made a mining machine hashrate and unit signifcant breakthrough in mining machine research and development. In power consumption Q1 2020, the newly released 7 mining machines have greatly improved the Source: F2Pool，TokenInsight hashing power compared to the 12 mining machines released in Q4 2019, with an increase of more than 40%. At the same time, the average power 2019 Q4 2020 Q1 effciency decreased by 16%. 80 +41% These machines come from three manufacturers: Bitmain (4 models), 64 -16% Canaan Creative (1 model) and Zhichen (2 models). Among them, Bitmain, 48 as the industry's leading ASIC manufacturer, still leads the research and 32 development effort, and Zhichen is a cutting-edge enterprise that entered 16 the SHA-256 mining machine manufacturing industry in 2019. Currently, 0 there are fewer mining machine models, but the momentum is strong.

Mining Machine ROI Analysis Hashrate(T) TokenInsight analyses the SHA-256 ASICs that came out in Q1 2020, including analysis on the potential revenue and its mining cost. Block Power Effciency(W/T) reward and network transaction fees formed the total reward for miners. We take hardware cost, electricity and mining operating cost into account for the analysis.

TokenInsight uses the following formula to conduct its calculation:

1 WT ∫ ( 32 * BR * PRBTC − PRe * 3 ) dt ∫ prof it dt Diff * 2 3600 * 10 ROI = * 100 % = * 100 % PRT PRT

Among them, PRT is the price of per TH hashrate, Diff is the diffculty of

bitcoin mining, BR is the amount of block reward, PRBTC is the market

price of bitcoin, PRe is the electricity fee, and WT is the power consumption per TH hashrate. The formula did not take into account the income from network transaction fees and mining machine operating costs. tokeninsight.com 13 RESEARCH

The following table documented the relevant information for the mining machine released in the Q1 2020.

Based on the various parameters of the mining machine and the current market condition, we analyse the ROI on different ASICs using data points before the 3rd halving, after the 3rd halving assuming hashrate and price stay at the similar level, and if the network hashrate reduced by 30% post- halving.

‣ 2020 Q1 Mining Machines ROI Analysis (March 31 2020) Source: Bitmain, Canaan Creative, Zhichen, TokenInsight Power Manufacturer Model Power(W) Hashrate(T) Price($) Efficiency(W/T) Antminer S17+ 2,680 67 40 1,320 Antminer T17+ 2,750 55 50 762 Bitmain Antminer S19 Pro 3,250 110 30 2,633 Antminer S19 3,250 95 34 1,964 Canaan Creative Avalon 1066 Pro 3,300 55 60 830 Hummer Miner H9 3,360 84 40 1,600 Zhichen Pro Hummer Miner H9 3,350 67 50 -

The following table shows that pre-halving, the latest ROI for the newer generation mining machines such as Antminer T17+ is between 6-9 months. If the network hashrate remains unchanged post-halving, the ROI for most of the newer generation miners will be extended to around 2 years, if the network hashrate post-halving experience a reduction by 30%, the ROI will be signifcantly improved. It is also worth to note that Antminer S19 and S19 pro will be dispatched roughly just a week before the 3rd halving.

‣ 2020 Q1 Newly Released ASICs ROI Period (Excl. Hummer Miner H9 Pro, Vertical Axis Unit: Days) Source: Bitmain, Canaan Creative, Zhichen, TokenInsight

2,200 2,029 Pre-Halving Post-Halving Post-Halving (Hashrate -30%) 1,760 1,320 875 880 786 813 706 733 440 240 237 265 231 131 232 171 150 151 145 188 112 0 Avalon 1066 Pro Hummingbird H9 Pro Antminer S17+ Antminer S19 Antminer S19 Pro Antminer T17+ tokeninsight.com 14 RESEARCH

Diverse cloud mining products on different hashing CLOUD algorithms could be launched in the future.

MINING With the accelerating development of the cryptocurrency industry, an increasing number of participants wish to enter the cryptocurrency industry in the form of mining or trading. Purchasing a mining machine outright and fguring out how to operate and where to host them is a complicated task.

In addition to that, due to the geographical restrictions of users, miners cannot randomly select the optimal electricity fee region to host the miners. These problems can be solved by the cloud mining platform.

As of Q1 2020, there have been more than 60 platforms who focuses on cloud mining contract worldwide, with 9 major platforms occupying the majority of the market share, providing cloud mining services for more than 30 hashing algorithms.

The cloud mining platform currently has more miners, pools, and mining machines available than in 2019.

Taking Bitdeer as an example, it works with the fve major pools, namely BTC.com, AntPool, F2Pool, ViaBTC, and BTC.TOP to provide users with a variety of options. In addition, the difference in revenue calculation methods, electricity bills, management fees, and hashrate guarantee schemes has also increased the diversity in products and services between platforms.

‣ List Of SHA-256 Cloud Mining Products Source: TokenInsight

Electricity Durati No. Daily Hashrate Fee / Contract Platform Machines Types Hashrate Fee (TH/S/ on Contracts Management Fee Price Day)

Antminer Accelerator 100-5000 $0.0268 THS $0.0314 $375- BitDeer 140 8 $0.0415 T17 /Classic TH/s THS $22,000

Antminer 100-2000 BitDeer 140 Accelerator 4 $0.0505 $0.0196 $275-$5,500 15 Series TH/s

Antminer 50-1000 TH/ $340.5- BitDeer 360 Accelerator 4 $0.0474 $0.0189 S19 s $6810

Antminer 120、 Accelerator 0.0153 THS、0.0278 $165.6- BitDeer 8 30-1000TH/s $0.0542 S17+ 360 /Classic THS $3,340

Antminer Based on OXBTC 1080 - 1 $0.0811 5% Daily return $21.2 /THS S17 No. Contract

Classic/ Covered in Genesis - 720 13 4-155TH/s Covered in the contract $208-$3,972 Zero the contract

tokeninsight.com 15 RESEARCH

Cloud Mining Profitability Analysis

The cloud mining sector has limited transparency and the risk of fraud still exists, the revenue for cloud mining contracts could change signifcantly based on market fuctuation.

Infuence Caused by March 12 Market Wide Panic The cloud mining contracts are standardized products with relatively stable contract prices, it means that when the market price fuctuates heavily in a short term, the contract price would not be adjusted and a higher proft/ loss would occur. By the time of the Bitcoin price plunged to sub $4K in 12 March, people who purchased cloud mining products may suffer a loss as they already paid for their mining hashrate via contract, the price of which was set before the price plunge.

Bitcoin Halving and Cloud Mining As the industry is fast approaching to the 3rd Bitcoin halving, it is highly concerned that how Bitcoin price would change after the halving. Miners who expect the Bitcoin price will rise up, can purchase cloud mining contract now in order to mine Bitcoin with a stable and relatively low cost, this could be a way to beneft from the Bitcoin price.

This information asymmetries also increases the proftability of the platform and the diffculty in calculating the ROI. Nonetheless, choosing an appropriate cloud mining contract can still enable users to obtain gains in a positive market.

‣ Contract Information Disclosed By Cloud Mining Platform A (With No Information On Machines And Mining Pools) Source: Cloud Mining Website, TokenInsight

tokeninsight.com 16 RESEARCH

Cloud Mining Algorithms

Cloud mining contracts used to set for mainstream algorithms like SHA-256, Script and Ethash, as bitcoin, ethereum and litecoin are the most popular cryptocurrencies in the market.

However, In Q1 2020, some cloud mining platform started to offer non- mainstream algorithms such as Eaglesong, RandomeX, etc, providing its users diverse choices of cloud mining products.

‣ Types of Cloud Mining Algorithm and Their Providers Source: TokenInsight

Algorithm Representative Token Providers

Bitdeer, HashFlare, Cryptouniverse, Genesis Mining, Script Litecoin RHY

Bitdeer, Genesis Mining, HashFlare, Z.com, SHA-256 Bitcoin Cryptouniverse, IQ Mining, RHY

Ethereum, Ethereum Bitdeer, HashFlare (for ETH only), Q Mining, Genesis Ethash Classic Mining, RHY

Equihash Zcash Bitdeer, HashFlare, Genesis Mining, RHY

X11 Dash Bitdeer, HashFlare, Genesis Mining, RHY

Blake256 Decred Bitdeer, RHY

Eaglesong Nervos Network Bitdeer

RandomX Monero Genesis Mining

TokenInsight believes that, there will be more cloud mining contracts aiming to provide services for some new and innovative tokens and algorithms. And consequently, the cloud mining industry will gradually becomes an alternative choice for more miners who used to operating their own mining machines.

At the same time, the market of cloud mining will become healthier than before when more platform join the market and start to offer various services. tokeninsight.com 17 RESEARCH

MINING Mining Pool Hashrate Distribution Mining pool business is entering into a healthy POOL industry competition.

Binance has decided to enter the mining pool business to compete with the top exchange players such as Huobi Pool, OKEx pool. TokenInsight believes it is a natural move by Binance, as the frm is trying to ramp up the business offering to offer a one stop shop solution service including saving, lending, staking, trading, mining, capital etc.

In term of the mining pool hashrate share, the top 4 mining pools account for more than 50% of the total network hashrate, and F2Pool’s hashrate jumped signifcantly in Q1 2020 compared to the 2019’s yearly average.

‣ 2019 Average Mining Pool ‣ 2020 Q1 Mining Pool Hashrate Distribution Hashrate Distribution Source: BTC.com, TokenInsight Source: BTC.com, TokenInsight 1% 2% 9% 5% 7% F2Pool 4% 17% BTC.com Poolin 18% 5% F2Pool 7% AntPool AntPool BTC.com Poolin 5% ViaBTC 6% 13% SlushPool 1THash 2019 Avg ViaBTC 2020 Q1 Huobi Pool 7% BTC.TOP 6% 17% OKEx Pool unknown SlushPool Huobi.pool 7% 8% 12% BitFury BTC.TOP Bitfury Others 13% 8% 12% 12% Others

Although there is a heated debate on mining pool centralisation issue, TokenInsight believes it is without doubt that mining pool centralisation is an issue in the industry, however, market participants should not take this at its face value. Miners are free to connect to any particular mining pools based on expected proftability, network delays, fees structure and many other reasons, although mining pools are “centralised”, but miners are distributed globally.

The top 4 mining pools control more than 50% of the total network hashrate does not necessary mean that they can coordinate and effectively control more than 50% of hashrate. TokenInsight predicts that different mining pool protocols can have a positive impact in the industry, and enable differentiation strategies for mining pool businesses, and thus further decentralized the industry. tokeninsight.com 18 RESEARCH

Average hashrate per worker demonstrates an uneven ASIC model distribution on the mining pools.

Currently, the industry does not have accurate data on how different types of ASIC mining machines distribute over different mining pools. As we are approaching the bitcoin 3rd halving, a study by Blockware Solutions claim that due to low electricity price based in China, the majority of the miners in China have low incentive to switch to the most effcient miners on the market, thus there will be a greater proportion of miners shuts down their ASICs in China then elsewhere.

TokenInsight looks at hashrate per worker on each mining pool to provide a rough idea on how ASICs distribute on each mining pool. However, the number of miners is a self-reporting fgure which means it is not a mandatory requirement on the miner or mining pool side to report this fgure, thus the analysis can only provide a rough idea on how ASICs distribute on each mining pool, and only serves a guideline and cannot be used as an accurate analysis.

The analysis has shown that ViaBTC consists of more older generation miners than the rest of the market, OKEx pool consists of more newer generation miners than the rest of the market. It provides a fresh perspective in studying on how hashrate on a particular mining pool could change post-halving. As a reference point, a mining pool consists of 50% S17 Pro (53 TH/s) and 50% older generation ASICs such as S9s has an average hash rate of ~33.5 TH/s.

‣ Mining Pool Average Hashrate Per Miner Source: MiningPoolStats, TokenInsight

Average Mining Pool Hashrate No. Of Miners Hashrate

Poolin 18 EH/s 583420 30.8 TH/s

BTC Pool 13.5 EH/s 540296 25 TH/s

ViaBTC 7.73 EH/s 548166 14.1 TH/s

OKEx Pool 6.5 EH/s 128604 50.5 TH/s

SlushPool 6 EH/s 179802 27.8 TH/s

tokeninsight.com 19 RESEARCH

COVID-19 has a negative impact on mining farms MINING globally, mining farms from the west is leveraging various strategies to lower the cost of production, and FARMS selling bitcoin at a favorable price.

The impact of COVID-19 also extended to the mining farms globally. When China tries to curb the spread of COVID-19 in early Q1 2020, enforcing strict policies to reduce social movement, resulting in a signifcant disruption around the domestic logistic network and public transportation, which directly impacting the operation of mining farms in China. When COVID-19 started to spread on a globally level and turning into a pandemic, the mining farms in the west have also been impacted in a different degree. The below table summaries risk management strategies for some mining farms in the west.

‣ Mining Farms Strategies In The West Source: Hut8Mining, Bitfarms, Blockware Solutions, TokenInsight Bitcoin Selling Mining Farm Risk Management Strategies Strategy Reducing its electricity consumption and costs by Only selling its bitcoin Hut8Mining approximately 50% while only reducing the hashrate output inventory at by approximately 25% favourable prices

Forced to temporarily lay off staff, cuts expenses, and Bitfarms implemented permanent measures to reduce overhead Not disclosed costs, approx. saving of 20 to 25%

Leveraging structured Continues its expansion and structure deals to purchase Blockware fnancial products to the most effcient miners on the market in order to Solutions hedge some of the optimise and enhance its operational capability market risks

Mining farms in China traditionally enjoy the advantages of low electricity price, easy access to local network, suffcient market liquidity on ASIC machines and tightly connected mining community. On the other side, mining farms in North America regions enjoy advantages such as structured operational framework, easier access to investors capital and positive regulatory environment. Due to these differences, the strategies in operating mining farms are vastly different in the east and the west.

TokenInsight put resources to interview and conduct due diligence activities in order to do a health check on the Chinese mining farm sector. We have discovered that although the Chinese mining farms took the unstructured approach in the early days, they are formulating strategies to form a structured approach in order to access capital from e.g. investors and in the meantime to compete within the industry. tokeninsight.com 20 RESEARCH

FINANCIAL The mining industry is gradually maturing, and the industry is shifting from individual miners to professional mining. At present, the cryptocurrency PRODUCTS market has developed various fnancial products to match the market needs.

Standardised Financial Products

Demand for loans is driven by miners and arbitrageurs.

The cryptocurrency lending market in China consists of major players such as Babel Finance, Matrixport and Renrenbit.

‣ Top Tier Lenders Source: TokenInsight

Lender Outstanding loans

In March 2020, Babel Financial disclosed the 2019 annual report, which showed that the loan balance as of the end of 2019 was nearly US $ 300 million. In Q1 2020, this amount reached to US $ 380 Babel Finance million. The annual report also shows that the proportion of miners ’borrowing does not exceed 30%, but after experiencing a sharp decline in the market on March 12, the proportion of miners’ borrowing changed.

The release of the 2020 Q1 fnancial report (unaudited) showed that its loan balance fell from RenrenBit approximately 65 million USDT at the beginning of the year to 35 million USDT.

Matrixport is a Bitmain company, and its offcial Matrixport website shows that the loan balance reached 100 million US dollars.

The majority of exchanges have launched their saving & lending products, most of which are interest-bearing products with different backend structures.

Unlike mining-related lending services, which mainly target at miners, the exchange lending business is mainly aimed at retail investors.

tokeninsight.com 21 RESEARCH

Structured Financial Products In addition to the standardised fnancial products such as targeting at miners and exchange fnancial products, miners can also protect their interests through structured fnancial products. For example, bitcoin variance swap, diffculty swap, etc. At present, the majority of players who have adopted these products are institutional players.

GSR has successively launched 4 structured products in 2019, Bitcoin Halo Option, Bitcoin Variance Swap, Crypto Binary Options, and Bitcoin Accumulator. TokenInsight believes that these structured fnancial products are diffcult to understand, thus they may face some resistance in terms of the adoptions in the market.

In January 2020, BitOoda announced its successful execution of the frst BitOoda HashTM contract, which involved four parties: contract trading platform BitOoda, contract seller for digital asset mining company Coinmint, an undisclosed contract buyer and cryptocurrency exchange Tagomi as the settlement party, it serves the role of custody and liquidation. BitOoda HashTM contract opens a new business model for the blockchain industry. This HashTM contract connects the mining and exchange industries. TokenInsight believes that the emergence of such products has progressed the cryptocurrency industry, and at the same time, strengthening the connection between various industry sectors.

Alpha5, a hashrate derivatives platform exclusively supported by the digital investment fund Polychain Capital, will be launched in June, and will also launch bitcoin futures, options and complex fnancial derivatives products.

tokeninsight.com 22 RESEARCH

ALTCOIN Filecoin Mining MINING Filecoin mainnet delayed once again, uncertainty surges.

Filecoin continuously receiving much attention on the market. On February 20, 2020, Filecoin delayed its scheduled mainnet release once again. The offcial said that due to the impact of the COVID-19 and the need to repeatedly test and verify the stability of the network, the mainnet launch has been rescheduled to the period of June 15 to July 7 2020.

According to TokenInsight, after the announcement of the delay on mainnet, the Filecoin futures price once fell below $ 4, and market confdence was extremely low, but it returned to $5 in late March, and it is currently trading between $5-6.

‣ Filecoin (FIL) Futures Market Price Source: TokenInsight Price Volume $8 $60M $45M $5 $30M $3 $15M

1/1 2/1 3/1 4/1 4/27 TokenInsight believes that the uncertainty caused by Filecoin's mainnet delay cloud be brewing a crisis, the main reasons are:

1. Filecoin did not disclose the mining rules in the early stage, with the update of the offcial requirements for mining machine products, the mining machines that the miners confgured in advanced were largely eliminated. 2. The minimum requirement for the Filecoin testnet is 512G. If it is lower than 512G, the hardware could not participate in mining and setting higher entry requirements for individual miners to participate the Filecoin mining. 3. At present, there are a large number of Filecoin mining machines pre-sold in the market, but in fact, they have not yet been able to generate income.

After multiple delays on the Filecoin mainnet release, negative attitude in the mining community started to emerge.

Overall, the future Filecoin market direction depends on the broader market conditions, the actual result for the mainnet launch, and the overall tokeninsight.com confdence in the mining community post-launch. 23 RESEARCH

Handshake Mining

ASIC mining machine is about to be released to the market, GPU mining is in the process of to be phasing-out from the Handshake network.

On February 4th 2020, the decentralized domain name agreement Handshake offcially launched its mainnet, and fully enabled its network capabilities on February 17 2020. Post launch, the HNS market price quickly rose from its low of $ 0.1035 to its peak of >$ 0.4, a nearly 4x.

HNS market price continued its downturn in mid-March. As of the date of publication, HNS has dropped back to around $ 0.12. TokenInsight conducted a revenue analysis on some of the Handshake's popular mining machines and discovered that MultMiner M1 can temporarily maintain the electricity ratio at about 20%, and the proftability is relatively stable.

‣ Popular Handshake Miner Revenue Analysis Source: F2Pool, TokenInsight

Power Daily Net Electricity Model Hashrate(G) Power(W) Efficiency Profit($) Ratio (W/G)

MultMiner M1 5.5 850 155 3.64 22% (Blake2B+SHA3)

RTX 2080Ti 8 GPUs 3.68 2150 584 0.53 83%

GTX 1080Ti 8 GPUs 3.52 2150 611 0.40 87%

GTX 1070Ti 8 GPUs 2.28 1350 592 0.31 84%

P104 8 GPUs 1.92 1350 703 0.01 100%

RTX 2080 8 GPUs 3.28 2430 741 -0.14 105%

Affected by the delivery of Handshake ASIC mining machine Mars H1 in Q2 2020, the subsequent hashrate and the network diffculty have increased signifcantly, and the income of GPU miners will continue to shrink, and phasing-out after ASICs fully enter to the Handshake network in Q2 2020.

tokeninsight.com 24 The report is based on public sources considered to be reliable, but TokenInsight Inc. does not guarantee the accuracy or completeness of any information contained herein. The report had been prepared for informative purposes only and does not constitute an offer or a recommendation to purchase, hold, or sell any cryptocurrencies (tokens) or to engage in any investment activities. Any opinions or expressions herein refect a judgment made as of the date of publication, and TokenInsight Inc. reserves the right to withdraw or amend its acknowledgment at any time in its sole discretion. TokenInsight Inc. will periodically or irregularly track the subjects of the reports to determine whether to adjust the acknowledgement and will publish them in a timely manner.

TokenInsight Inc. takes its due diligence to ensure the report provides a true and fair view without potential infuences of any third parties. There is no association between TokenInsight Inc. and the subject referred in the report which would harm the objectivity, independence, and impartiality of the report.

Trading and investing in cryptocurrencies (tokens) may involve signifcant risks including price volatility and illiquidity. Investors should fully aware the potential risks and are not to construe the content of the report as the only information for investment activities. None of the products or TokenInsight Inc, nor any of its authors or employees shall be liable to any party for its direct or indirect losses alleged to have been suffered on account thereof.

Tokeninsight Inc. Find, Create, And Spread Value In Blockchain.

To Obtain The Latest Data And Rating Reports In Blockchain Industry

Website www.tokeninsight.com Cooperation [email protected]

Other Contacts

WeChat offcial account Tokenin offcial Twitter TokenInsight offcial Weibo TokenInsight offcial Telegram https://t.me/TokenInsightOffcial TI Offcial Twitter WeChat Account WeChat Mini App