Unlocking Bitmain: The invisible empire across the Bitcoin industry chain | [Youyuyouhotspot]

Seven out of every ten Bitcoin mining machines in the world come from this company.

For every ten bitcoins mined in the entire network, more than half come from its mining farms.

It only took it three years to go from being an unknown company to being ranked second among domestic chip design companies.

Image source: Chip Intelligence

Thanks to an order of up to US$1.5 billion, TSMC's computing business in the third quarter of 2017 increased by 40% year-on-year. Executives were surprised and delighted to exclaim that "artificial intelligence is talked about very loudly, but in the end it is not as good as Bitcoin."

It is Bitmain, a Chinese company that was established less than five years ago and is also an invisible empire in the Bitcoin industry chain.

The “villain” Wu Jihan

Image source: Coindesk

Five years ago, Wu Jihan would never have thought that one day he would be labeled a “Valient” by Coindesk, the authoritative blockchain media.

At that time, he was active in the cryptocurrency circle with the ID QQagent and was honored as the "Bitcoin evangelist."

He was the first person to translate the paper of Bitcoin founder Satoshi Nakamoto into Chinese, and is also the co-founder of the Chinese Bitcoin community "Babbitt".

In an interview at the end of 2014, when Wu Jihan recalled why he translated the white paper and promoted Bitcoin, he once spoke from the bottom of his heart:

“The mainstream Chinese community’s analysis and interpretation of Bitcoin is actually quite pessimistic. They don’t quite understand the significance and value of a currency with a limited total volume to the public. They generally view Bitcoin as a pyramid game or a pyramid scheme trap.

At this time, if someone could interpret the economic value of Bitcoin well and explain its basic technical principles to the public, it would be relatively rare at the time.

We also feel a sense of responsibility to stand up and make some things clear.”

  He had very good reasons to do so, because at that time, Bitcoin had already made him his first pot of gold.

Before coming into contact with Bitcoin in 2011, Wu Jihan was an economics graduate from Peking University with no technical background and worked in the venture capital field.

According to him, it was his investment sensitivity that made him notice the digital currency that was only circulated in the technology circle at that time. So in that year, he gradually exchanged all his savings into Bitcoin through Taobao and Mt.gox exchanges.

Open the price chart. In early 2011, 1 Bitcoin was worth only $0.3, but by the end of 2013, the price soared to $750.

The full investment plus a 2,500-fold increase was enough for the young Wu Jihan to complete the original accumulation of capital, and also gave him a reason to devote himself to this industry.

Bitcoin trend chart from 2011 to 2013, image source: Coindesk

Getting Started

When he just resigned, Wu Jihan ordered pre-sale chips from a mainstream domestic mining machine manufacturer at the time, but the delayed delivery caused him to suffer huge losses. But a blessing in disguise, he also discovered the business opportunities in this industry.

The mining machine manufacturer that caused Wu Jihan a lot of trouble at that time should be ASICMiner, whose Chinese name is "烤猫", the same name as its founder's ID "Friedcat" in the circle.

The few photos of roasted cats circulating on the Internet, source: Bitcoin Information

FriedCat was the first team to try to switch mining machines from FPGA to ASIC technology (for more information on the technological changes in mining, please refer to our previous article "My Year as a Bitcoin Miner"). After successfully launching mining machines based on ASIC chips, they became the talk of the town.

When FC was founded in 2012 , it used Bitcoin to launch an IPO, with the original stock price of 0.01 Bitcoin per share. Just one year later, FC's weekly dividend reached 0.038 Bitcoin per share, and the stock price soared to 5 Bitcoin per share.

It is interesting to note that Wu Jihan also participated in the IPO of FC, buying 15,000 shares, equivalent to 3.75% of the shares. If he had not sold them, he could have received 500 bitcoins in dividends every week in 2013.

However, the story of FC came to an abrupt end at the end of 2014.

Due to the obstruction in the development of the second-generation chip, coupled with the successive launch of Bitmain's Antminer and another Chinese company Canaan Creative's Avalon miner, Baked Cat has seen a cliff-like drop in both mining machine shipments and computing power.

The fatal blow was the mysterious disappearance of its founder, Kaomao, in early 2015 - this is still one of the top ten unsolved mysteries in the cryptocurrency world.

The entire story of FC Company seems to be a microcosm of the cryptocurrency world. In just two or three years, it has gone through the entire ups and downs.

However, the story is not yet completely over.

The disappeared FriedCat left behind a priceless Bitcoin wallet, which has been lying quietly for two years. But at the end of July 2017, 17,360 Bitcoins were suddenly transferred out of this wallet.

Calculated at the current price of the currency, this is a huge fortune of 170 million US dollars.

Since the transfer time happened to be before the first hard fork of Bitcoin, people in the circle speculated that this transaction was to transfer to a wallet that supports hard forks in order to receive free, forked Bitcoin Cash (BCH).

So the question is, who is supporting this hard fork and the resulting Bitcoin Cash?

monopoly

When Wu founded Bitmain in 2013, another co-founder was Zhan Ketuan, who was Bitmain’s “technical brain.”

Zhan is ten years older than Wu. After graduating from Tsinghua University and the Chinese Academy of Sciences, he has been engaged in integrated circuit design. He met Wu Jihan by chance in 2010, and was invited by Wu Jihan to co-found Bitmain three years later.

“I spent two hours reading about Bitcoin on Wikipedia and I realized that Bitcoin had potential, so I decided to join without hesitation.”

—— Zhan Ketuan recalls his joining process

The reason for inviting Zhan is that Wu Jihan knows very well that Bitmain started a little later than others. If it wants to gain a foothold in the mining machine industry, it must have its own strengths.

Therefore, his only requirement for Zhan Ketuan was to develop an ASIC chip that could efficiently run the Bitcoin encryption algorithm in the shortest possible time.

Zhan lived up to expectations and developed the BM1380, which represents the highest level of 55nm mining chips, in just half a year.

Why is it possible? In addition to Zhan’s own technical strength, when he joined Bitmain, he also brought with him a whole team with experience in high-speed and low-power chip design , which is exactly what is most needed to develop mining machine chips.

With a tailor-made team and the right product ideas, Bitmain's first-generation mining machine, Antminer S1, launched in November 2013, was very popular in the market.

But what really brought it to the dominant position in mining machines was the cold winter of Bitcoin.

In early 2014, fraud and theft occurred at Mt. Gox, the world's largest Bitcoin trading center at the time. The price of Bitcoin was halved in just three months, and in the following year, it fell from a high of $1,100 to a low of $200.

Bitcoin price chart from December 2013 to June 2015. Image source: Coindesk

At that time, the entire mining industry was in mourning, and no one was willing to pay expensive electricity bills to mine a digital currency whose value was declining.

A TV show mocking Bitcoin at the time. Image source: Internet

From the Zhihu questions and answers of a Bitmain operator girl at the time, we can get a glimpse of the state of Bitmain at the time, and even the entire Bitcoin circle.

It was an atmosphere mixed with confusion, hesitation, faith, and struggle.

“…Bitcoin is still a new industry. The freezing period does not mean dying. There are opportunities, but they may be a long way off. But God, we should still have dreams. What if a pancake falls from the sky?

 

As the Bitcoin industry is shrinking rapidly, the industry is undergoing a major rectification and cleansing. In such a difficult environment, they have been able to persist, and they have a villa office building near Beijing Olympic Forest Park, and they are willing to take me to play. Why should I refuse? "

—— Excerpted from “What is it like to work at Bitmain”, a question and answer session on Zhihu in early 2015

In this "big cleanup and purge", FriedCat disappeared, ButterflyLabs of the United States was sued by the Federal Trade Commission (FTC), and another leading company KnCMiner went bankrupt. Only Bitmain is still continuously iterating its mining machines.

In April 2014, Antminer S2 was put into mass production and sales;

In June, the first version of the 28nm chip BM1382 was successfully developed;

In July, Antminer S3 equipped with 28nm chip went into mass production;

In December, Antminer S5 went into mass production;

In August 2015, the fourth-generation Bitcoin mining chip BM1385 was released;

In November, Antminer S7 went into mass production.

So, when the price of Bitcoin gradually recovered in the second half of 2015 and the miners returned, they were surprised to find that the only option left in the market was Antminer.

In December 2015, Zhan Ketuan admitted in an exclusive interview with Caiyun Bit that the surge in the network's computing power mostly came from the newly released Antminer S7 - in just two months, the sales of this mining machine reached 400 million yuan.

Looking back, the release of S7 was a watershed in the Bitcoin mining industry. After that, although Canaan Creative and Bitfury were still fighting hard, and although there were still outsiders such as Halong disrupting the situation from time to time, the overall situation of the mining industry was determined, and Bitmain officially entered the era of monopoly.

extend

If Wu Jihan was only satisfied with mining machine manufacturing, he could only be considered a good businessman. What really showed his strategic vision was the other actions he took simultaneously during the Bitcoin winter.

The first thing is to build a mining pool.

On September 2, 2014, Bitmain quietly completed the acquisition of Snowball.io cloud mining platform and renamed it HASHNEST.COM.

Image source: HashNest official website

At first glance, “cloud mining”, which switches from buying mining machines to buying computing power, is a business that liberates miners. But in fact, the mining pool that sells computing power to miners is the one that makes a steady profit.

The mining pool has since become a real estate developer, quickly recovering cash flow after selling computing power, and then developing new mines. However, unlike real estate developers, the construction period of Bitcoin mining pools is short, the demand is large, and the supply is small, so the business is naturally easier to do.

For example, if all the land in China was booked by two or three real estate developers, how much money would they make?

On November 14, 2014, Bitmain launched Antpool, which ranked third in the world in terms of computing power that month and successfully topped the list four months later.

But Wu Jihan’s “ambition” is not to reach the top, but to monopolize.

It launched new mining pools BTC.com and ConnectBTC in 2016 and 2017, invested in ViaBTC, and has close ties with BTC.TOP, another cryptocurrency tycoon Jiang Zhuoer.

Changes in the global mining pool computing power share in 2017. Bitmain’s share rapidly expanded from 30% at the beginning of the year to 60% at the end of the year. Image source: BTC.com

These mining pools each have their own selling points. In order to highlight their independence, they often launch promotional activities against competing products to attract miners.

But if you dig deeper, you will find that Bitmain is behind 60% of the world's computing power. The so-called decentralization of the mining industry has become a false proposition.

Bitmain actually controls more than 60% of the world's Bitcoin computing power. Image source: Yunfeng Finance

Wu Jihan really understands the essence of Bitcoin - for Bitcoin, which has a limited total amount and a transparent issuance method, whoever controls the mining right is equivalent to having the issuance right. And the issuance right is the most critical right for currency.

In addition to the alliances, another reason for the surge in the share of Bitmain's mining pools is the computing power financial product PACMIC launched in March 2015 .

Simply put, PACMIC combines cloud mining with principal-guaranteed financial management - this is probably an idea that only Chinese people can come up with. With both principal-guaranteed and an annualized return of more than 10%, the third phase of PACMIC products launched in August 2015 sold 3,500 copies on the same day, which was equivalent to more than 3 million RMB based on the currency price at the time.

Image source: Bitmain official website

More importantly, by leveraging his financial background, Wu Jihan successfully transformed Bitmain from the "traditional real estate developer model" of selling houses to the "SOHO model" of leasing self-owned properties.

As a result, not only does the mining pool's computing power share increase rapidly, but the abundant cash flow also allows the company to carry out a vigorous land-grabbing campaign offline.

In 2015, Bitmain's mining pool, together with Amazon AWS and Qihoo 360 cloud computing base, moved into the Ningxia Zhongwei Cloud Base.

The Party Secretary of Ningxia Autonomous Region inspected the Internet + Cloud Center of Ningxia Zhongguancun Science and Technology Industrial Park. Wu Jihan is the first on the right in the front row. Image source: Bitmain official website

In 2016, Bitmain focused on mining farm construction and extended it to Inner Mongolia, Xinjiang and other places .

Some of the mining farms invested by Bitmain since 2016. Source: News from local government websites, environmental impact assessment opinions, etc., compiled by Yunfeng Finance

Although the Chinese government began to gradually tighten its policies on the digital currency industry in 2017, and news of the clearance of Bitcoin mines has been reported in various places, Wu Jihan does not seem to care about it.

"Normal operating mines will not be closed. The central bank and local governments will mainly close mines that steal electricity. Moreover, normal operating mines have also promoted the local economy and helped some small hydropower plants repay their loans. This can be regarded as targeted poverty alleviation."

——When the news of the central bank’s order to close the mining farm came out in early 2018, Wu Jihan issued a statement to the media

crisis

That being said, the fact is that Wu Jihan still smelled a hint of crisis, and he made two preparations for it - one was to go overseas, and the other was to transform.

Since 2015, Bitmain has successively established R&D centers in San Francisco, Israel, and the Netherlands. At this time, the company's overseas strategy can also be explained as being close to the cutting-edge development of blockchain.

Bitmain's San Francisco office in 2015. Image source: Zhihu

However, at the beginning of 2018, the company's overseas layout accelerated suddenly. In just 20 days, it established a branch in Switzerland's "Crypto Valley" and started building a regional headquarters in Singapore. At the same time, there was news that the company was looking for a suitable location in Quebec, Canada to set up a mine.

The overseas strategy is shifting towards developing physical business, which obviously coincides with the trajectory of domestic policy changes.

In addition to going overseas, another way out that Wu Jihan chose for Bitmain is artificial intelligence.

In November 2017, Bitmain launched its AI brand Sophon and the world's first self-developed tensor accelerator computing chip (TPU) - BM1680.

Image source: Bitmain official website

The name Sophon is taken from the sophon in the science fiction novel The Three-Body Problem. In the novel, it is a tool used by the Trisolarans to lock down Earth's technology and also a tool for monitoring the solar system.

The brand’s Chinese name, Suanfeng, stands for “calculating the mysteries of heaven and earth, and enriching cognitive intelligence”, which is in line with the ancient Chinese Book of Changes.

Zhan Ketuan is explaining the origin of the word Sophon. Image source: Internet

Combining science fiction with metaphysics, this brand seems to carry unusual expectations. Wu Jihan and Zhan Ketuan want to leverage their leading edge in ASIC chips to compete with Google, Nvidia, and AMD in the field of deep learning.

But in fact, the first application scenario of Suanfeng was security, which was most needed by the domestic government.

At the strategic communication meeting on January 4, Bitmain's product strategy director Tang Weiwei expressed the hope that the newly released intelligent video analysis server Suanfeng SS1 could be used to assist in the security construction of the Xinjiang Autonomous Region and contribute to Xinjiang's security cause.

Xinjiang is home to Bitmain’s largest mining pool.

Ambition

Back to the original question, why was Wu Jihan dubbed a “villain” when Coindesk selected the top ten figures of the blockchain industry?

In fact, he is no longer satisfied with being just a Bitcoin evangelist.

In order to solve the problem of how to expand the capacity of Bitcoin, he changed the image of a mysterious big boss he had maintained in the circle in recent years and began to be active in various communities and social platforms.

Why does Bitcoin need to expand? And how should it expand? Another 10,000-word popular science article could be written on this topic. What we need to know is that this incident has completely split the mining pool and exchange faction represented by Bitmain from the traditional technology community faction .

In Satoshi Nakamoto's conception, the core of Bitcoin is "computing power democracy", so for important resolutions such as capacity expansion, everyone with computing power should have their own vote (One CPU one vote). Whether a plan can succeed depends on whether it has enough supporters.

However, what Satoshi Nakamoto certainly did not expect was that the ultimate winner of this expansion battle was not his own appointed Bitcoin maintenance and development team, Bitcoin Core, but mining pools and exchanges.

The emergence of mining pools has concentrated computing power, and financial products like PACMIC have led to the separation of ownership and usage rights of computing power. Instead of being decentralized, computing power has become increasingly concentrated.

Under such circumstances, Bitmain, which owns 60% of the computing power of the entire network, has become the "permanent member of the United Nations of Bitcoin" with veto power.

It is precisely because of this that, despite strong opposition from the Bitcoin Core team and the technical community, the mining pool ViaBTC invested by Bitmain still successfully implemented the block expansion action on August 1, 2017, which is the first hard fork known in the circle.

The cloned competing coin is called Bitcoin Cash (BCH for short), which is exactly the currency that Baked Cat’s wallet is going to collect.

After the hard fork, Bitmain's AntPool immediately launched the option to switch between Bitcoin and Bitcoin Cash mining. Image source: Bitmain official website

Why did Wu Jihan break with the Bitcoin Core team in order to launch Bitcoin Cash, becoming the target of criticism from the entire technology community, and even becoming angry and saying such humiliating words on Twitter as "Fxxk your mother if you want fxxk" after being questioned by all parties?

The answer is self-evident in an interview he gave:

“Bitcoin Cash is Bitcoin Cash, and Bitcoin is Bitcoin. Bitcoin Cash has its own independent route, and has a different understanding of future prospects and future development than Bitcoin. Before the Bitcoin fork, it had a historical origin with Bitcoin, but after the fork, it became its own independent community, that’s all.”

——Wu Jihan described the relationship between Bitcoin and Bitcoin Cash to Caijing magazine

From this moment on, this former "Bitcoin evangelist" had greater ambitions.

However, the heartfelt words five years ago about why Bitcoin should be promoted disappeared in the wind with the establishment of the invisible empire.

Cover source: Bitmain official website