It seems that all too often there is an article being published that laments on Bitmain as though they were a failing franchise or as if the Chinese conglomerate is on the verge of bankruptcy.
However, this could not be further from the truth. As expounded upon in David Vorick’s thoughtful piece titled, ‘The State of Cryptocurrency Mining’, Bitmain is still a monster in the cryptocurrency space.
The State of Cryptocurrency Mining
For those new to the blog, I am the lead developer of Sia, a blockchain based cloud storage platform. About a year ago, myself and some members of the Sia team started Obelisk, a cryptocurrency ASIC manufacturing company.
The piece, which is a deep-dive into the world of cryptocurrency mining, explores the ins and outs of the crypto mining in a way that few other authors (if any) have before.
Vorick is sure to go into detail with regards to the costs of manufacturing an ASIC chip capable of mining more efficiently than a GPU, the economies of scale necessary to bring such an item to market, the varying incentives of cryptocurrency mining companies, and the nuanced relationship between crypto mining companies and crypto developers.
Most notably, Vorick details the Siacoin team’s own foray into crypto mining and the various hurdles that they needed to jump before they were able to bring their own ASIC crypto miner to market. Ironically, during this process, Vorick laments on how it appears he was foiled by Bitmain during the process when the Chinese manufacturer that his team was relying on to develop certain parts of the miner for him suddenly reneged on their previously agreed upon relationship. Whilst having no evidence that this was due to Bitmain’s influence specifically, Vorick maintains in the article that it was an odd coincidence that the very thing that other crypto mining industry experts warned about (Bitmain tampering and eroding manufacturer relationships), ended up happening to Siacoin.
All that aside though, there is one specific passage from Vorick’s piece that truly illuminates the nuance of Bitmain’s economies of scale and mining capabilities:
“Manufacturers that sell ASICs to the public, like Bitmain, tend to be less exposed than consumers to things like ASIC hardforks. Using Sia as an example, we estimate it cost Bitmain less than $10 million to bring the A3 to market. Within 8 minutes of announcing the A3, Bitmain already had more than $20 million in sales for the hardware they spent $10 million designing and manufacturing. Before any of the miners had made any returns for customers, Bitmain had recovered their full initial investment and more.”
“People tend to under-estimate Bitmain. Yes, they have the most money, and yes, they dominate because of their economies of scale. But they also dominate because they’ve got the fastest to-market time of any company. They dominate because they’ve got the best chip developers in cryptocurrency. They dominate because they’ve innovated in dozens of places to squeeze costs and inefficiencies out of corners that most people aren’t aware exist. They hire the best people and pay them well. And they work hard to make sure that at every iteration, they are the ones on top.”
While this passage is from Vorick’s subjective experience/understanding of BItmain’s innermost operations, these passages do come from someone that has been in the cryptosphere (as a developer) for a number of years that also embedded themselves deeply enough into the crypto mining sphere to where he was able to help manufacturer his own ASIC for Siacoin’s unique mining algorithm.
Bitmain is the Crypto Boogeyman
Make no mistake about it, Bitmain and Jihan Wu (head of Bitmain) are the crypto boogeymen.
Why, you ask?
Because of the conception (and perhaps reality) of the allegation that Bitmain ‘plays dirty’. It cannot be denied that Bitmain moves in their own self-interest, to a ruthless extent, almost. However, part of that is attributable to the fact that Bitmain is operating in a capitalistic, winner-take-all/zero-sum environment.
Many have issued deep criticisms of Bitmain for several things in the cryptosphere, including but not limited to:
- The split in the Bitcoin protocol between Bitcoin Core and Bitcoin Cash. For those that do not remember, Bitmain Technologies (Bitmain) was and still is the primary supporter of the Bitcoin ABC protocol. Bitcoin ABC is the development team that is primarily responsible for the development of the Bitcoin Cash protocol. Since Bitcoin Cash was (and still is) seen as an abomination to the Bitcoin community, many levered substantial hate toward Bitmain’s direction as a result.
- Ironically, Bitmain was also lambasted by portions of the Bitcoin Cash community for not being more aggressive in their stance against the Bitcoin Core developers by imposing their will to guarantee that the SegWit2X measure would be passed. Specifically, those that adhere to the Bitcoin SV iteration of Bitcoin Cash have adopted this narrative most heavily.
- When Monero initiated a hard fork earlier this year, many in the crypto community saw this as full scale warfare against Bitmain itself. There was also a full case study performed on the topic as well.
Above, are just a few examples of why and how Bitmain has drawn the ire of crypto enthusiasts and supporters across the sphere.
Bitmain is Rolling in the Dough
Bitmain is reportedly valued at approximately $14 billion.
As the headline of the Fortune article posted above states, Bitmain was able to pull in more than $1.1 billion in pure profit in the 1st quarter of 2018 alone.
Thus, by no means, should anyone interpret the recent layoffs by Bitmain to be indicative of impending bankruptcy. It is, however, a symptom of the crypto bear market and it illuminates just how much profits have probably dwindled for Bitmain over the year. However, there is no indication, financially or otherwise, to suggest that Bitmain is on the verge of ‘going out of business’ or ‘running into the negative’.
Vorick’s words are important to remember here, because many underestimate the sheer economies of scale that Bitmain currently possesses, as well as the profits that they have obtained this year alone (which probably number in the billions).
Therefore, we must be careful before we suddenly count out large crypto enterprises such as Bitmain. Perhaps smaller entities that were not as successful in monetizing/creating a sustainable business plan/aggregating sufficient economies of scale will be susceptible to shutdowns and impending bankruptcy, but Bitmain is not one of those companies.
Of course, none of the above even touches on the IPO that Bitmain recently launched this year or the tens of millions of dollars in private investment that they have already received and continue to collect even throughout the crypto bear market.