2020, Capitals Flood to Filecoin Mining
Written and Published by ODaily, a leading blockchain media in China. Translated by 6Block, a mining pool focusing on Unicorn projects.
The link to the original article in Chinese is here.
Published on: June 15th, 2020
Recently, two things related to Filecoin appeared on the headlines. One was the official sale of hard drives, and another was 6Block spotted Inflation bugs on Filecoin Testnet.
Good news or bad news aside, it is clear that compared with the “Turtle Speed” in the previous two years, Filecoin has entered a period of rapid improvement and created a robust ecosystem: from testing code to launching multi-version clients, party wallet and custody integration from major providers like Coinbase, and last but not least multiple projects and funds announced to join Filecoin mining.
In short, Filecoin is on fire. In addition to its “high-quality”, many people also say that it is so popular due to the lack of hot spots this year, or essentially the lack of money-making opportunities.
In the primary market, people haven’t seen new high-quality fundraising projects for too long, and occasionally there are some projects listed or launched the IEO, it’s nothing like before. In the secondary market, Bitcoin’s “halving effect” has been repeatedly hyped, and many people have leveraged to “greet the bull market”, but was unexpectedly liquidated and strike out of the market. As for the mining community, many miners are already on the verge of loss under the pressure of multiple rounds of cascading, block rewards halving, and rising hash rate with the beginning of the flood season.
People are constantly looking for new wealth-making opportunities. Ethereum 2.0 is one, and Filecoin mining is another.
Compared with the “first movers” who bought Filecoin miners in 2018, investors who joined this year are later than them, but smarter.
Two years ago, the Filecoin miner market was full of fakes and Ponzi schemes. Investors who entered the market at the wrong time was unfortunate.
2020, Capitals Flooed to Filecoin Mining
Filecoin mining is undoubtedly a recent hotspot.
In April 2020, Filecoin mining solution provider “1475” announced an investment from HashKey Capital, Distributed Capital, and Emer Capital, with a post-investment valuation of 400 million CNY.
By the end of May, Odaily was informed that Keystore, an enterprise-level crypto asset service provider that had previously received over 10 million USD investment from Jianyuan Fund and Distributed Capital investment, has also entered the market in a low-key manner, positioning itself as a Filecoin mining solution provider.
According to Bryce (pseudonym), a partner of a crypto fund, they plan to invest tens of millions of funds in Filecoin mining and are currently reviewing the leading providers.
Jianniang Shao, general manager of Cannan Blockchain, publicly stated at an event at the end of May that PoW has entered a stage of a relatively high threshold, and distributed storage has opened up a new mining battlefield beyond hash rate. Cannan is paying attention to IPFS and Filecoin mining.
On May 29, Yang Xiao, co-founder of Panda Miner, a manufacturer of GPU miners, said that the company will focus on the Filecoin mining this year…
In a long time after its fundraising in 2017, because there were no actual token or miners, countless scammers packaged themselves as Filecoin miner manufacturers, discouraging real players in crypto and mining communities from participating.
Today, although Filecoin has not yet officially launched, the market perception has quietly shifted.
In 2014, Stanford graduate Juan Benet led a team to create a protocol designed to replace HTTP, named the Interstellar File System, or IPFS.
HTTP is the most widely used network transmission protocol on the Internet. IPFS can be understood as a distributed version of HTTP, and its workflow is “IPFS uses content-addressing to uniquely identify each file in a global namespace connecting all computing devices. IPFS allows users to not only receive but host content”. *
Similar to blockchain, IPFS is distributed, censorship-resistant, and open.
In order to promote the application of this open-source protocol, in June 2017, the official team Protocol Labs released a new distributed storage protocol called Filecoin, aiming to improve the implementation of distributed storage by adding an incentive layer.
Once launched, it raised 57 million USD from nine well-known investment institutions, including Sequoia Capital, Union Square Ventures, A16Z, Winklevoss Capital, etc.
In the subsequent public offering, although Filecoin only raised funds on Coinlist available for accredited investors only, leaving countless retail investors out, it still raised 205 million USD within a month, becoming the largest ICO at that time.
An all-star team, backed by all-star VCs with a huge war chest, all those seized the attention from the whole industry.
Those who weren’t able to participate in ICO turn to FIL futures and miners.
Exchanges such as Gate.io and LBank successively listed futures FIL, and the price skyrocketed by 1.5 times during the bull market.
In the hardware market, projects offering futures of Filecoin’s physical miners appear one after another.
The total supply of Filecoin is 2 billion, of which 70% is allocated to miners, 15% to the development team, 10% to investors, and the remaining 5% to the Filecoin Foundation. A total of 20% of the tokens of the team and the fund are up to 6 years vesting, and 10% of the investors have an unlocking period ranging from 6 months to 3 years. Therefore, circulating tokens in the early stage will be mainly obtained through mining.
Filecoin’s mining algorithm is a unique PoC mechanism, which is to compete with storage capacity for new blocks and storage fees. The PoC algorithm consists of two parts:
Proof of replication (PoRep) to verify that miners have stored files as required, and Proof of space and time (PoSt) to prove that the miner has always stored the file for the time.
Miners who complete these two steps will be able to compete for block rewards.
Filecoin miners compete with their ability to store and transfer data, such as the total amount of storage, the speed of retrieval, the bandwidth of transmission, and the latency. Filecoin miner components usually include CPU, GPU, motherboard, and hard disk, similar to a high-end computer plus a hard disk, unlike Bitcoin’s ASIC miners that require customized chips. However, the cost and efficiency of different hardware are different. Therefore, how to configure a highly available mining machine is on test and trial.
That’s where the miner manufacturers come in. Hardware providers in Huaqiangbei, Shenzhen, China is quick to sense business opportunities.
It's a challenging business that requires expertise, but not so for the hardware providers in Huaqiangbei.
The Filecoin project is popular, and the market has a demand for Filecoin miners. After profiting from general crypto miners, the business people of Huaqiangbei hope that Filecoin will bring another round of profits.
When they sell bitcoin miners, those hardware providers can only get a thin margin from the distributors who sell it to retail customers. In the production and sale of Filecoin miners, they get to keep all the profit. There were the upstream supply chain and manufacturers, who really did not care whether the miners they produce could actually mine or not. Since 2018, hundreds of Filecoin miners emerged, and now there are no more than a dozen that are sizable and still selling Filecoin miners.
The following picture is a list of manufactures that claimed to provide Fileconin miners in 2018. The list was prepared by “Chaoge Blockchain Notes”.
There is no doubt that most of these are fake Filecoin miners.
The chief architect of 6Block Pool, Lee White judged from two aspects.
First, Filecoin team only began submitting code on Github in June 2018, and did not finalize the mining plan until June this year, “So how could a randomly configured miner work from 2 years ago?”
Furthermore, for the hardware configuration required by the current mainnet, an ordinary Filecoin miner needs at least one AMD CPU, 1TB SSD, and 128GB memory. The cost of these parts is not less than 6000 CNY. However, the price of miners in the picture was between 2000–6000 CNY, how could it reach the basic configuration?
In this regard, employees IFPSBit, which is on the list above but still in operation, said that its model in the list can not be mined alone, and can only participate in the cluster as a storage node. And added, “the product was not sold much and was removed from the shop early on.”
Back then, there were also some miners in the market with prices ranging from 5,000 to 10,000 CNY, but a representative of a Filecoin miner manufacturer pointed out that the performance might also be questionable.
The representative said that most of these miners used home network storage devices (NAS machines), with the ARM architecture, and a low configuration, which is not enough to run the algorithm; when building the cluster, the stability is not guaranteed, and it is not suitable for mining Filecoin.
If you buy these miners, maybe you will be thinking, ‘well, lower price, lower performance, fair enough.’
However, according to Lee White, low configuration leads to low mining efficiency and slow calculation, and the official team has a minimum threshold for mining speed. The three stages of mining must be calculated in a day, otherwise, it will not be recognized by the system as effective computing power to compete for new blocks.
Still, these fake miners were all over the market and attracted countless buyers.
Take the “Snail Miners” that was investigated and dealt with by the police for example, according to report by YiCai.com, from October 2018 to February 2019, the company sold 300,000 units of “snail interstellar servers” packaged as Filecoin miners to thousands of people, swindled 2 billion CNY in just 5 months.
Snail Miners is just the tip of the iceberg. With the launch of Filecoin’s mainnet, more fake miners will show what they are really made of.
People may ask, mining does not seem to be a regular and easy-to-understand investment project. Why do fake miners get so much money?
How did they sell millions of fake miners?
The problem lies in Filecoin’s “newness”. Crypto Ponzi schemers used people’s lack of knowledge in the highly technical field to advocate that their product is associated with Filecoin and that it will bring generous returns.
Abiang is an agent or a city node of one of those miners. He is a full-time crypto “investor”. In 2017, he rode the bull round and made some money in the ICO bubble, but unfortunately did not get on the ride of Filecoin.
Therefore, when Abiang found that he could participate in Filecoin by buying, selling, and running miners, he was convinced that this was a great opportunity.
After comparing and researching the fundamentals of various miner manufacturers, Abiang decided to invest hundreds of thousands of CNY, purchased 40 miners from some manufacturer, becoming a first-level agent, and got the lowest purchase price.
For Abiang, the selling point of that manufacturer was that it had a real company and products, and its marketing and operation models were very mature.
What’s more, the manufacturer would bring agents to the company to visit and provide training courses; it would also put online advertisements, demo videos, etc. to build brand awareness. It would help the agents to sell through regular sales meetings.
More extreme branding was to hire celebrities to endorse the product. For example, the above-mentioned Snail Miner invited Hu Run, the founder of the “Hu Run Rich List,” and said that he would cooperate to create the CAI Billion List to indirectly endorse the project.
CAI can be understood as an imitation of Filecoin developed by the Snail Miner team. A Snail Miner can mine both CAI and FIL tokens.
One miner for two tokens is a classic marketing scheme. The logic sounds solid. Start mining an altcoin before Filecoin launches. But the tokens created to sell miners never perform well price-wise. Even if the token is not a miner issued token but a Filecoin-like PoC project token, there is no high-quality project judged by the fundamentals or by the token price.
However, the buyers fell for the tricks one after another.
According to Abiang’s observations, the majority of the customers from online and offline events are senior people who have invested in Internet projects or have traded crypto, or even participated in pyramid schemes before.
“Even though they don’t know what files and data storage is, Filecoin has an all-star team backed by top-notch investors with information everywhere on the Internet. It is different from those fake projects from scratch. It’s much easier to push a product that’s related to Filecoin than push a totally new project.” Abiang introduced.
“Everyone believes in the myth of doubling wealth overnight. Normal investment opportunities with single-digit returns are definitely not good enough for them. When they spotted Filecoin and thought they could participate, they felt that‘s their shot’.”
When asked whether he had reminded these novices of the risks of the project’s mainnet extension and the failure of the delivery of the mining machine, Abiang waved his hands, no.
“You don’t know, to sell this, you’d have to avoid mentioning the risk. We only stress the high returns.”
Abiang himself is also attracted by the high return as a “city node”.
After becoming a “node”, a miner with a purchase price of several thousand CNY could be sold for about 10,000, and the profit was quite high. This was the one-time profit from hardware; the second part of the profit was the mining share. Because of the high entry barrier to run a miner, ordinary customers could hardly operate by themselves after purchasing miners. Therefore, manufacturers provided one-stop services from production to mining. As for fees, they normally collect a certain percentage of tokens from customers’ mining output.
After 3 months of being the ‘city node’, according to Abiang, the price of the mining machine rose by two or three thousand CNY. Of course, this has nothing to do with cost, just a marketing scheme.
“It’s not good to lower the price, it means that your asset is depreciating, and the higher it increases the better. Our prices increased a lot. The miners were still the same batch.”
The price increase could also cause FOMO. According to the report, one of the Snail Miner’s marketing strategies was to issue price adjustment notices, “the price each miner would increase 3,000 yuan”, causing many investors to hoard a large number of machines before the price increase.
According to Abiang, 2018 was when Filecoin miners sold best.
“There was a lot of selling conferences with a high turnout. Buyers often would visit a few manufactures to choose from. It was a totally different story to the then bear market.”
Can’t stand the industry anymore
If a business is based solely on the lack of information, it won’t last long.
As time went by, more and more people began openly questioning the quality of those Filecoin miners.
At the same time, “There were fewer and fewer people who believed in what we were selling.”
As of February 2019, the mainnet launch was postponed for the second time, which hit many agents and investors.
Abiang began to doubt since that time, “Is there some problem with these miners?”
“I was skeptical at the beginning when these miners were described as money-printing machines, All kinds of promises of high-yield made it seem unrealistic. But since I chose it, I convince myself that it was the right choice. But, with no guarantee for the next launch date, and after seeing the fall of Snail miners warnings,” Ah Biang’s faith began to shake.
After hesitating for several months, Abiang officially quitted.
“Customers don’t buy it, the margin is thin, and nobody knows whether the miner would work. And there is also the risk of being investigated. I am out.”
Subsequently, several agents of the same level and half of the lower-level agents of Abiang also left. Dozens of peers who were active have gradually disappeared.
Even the above-mentioned “top ten miners brands” that were once famous in the Filecoin community, most of them also have disappeared.
Odaily checked the official websites of those miners one by one and found that most of the websites no longer work. Only IPFSBit is still selling Filecoin miners. The official website of another “Maya mining machine” has been switched to sell “Ethereum miners” and unreachable with the contact information left on the website.
While those crowds were dispersing, the Filecoin project made exciting progress.
Newcomers enter the market, can “good money” drive out“bad money”?
On December 11, 2019, Filecoin opened the testnet, and miners from all walks of life finally had a real proving ground. Although the tokens mined on the testnet have no value, miner manufacturers still participate in the test, actively testing and helping improve.
When Testnet Phase II launched on May 15, the speed to complete proof of replication became twice fast than before, and various codes had also been verified for feasibility. Protocol Labs expect that the mainnet will be launched from the end of July to mid-August this year.
After two years of development, Filecoin is finally approaching the official launch. Market sentiment is changing. Major wallets such as Trustwalle have announced support for FIL.
6Block core engineer Lee White clearly remembers that about two months ago, the 6Block team was wrapping development of the HandShake (HNS) ASIC miners, and all of a sudden there were some teams studying zk-SNARK. It is later clear that these people are all Filecoin miner manufacturers.
In Filecoin, with zk-SNARKs, without checking the specific files stored by the miners, the verifier can judge whether the miners honestly copied and saved the user’s file. zk-SNARKs makes it efficient and protects user privacy.
Therefore, to effectively run the zk-SNARKs is the basic requirement for Filecoin mining software and hardware.
However, due to the fact that cryptography technology is sophisticated, few people usually dabble. Many teams are almost learning on the go.
Lee White and his team have previously developed a Layer 2 privacy protocol and have a good understanding of zk-SNARKs, so they ventured in Filecoin miners manufacturing after finishing the HNS mining machine development.
Being good at it is one reason. Another reason is Lee and the 6Block team believe Filecoin represents new hope. After three years of dedicated research and development, Filecoin has finally formed a mature ecosystem and started rapid growth. Despite the risks, it is worth betting on.
Keystore is another project that has decided to join Filecoin mining.
“The decision to participate is not only because Filecoin mining is closely related to our business, but more importantly, we have seen the broad market demand.” Jia Xudong, director of marketing at Keystore, told Odaily.
From January to the present, the Keystore team has contacted many institutional users who want to mine Filecoin, which can be roughly divided into two categories:
One is Filecoin’s public/private investors, who are optimistic about Filecoin, and mining is a way to obtain FIL at a lower cost. Mining Filecoin can be understood as continuing to add positions.
The other type is a few bitcoin big miners.
Most Bitcoin mining unions reject Filecoin for various reasons. One of the biggest reasons is that they are Bitcoin maximalist. In addition, Filecoin mining was once clouded by Ponzi schemes, which deters real players. Some do not reject the new currency, but they are skeptical of the distributed storage business. They fear that it might be suppressed by authorities like what happened to TON. There are also conservative miners who are skeptical because Filecoin does not have a reliable ROI model in the early stage of mining.
But miners who have an appetite for risks will use a small portion of their assets to bet on “investment trends.”
In fact, smart miners should have realized that at the moment when the block reward is reduced and the currency price has been sideways for a long time, Bitcoin mining also has a glass ceiling, and it is also risky. Invest in Filecoin mining Mine may be the same.
When preparing this article, Odaily has visited a mining facility with an investment of over 100 million CNY. It is planning to put 10% of the funds into Filecoin mining. Funds of this size are not small for the current Filecoin mining market, and they are currently negotiating cooperation with leading miners manufacturers.
The influx of institutional-level miners and new retail miners will undoubtedly bring the positive sentiment of “good money to drive out bad money” from the previously chaotic Filecoin mining market.
Taking the 6Block mining pool as an example, it began to participate in mining when the Testnet Phase II started, and with the configuration of fewer than 10 miners, it ranked 9th in the Filecoin Top miners list. 6Block’s daily computing power of a single miner can reach 300GB, which shows a certain efficiency advantage compared to some other miners on the list with only 200GB of computing power.
On May 21, the 6Block mining pool made its hardware solution public, which attracted attention from the community.
As mentioned earlier, Filecoin miners manufacturers have been selling various miners since 2018, and because most of the miners are futures, the actual configuration of the product is as unknowable to investors.
The intention for the 6Block Pool to announce its hardware plan is to provide a reference for ordinary investors and some less professional manufacturers. Just like the open-source of mining software can stimulate the birth of more mining pools and promote the decentralization of computing power, openly sharing hardware solutions that have been tucked away for two years is undoubtedly more beneficial than harmful to the industry.
The R&D of machines is a way to make money for miner manufacturers. When the solution is open source, what everyone competes with is the availability and maturity of software and operation and maintenance services, thereby stimulating the maturation of the industry.
It’s a pity that Abiang and his customers had joined the market at the wrong time.
Abiang had calculated his reward for one year in the industry. “Selling hardware alone made some money, but the dozens of miners of his which haven’t started producing coins canceled out the profit. It’s a year of work for nothing.”
Filecoin’s mainnet launch is around the corner, and he has no idea whether his mimers could mine FIL. “The worst-case scenario is to sell the miners at a 40% discount”, Abiang thought.
However, it is still unknown whether the manufacturer can deliver the miners to him. Whether the funds collected two years ago were used to produce miners, and whether there were operating losses and overselling, all those are risks to be unveiled.
It is conceivable that Filecoin’s launch will lead to the crash of a series of “Snail Miners” scams.
Abiang is both a pyramid schemer and a victim, and he has a lot on his mind. But he has no hope of getting his funds back.
“It’s written in the sales contract. This machine is non-refundable unless you can’t mine coins. If the manufacturer buys a small number of coins through the secondary market and sends it to you, it is said that the machine does mine, and you have no way to get a refund.” Moreover, two years after the fraud occurred, did the user consciously retain the evidence? It is not optimistic for those victims.
Finally, Abiang recommends investors who are looking for opportunities to enter the market. For such high-risk projects, you should never All In but only invest what you can lose. And when the project is launched, you will still be an early investor. Don’t FOMO. Don’t have “faith” easily.
“Investment is an investment. You need to control risks.”
