Mining Tycoon Wu Jihan and the History of Bitcoin Mining in China

On April 20th, Beijing time, Bitcoin ushered in its fourth halving.

The halving represents an increase in the difficulty of mining, which has a profound impact on the mining industry. Mining is undoubtedly the most closely connected link between China and Bitcoin.

At its peak, China accounted for more than 70% of Bitcoin mining power, and Bitmain alone accounted for more than 50%. Such a high computing power is enough to launch a 51% computing power attack on Bitcoin.

After the Chinese government forcefully cleared the mining industry in 2021, a large number of mines left China. The mining power of Bitcoin in China has even dropped to zero. With the export of Chinese mining machines, the mining power has recovered. The big bosses behind those large overseas mining farms are still Chinese. According to statistics from chainbulletin, in 2023, China still accounts for 21% of Bitcoin's computing power. In those areas that are not integrated into the national power grid, the roaring mining machines are still working day and night.

China is a major player in the history of Bitcoin mining. The fate of mining leaders has also risen and fallen with the changes in the industry, and the life experience of former mining tycoon Wu Jihan is a mirror reflecting the development of mining in China.

The unique mining tyrant

In China, an industry leader that cannot be ignored in the history of Bitcoin development is Wu Jihan, who is the Chinese translator and early evangelist of the Bitcoin white paper, and is better known as the founder of Bitmain.

At the peak of Wu Jihan's career, in 2018, Bitmain's self-operated mining accounted for more than 50% of the special computing power, and at this time, it was already possible to launch a computing power attack on Bitcoin. At that time, Bitmain was indeed in its heyday, and computing power was power. In the battle between the big and small blocks of Bitcoin, Wu Jihan led Bitmain and miners to fork Bitcoin and produce BCH.

From another perspective of the fork incident, China at that time enjoyed a high voice in the encryption industry.

In 2018, 8 of the top 10 mining pools in terms of computing power were located in China. Mining farms that sprang up near small hydropower stations in Sichuan and thermal power plants in Inner Mongolia have made a lot of Chinese mining owners rich. At that time, local governments turned a blind eye to mining activities. After all, the tax paid by large mining farms is also a fiscal revenue, or there is no place to consume excess electricity. Even some local officials participated in it.

In 2018, a reporter from Golden Finance visited a mine that was being planned to be built in Inner Mongolia, and at that time directly discussed cooperation on electricity discounts with the local county chief.

The amount of mining power is only one aspect. At this time, China still occupies the center of the crypto industry. Many projects have to make a pilgrimage to the East. If there were no funds from the East, there might not be Ethereum today.

In June 2021, China banned mining and Bitcoin plummeted. As China's Bitcoin policy tightened, most of the mines moved out of China. Mainland China, which once accounted for more than 70% of Bitcoin mining computing power, gradually lost its voice in the development of Bitcoin. Bitcoin mining computing power in China even fell to zero at one point. By the beginning of 2022, China's mines had basically completed the great migration to overseas, and countries such as the United States, Russia and Kazakhstan became the countries with the largest influx of computing power. The United States also became the mining power hegemon.

It seems to be a coincidence that in the year when Bitcoin mining officially "withdrawn" from China, Wu Jihan left Bitmain. The reason for his departure was due to internal fighting in Bitmain. Since then, Wu Jihan has become low-key, which seems to be related to China's policy on virtual currency.

Wu Jihan’s Twitter account has been inactive for a long time, with the last tweet being in 2018. His Twitter profile still reads “Co-founder of BITMAIN”.

After leaving Bitmain, Wu Jihan has not completely disappeared from the industry, but he is no longer in the spotlight. He deliberately keeps a low profile and basically does not attend important conferences in the industry. He avoids media interviews.

The mining industry has basically left China, but Chinese people are still behind the overseas mining companies and some mining pools. Wu Jihan brought BitDeer, a company spun off from Bitmain that focuses on overseas markets, to Nasdaq.

Leaving Bitmain, but not leaving mining

At the beginning of 2021, Wu Jihan resigned as CEO and chairman of Bitmain. The civil war between Wu Jihan and Zhan Ketuan ended. Bitmain's cloud computing business BitDeer and overseas mining farms were divested and belonged to Wu Jihan.

Judging from the split businesses, Wu Jihan was either smart or lucky at the time, as he got the cloud computing power and overseas mining farm business. However, not long after the split, the Chinese government began to clear out the mining farms.

BitDeer is a platform that provides users with mining machine sharing services, which saves users the complicated process of purchasing, installing and hosting mining machines. In 2023, it helped Wu Jihan realize his dream of ringing the bell on Nasdaq and became a Chinese mining unicorn. Bitmain, which has mentioned IPO again, has not yet been listed.

The establishment and success of BitDeer is also a product of the continuous changes in mining technology and business models. Over the years, not only has the hardware of mining machines been constantly changing, but also individual mining has shifted to collective mining. The popular cloud computing mining model is also emerging. This model allows everyone to participate in the mining of cryptocurrencies such as Bitcoin without owning or managing mining machines themselves. They only need to pay to rent the computing power of an organization.

BitDeer has three main businesses: self-operated mining business, in which the company mines cryptocurrencies for its own account; computing power sharing business, which provides two solutions: cloud computing power and computing power market; in the computing power market solution, the company acts as a medium to connect third parties (such as miners or mine owners) and customers with computing power needs, and only charges a service fee.

According to BitDeer’s fourth-quarter financial report last year, we can find that the bulk of its revenue still comes from self-mining income. It is currently the world’s second largest holder of its own computing power, and its mining farms are in the United States, Norway, Bhutan and other places.

From the above, we can see that Wu Jihan, who left Bitmain, did not leave the mining industry. He opened mining farms overseas in a low-key manner and made money.

Wu Jihan's mining farm's path to overseas markets is what regular mining farms are doing. On the other hand, mining has not completely disappeared in China.

In areas that are not connected to the national power grid, mining is still going on quietly in private hydropower stations. According to statistics from chainbulletin, the Bitcoin computing power in China will account for about 21.1% in 2023, second only to the United States. The reason for this, according to industry insiders, is that some miners will evade domestic monitoring through foreign proxy servers, conduct secret mining in remote areas on a small scale, and even use off-grid power generation to avoid power monitoring.

The policy withdrawal cannot kill the mining industry, and it can grow tenaciously in the cracks. When leaving Bitmain, Wu Jihan also took away the digital asset financial service platform Matrixport. It is more like a private bank in the Web3 world. Although there are many financial management platforms on the market, the biggest feature of Matrixport is that it is regulated and has licenses in Hong Kong and Switzerland, targeting high-asset customers and institutional customers. Matrixport is more well-known to insiders for its frequent publication of research and judgments on the market.

As long as POW is alive, mining will never end

It cannot be ignored that the POW narrative is gradually losing its appeal. The main reason behind this is that it consumes too much energy and is not environmentally friendly. Ethereum has therefore switched to POS. Mining is no longer the main narrative of the industry.

In order to cope with the reduction in income caused by halving, miner groups are also working together to find solutions.

The mining industry is in a bit of a cold snap. In the last bear market, some mining companies filed for bankruptcy. In this bull market, a cruel reality has emerged: the rise and fall of mining stocks and Bitcoin have become decoupled. As Bitcoin continues to break new highs, mining stocks have fallen instead of rising.

"In the short term, institutions appear to prefer to be long Bitcoin ETFs and short mining stocks, a situation we have seen unfold since early 2024," Galaxy Mining analysts wrote in a research note.

For traditional investors, they could have invested in the cryptocurrency world by investing in mining stocks, but now they have a new option - Bitcoin spot ETF.

This is like being attacked from all sides for the mining industry. So last year, inscriptions became the new favorite of miners, and they made a lot of money. Because of the interests involved, the miner group is also the largest supporter of inscriptions. The biggest beneficiaries of issuing assets on Bitcoin are undoubtedly miners. From this perspective, after the halving again, "innovations" such as inscriptions and runes that can increase miners' income will definitely emerge in an endless stream.

To cope with the increase in costs, it is necessary not only to open up new sources of revenue, but also to reduce costs.

According to the mining report released by CoinShares, the average production cost of each Bitcoin is expected to be $37,856 after the halving in 2024. The cost of mining continues to increase, and self-developed mining machines have become one of the solutions. After the halving, the difficulty of mining has increased, and the performance requirements for mining machines have become higher and higher. Self-developed mining machines can also help reduce costs and increase efficiency. BitDeer announced its self-developed mining machine at the beginning of this year and has purchased chips from TSMC.

Looking at the development history of the mining industry and its development trajectory in China, we can see that as long as POW does not disappear, miners will always find ways to survive and even make enough money. Just like Wu Jihan, who has experienced peaks, turmoil, palace fighting, and low-key behavior, he can still flexibly continue to contribute the Chinese people's strength to the mining industry.