Bitmain — the Cryptomining behemoth aims for total dominance
China has become the breeding ground for tech startups in the past few years. With a large pool of skilled entrepreneurs coupled with massive capital at its disposal, it has provided the perfect conditions for these aspiring Millenials to innovate & thrive. One such glaring example is the Crypto mining giant Bitmain.
Who knew a casual restaurant conversation between the two founders of Bitmain in 2013 would create a company that will become a dominating name in the Crypto space.
Jihan Wu, a Financial Analyst & Micree Zhan, the owner of his startup DivaIP came together to discuss how to raise money for Zhan’s entrepreneurial endeavor. They discussed bitcoin mining on the dinner table with Wu’s proposal of starting a chip company.
Zhan showed interest, went home to learn a little more about Bitcoin & the next day gave his nod for the proposed venture. Later that year, they sold their first mining chip. Zhan BTW is the same person who translated (from English to Chinese) the white paper on bitcoin by the infamous Satoshi Nakamoto.
From its humble beginnings Bitmain Technologies has become one of the most recognized names in the Cryptoverse — A privately held company valued at about $12 billion (surpassing Coinbase, Binance, & Ripple Labs) with a market share of 70–80% in producing Bitcoin mining hardware, with a focus on specialized ASIC (Application-Specific Integrated Circuit) hardware chips and operating one of the largest bitcoin mining pools (Antpool).
The company is headquartered in Beijing, with offices in Amsterdam, Hong Kong, Tel Aviv, Qingdao, Chengdu, Shanghai and Shenzhen. Now that we know the backdrop of its formation, let’s delve into some of the major factors that have propelled Bitmain to be the leader in the Crypto mining space.
Bitmain has been on a shopping spree with all the surplus cash it is generating expanding the mining facilities to all corners of the world. The most valuable Crypto company has seen rapid expansion rounds in the following jurisdictions.
- Acquired a 20,000 square office space in Silicon Valley (San Jose, California, USA) placing itself for strategic expansion in North American with uncertainty in China & America’s openness towards Fintech companies. This is on the heels of opening their mining centers earlier in the Washington state & Province of Quebec in Canada.
- Planning to triple the development center in Israel which was established in 2016 looking to hire 40 more people to its current strength of 15 employees. This development center works as a blockchain research wing for the company & oversees Bitmain’s third mining pool ConnectBTC which was launched in April 2017.
- The company will also be opening a new blockchain data center in Rockdale, Texas, the US with an investment of around $500 million resulting in the creation of about 400 jobs in the area. The facility is under construction & will be operational in the first quarter of 2019. Apart from these, Bitmain is eager to expand its presence in Brazil.
The production & use of its own mining hardware has given Bitmain almost monopolistic control over the hash power of BTC network which has come perilously close to the dreaded 51% mark on a few occasions. Basically, if anyone miner or pool of miners can control the 51% of the hashrate of a particular network they can launch what’s called a “51% attack” & can manipulate the network.
There was a concern since Mr. Wu is a strong proponent of Bitcoin Cash that he might launch an attack on the network. This was improbable on two accounts & that’s why it never happened. Launching an attack on such a big network requires dedicating a lot of resources to the operation apart from an almost certain Mutually assured destruction.
Secondly, Bitmain is planning to go public with its IPO & any such nefarious action would almost certainly kill its chances of doing so. Nevertheless, Bitmain is still the majority stakeholder in the BTC network with control of over 35% hash rate at the time of writing as per the chart above. Not to mention the fact that it is the major hardware supplier to the rest of the mining pools as well.
Again with the massively profitable year of 2017 with a net profit of $1.2 billion, Bitmain has been aggressively investing in tech startups to expand its portfolio & solidify its position in the Crypto industry. According to insider sources Bitmain has already earned a profit of $1 billion in the first quarter of 2018 with an expected profited of $2–3 billion for the full year. With a solid balance sheet like this the company has invested in the following ventures:
- $50 million to acquire a controlling stake in the web browser Opera which recently introduced an Ethereum wallet in its mobile interface.
- It was confirmed that in July Bitmain concluded a round of multi-million-dollar investment in Block.one, the company behind the EOS coin.
- In May, Circle, a fast-growing startup in the mobile payments & Crypto trading arena got funded for $110 million by Bitmain. The investment is part of the initiative by Circle to launch a stable coin called USD coin which would be backed by fiat currency reserves.
- On the launch of NULS cross-chain modular platform’s main net in China, it was announced that Bitmain will be investing in the startup. Apart from these major investments, Bitmain has also thrown its weight behind Blockchair — a search & analytics engine.
Bitmain has continued with its innovation spirit & not restricted to ASIC miners only. Last October, it released it AI-enabled Sophon chip designed to speed up Machine Learning. Although it is not as competitive as some of the high-end graphics cards produced by AMD & Nvidia, it is better focused on deep learning and cheaper as well. Also, it has some way to go to compete with Google with its everything AI approach, but its chips are only available to its Cloud customers, which is banned in China. This, of course, gives Bitmain an open field. It may not be long before the company catches up with the big names on this front with its massive strides in R&D coupled with promising partnerships.
Finally, CEO Jihan Wu is planning to launch an IPO (Initial Public Offering) for Bitmain for $14 billion to raise capital for further expansion, R&D and also giving the early adopters of the company a chance to cash out their profits. Being one of the most well-recognized companies with a sound financial position Bitmain is certain to benefit from going public.
It wouldn’t be wrong to say that Bitmain seems well poised to become the Amazon of the Cryptoverse with its expansion projects, innovation spirit & targeted acquisitions.
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Originally published at www.datadriveninvestor.com on August 7, 2018.