Dialogue with Yang Zuoxing: Mining machine manufacturers enter the era of decentralization

Author: Tang Han

Editor: Qin Jin

Produced by: Carbon Chain Value (ID: cc-value)

The rise of Shenma: mining machine manufacturers enter an era of flourishing

Q1: There are rumors that the market has recently increased by about 30E computing power, and more than half of this comes from Shenma. I would like to verify whether this rumor is true?

Yang Zuoxing: As of today, not that much. The new computing power we supply to the market should account for 30%-40% of all new computing power. Because many people bought a lot of our futures before, the computing power corresponding to these futures has not yet been released.

In fact, in March this year, our sales were relatively small, but they gradually increased in April and May, and in July, the orders began to surge. After that, the orders were relatively stable.

Some people may ask, is such a high hash rate a bad thing? Not really.

There is a concept called "reserve" in the financial system. The reserve of Hong Kong dollars is about 5%-10%. For Bitcoin, the value of our mining machines accounts for about 10% of the entire Bitcoin. In fact, our Bitcoin reserve is higher than that of Hong Kong dollars. Everyone should be happy about this, which shows that our system has a strong ability to resist risks.

Q2: I heard that your OEM is done by Samsung. Now the industry is in short supply everywhere. How do you ensure that the production keeps up? What role does Samsung play in this process?

Yang Zuoxing: Let me talk about the situation in the industry. Currently, the two best foundry companies in the world are TSMC and Samsung. Whether it is Bitmain or Canaan Creative, their latest mining machines are all 7nm, and they all look for TSMC for foundry. However, now that 5G is about to be launched, the demand for 7nm chip production lines from mobile phone manufacturers has increased dramatically, so the scheduling of 7nm production lines is very tight.

Although we think that the cryptocurrency industry is quite large, in the eyes of foundries like TSMC and Samsung, which have been developing for many years and serving various industries, cryptocurrency is just a smaller and emerging market. It’s not that this market is not important, but compared with 5G and giant customers like Huawei, the cryptocurrency mining machine chip market is not that important. That’s why we will face a shortage problem in the short term. As far as I know, Bitmain is facing some problems in production capacity, but they are already solving them.

Speaking of Shenma itself, although we have sold a lot of mining machines in recent months, the reality is that a considerable part of them are futures. We have delivered 100,000 M20S/M21S so far, but from July onwards, customers can only order on a regular basis, and there is no spot to sell. These futures will be produced one after another, and by the end of the month, the total number of M20S/M21S machines on the market will be about 200,000.  

Q3: In 2018, you told media friends that MicroBT had plans to go public. Do you still think so now?

Yang Zuoxing: There are pros and cons to being listed or not.

If we go public, we will have access to a larger investment market and will be subject to formal supervision, and the company's operations will be more transparent and reasonable.  

If we don’t go public, we can be like Huawei, and be more able to follow our own ideas, without having to consider the opinions of many small shareholders, and without paying too much attention to short-term returns. In the long run, doing so will allow us to focus more on the company’s core competitiveness.

Big changes in the mining industry and countermeasures that small miners can take

Q4: The price of Bitcoin has fallen sharply recently. Given the current price and difficulty of the entire network, is it still a wise choice for miners to purchase mining machines?  

Yang Zuoxing: Buying at this point is not very cost-effective compared to buying two or three months ago. In fact, this is an old saying that we should invest at the lowest point to make the most money.

The best time to enter the mining machine market was in February and March this year. Mining machines were sold by pound, and buying them was profitable. Unfortunately, everyone was panicking at that time, and few people dared to buy. So, if you buy when everyone else is buying and sell when everyone else is selling, how can you make more money than others?

Whether investing in mining machines is profitable or not depends on how you view the future. My view is that in today's increasingly turbulent macro-world, the value of Bitcoin as a non-sovereign value storage tool is becoming more and more obvious. But until now, there are not many people who know and fully agree with the value of Bitcoin. From this perspective, investing in Bitcoin is still a good choice. And if you want to invest in Bitcoin, mining is still one of the most cost-effective ways.

Q5: The mining industry is now increasingly dominated by big capital. How do you think small miners should respond to this situation?

Yang Zuoxing: Now everyone has realized that small miners have no advantage in purchasing mining machines, investing in mining farms, or obtaining electricity. Small miners purchase goods from mining machine manufacturers in small quantities, so the price they get is definitely higher than that of large miners. After all, large miners purchase thousands or even tens of thousands of machines at a time. With large quantities, there must be more discounts. How can they compare? Similarly, small miners cannot get the cheapest electricity or hire the best mining farm operation and maintenance personnel. Therefore, in the capital game of the mining industry, small miners are increasingly at a disadvantage.

From the perspective of small miners, this may not be a good thing; but from the perspective of the industry, it means that the division of labor in the industry is becoming more and more specialized. Only in this way can more traditional funds be attracted and the industry will have more development possibilities.

So, does this mean that small investors can no longer invest in mining? Not really. My personal suggestion is that in the future, mining sales will be settled directly at the mining farm. The electricity and operation and maintenance personnel behind the mining farm will have provided you with the equipment, and you can choose how many mining machines to buy, or how many terabytes of computing power. If you want to sell it, you can sell it to the next buyer at any time. In this way, small miners can still participate in the industry, but the way they participate has changed significantly.

Q6: What changes are taking place in the current mining landscape?

Yang Zuoxing: From the perspective of mining machine manufacturers, I personally think that the current situation is a hundred flowers blooming. Bitmain was the only dominant player before, but now Shenma and Xindong have also emerged. Miners have more choices, which I think is a good thing.  

From the perspective of industry division of labor, the industry division of labor is becoming more and more detailed, and the funds coming in are becoming more and more professional. Some traditional funds, even some funds that used to play with coins in the cryptocurrency circle but not mine, are now slowly coming in, while some of the old people in the mining circle are gradually disappearing. This will have a significant impact on the ecological structure of the mining circle.

Will focus on Bitcoin mining machines and cautiously launch 7nm mining machines

Q7: After the Bitcoin halving, the block rewards received by miners will be significantly reduced, and their income will be damaged. Does Shenma have any plans for this matter?

Yang Zuoxing: As a mining machine manufacturer, our measure is to provide mining machines with lower power consumption, so that the proportion of electricity costs for miners will decrease.

This mining machine with lower power consumption ratio does not necessarily refer to the 7nm mining machine. Although the breakthrough in process is still very important for improving the performance of mining machine chips, with the development of technology, we have found that the benefits brought by the upgrade from 16nm to 7nm are not as obvious as the upgrade from 28nm to 16nm. This is different from mobile phone chips. There are obvious benefits when upgrading mobile phone chips from 8nm to 7nm; but there is no obvious benefit for Bitcoin mining machines.

So what direction will Shenma's machines break through in? In addition to the improvements mentioned above, we will also make some design improvements and external equipment improvements, such as liquid cooling equipment.

In addition, we have to find ways to reduce the production cost of the machine and ensure the quality of the machine. It is meaningless to blindly pursue process improvements. Some manufacturers' processes look very good, but the yield is not good, and the production cost is quite high, and the machine is quite expensive. In this way, even if your power consumption ratio is a little better, miners will find that it is not cost-effective to buy your machine after calculating it back and forth. So why should they buy your mining machine?

In the final analysis, the mining machine market is a financial market. As a mining machine manufacturer, we have to consider investors and find a compromise between product performance and production costs, that is, to produce the most cost-effective mining machine, so that we can win the favor of miners in the long run.

Q8: How is Shenma progressing in its 7nm mining chip R&D plan?

Yang Zuoxing: As I said before, due to the advent of the 5G era, the production capacity of 7nm chip production lines will be relatively tight for a long time. Therefore, it may be difficult for us to directly start production and generate revenue.  

The second is the yield rate issue. From the performance of the 7nm mining machines developed by friendly companies on the market, you can also see that the current 7nm mining machines generally face the problem of insufficient yield rate.

We will definitely develop 7nm chips. However, the above two points determine that we cannot rush into developing 7nm chips.

Q9: MicroBT is currently focusing on Bitcoin mining machines. Does MicroBT have any new ideas or actions for mining machines of other currencies?

Yang Zuoxing: I will analyze this problem slowly.

First of all, there are many types of cryptocurrencies, including POW and POS. Recently, some people in the mining circle are talking about POC. We cannot produce mining machines for POS, and POC has not been verified. Only POW is the consensus mechanism most recognized by our mining circle.

At present, Bitcoin is the best POW currency and the best cryptocurrency. Its market value accounted for more than 70% of the total market value of cryptocurrencies some time ago. Bitcoin has proven with history and facts that it is the best crypto asset.

From the perspective of MicroBT, our idea is to first make the Bitcoin mining machine perfect. If we have the energy in the future, we will make the mining machine of the second-ranked cryptocurrency - if this coin is still based on POW at that time.

However, the reality is that it is still unclear what the second-ranked cryptocurrency is. The first has always been there, and the second has always been changing; or even if there is a second, the market value of the second is far behind the first - what do you call it? In short, we still look forward to seeing the emergence of a truly second-ranked cryptocurrency.

Reject bloat: Keep the organization lean and efficient

Q10: When I interviewed you last year, the MicroBT team was relatively small, with only about 50 people. This year, your revenue is so good, have you expanded your staff on a large scale?

Yang Zuoxing: We have some expansion, but compared to other mining machine manufacturers, it is not much. We now have a total of about eighty people.

We are very efficient in personnel control, and my principle is "better to have fewer people than to have unqualified people". In my mind, a high-tech company should be maintained in this way: not many people, but all of them are capable and elite; the company's income is high, and everyone can create a lot of income.

In fact, it is useless for us to have so many people. We are not like some companies, which not only produce Bitcoin mining machines, but also produce mining machines for some small currencies, and have AI projects; in addition, they also have mining pool businesses and their own mining farms. In short, they have everything, as if one company can handle the entire industry.

As a result, they have to allocate enough staff, and the company size has to be maintained at the level of thousands of people. This is a huge test for the company's managers, and it also creates many unprofitable departments. Until now, although they have so many people and so many departments, their most profitable department is still the mining machine department, which has to rely on this department for support.

What makes us different is that we only do what is most needed in the market, that is, mining machines. We do this one thing to the extreme, and we just need to do it well. There will be other more professional people in this market to do other parts. Therefore, we will not set up so many business lines and recruit so many people, which will not only sharply increase the company's management costs, but also make the company lose its development focus.

The number of people cannot tell whether a company is developing well or not. Ten ordinary people may not contribute as much to a company as one outstanding person. We would rather pay these resources and salary to an outstanding person, insist on "small but fine", and let the company go further.

Q11: MicroBT is famous for its fully customized methodology, and the team is kept small. So, how does MicroBT cultivate talents and inherit technology? Is there a situation where there are too few people and R&D lags behind?

Yang Zuoxing: The full customization methodology is a craft, just like a craftsman training an apprentice, it takes time to train them, and there is no rush. Now, I have trained several apprentices, and they are also training new apprentices.

From my perspective, chip design is actually an art. Every new chip is a work of art. Repeated trials can produce a successful product, which can then be mass-produced. In other words, although it seems that we have to produce tens of millions of chips of a certain model every year, what is really important is actually that chip prototype that is like a work of art.

Speaking of art, you all know that to produce a work of art, you need a good artist, not a bunch of workers. So it is useless to hire so many people to design chips, they are just for show. It is enough to have a few dozen talented people working together and developing together.

Q12: Compared to 2014, the mining industry has expanded a lot. The price of coins has fallen recently, and many new entrants are beginning to panic. Do you have any suggestions for this?

Yang Zuoxing: To work in this industry, you always need a bit of spirit, which can support you through very difficult times. Once you get over this hurdle, everything will be fine.

Of course, in reality, the threshold and barriers to joining the mining circle have increased a lot compared to before. If you don’t have good resources, then you really have to think about what you are suitable for in this circle.

Specifically, you can think about two things: first, is this thing just needed? Has it really changed anything? For example, we make Bitcoin mining machines, which is one of the biggest just needs in the industry. You can’t do Bitcoin without mining; second, can you play an important role in promoting this thing? Just think about these two questions, and you can decide whether you want to do this thing after thinking it through.