A decade of life and death for mining machines: Is it a "myth of wealth creation" or a "abyss of desire"?

The "mining machine" (herein refers to Bitcoin mining machine) industry has been around for ten years. Mining machines are the purest speculative products, and the people behind them are the most realistic. With the rise and fall of Bitcoin, the stories played out in this industry are even more grim - although there are anecdotes about geniuses, there are more heaven and hell in a single thought.

Every Economic Reporter Liu Ling and Zhang Honglei Every Economic Editor Wen Duo

When you gaze into the abyss, the abyss also gazes into you. - Nietzsche

Mining machine data map. Image source: Visual China

As the COVID-19 epidemic swept across the world, stock markets around the world were hit hard. Bitcoin, which has always been relatively "resistant to declines", could not escape the "bloodbath", and the myth of "safe-haven assets" was instantly shattered.

On March 12, data from Huobi.com showed that since 7 p.m., the price of Bitcoin has plummeted, falling by more than 15% in more than an hour, breaking below the $6,000 mark at one point, and hitting a low of $3,800 the next day. The price has fallen by two-thirds compared to a week ago.

"The price of mining machines has always been linked to the price of Bitcoin. Now that the price of Bitcoin has plummeted, the price of mining machines has also fallen to the freezing point." Mining machine dealer Zhang Chen (pseudonym) said, "At the current price level of Bitcoin, small-computing mining machines such as Ant S9 and L3+ are almost shut down, and the daily output value cannot even cover the electricity bill."

The picture shows the price of Bitcoin on March 12 and 13. Source: Screenshot of Huobi.com

Moreover, under the influence of the epidemic, Bitmain, Canaan Creative, Shenma Mining Machine, etc. have issued announcements to postpone production, delivery and after-sales services. In addition, the trading ports of many countries have been closed, and the overseas sales of mining machines have been suspended one after another. Both mining machine manufacturers and dealers have been hit hard.

As a senior miner, Zhang Sa (pseudonym) joined the mining machine industry in 2013. The recent Bitcoin plunge and the sharp drop in mining machine sales are not surprising to him. In the more than ten years of mining machine development, there have been countless surges and plunges. Some people became rich overnight, while others lost all their wealth.

Speculators can no longer tell whether mining machines are a "myth of wealth creation" or an "abyss of desire."

Bitcoin was created, mining machines were born

The wealth legend of two young Chinese people

In December 2011, a junior student asked a question on Zhihu: I have 6,000 yuan in hand, what good investment and financial management suggestions are there?

A netizen named "blockchain" answered below: Buy Bitcoin, save the wallet file, and then forget that you ever had 6,000 yuan, and then check again in five years.

This comment has now become the most popular reply to the question, with 30,000 likes and over 7,000 comments.

This netizen named "blockchain" is Chang Jia (real name Liu Zhipeng), the founder of the domestic Bitcoin forum and information website "Babbitt". Chang Jia once said that the reason he recommended Bitcoin on Zhihu was just to let more people know about Bitcoin.

Image source: Webpage screenshot

The junior student said he did not take this "strange" suggestion. Many netizens commented that if he had bought Bitcoin at that time, based on the price of Bitcoin at $3 per coin in 2011, the junior student would be a millionaire now.

It is also common sense that the junior students did not adopt Chang Jian’s advice. In 2011, Bitcoin was only two years old and was only popular in the geek circle. The outside world always thought it was a "scam."

Mining is actually the earliest activity in the Bitcoin ecosystem. Miners compete for the right to keep accounts, maintain the stable operation of the Bitcoin network, and obtain Bitcoin incentives from the network. Mining machines are the "shovels" that miners must use when mining. Early Bitcoin miners used CPUs for mining, and later turned to GPUs (which can be simply understood as graphics card chips) with higher computing power for mining.

Before entering the mining industry, Zhang Sa was in the graphics card business. At that time, many people suddenly came to Zhang Sa to buy graphics cards, and he later learned that this was for mining.

In early 2011, the price of Bitcoin was still hovering around $1, and then it continued to rise, reaching a peak of $29.6 in June 2011. As the price of Bitcoin rose, more and more people joined the mining industry, and the total computing power of Bitcoin continued to rise, and miners began to seek equipment with higher computing power.

In the second half of 2011, Zhang Nangeng, who was still a doctoral student at the Beijing University of Aeronautics and Astronautics, launched the FPGA (Field Programmable Gate, a semi-custom circuit) mining machine he invented. This new type of mining machine has higher computing power than GPU.

According to the Bitcoin settings, in November 2012, Bitcoin will experience its first halving, and the difficulty of mining will increase again. Therefore, before FPGA mining machines have gained a firm foothold, new mining machines are already at the gate.

In June 2012, Butterfly Labs of the United States announced that it would manufacture ASIC (Application Specific Integrated Circuit) mining machines and would launch them in September. This news immediately caused a sensation in the mining circle. ASIC mining machines are mining machines specially produced for the Bitcoin SHA256 algorithm, and their computing power is much higher than that of CPU, GPU and FPGA mining machines.

The "Butterfly Lab" on the other side of the ocean has aroused the "fighting spirit" of Chinese Bitcoin enthusiasts. Zhang Nangeng, the inventor of the FPGA mining machine, took the lead and announced the development of ASIC mining machines. In order to launch the ASIC mining machine before the Butterfly Lab, Zhang Nangeng even chose to drop out of school.

In January 2013, Zhang Nangeng successfully launched the world's first ASIC mining machine, the Avalon mining machine (first generation). The once high-profile Butterfly Labs has since disappeared without a trace.

Data shows that the Avalon 1 uses 110nm technology and can mine 357 bitcoins a day. According to the price of bitcoin at the time, the daily income from mining with Avalon was close to 200,000 yuan.

At the same time, another talented teenager in China, Jiang Xinyu, also succeeded in developing ASIC chips through crowdfunding. Jiang Xinyu, known as "Baked Cat", was admitted to the Junior Class of the University of Science and Technology of China at the age of 15 with a national total score ranking 11th. In the cryptocurrency circle, he is like an "evangelist".

Before the development of the FriedCat chip, Jiang Xinyu conducted an "IPO" in August 2012, issuing 400,000 shares, about 160,000 shares were issued at a price of 0.1 bitcoin per share, and the rest were held by the issuer as issuance reserves. In the eyes of people in the currency circle, this is the earliest prototype of China's ICO.

Zhang Sa believes that the advent of ASIC mining machines has ushered in an era of greater computing power for mining, and GPU mining has gone from being highly sought after to being ignored.

2014: “Quit” or “Stay”?

Genius ends, mining machine companies survive the cold winter

At the beginning of Bitcoin's creation, Zhang Nangeng and Jiang Xinyu were representative figures in the currency and mining circles, writing the legend of "Pumpkin Zhang in the north and Roasted Cat in the south".

Image source: Screenshot of "2019 Hurun Self-Made Rich List of Post-80s"

Zhang Nangeng's Avalon mining machine, due to the limited supply in the market, once caused the 8,000 yuan Avalon first generation mining machine to be directly speculated to 300,000 yuan. In July 2013, the stock of FC increased to 5 bitcoins per share, compared with the previous crowdfunding price of 0.1 bitcoin. In less than a year, the price increased by more than 50 times, and the subscribers became millionaires and multi-millionaires.

Bitmain founder Wu Jihan was also among the subscribers. The surge in FC stocks made Wu Jihan earn his first pot of gold and also completed the original capital accumulation for the establishment of Bitmain.

According to information, after graduating from Peking University, Wu Jihan worked as an analyst and investment manager in a venture capital company until May 2011, when he accidentally came into contact with Bitcoin and became the moderator of the Chinese version of Bitcoin Talk. He was also the first person in China to translate Satoshi Nakamoto's Bitcoin white paper into Chinese.

Another founder of Bitmain, Zhan Ketuan, graduated from the Chinese Academy of Sciences. After graduating from graduate school, he has been engaged in integrated circuit design and has been deeply involved in the chip industry. According to public reports, Wu Jihan and Zhan Ketuan met in 2013, and the two hit it off and started a business together.

In mid-2013, under the leadership of Zhan Ketuan, the BM1380 chip based on 55nm technology was successfully developed. In October of the same year, Bitmain was officially established in Beijing. The following month, Bitmain's first mining machine, Antminer S1, began shipping.

Bitmain's success can be described as "the times make heroes". In October 2013, the company encountered R&D difficulties and failed to launch the second generation of chips in time. At that time, another strong rival, Avalon, was pointed out by industry insiders to have quality problems with its second generation mining machine. At this time, the Antminer with a lower power consumption ratio was like a timely rain in the hearts of miners and quickly became popular in the market.

In November 2013, the price of Bitcoin soared again, from more than 200 US dollars to more than 1,100 US dollars. Stimulated by the price of the currency, the demand for mining machines soared.

Mining machine samples displayed in a shop in Huaqiangbei SEG Plaza. Image source: Photo by Liu Ling, a reporter from China Business Network

However, as the enthusiasm of miners continued to rise, the sudden policy caught the industry off guard. In December 2013, the central bank and five other ministries and commissions issued a "Notice on Preventing Bitcoin Risks", and the industry fell into a freezing point. In 2014, Bitcoin fell into a great depression and the price plummeted. At the lowest point, the price of the coin was less than $300.

In mid-2014, FriedCat mysteriously "disappeared", and the BitQuen company he founded was dissolved. Some small mining machine brands that appeared in the second half of 2013 were also eliminated in the "cold winter". Miner Li Lin lamented that with the iteration of the industry, some mining factories failed to keep up with the times and had insufficient investment in research and development. In addition, it is difficult for a single soldier to compete with a platform company.

"Early mining companies may not have very strong beliefs. After making money, some companies may not be willing to invest more money in research and development. So when the market is not good, sometimes if you invest half a year later, this market may have nothing to do with you. This kind of situation will occur." Zhang Sa felt a little regretful when talking about this story.

Despite the bad market conditions, Bitmain went against the trend and put into production the 28nm-based Antminer S1384 chip and S5 mining machine in October 2014. At that time, Wu Jihan also told the media: "The low price of coins is also a good thing. Only competitive manufacturers can survive."

Therefore, when the market recovered in 2015, miners found that the only high-performance mining machine on the market was Antminer S5. Thus, Bitmain, which survived the cold winter, ushered in the spring of development.

At the same time, a large number of companies with chip design capabilities also hope to catch up with this wave of "market". In December 2016, Zhejiang Ebang, which previously worked in the communications network field, announced the successful mass production of mining chips and mining machines "Ebit", making Ebang International the world's third largest mining machine manufacturer.

Chen Yu (pseudonym), a mining machine salesman, recalled to the reporter: "My cousin started paying attention to Bitcoin in 2011, and then started selling mining machines. When Bitcoin plummeted in 2013 and 2014, many of his peers withdrew from the market after suffering huge losses, but he firmly believed that the price of Bitcoin would fall back, so he persisted. Now he is one of the largest mining machine dealers in Shenzhen."

2017: The Golden Age of Mining Machines

A machine worth several thousand yuan was sold for tens of thousands of yuan.

If 2015 was the spring for mining machine manufacturers, then 2017 was their golden age. This year, Bitcoin also began to enter the public eye.

Since 2017, with the explosion of Ethereum, ICO projects have emerged one after another, and coins with a hundredfold or thousandfold increase have continued to emerge. Bitcoin has surged from more than $900 at the end of 2016 to nearly $20,000. The story of 2013 seems to be repeating itself, with a large number of miners rushing in, hoping to get a piece of the pie.

According to Zhang Sa's recollection, the industry was rekindled in those two years, with social activities and high-end forums emerging in large numbers.

Shenzhen Huaqiangbei, known as China's No. 1 electronics street, has the most sensitive nose for electronic products and has therefore become the world's mining machine distribution center.

In the second half of 2017, Liu Shan (pseudonym), who was engaged in SSD wholesale, found that many mining machine merchants emerged in SEG Market. After observation and consideration, Liu Shan decided to add the "mining machine business".

"At that time, I thought mining machines were an emerging industry. Generally speaking, this type of emerging industry has greater opportunities. Although many people think it is a very virtual thing and the risk is very high, what we sell is regular goods, not cryptocurrency speculation. There is no problem with regular goods, as long as there is demand, we can do it." Liu Shan told reporters.

Zhang Chen (pseudonym), who graduated with a Russian language degree, worked as a tour guide for three years, leading tour groups between China and Russia. In October 2017, Andrei, a Russian friend who was doing mobile phone trading business in Huaqiangbei, invited Zhang Chen to sell mining machines together.

Electricity is cheap in Russia, so Russians are often seen in front of the mining machine counters in SEG Market. They are not very sensitive to the price of mining machines, and they want a lot of them, so they are very popular in the eyes of mining machine merchants. Almost all the salesmen in the shops will say "Sbasishba (Russian: Thank you)". Zhang Chen, who is fluent in Russian, teamed up with his Russian friend Andrei to directly target the Russian market.

Russian "mine" data map. Image source: Visual China

In 2017, the most popular model in the mining machine market was Bitmain's Ant S9.

It is understood that Bitmain completed the design of the 16nm BM1387 chip (Antminer S9) at the end of 2015 and officially launched it in 2016. Bitmain once said that the 16nm chip is only half the cost of its competitors, and through dynamic triggers, it has achieved a cross-generational advantage over its competitors.

"In terms of technology, Bitmain is still relatively advanced. The most important thing about mining machines is the 'power consumption ratio', that is, the power consumption per terabyte of computing power. With the same computing power, Bitmain's machines consume less power." Chen Feng (pseudonym), a mining industry insider, said, "In addition to the initial purchase cost, the biggest cost of a mining machine is electricity, so the power consumption ratio of a mining machine is very important."

S9 has become the "standard configuration" for miners due to its excellent power consumption ratio and stability. At that time, there was a saying in the mining circle: "Where there is a mine, there is S9." As the price of Bitcoin soared, the price of S9 also rose from a few thousand yuan to more than 30,000 yuan per unit.

Thanks to the successful sales of Ant S7 and Ant S9, Bitmain has become the world's largest mining machine manufacturer from a market share of less than 20%.

Standing on the cusp of the Bitcoin surge, even pigs can fly. In the 2017 Bitcoin bull market, in addition to Bitmain, Canaan Creative's Avalon mining machine, Ebang International's Ebit, and MicroBit's Shenma mining machine all achieved good sales.

It is understood that in 2017, the mining machines produced by Bitmain accounted for 70% of the entire mining machine market, with a monthly net profit of more than 30 million US dollars, and the mining pool computing power controlled by it exceeded 50% of the total computing power of the Bitcoin network. Regarding the bull market in 2017, Wu Jihan once recalled that Bitmain had the best development in this year.

From 2015 to 2017, the recovery and even fever of the mining machine industry led to the emergence of the head enterprise effect. According to Bitmain's prospectus, during this period, Bitmain achieved operating income of US$137 million, US$278 million and US$2.517 billion respectively.

The annual compound growth rate of Canaan Creative, the parent company of Avalon Miner, is as high as 400%. Its operating income from 2015 to 2017 was RMB 55.3173 million, RMB 316 million, and RMB 1.308 billion, respectively; its profits were RMB 2.2478 million, RMB 58.0833 million, and RMB 360 million, respectively.

Yibang International is relatively weak, but its performance has also grown gratifyingly. Its operating income from 2015 to 2017 was RMB 92.14 million, RMB 120 million, and RMB 978 million respectively; its profits were RMB 24.23 million, RMB 12.44 million, and RMB 378 million respectively.

Not only mining machine manufacturers, but also mining machine dealers in Huaqiangbei made a lot of money in 2017. "For example, even if the price of S9 is 100 yuan higher than the purchase price, we can make 100,000 yuan from a Russian order of 1,000 units. We are just a small dealer, and those dealers with strong financial resources make more." Zhang Chen told reporters.

Zhang Chen also told reporters that after mining machine dealers tasted the sweetness, they booked mining machine "futures" in February and March 2018. "The game is even bigger than in 2017. Some have invested most of their money in the hope of taking a chance and turning a bicycle into a motorcycle."

2018: Surviving the Cold Winter

All the money I earned was lost.

However, the good times did not last long. After reaching its all-time high of nearly $20,000, Bitcoin took a sharp turn downward. In February 2018, Bitcoin once fell below $6,000, a drop of nearly 70% from its record high in December 2017.

Bitcoin price changes are closely related to relevant policies. According to Reuters, on March 27, 2018, Twitter will join Facebook and Google in banning ICO and cryptocurrency advertising on its social media platform.

On March 28, 2018, my country's central bank held a national video and telephone conference on currency, gold and silver. Fan Yifei, deputy governor of the central bank, said that it is necessary to carry out a rectification and cleanup of various types of virtual currencies, strengthen communication and cooperation with relevant departments, and vigorously rectify the chaos in the field of cash circulation.

“In 2017, most merchants selling mining machines made money because of the good market. But in 2018, virtual currencies began to plummet, and the price of mining machines also fell. Merchants who booked futures for late February and March before the New Year lost thousands or even tens of thousands of yuan for a mining machine.” In May 2018, a mining machine merchant in Huaqiangbei told reporters.

Image source: Provided by the interviewee

The prices of the mining machines ordered by mining machine dealers have dropped significantly, and the mine owners or miners who bought the mining machines at high prices in 2017 are even more miserable. The continued slump in Bitcoin prices has gradually broken through the cost prices of many mining machines. Some small and medium-sized "mining farms" in Xinjiang, Inner Mongolia and other places in China eventually ended up selling second-hand mining machines.

Zhang Chen told reporters that many of the mining machine dealers who flocked to Huaqiangbei in 2017 could not survive in such a bear market and withdrew. Previously, because there were many Russian customers, dealers would rent stalls on the 3rd to 5th floors of the market. Now that there are fewer and fewer customers, everyone has basically moved to higher floors with lower rents.

"At that time, foreigners basically did not come here (SEG Plaza) to buy mining machines, and basically they all lost everything in 2017." Zhang Chen said that at that time, the price of mining machines skyrocketed from 10,000 yuan to 30,000 yuan, and these high-priced mining machines at 30,000 yuan were generally bought by foreigners, so they basically lost all their money.

In Zhang Sa's eyes, buying and selling mining machines has turned from a business into a game. Some people enter and exit the market at the right time and make a lot of money. Some people stock up when the price of coins rises, but they never expected that there would be a sluggish bear market afterwards, and they lost everything; some people sold their goods when the price of coins was low, but after selling, there was a bull market, and they did a "losing business."

"The market was extremely hot at the beginning of 2018, but it was really cold by the end of the year. Many people were doubting whether the industry could continue. Some people even switched to selling oranges and doing business." Captain Yu of the Mine Association recalled the scene at that time.

In the bear market, the situation of mining machine manufacturers is not much better.

Liu Shan, a mining machine dealer, told reporters that after the bull market in 2017, Bitmain placed a large number of orders with TSMC, but encountered a sharp drop in the price of coins, so the machines were sold at a loss. Bitmain made more than 20 billion yuan in 2017, but basically lost most of the money in 2018.

Image source: Photo Network

Although many mining machine manufacturers suffered heavy losses, the companies still had to operate, so they began to produce small-currency mining machines in an attempt to survive the "cold winter."

"In 2018, the entire market was falling, and indeed no one could make money, but mining machine manufacturers would find ways to keep operating. Since the big currencies can no longer be used, let's try some small currencies," Li Lin, a mining machine industry insider, told reporters. As a result, mining machine manufacturers developed and produced a lot of mining machines for small currencies, and these mining machine manufacturers would control a certain amount to ensure that miners could make a profit.

Li Lin further stated that there are mature small currencies that can tell stories, such as BTM (Bytom) and ZEC (Zerocoin). The more representative machines at that time were B7, D5, DR5, Z9mini, Z9 and other mining machines. In order to ensure the income of mining machines, mining machine manufacturers have controlled the number of mining machines to avoid excessive computing power of the entire network and increase the difficulty of mining.

Even so, as the computing power of the entire network increases, the difficulty of mining continues to increase. Therefore, if mining machine manufacturers do not want to be eliminated, they must invest more money in chip research and development. However, the investment in chip research and development is often hundreds of billions of yuan. For the three major mining machine manufacturers, the investment in mining machine chip research and development will face a huge funding gap.

Therefore, in 2018, the three mining machine manufacturers, Bitmain, Canaan Creative, and Ebang International, all submitted IPO prospectuses to the Hong Kong Stock Exchange, attempting to raise funds by entering the capital market. However, due to reasons such as involving virtual currency, the IPOs ultimately ended in failure.

2019: Bitmain’s strategic vacillation

The price is high, and the "miners" are not buying it

Finally, 2019 came, and the cryptocurrency community was looking forward to a new look for Bitcoin in the new year, but the price of Bitcoin remained stagnant. In January 2019, the price of Bitcoin was only about $3,500.

At the end of 2018, news of mine liquidation and “mining machines being sold by the pound” was rampant. When the flood season came, Bitmain, which should have been actively deploying mines, began to sell off its mining machines.

According to industry media reports, Bitmain sold off more than 100,000 S9 mining machines worth at least 100 million yuan from its self-operated "mine" in early April 2019. The price was just over 1,000 yuan per machine, which was a low-price sale that was both a way to recover cash and to reduce inventory.

After Bitmain sold its mining machines, the price of Bitcoin rose again, from $3,500 in January 2019 to $13,000 in late June, and the enthusiasm of miners was ignited again.

However, faced with the sudden bull market, Bitmain fell into a situation of insufficient supply.

"Bitmain actually missed such a good opportunity in 2019," said Li Lin. From June to September, Bitmain's sales were not high. First, there was insufficient inventory. At the beginning of the rise in the price of the currency, Bitmain's machines were basically sold out at once; then when the price of the currency fell, Bitmain stocked up a lot of inventory and raised the price very high, so the goods basically could not be sold.

Chen Feng told reporters that at that time, the price of Bitmain's mining machines was very high, and the same-grade mining machines were about 30 to 40 percent more expensive than those of Shenma and Xindong. In fact, customers were not stupid, so they all turned to Shenma and Xindong for goods, and inadvertently helped these mining machine manufacturers to rise, so their stocks were all cleared, and Bitmain's stocks were all piled up.

“If you can’t sell something like a mining machine, the risk is very high. At the end of 2019, the price of the currency reached more than 6,000 US dollars, which was half of the high point in June, so Bitmain’s final selling price was several tens of percent cheaper than the previous price. If he had sold it earlier, he could have made hundreds of millions more,” said Li Lin.

In the mining circle’s view, Bitmain missed the bull market in 2019 mainly due to its strategic mistakes.

According to Caixin.com, Bitmain officially announced its organizational restructuring plan in an internal message, ending the "dual CEO" model of its two co-founders, Zhan Ketuan and Wu Jihan, with Wang Haichao, the company's former product engineering director, taking over the company's operations. The two agreed not to interfere with Bitmain's operations and only make decisions on major company matters.

But soon after, Zhan Ketuan returned to Bitmain to interfere in the company's management affairs. At that time, Zhan Ketuan held 36% of Bitmain's shares and was the company's largest shareholder. Because as a technician who led the development of mining machines, Zhan Ketuan could obtain shares every time he completed the manufacturing and upgrading of mining machines, which led to his increasing shares in Bitmain.

Bitmain employees once revealed that Wu Jihan had privately expressed his dissatisfaction with the matter. At the same time, the company did not agree with Zhan Ketuan's management style, and mining customers were also dissatisfied with the cooperation.

When the reporter talked with mining machine dealer Chen Feng, Chen Feng repeatedly expressed his dissatisfaction with Zhan Ketuan's team. "It is said that many people in their management team came from Huawei, but their strategy actually has big problems. They want to make Antminer a product like Huawei mobile phones." Chen Feng said.

"However, mining machines are investment products, and customers use them to make money. How is it possible that the same machine is sold at a price 30 to 40 percent higher than yours? This thing is not a mobile phone, and there is no such high bargaining power."

Not only Chen Feng, many mining machine dealers in Huaqiangbei also expressed the same view: if you ordered a mining machine from Bitmain from September to December 2019, and the price of Bitcoin did not rise, it would be a 100% loss based on the pricing at the time.

Data map of Bitmain's "mining farm". Image source: Visual China

Bitmain's decision-making mistakes made it miss the bull market in mid-2019. Shenma Mining Machine benefited a lot during this period. Some large dealers in Huaqiangbei told reporters that the market share of Shenma Mining Machine's new products in 2019 actually surpassed Bitmain.

Not only that, when Bitmain "fell behind", due to the hot market conditions, some small brands of mining machines such as "Aixin", "Cheetah" and "SiChuangyou" emerged in large numbers, focusing on cost-effectiveness and claiming to have a short payback period.

"For example, Aixin A1, with a computing power of 25T, was priced at about 3,000 yuan per unit at the time, and the payback period was about three months, which can be said to be very cost-effective." Zhang Chen told reporters, "At that time, the price of coins happened to be rising sharply, and many large mining machine manufacturers were short of supply. In addition, Aixin A1 had such a high cost-effectiveness, so everyone flocked to it. However, in the end, most people were cut off."

The saying that the mining machine manufacturers are "cheating the leeks" is not accurate. Zhang Chen explained: After the first batch of Aixin A1 was launched, many mining machine merchants placed orders, but the delivery date was postponed again and again, and now it is directly delayed indefinitely. "And now Aixin directly said that it is going to go bankrupt. We returned the mining machine under warranty for repair, and Aixin said, "Go find someone else to repair it. Our company is going bankrupt. I am afraid I can't pay you back if I send it to you."

Another mining machine shop owner told the reporter that a certain small mining machine brand had previously advertised a very attractive power consumption ratio and price, but after receiving the customer's order, they failed in research and development. The parameters originally promised were not achieved at all, for example, the power consumption was originally said to be 50 watts, but in fact it was 70 watts, which is a huge difference.

"We paid such a high price for such a high-power machine. If we continue mining like this, we will never get our money back. We asked for a refund, but the factory said they didn't have the money and could take the goods if they wanted. Then someone said they wanted to sue them, and the factory said go ahead, there are many people suing me anyway, and they are all waiting in line. Anyway, our company is going to go bankrupt, so you can handle it yourself."

According to Li Lin, mining machines are updated very quickly, which places high demands on R&D capabilities and financial strength. Because the cost of chip tape-out is tens of millions of yuan, many companies cannot afford it. They may only be able to burn money once or twice. If the product they develop fails, they basically cannot continue.

A Canaan management told the reporter of the Daily Economic News that the mining machine market is a competition of comprehensive capabilities, involving technology, capital and supply chain, and has a very high threshold. The chances of new industry competitors entering the industry and gaining a foothold are slim. In the mining machine world, time is money. Even if a new company can design a chip, the product still needs to be verified by the market, and all this takes time. At this time, other mining machine companies may have already mass-produced, so the new company's machines are already lagging behind the market speed, not to mention companies that do not have good technology. However, the competition pattern among the existing head mining machine manufacturers may change dynamically.

"Although Bitmain made a strategic mistake in 2019, its overall strength is still the strongest." Li Lin told reporters that Bitmain's mining machines are first-class in terms of power consumption and stability. If the prices of mining machines had not been raised too high in 2019, other brands of mining machines would not have been able to take advantage of the situation.

Li Lin said that in addition to this, there is another very important thing about mining machines, that is, after-sales service. The industrial chain of many mining machine manufacturers is not particularly complete, and after-sales service cannot be guaranteed. "But for Bitmain's mining machines, after we sell them, we basically don't need to provide after-sales service."

Mining machines are piled up in a shop in Huaqiangbei SEG Plaza (file photo). Image source: Photo by Liu Ling, a reporter from China Business Network

2020 under the epidemic

Will mining machine manufacturers face greater pressure?

In the face of external strategic failures and the squeeze on the main mining machine market, starting from August 2019, Zhan Ketuan once again adjusted the organizational structure, which resulted in a large number of employees leaving and internal turmoil.

Faced with such internal and external troubles, Wu Jihan could no longer sit still and wanted to come back to "save" Bitmain.

On October 29, 2019, when Jihan Wu was leading a team to participate in an exhibition outside, he sent an internal email to Bitmain employees, announcing the removal of Bitmain's general manager Jihan Wu from all positions in Bitmain, and that no employee was allowed to follow Jihan Wu's instructions.

At that time, a reporter from the "Daily Economic News" confirmed from Bitmain that "Bitmain founder, Bitmain Group Chairman, Beijing Bitmain Technology Co., Ltd. legal representative and executive director Jihan Wu decided to remove Zhan Ketuan from all positions in Bitmain."

In addition, the reporter contacted Bitmain for an interview at the end of 2019 regarding issues such as its future development layout, but the other party did not respond.

Wu Jihan, who regained power, came up with a series of new strategies in the next two months to "save" Bitmain in response to the crisis in Bitmain's mining machine business, including installment payments for mining machines, joint mining by miners, and providing BTC put options to hedge price risks.

On December 7, Bitmain held its 2019 Customer Appreciation Meeting at the Chengdu Palm Springs Fairmont Hotel. After the “internal fight” ended, Wu Jihan made his first public appearance as the chairman and CEO of Bitmain. At the customer appreciation meeting, the slogan “The Bitmain you are familiar with is back” was used.

Bitmain launched the slogan "The Bitmain you are familiar with is back." Image source: provided by the interviewee

Although the familiar Bitmain is back, in 2019, when Bitmain was facing internal and external troubles, Canaan Creative, which had never been able to surpass Bitmain, was the first to successfully list on the Nasdaq. Industry insiders described Canaan Creative's listing as "exciting". For a long time, the mining machine and blockchain industries have almost been on the edge, and Canaan Creative's listing has also injected more confidence into the industry. At least, it has been initially recognized in the capital market.

However, in Wang Lulu's opinion, there is no direct connection between the listing of mining machine manufacturers and the return rate of miners. "Miners are very pragmatic, because they don't care much about these gifts. They may be excited at the listing node, but it will have no impact in the future."

Regarding the listing, many people in the mining machine industry said that Bitmain, whose listing was once shelved, is preparing to go public in the United States in 2020.

In fact, 2020 is a very challenging year for the entire cryptocurrency and mining circles. As we all know, in May 2020, Bitcoin will experience its third halving. That is, the reward for the creation of new blocks will be reduced from 12.5 bitcoins to 6.25, and the daily bitcoin output will be reduced from 1,800 to 900, and the mining difficulty will increase again.

Li Nan, a person in the mining machine industry, told reporters that after the Bitcoin output is halved, the mining machine income will also be halved, and at that time there will be a larger number of machines that cannot mine coins. Therefore, this is a big challenge for mining machine manufacturers, and they must continue to develop and launch machines with lower power consumption.

Prior to this, Bitmain, after Wu Jihan’s return, seemed to have begun to lay off employees in response to the upcoming Bitcoin halving. According to Odaily Planet Daily, an insider at Bitmain said that in addition to AI, the chip R&D personnel of small currency mining machines were basically laid off, from dozens of people to just a few people now. “Except for the Bitcoin mining machine business line, the rest are the hardest hit.”

However, the third Bitcoin production cut has not yet arrived. In early 2020, the epidemic swept across the country. Bitmain, Canaan Creative, and Shenma Mining Machine have all issued announcements to postpone production, delivery, and after-sales services. Innosilicon, located in Wuhan, has been affected by factors such as the city lockdown and has been unable to resume work, making the situation even more serious.

Not only that, as the COVID-19 pandemic spread across the globe, major mining machine purchasing countries such as Russia and Iran also experienced logistics disruptions due to the pandemic and were unable to deliver mining machines.

Zhang Chen told reporters that currently goods can only enter Russia through Kyrgyzstan. However, the epidemic situation in Kyrgyzstan is becoming more and more serious, and the port may be closed at any time. Therefore, the sales of mining machines have been greatly impacted.

It never rains but it pours. Data from Huobi.com shows that since 19:00 on the evening of March 12, the price of Bitcoin has staged a "waterfall", falling by more than 15% in more than an hour, once falling below the $6,000 mark, and the next day it once hit a bottom of $3,800, a two-thirds drop from a week ago.

"The price of mining machines has always been linked to the price of Bitcoin. Now that the price of Bitcoin has plummeted, the price of mining machines has also fallen to the freezing point." Zhang Chen said, "At the current price level of Bitcoin, small-computing mining machines such as Ant S9 and L3+ are almost shut down, and the daily output value cannot even cover the electricity bill."

Huaqiangbei mining machine advertisement (data map). Image source: Photo by Liu Ling, a reporter from China Business Network

Mining machine manufacturers postponed production, trading ports were closed, and Bitcoin prices plummeted... For the entire currency and mining circles, 2020 was undoubtedly a difficult year.

Today, there are still two months to go before the third Bitcoin halving. Can mining machine manufacturers develop chips with high power consumption ratio in time to prepare for the battle for computing power in the entire network after the halving?

This article is from "Meijing.com".