Stick to the right path of mining and oppose unhealthy trends - Interview with Ao Gang of Innosilicon

Original by CoinWorld/Hu Yiying

At the just concluded 2018 Global Mining Summit, despite the launch of Avalon A911 and the launch of DCR mining machine by Shenma Mining Machine, Innosilicon announced that it has once again achieved innovation based on the spot replacement of the new machine T2T. The next generation Terminator 3-T3 chip has entered mass production, which can achieve a computing power of more than 40T on an ordinary socket.

Even when announcing good news, Ao Gang, Vice President of Innosilicon, appeared calm and composed on the stage. Unlike the young entrepreneurs commonly seen in the industry, Ao Gang jokingly called himself an older person in the industry. What matches his age is his understanding of the essence of blockchain, which is "openness, integration, innovation, and win-win", and his thinking and pursuit of the "right way".

The low-key and cautious nature of the founding team, their belief in "actions speak louder than words", and their adherence to the "right path" are all part of the development trajectory of Innosilicon. It is precisely because of this down-to-earth business philosophy that after four years of dormancy in the mining industry, Innosilicon may become a force to "set things right" in this bear market, creating a right path in the current monopoly situation formed by Bitmain.

Professional players enter the venue in a low-key manner

Innosilicon was not originally a mining machine manufacturer. Even though it launched eight leading multi-currency mining machine chips in the past year, it is still a diversified chip technology company that does not rely on mining machines for survival. Innosilicon is the number one in China's high-end chip technology licensing and market share, and has been leading for eight consecutive years. Its various chip technologies are widely used in emerging technology industries such as cloud computing, artificial intelligence, image processing, and the Internet of Things. It provides technology licensing or chip supply to domestic and foreign giants such as Amazon, Microsoft, AMD, Huawei, and ZTE. It is reported that the Innosilicon team has hundreds of people and dozens of products. The team is distributed at home and abroad, such as Wuhan, Suzhou, Ningbo, Shenzhen, Hong Kong, the United States, Canada, etc.

"[Cryptocurrency] mining chips were initially just an 'entertainment product' that the company's multinational team created to meet market demand," said Ao Gang, talking about the company's initial intention to make mining chips. "At the time, I thought it was fun that so many people were eager to get a common hash encryption algorithm."

Therefore, in September 2013, the Silicon Valley team of Innosilicon began to design the Bitcoin chip, and immediately launched the world's first 28nm Bitcoin and Litecoin mining chip in early 2014. It was put into mass production as soon as it came out, and its performance was the best among more than ten domestic and foreign competitors. It took Bitmain, the "leading company" today, half a year to achieve mass production of Bitcoin chips with the same process. At that time, Innosilicon commissioned a factory to assemble mining machine samples, and the bosses of Longkuang accidentally discovered this "martial arts secret", and they became users of Innosilicon chips with wisdom and decisiveness, which contributed to the rapid rise of Longkuang in the 2014 mining machine war and became the first in the industry.

With seed customers and strong chip innovation and manufacturing channels, if Innosilicon were to fully invest in digital currency mining, it might be able to do more things that benefit the industry. However, Innosilicon did not make any big moves. In Ao Gang's words, it was impossible to predict the prospects of the blockchain and digital currency industries at the time, and there were many other chip businesses in the world, so it was not sure enough, so it was "more cautious."

This cautious attitude can also be felt from Ao Gang. As a returnee who has worked in the United States for many years, Ao Gang himself has the temperament of a "returnee" who went abroad in the 1990s, and maintains the character influenced by traditional Chinese culture, and is cautious in words and deeds. Only when talking about the down-to-earth work of Innosilicon Technology, he rarely reveals an extroverted and even somewhat passionate emotion. He is well aware of the path the company has to take in the past, present and future, and what it insists on doing. At the same time, the industry is deep, and there is not enough confidence. "Don't rush in easily" is his requirement for colleagues in the company, and it is also advice to other new mining machine companies.

As the blockchain industry has become more and more mainstream, and the scale of the industry has steadily increased, the multinational team of Xindong has increased its investment "phased". In addition to Bitcoin chips, Xindong quickly launched a variety of mining machine chips such as Litecoin, Dash, Monero, Zerocoin, and Cloud Storage. All of them were successfully mass-produced at one time, without the need for test pieces, and directly increased in volume, reflecting Xindong's technical strength and the speed of responding to the market. Ao Gang believes that if the industry is to be decentralized and miners want to make profits, they need to "dig early, mine well, and mine more". Seizing the opportunity, spot deployment, and long-term mining are the ways to make profits. Moreover, if the machine is good, there are opportunities for all kinds of currencies, and some opportunities are very good. "Not only do you have to hit a straight punch, you must hit a combination punch."

According to data shared by Aogang at the "2018 New Era Mining Summit" as of early October, the market share of Bitcoin mining machines with an energy efficiency ratio below 90 W/T currently accounts for only about 6%, while more than 84% are between 100-140 W/T. According to real-time data provided by Poolin, the power consumption ratio of Bitmain's S9 series mining machines is between 100-140 W/T, which is basically the same as the data provided by the Bernstein report at the beginning of the year; the latest M10 of the recently popular Shenma mining machine ranks first with a performance of about 66 W/T, followed by the T2T series and T2 announced by Innosilicon a few months ago, which are about 69 W/T and 85 W/T respectively.

When asked about the current market share of Innosilicon Mining Machines, Ao Gang replied: "So far, we have contributed most of the market share of this generation of new machines, and this number is growing." He believes that Shenma M10 and Innosilicon Bit T2T series are both representatives of the current generation of new machines, but Shenma mainly sells crystal wafers in futures, while Innosilicon has sufficient spot stocks. Both of them are high-performance mining machines between 60W and 80 W/T. They are facing the replacement of the previous generation of machines formed over the past few years, and there is no risk of shutdown in the foreseeable future.

In the past year, Shenma Miner and Xindong Miner were often listed side by side as a comparison with Bitmain. The industry generally believes that Shenma M10 and Xindong T2T series "beat" the latter in terms of performance. Yang Zuoxing, the founder of Shenma Miner, once worked for Bitmain and designed the amazing S7 and S9 for it. Later, he left due to share issues and set up his own company. Xindong Miner entered the market slightly earlier than Bitmain and has strong technical strength, but it left the industry for a few years and was overtaken by the latecomers. Why is there such a reversal?

Ao Gang believes that Xindong has been developing diversified businesses and has been doing the right things in the right way. However, some current industry patterns must change. The ups and downs of the industry are like "its rise is rapid, its fall is sudden". A single company is not sustainable. The machines that should be eliminated will definitely be eliminated. A more important issue than the replacement of machines is whether the business philosophy of practitioners will be eliminated by the industry and the times.

The right path of the industry is worth sticking to

Ao Gang recalled that when the Innosilicon A1 chip was just put into mass production in 2013, its performance was the best in the industry, so someone colluded with them to sell a large number of products in a short period of time, drastically reduce the price, and leave no room for other companies to survive, so that they could dominate the market. Faced with such an "attractive" prospect, the management of Innosilicon chose to refuse. The ecosystem has just started, and healthy development is very important, so Innosilicon controls the computing power of each order to not exceed a proportion of the entire network. Ao Gang said that because the essence of blockchain is win-win, the circle is still too small, and we should focus on innovation and unite multiple parties to make the "cake" bigger. This is the right path for Innosilicon.

However, what makes Ao Gang sad is that some industry participants seem to lack a correct understanding of competition and development, and do not understand that "yin is within yang, not opposite to yang". The de-neutralization of blockchain is supposed to encourage innovation, participation and win-win, and coexistence is the right way. He pointed out the two major problems in the mining industry: crazy dumping and unfair competition, which are intertwined. They are eager for quick success and quick profit, fishing in a dry pond, violating the laws of ecology, and increasing computing power by dozens of times in one or two months, and continue to do so until the currency is killed and even the dumbest miners realize that it is impossible to make a profit without buying, hurting the interests of the majority of miners and making a fortune for themselves; in order to achieve monopoly and prevent other mining machine manufacturers from participating in the competition, they use various means suspected of unfair competition to trip up the other party, destroy the other party's production capacity, and do not hesitate to destroy the industry ecology.

Mining machine dumping, commonly known as "cutting leeks" in the mining industry, refers to some mining machine manufacturers who, regardless of the current status of the entire network's computing power and the law of healthy development, desperately place orders, mass-produce machines with ten or a hundred times the computing power in a short period of time, usually stock up a large number of goods before the scheduled dumping, pre-sell and collect money in advance and give coupons to make retail investors full of expectations, and then ship out the goods like a flood in a fixed few days, greatly pushing up the computing power difficulty of the entire network, causing the previous customer's payback period to be far away. This continues for several rounds, ensuring that they sell at a good price, while customers cannot predict this surge in computing power. For example, a netizen who once bought a Bitmain mining machine told Sina Finance that because Bitmain desperately manufactured and repeatedly dumped the price of mining machines, the computing power difficulty of the entire network increased by 350% every month, resulting in "the daily output is not even enough to pay the daily electricity bill, and the mining machine will be scrapped before it can pay back the cost." Some people in the industry also commented: "Some people have made so much money that they can't spend it all in their lifetime, but they are still very greedy. I really don't know what the values ​​and social responsibilities of those who formulate sales strategies are, and why they make money!" Despite this, small miners still "buy while cursing". First, Bitmain has the greatest reputation and the largest market share, which makes it more trusted by many miners; second, many other mining machine manufacturers are short of spot goods and lack "ammunition", so miners have to continue to commit to Bitmain.

On the other hand, unfair competition will further consolidate the monopoly. According to previous public reports, Bitmain, the leader in mining machines, spends a lot of money every year to block competitors, almost at all costs. In the early days, the entire mining machine market had very little packaging capacity, and other companies could only pick the remaining production lines of Bitmain; in addition, even if Bitmain did not use them itself, it would buy out the supply chain, capacitors, components and other necessary parts for mining machines, "spending only 1% of the money to make 99% of other people's products unsaleable."

For example, Yang Zuoxing, the founder of Shenma Mining Machine, once accused Bitmain of "delaying shipments for five months in 2017, and mass production was not started until October, which delayed 200,000 units". According to insiders, Bitmain, relying on its larger production capacity and more capital, repeatedly pressured suppliers not to accept orders for Shenma Mining Machines; even rumors in the packaging factory circle that some of the goods ordered by Shenma would be directly destroyed by Bitmain. When talking about Shenma Mining Machines, Ao Gang also said that Yang Zuoxing "had a hard time".

In response to these behaviors, Ao Gang commented: "Water can carry a boat, but it can also overturn it." Competing in an unfair way is unfair to competitors and also means potential unfairness to customers. In the monopoly's one-man show, if large and small customers are not treated equally and "under-the-table transactions" are allowed to run rampant, the interests of customers will not be protected. Whether it is dumping or monopoly, the result is the destruction of the entire ecosystem, and in the end, it is the monopoly that suffers the most.

Why is water? It is about ecology, customers, and the industry. Protecting the ecology, being responsible for customers, and being respectful of the industry are the ways to stick to the right path.

"If you want to eat this bowl of rice, you can't smash the pot." After saying this, Ao Gang laughed. In practice, Ao Gang admitted that Innosilicon will not blindly distribute large quantities of goods. It will calculate a reasonable ratio every time to place an order, pay attention to the industry ecology, and put an end to improper practices such as "super harvesting" to prevent competition. "We are all outsiders in the blockchain. When we come to this ecology, we should be grateful for the development opportunities brought by the blockchain. No one owns the blockchain, and no one can eat alone. No matter what, we will continue to develop and diversify, and support the correct concept of decentralization, win-win and symbiosis; we advocate industry rules and hope that everyone can reach a consensus, change disorderly competition into orderly competition, and replace destruction and destruction with innovation and creation. Only in this way can we jointly maintain and develop this industry in a healthy way."

In addition, Innosilicon stated that it was not in a hurry to go public, "[Some] going public may cut off the leeks of shareholders, and it is best for us to wait for the natural course of events." Although he did not disclose specific figures, Ao Gang still said that Innosilicon currently has healthy funds and good profits, so he has a plan to choose whether to go public and how to go public, but at this stage, the priority is still to ensure the company's technological vitality and freedom. "If we had gone public that year, it would have been difficult for us to enter the digital currency industry. Now that we have not started the listing, our diversified business flow will definitely guarantee long-term healthy development."

As for the future plans of Innosilicon, in addition to going public, it will also design and produce 8nm, 7nm and 5nm chips. As the first echelon of high-end IP providers, there is no doubt that the technology layout will be 7nm and other processes, but whether to make 7nm mining machine chips has not yet been determined. "It mainly depends on the cost-effectiveness of the technology and the market needs. We can do it at any time, but we will not act rashly."

At the same time, Ao Gang also pointed out the problem of being too superstitious about the 7nm process: the smaller the process, the better, and it is not good for all products. For example, the low-voltage performance of the 7nm process is not outstanding, the chip consistency is not as good as other mature processes, and it is very expensive and has no production capacity. It is not so suitable for the low-voltage characteristics of Bitcoin mining machines. Although many mining machine manufacturers have rushed to announce the development of 7nm chips in order to raise funds and win the first prize, the performance of the 7nm bitcoin mining machine chips released so far is not good. Ao Gang suggested that we should remain restrained. There are many pitfalls in the new process, and the foundation of circuit design is the real competition.

At the end of the interview, Ao Gang said that mining in a bear market is the time to use new machines to make a big splash. Although some vested interests will do their best to maintain the status quo and delay the development of the industry, the bear market is a hotbed of change. Mining participants should see the situation clearly and choose the right mining machine as soon as possible, and mine coins in time instead of working voluntarily to pay electricity bills to promote changes in the industry structure. Only those who actively participate in the change can gain a favorable position in this round of reshuffle, just like Bitmain, which rose from the last bear market; otherwise, they will become "workers" for electricity bills and become a footnote to the next bull market in the industry.

When asked when the bear market will end, Ao Gang said frankly, "I can't predict the future. There may be more than 6 months of cold winter." When asked again, after this round of cold winter, he hopes that Xindong can defeat its competitors and become the new mining machine overlord. Ao Gang replied that we don't regard any of them as opponents. After the cold winter is over, we hope that "everyone will still be there and the industry will get better and better."