Bitmain Hard Fork

Author: Jiang Xiaoyu, Editor: Qin Jin

Bitmain, which once had more than 3,000 employees and a pre-IPO valuation of $14 billion, has now reached the crossroads of a hard fork.

According to CarbonChain Value Acquisition, Bitmain co-founder Wu Jihan has faded out of the company's management and may leave Bitmain to set up his own new company. The reason for his departure is that he and another co-founder Zhan Ketuan had major differences of opinion and it was difficult to make a unified decision, so Wu Jihan finally decided to start a new business.

According to an employee who has left Bitmain, the main disagreement between Wu Jihan and Zhan Ketuan is that Wu Jihan focuses mainly on blockchain, while Zhan Ketuan focuses mainly on chips and AI.

"When the company had sufficient funds, both of them had money and teams to realize their dreams, so there was no big problem; but when the bear market came and the company's funds were no longer as sufficient as before, problems arose." The employee said, "Especially during the company's last round of large-scale layoffs, the two people had great differences of opinion. Both sides believed that the other's strategic judgment was wrong, and they were unhappy about the large-scale layoffs of employees in areas they were concerned about . In such a bad external environment, the founders need to make adjustments immediately, but if no one is convinced, the company will miss opportunities little by little. In the end, Wu Jihan made concessions."

01 BCH and AI: Strategic Mistakes of the Two Co-founders

The employee's "mutual accusations of strategic misjudgment" refers to Wu Jihan's support for BCH and Zhan Ketuan's support for AI. Both strategic initiatives are very expensive, but neither brings in much revenue.

Take BCH as an example. After the BTC hard fork in 2017, Bitmain gave up the profit from mining Bitcoin and invested a lot of computing power to mine BCH. At the same time, it exchanged a lot of BTC for BCH to pull the market. As of March 31, 2018, Bitmain China held more than 1 million BCH; and as of now, the price of one BCH is only $130, less than one twenty-fifth of BTC. From today's perspective, Bitmain's strategy of betting on BCH is undoubtedly a bad business.

If BCH is a bottomless pit, then the same is true for AI. Since Bitmain was established relatively recently and its founding employees’ AI technical capabilities are not outstanding, its AI core team was basically poached from other large companies, and the salaries paid were very high.

"But Bitmain is not the best in the field of AI, and can even be said to be mediocre." The employee admitted, "AI burned a lot of money but made little money. In addition, due to management problems in the past, the AI ​​department could even poach people from the mining machine department, but the mining machine department could not get these outstanding talents back. As a result, Bitmain's technical level stagnated for a long time after S9. Under the pursuit of Shenma and Xindong, Bitmain had to respond hastily and acted very aggressively, so that it rushed to tape out without testing, and lost tens of billions of yuan due to the failed tape out at the end of 2017. "From this point of view, Zhan Ketuan's persistence in the field of AI has also caused Bitmain to suffer considerable losses.

Since both co-founders made major strategic mistakes in the company's decision-making, and neither could convince the other to give up their dreams in their fields, they got into a very painful quarrel when Bitmain laid off employees. But the layoffs had to go on - because of the above-mentioned mistakes, the hundreds of billions of yuan in profits that Bitmain earned in 2017 were basically lost in 2018. Under such a financial structure, Bitmain obviously could not run forward with a large team of more than 3,000 people. If the company continues to be stagnant and unable to reform in the quarrel between the two founders, it will be fatal to Bitmain.

"They don't want to fight anymore," the employee said. "For the sake of the company, both founders announced that they would withdraw from direct management of the company, step back behind the scenes, and appoint a new CEO to be responsible for the daily operation of the company."

02 Wu Jihan’s retreat and “loss of voice”

The new CEO is named Wang Haichao. Before being appointed as the CEO of Bitmain, he played a role similar to that of a firefighter within the company. In the current situation, the roles of "CEO" and "firefighter" are indeed very consistent.

"Although the two founders should have retreated behind the scenes, it is very strange." A person close to the core of Bitmain said, "After the layoffs, Bitmain re-set its tone and focused on 'chips and AI.' These two focuses are very technical, which are the areas that Zhan Ketuan is good at. Wu Jihan's voice has been greatly weakened."

The former Bitmain employee mentioned above also said: "Before I left Bitmain, Wu Jihan had basically stopped speaking on the company's communication software. It was mainly Zhan who posted some ideas on it."

Around December 24, 2018, the two co-founders of Bitmain finally came to an agreement, and Bitmain finally made up its mind to start a round of "Christmas layoffs". But it is worth noting that more than a month ago, on November 13, 2018, Bitmain's domestic subsidiary Beijing Bitmain made structural adjustments, with Zhan Ketuan becoming the sole director and Wu Jihan becoming the supervisor. This was already a signal that Wu Jihan had made concessions.

"It's really hard to make such a decision, but I can feel that this is the best decision he can make." The person close to the core of Bitmain said, "It's like a couple: when they are in love, the relationship is passionate, and the two people's nature and differences are not fully exposed; when they first get married, they work together and want to live a good life. But once it breaks out, the situation will be very different - everyone has their own things to do, and everyone's efforts are used in their own direction. If they encounter setbacks again and return to the state of 'poor couples are sad about everything', it will be really difficult... It won't work if it continues like this. I don't know what will happen to Bitmain if it continues."

At Bitmain's 2018 annual meeting, Jihan Wu, Zhan Ketuan and Haichao Wang gave a speech together. Jihan Wu only said a few words before leaving the stage. Then, he took photos with the employees one by one until very late. An eyewitness described the situation at the time: "Jihan Wu is completely different from the teenager you see in the media. He has a beard and looks like a middle-aged uncle, which makes him look much more mature. I saw him hugging Zhan Ketuan at the annual meeting, and I could see that he was really upset. I had no idea what was going on, because Bitmain had just laid off employees, and I could feel that my friends at Bitmain were a little depressed, and I think everyone was in a complicated mood."

03 Separation of blockchain business and establishment of a new company

Bitmain is heading towards a hard fork. What will remain in Bitmain are chips and AI, while what will be separated from Bitmain is the blockchain business that Wu Jihan is interested in.

At present, Wu Jihan has not completely left Bitmain, but a new company is already under construction.

CarbonChain Value has at least received confirmation from three employees who have left Bitmain that a new company is being formed, although the statements of these three employees are different.

One of them said that the new company’s business is mainly some of the businesses that Wu Jihan was in charge of at Bitmain, such as investment and BCH, and the actual controller of this company is also Wu Jihan. Another employee said that the person who is now mainly responsible for the new company is Ge Yuesheng, the former head of Bitmain’s investment department, and Ge’s position is the CEO and president of the new company. The company currently has no legal relationship with Wu Jihan. But the two employees have the same point in that the direction of this company is related to blockchain finance.

The third employee said that all matters related to BCH development will be moved to this new company, and the new company will not only be limited to BCH development, but also include businesses related to multiple public chains and currencies including BTC and ETH, and this new company may have plans for them in the future.

From what CarbonChain Value has learned, this new company is likely to be dealing with the blockchain-related business that was originally spun off from Bitmain and was originally managed by Wu Jihan. The actual controller behind it is Wu Jihan, but it was led by Ge Yuesheng in the early stage. In addition, the company is not limited to the businesses that Bitmain originally carried out. Since it has been separated from the parent company, its business will also be more blockchain-oriented and freer.

When talking about Bitmain, I can't help but think of forks. The first was the hard fork between BTC and BCH; the second was the hard fork between BCH and BSV. Each fork has caused a huge stir in the industry. This time, I'm afraid it will be a hard fork between blockchain and "AI and chips" that belongs to Bitmain itself.

As a liberal, Wu Jihan has expressed his opinions on forks many times. For example, during the fork war between BCH and BSV, he once said: "I don't think there is anything wrong with splitting up, and each of us can go our own way." Since there are differences and the contradictions are irreconcilable, there is no need to make do with them. This seems to be Wu Jihan's own characteristic.

Perhaps for those who are unfamiliar with Bitmain, this fork sounds like a bad thing, but those who are familiar with Bitmain are relieved. After the fork, both Zhan Ketuan and Wu Jihan can maximize their free will and move forward according to their own course, so this is a good thing for them personally and for the decision-making of the entire company.

As for the rest, let history and time judge.