How Bitcoin Mining Changed After the Halving

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Bitcoin’s third-ever halving this May was arguably the top crypto event of the year — especially since the coronavirus pandemic meant that no actual, in-person events would be taking place. 

Instead of going outside, the crypto space let loose a cascade of price predictions in the weeks leading up to the 50% decrease in Bitcoin block rewards: would Bitcoin go to the moon? Was the halving already priced in? Would small miners go out of business?

A few weeks after the halving, I spoke about some of these issues with F2Pool founder Shixing “Shenyu” Mao — another translation of his name is “Magical Discus Fish” — whose mining pool mined that very last block before Bitcoin’s block rewards halved.

I first wanted to know how F2Pool had come up with the idea of including a New York Times headline about coronavirus and federal bailouts in the last block.

Was it planned in advance, or did inspiration just strike?

Shenyu answered: 

“To be precise, an easter egg was written in the block height of 629,999.

A few days ago, at 3:23 am on May 12, Beijing time, the F2Pool fish pond mined the last block before Bitcoin halved for the third time. A New York Times headline that day was “NYTimes 09 / Apr / 2020 With $2.3T Injection, Fed’s Plan Far Exceeds 2008 Rescue,” and it is written in the block, paying tribute to Satoshi Nakamoto writing the title of the front page of the NYT in the Bitcoin genesis block in 2009.

Eleven years ago, on Jan. 3, 2009, Satoshi Nakamoto wrote a headline from the New York Times in the coinbase data: “The Times 03 / Jan / 2009 Chancellor on brink of second bailout for banks,” to prove that the genesis block was produced that same day. This article introduced some details of the Bank of England’s bailout in the context of the 2008 global financial crisis.

Another financial crisis has occurred this year, and the reaction of the Bank of England and the United States was very consistent with their actions in 2008 and 2009, as if it “happened yesterday.” So, we took this opportunity to write the headline from the New York Times article on the Federal Reserve’s bailout in the coinbase data on April 9 this year, and pay tribute to Satoshi Nakamoto, who created Bitcoin 11 years ago.”

This isn’t the first time that Shenyu, or Magical Discus Fish, used Bitcoin coinbase data to pass on a message (sidenote: see that the NYT headline above was slightly tweaked by a fish emoji). In 2014, Shenyu proposed to his now-wife by mining one block (25 BTC at the time) and storing it in an address that began “1LoveU.” He then unexpectedly mined the next block and added, “Hand-in-Hand, we shall grow old together.”

Back to present day after this latest halving, I wanted to know if the loss of profitability had been anything greater than expected.

Shenyu replied:

“Basically as expected.

With the fluctuation of the currency price before the halving, the mining revenue per T is between 0.8 yuan and 1.1 yuan, and it is currently 0.5 to 0.6 yuan: basically, the income is halved. Since the water harvest [flood] period has not yet began in the nearly 10 days after the halving, the mining profit of the mining machines with an electricity fee above 0.35 yuan/degree was originally 50 yuan, and now it is 25 yuan, but the electricity fee accounts for more than 50%. If you can’t pay the electricity bill, you will have to shut down.”

In the end, was the Bitcoin halving as important as everyone thought, or was it overhyped?

Shenyu said:

“The most direct impact of the block reward halving is to the miner, followed by the mining pool. The amount of coins produced is reduced, and the income is reduced, but the cost of input is basically unchanged. That will inevitably lengthen the return cycle, and even stop mining machines from continuing to run for a period of time. 

The halving and the halved currency price are very important for miners, since it determines whether miners can continue mining. Miners need to replace the more advantageous hardware, that is, the mining machines, and use financial instruments to hedge the risk. Secondly, they need to look for lower electricity resources to reduce costs, improve the stability of the machines, and other optimizations to cope with the decline in revenue. Miners need to optimize the internal and external as much as possible this year to allow themselves to survive.”

For more insights from Shenyu, check out our previous Crypto Titans interview with him here.

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