50 Times Faster
Back in the early days of bitcoin, anybody with a computer could put their ordinary video graphics card to work solving the cryptographic math puzzles which bundle, seal, and lock blocks of transactions into place in the blockchain, and thus win the miner’s reward of newly minted bitcoin.
In 2013, Jihan Wu and Micree Zhan changed all that when they founded Beijing-based Bitmain and turned bitcoin mining into a specialized process by selling application-specific integrated circuits (ASICs) - chip cards that could mine bitcoin 50 times faster than traditional video graphics cards.
This turned out to be a brilliant, prescient, and forward-looking move - kind of like being the only store selling picks and shovels during a gold rush. The company now dominates bitcoin mining with a combination of chips, rigs, and mining pools.
This situation is making some people very wealthy and some very nervous.
Shrewd But Simple
The financial analytics firm Bernstein estimates Bitmain’s 2017 profits to be between 3 and 4 billion dollars, and their dominance of bitcoin mining to be 70-80%. In its report Bernstein notes that Bitmain achieved a level of profitability in 3 years that took chip maker Nvidia 24 years to reach.
Bitmain employed a shrewd but simple strategy to grab these unprecedented profits so rarely seen in the microprocessor business - adjusting the price of mining rigs to rise and fall with bitcoin’s price. While manufacturing costs have remained unchanged, a single Antminer went from a price of a few hundred dollars to a high of $5,000 in 2017.
The owner of bitcoin.org and bitcointalk.org argues in an open letter to the community that Bitmain is an existential threat to Satoshi’s vision of decentralization - a network in which no node occupies a superior hierarchical position over any other as the ultimate “keeper of truth”.
Before It's Too Late
Writing under the pseudonym “Cobra”, the website owner goes as far as to argue that the only way to protect bitcoin from becoming centralized under the monopolistic control of Bitmain is to change the mining algorithm before it’s too late - "as long the community is reasonably small and still overwhelmingly shares the same morals for a decentralized Bitcoin.”
Cobra also scoffs at the idea that the free-market will come to bitcoin’s rescue, "That $4 billion dollar profit will be used to build even better hardware, allowing them to further dominate mining for the foreseeable future and likely buy stakes in their competitors.”
The Bernstein report agrees that Bitmain’s dominance is likely to continue to grow, predicting that it will soon be operating at the level of Qualcomm or AMD.
Dismissive Sarcasm - "Not Good"
For his part, Jihan Wu was dismissive of Cobra’s calling out Bitmain as the source of bitcoin’s woes, sarcastically implying that bitcoin has more important concerns to worry about.
"While ethereum is discussing erc-20 improvement proposals and lots of other new blockchains are testing aggressive innovations, Bitcoin.org’s controller is busying with political games like changing the PoW, the future of bitcoin looks not good."
As for a new mining algorithm, Wu is equally skeptical:
“That is cool — When you achieved it, bitcoin’s market share in the cryptocurrency economy will fall under 10%. Good luck.”
Images via Bitmain, Bernstein