The current status and trends of Bitcoin mining development from the IPO of two major mining machine giants in Hong Kong

On the "Information about Issuers in Process" page of the Hong Kong Stock Exchange Disclosure System, there are only 36 companies between Ebang International Holdings and Canaan Inc. In addition, at the beginning of this month, Bitmain's Wu Jihan said that he "prefers to IPO in Hong Kong or overseas", the trend of domestic mining machine manufacturers going public in Hong Kong seems to be a foregone conclusion.

About Revenue

Ebang International started its telecommunications business in 2010, and subsequently started its blockchain business to contract the production of BPUs and BPU modules. In December 2016, it began to produce and sell independently developed BPUs for Bitcoin mining, with the product brand "Yibit". According to the prospectus, a total of five major BPU models had been developed for sale as of the last practicable date. Ebang International's revenue mainly comes from its blockchain and telecommunications business segments, with its blockchain business accounting for 31.7%, 42.8% and 94.6% in 2015, 2016 and 2017 respectively. During the Track Record Period, revenue contribution gradually shifted from the production of BPUs and BPU modules on a contract production basis to the production and sales of independently developed BPUs.

In its prospectus, Canaan positioned itself as a fabless IC design company that provides advanced semiconductor solutions for complex computing problems. According to the disclosed data, except for 25.1% of its revenue in 2015, which came from chip sales, 100% of its revenue in 2016 and 2017 came from the sales of its system product AvalonMiner. According to the prospectus, 0%, 0.4% and 8.5% of its revenue in 2015, 2016 and 2017 came from overseas respectively. In the future, Canaan will continue to strategically expand its international sales, and expects that both the absolute amount of revenue outside China and the percentage of total revenue will continue to expand.

About AI

Whether it is Canaan Creative, Ebang International, or Bitmain, which has not yet decided on the listing location, a single business type has insufficient momentum to drive revenue growth and has significant risk effects. According to iResearch Consulting, the global and Chinese AI markets are expected to reach approximately US$18.3 billion and RMB 90.6 billion respectively in 2020, and AI will become the next battlefield for mining machine companies.

In its prospectus, Ebang International explained the feasibility of its entry into AI chips: In addition to cryptocurrencies, blockchain and ASIC chip technologies are also gradually being applied to the AI ​​field. As integrated circuit chips developed for blockchain become increasingly specialized and targeted (such as Bitcoin-specific ASIC chips), the development of AI and blockchain also overlaps, reflecting that the development of integrated circuit chips and the development of AI have similarities. ASIC chips can be customized for specific target scenarios to support AI in terms of image recognition, voice recognition, or data analysis. Therefore, experienced ASIC chip designers also have expertise in the field of AI.

Canaan Creative showed its exploration in AI in its prospectus: it started developing ASIC chips for AI applications in 2016, and plans to mass-produce edge computing chips, called KPU, in the fourth quarter of 2018. It is currently designing ASIC chips with AI functions, such as voice and image recognition functions in smart homes, smart cities, smart surveillance, smart toys, and IoT applications.

About competitive advantage

Competitive advantages of Ebang International:

We are a leading blockchain technology company with a strong global market position in BPU development, production and sales. Our proven chip design capabilities and foundry access have enabled us to grow rapidly in the BPU industry, which is known for its high entry barriers. Our product development capabilities are deeply rooted in our superior technical knowledge and years of production experience in the telecommunications business. We provide high-quality products and competitive warranty and after-sales services. Our senior management team is technologically proficient and experienced.

Canaan's competitive advantages:

We are the industry leader in high-performance and repetitive computing ASIC chip design in China and are well-positioned to capture the industry's growth potential; we have the ability to respond quickly to market demand; we have strong R&D capabilities backed by a track record; our chip and system integration designs deliver superior performance products; we maintain close relationships with industry-leading manufacturing partners; and our management team is visionary and our R&D team is talented.

Similar to the similarities shown in their business strategy and growth strategy assumptions, Ebang International and Canaan Creative also show certain similarities in their competitive advantages. The competitive advantages of the two are concentrated in the scale advantages, R&D capabilities, and R&D teams that have been achieved.

About Business Strategy & Growth Strategy

Ebang International has four business strategies:

Develop and provide cutting-edge BPU for use in Bitcoin and more cryptocurrencies; further invest in the research and commercialization of new technological innovations (including broader blockchain technology applications and the latest communication technologies); continue to improve the supply chain management of chips and other raw materials and expand our production capacity; further enhance our brand image and reputation and expand our overseas customer base.

Canaan's growth strategy and future plans:

Maintain and strengthen our leading position in IC solutions for blockchain applications; continue to design new products and establish partnerships with ecosystem partners in the field of artificial intelligence; continue to recruit talent and strengthen our R&D capabilities; continue to expand our customer base; and continue to improve our supply chain management.

A comparison shows that although the weights are different, R&D capabilities, customer resources, and supply chain management are the focus of the two giants in future development.

About risk factors

Summary of Ebang International's risk factors:

The growth of our business depends on the development of blockchain technology and applications, particularly in the field of cryptocurrency; fluctuations in the economic returns of cryptocurrency mining activities; uncertainties related to the popularity of Bitcoin; the sustainability of our business development; adverse changes in the regulatory environment in China and overseas markets; our failure to continue to successfully operate our telecommunications products business; shortages in the supply of raw materials and components and adverse changes in supply relationships; and our failure to expand our overseas business or manage business growth.

Summary of Canaan's risk factors:

The development of blockchain technology is still in its early stages; the development of Bitcoin is still in its early stages and since our current system products are designed for Bitcoin mining, any actual or perceived adverse development in the Bitcoin market could have a negative impact on our operating results; if Bitcoin is replaced by other cryptocurrencies, we will lose the market for our Bitcoin mining system products; since the rules or protocols of the Bitcoin network may change, if we are unable to adjust our Bitcoin mining system products to cope with any such changes, our system products will not be able to meet customer needs and our operating results will be significantly affected; the demand and pricing of our system products are primarily determined by the expected economic returns from Bitcoin mining activities, which are significantly affected by expectations regarding Bitcoin prices, transaction fees, Bitcoin mining difficulty and related costs (such as electricity costs). The price of Bitcoin has experienced significant fluctuations in the short period of time since its launch and may continue to fluctuate in the future. If the price of Bitcoin or transaction fees decrease, the expected economic returns from Bitcoin mining activities will decrease and the demand for our current system products will decrease.

In addition, power shortages due to government regulation or other reasons and any increase in the difficulty or energy cost of Bitcoin mining will increase the cost of Bitcoin mining. This in turn affects our customers' expectations of the economic returns from Bitcoin mining activities and demand for our current system products; intense competition from other well-known semiconductor companies entering the Bitcoin mining market, new and upgraded products introduced by our competitors, market acceptance of products based on new or alternative technologies, the emergence of new industry standards or new trends in consumer preferences may make our current or future products obsolete.

If the supply of similar bitcoin mining machines is excessive or our competitors adopt aggressive pricing strategies, our operating results will be materially and adversely affected; our future revenue growth, if any, will depend largely on whether we can penetrate new markets beyond bitcoin mining applications, especially the ASIC chip application market for other types of cryptocurrencies or artificial intelligence products that require high performance and high computing power. These markets are new and still developing. Each of these markets presents significant and varying risks; our customers and suppliers are global, and the portion of our revenue derived from customers outside of China is growing, so we are exposed to financial and business risks from changes in government policies, taxes, general economic and fiscal conditions, and political, diplomatic or social events. In particular, changes in policies and laws regarding the holding, use or mining of bitcoins could have an adverse effect on our business operations and operating results. In addition, if local or international jurisdictions in which we operate or sell products prohibit or restrict bitcoin mining activities, we may record significant revenue losses.

From the above comparative analysis, it can be seen that the current judgment of the mining machine giants on themselves and their future development plans are quite similar. Is the choice to go public and join AI exploration after the revenue leap based on the judgment of the future development of the Bitcoin mining market?