The Reasons for Mining Pool Being a Necessity for Crypto Exchange in China
Three major crypto exchanges are all involved in the mining pool business. On April 1, CZ, founder of Binance, revealed on twitter that the platform is set to roll out its own crypto mining pool. Later, Binance’s mining pool reportedly that had hired former employees from Bitmain and attracted clients through Chinese miners.
Top mining pools earns billions of Chinese yuan a year
In 2019, the actual output is about 678700 BTC, and the annual transaction fee (miner fee) is about 19473 BTC. Based on the average Bitcoin price of $7365.21 in 2019, the annual miner’s income is about $5.14 billion.
In 2019, the annual estimated revenue of BTC.com, the largest Bitcoin mining pool, is about $26.495 million (186 million Chinese yuan), if calculated according to the general 3% commission proportion. F2pool also has an estimated annual revenue of $2006.77 million (140 million Chinese yuan). Other mining pools in China like Poolin, AntPool, SlushPool, ViaBTC, and BTC.TOP all have annual estimated revenues of more than $10 million.
The mining pool provides the main non-traded BTC for the exchange, increases the supply of BTC and injects liquidity into the market. According to Chainalysis, in 2019, all crypto mining pools sent 700000 BTC to all exchanges, and 10 major exchanges received 77% of them. The main exchange receiving BTC is Huobi, accounting for 29%; the second is OKEx, accounting for 12%. In addition to the two exchanges, other exchanges are also competing for the bitcoin from the mining pool.
At present, among the exchange-backed mining pools, Huobi.pool has entered the top 10 in 2018 with a relatively stable computing power, which fluctuates between 3% and 6%.
OKExPool, according to BTC.com’s data, its market share has rapidly developed from about 0% in October 2019 to the sixth-largest mining pool at present. But its computing power has declined significantly in January 2020. It can be concluded that the reason for the rapid increase of computing power of OKExPool at present is that there is still a lack of individual investors or the participation of relatively centralized large-scale mining farms.
Though the exchange is generally a newcomer in the field of the mining pool, it still has certain natural advantages over traditional enterprises in developing mining pool business.
On the one hand, there is no doubt about the profitability of the leading exchange, which provides them a credit endorsement in the cryptocurrency and miner space; in addition, with the early capital accumulation, the exchange-backed mining pool can carry out “price war” in the early development stage, and sign with large-scale mining farms the commission fees of the mining pool with competitive advantages, which is also the method of gaining customers that Binance adopts. The mining pool business can be linked with the exchange business. For the miners who join the exchange’s mining pool, they may enjoy a lower exchange transaction fee in the future.
As early as 2019, Huobi has launched cloud computing power package, in the future OKExPool will follow. The crypto exchange naturally has more potential users than other mining pools. It is more convenient to promote the business of self-running mining pool or cloud computing platform.