The turbulent world of mining machine manufacturers

Text | Joanna

Over the past ten days, the cryptocurrency market has been full of bullish atmosphere, and the myth of getting rich quickly has reappeared. On the contrary, some myths are falling, which can be said to be a mixture of joy and sorrow.

Among them, the most tragic ones are undoubtedly the major mining machine manufacturers.

For example, the fight between the founders of Bitmain, the world's largest mining machine giant, the "seizure of official seal" of Canaan Inc., the "world's first blockchain stock", and Yang Zuoxing's resignation as executive director and legal representative of BitMicro Holdings... These messy changes make people sigh.

On July 31, the media revealed that the two founders of Bitmain, Wu Jihan and Zhan Ketuan, offered 1.5-2 times the salary to compete for employees. What's more, due to the chaos in the financial and human resources system, some employees received double salary.

For a time, public opinion was in an uproar.

In this regard, Yan Yan, a veteran Bitcoin miner, said that on the one hand, after the wild growth in 2017, the industry has been sluggish for more than two years; on the other hand, major mining machine manufacturers have been experiencing personnel turmoil and a worrying financial outlook, exposing a serious survival crisis.

Regrettably, major mining machine manufacturers represented by Bitmain have not taken the overall interests of the company into consideration to avoid unnecessary losses due to internal strife.

High-level turmoil is hard to extinguish

Fortresses are often breached from within.

In recent times, Bitmain, Canaan Technology, and Shenma Mining Machine, which are regarded as the "three giants" of mining machines, have their own troubles and have been frequently complained by the industry, becoming the focus of public opinion.

On July 31, Bitmain had another problem. According to Wu Says Blockchain, an insider revealed that in order to compete for employees, Wu Jihan and Zhan Ketuan offered employees 1.5-2 times the salary. Among them, Zhan Ketuan said that employees could get 1.5 times the salary; Wu Jihan said that employees could get 2 times the salary in odd months. In addition, due to the chaos of financial and human resources systems, some employees even received two salaries.

In fact, the feud between Wu Jihan and Zhan Ketuan has a long history.

At the beginning of Bitmain's establishment, the duo of Wu Jihan and Zhan Ketuan was established as co-CEOs. In March 2019, Wu Jihan "retired to the second line" and Bitmain was actually controlled by Zhan Ketuan.

In October 2019, Wu Jihan sent an email to all employees, dismissing Zhan Ketuan from all positions at Bitmain and announcing his strong return. The subsequent drama is well known to people in the cryptocurrency circle, and the battle for control of Bitmain has intensified.

"Over the past year, the cryptocurrency community has witnessed the entire process of Wu Jihan and Zhan Ketuan's cooperation and breakup." Yan Yan said with a smile that Bitmain never lacks headlines and does not have to take the initiative to do public relations.

Following Bitmain, Canaan Technology was not immune to internal strife.

On July 9, 2020, the industrial and commercial changes of Hangzhou Canaan Creative Information Technology Co., Ltd. were noticed by the cryptocurrency media, leading to a struggle between Canaan Technology Chairman and CEO Zhang Nangeng and the "Hangzhou Gang" for control.

At 19:00 on the same day, its official WeChat account "Canaan Technology" issued a statement regarding the industrial and commercial changes, saying that the former directors Li Jiaxuan, Kong Jianping, Sun Qifeng, and supervisor Tu Songhua had withdrawn from the main personnel. After the completion of the above industrial and commercial changes, Canaan Technology, as a Nasdaq-listed company in the United States, all its subsidiaries in China will be headed by Zhang Nangeng as the company's executive director, general manager, and legal representative.

Canaan Technology responds to "industrial and commercial changes"

Compared with the stalemate in the battle for control of Bitmain, Zhang Nangeng seems to have quickly "calmed down" the internal struggle. Industry insiders speculate that it may be seen from the "clearer and more unified corporate governance structure" that Canaan Technology quickly calmed down the internal struggle.

On July 20, Shenma Mining Machine, another member of the "Big Three" mining machine companies, announced a change in legal representative. According to media reports, Yang Zuoxing, the founder of Shenma Mining Machine, resigned as the executive director and legal representative of Shenzhen Qianhai Panxin Technology Co., Ltd., and was replaced by Yang Jinrong.

Industry insiders believe that this is a major change in Shemma Mining Machine after Zhan Ketuan reported the case to the police to investigate Yang Zuoxing in November last year.

Collective "money shortage"

"The iteration cycle of mining machines is very fast, and long-term and stable cash flow is needed to support research and development and iteration in order to keep up with the ever-increasing computing power of the entire network." Yan Yan feels the same way.

At present, the "money shortage" has once again hit major mining machine manufacturers.

A few days ago, some media reported that Zhan Ketuan was preparing to sell the office building that Bitmain had previously purchased. Although Zhan Ketuan later came out to refute the rumor, the situation was not resolved. The Nuclear Finance APP found that Bitmain employees on Maimai Zhiyan said that the housing provident fund for July had not been received. In response, the industry pointed the finger at the "money shortage".

Bitmain employees said that the housing provident fund in July has not been received

According to the provident fund policy, companies are required to complete provident fund payment before the 25th of each month. Some people speculate that Bitmain employees have not received provident fund information, which means that there is no money in the corresponding bank account.

On July 30, Wu said blockchain reported that multiple sources confirmed that Bitmain subsidiary Shenzhen Century Cloud Core was subject to property preservation by the court, and some mining machines were sealed due to the application for property preservation. Previously, Beijing Bit received 109 million yuan in payment but did not fully deliver the goods to customers, and detained some of the customers' mining machines, causing many customers to go to Shenzhen, Beijing and other places to defend their rights recently.

At the same time, Canaan Technology's revenue situation is not optimistic.

On May 22, Canaan Technology released its unaudited financial statements for the first quarter of 2020. The financial report shows that Canaan's total net revenue for the quarter was RMB 68 million, down 85% from the previous quarter's RMB 463.2 million, and the company's gross profit was only RMB 24 million. During the reporting period, although Canaan Technology's net loss narrowed, it was still in a loss-making state.

On May 14, White Diamond Research, a US stock research institution, released a report on Canaan Creative, stating that Canaan's mining machines are not powerful enough and its AI chips are unable to compete with giants. They also believe that given Canaan Creative's expected revenue and losses, the current market value of more than $850 million is unreasonable, and the reasonable valuation should be between $100 million and $200 million.

The data also showed that Canaan's stock was issued at $9, and the highest price on the day of listing was $13.00 per share, but it fell below the issue price on the first day and finally closed at $8.99 per share. Since then, Canaan's stock has been on a downward trend. As of the close of the U.S. stock market on August 1, Beijing time, Canaan fell 7.41% that day to close at $2.5.

Canaan Inc. stock price trend

In addition, on June 26, Ebang International, once one of the "Big Three" mining machines and now ranked fourth, was listed on the Nasdaq in the United States. In this regard, the industry generally believes that this move is for Ebang International to leverage the capital market to achieve "pole vaulting", but in fact it is also caused by the shortage of money.

Data shows that Ebang International's gross profit margin in 2019 was -28%, and the production and sales of mining machines were also not ideal.

At the same time, the stock trend was almost the same as Canaan Technology. On the day of listing, the issue price of Ebang International was US$5.23 per share, but it fell below the issue price at the opening, with the lowest price at US$4.50, a daily decline of 9.18%.

Analysts believe that it will be difficult for the mining machine industry to regain the glory it had in 2017. If no better breakthrough is found, it is very likely to end up being overwhelmed.

A bleak future

Looking back at the development of the mining machine manufacturers, they once stood at the top of the industry. However, under the "internal and external troubles", they ruined their good cards.

"At present, the success or failure of large mining machine manufacturers is highly dependent on their founders." Yan Yan believes that large mining machine manufacturers are companies whose founders are too clear-cut.

Today, in the view of most respondents, Bitmain no longer has the status it once had, and the time has come for it to be “split”.

On July 13, Beijing Bitmain Technology Co., Ltd. issued a "Letter to All Colleagues of Shenzhen Century Cloud Core". According to the internal letter, Zhan Ketuan has illegally transferred mining machines, defaulted on suppliers' accounts, refused to repay bank loans and other behaviors that undermined Bitmain's business management order.

On July 17, Bitmain once again released a long internal letter, "Another Letter to All Colleagues". The letter stated that it described the causes and consequences of the dispute between Beijing Bitmain and Zhan Ketuan. At the same time, through the replacement of Century Cloud's management, it is believed that the relationship with Zhan Ketuan has entered a new stage.

Bitmain releases a long internal letter "Another Letter to All Colleagues"

Subsequently, on the 18th, Zhan Ketuan issued an article titled "Beware! Wu Jihan is irresponsibly splitting Bitmain in various ways!" to fight back, and held a meeting of executives and all employees on the 19th. It is said that he also watched "Forrest Gump".

An industry insider who wishes to remain anonymous said that Bitmain should remove the label of "founder" and learn from Alibaba in 2009 to achieve "the capable go up, the mediocre go down, and everyone gives way to the equals", end the internal fighting as soon as possible, and develop freely.

In contrast, Canaan Technology, which is trying to "cut off its arms to survive", also needs wisdom in deciding how to move forward.

From the outside world's perspective, after the personnel crisis adjustment, Zhang Nangeng has absolute control over Canaan Inc. Public data shows that after Canaan Inc. went public, Zhang Nangeng owns 15.0% of the shares and 72.6% of the voting rights.

However, Canaan Technology still needs to handle the relationship between innovative growth business and traditional main business. From the current business line, Canaan Technology will continue to focus on ASIC technology and promote the "blockchain + AI" strategy. Through innovation in process, products and SaaS, Canaan will create a one-stop solution from chip to computing power delivery in the future.

In addition, as the fight between the two founders of Bitmain is still brewing, it provides other mining machine manufacturers with a great opportunity to catch up and surpass. For Bitmain, whether the legend can continue or fall depends only on themselves.