Bitmain Replaces CEO Jihan Wu After Bitcoin Cash Gamble Fails

Bitmain Woes

Inside sources say that Bitmain Technologies plans to name a replacement CEO to take over from co-founders Jihan Wu and Ketuan Zhan. New Bitmain CEO According to the South China Morning Post (SCMP), the Bitcoin mining behemoth is looking to name a new CEO to replace the company’s co-founders. Anonymous sources say, Haichao Wang, the current Engineering Director is the front-runner for the job. While there is no official word from Bitmain, these sources say the

The post Bitmain Replaces CEO Jihan Wu After Bitcoin Cash Gamble Fails appeared first on Bitcoinist.com.

Continue Reading

Bitmain Co-CEOs to Keep Decision Making Power in Executive Swap, Report

Anonymous people familiar with the plans told local mainstream media that Bitmain’s product engineering head will replace the duo.

Chinese Bitcoin mining giant Bitmain’s co-founders Jihan Wu and Micree Zhan Ketuan will quit their posts as co-CEOs but still steer the company’s important decisions. Hong Kong-based English-language news outlet South China Morning Post reported the news Jan. 10.

Referencing anonymous “people familiar with the matter,” the publication said Bitmain’s director of product engineering Wang Haichao would likely take over as CEO at an unspecified future date. Haichao has allegedly already taken over some of the duo’s former duties.

The reshuffle, which Bitmain declined to formally confirm, follows several weeks of rumors about changes at senior executive level.

Without quoting the sources specifically, the Post added that Wu and Zhan would subsequently become co-chairs of the company.

“After Wang takes over, Wu and Zhan will move away from the company’s day-to-day business activities but will still make final calls on big decisions,” one of the sources reportedly confirmed.

As Cointelegraph reported, Chinese media first published rumors of Wu’s repositioning in late December. A month before, other rumors suggested Wu had lost his decision-making power altogether.

Bitmain is facing a major transition period at the start of 2019. Having shut down its operations in Israel last month, commentators expect the company to announce mass layoffs of staff in the near future.

Plans to conduct an initial public offering (IPO) in Hong Kong have also faced doubts, possibly due to regulators’ apprehension at ongoing volatility in cryptocurrency markets.

Continue Reading

Overview of the Crypto Mining Industry in 2018: Will the Struggles Extend to 2019?

Major mining conglomerates in the crypto sector recorded large losses, struggling to deal with market conditions.

2018 has been a difficult year for Bitcoin and crypto miners. Some of the largest multi-billion dollar businesses in Asia recorded losses in the range of hundreds of millions of dollars.

As Japanese internet conglomerate GMO and the industry’s largest mining equipment manufacturer, Bitmain, reportedly struggled throughout the year, the entire sector is said to have ended the year with significant losses, following the trend of the two companies.

$320 million loss for GMO

GMO, one of the most influential internet companies in Japan, recorded a loss of over $320 million in the fourth quarter of 2018. Following what the company described as an “unexpected loss,” the firm officially pulled out of its mining business.

GMO Internet, Inc. / Stock price and market capitalization

In June, the Japanese company allocated around 10 percent of the firm’s capital and resources to engage in an ambitious mining venture with the vision of competing against Bitmain.

At the time, the company established a dedicated cryptocurrency mining equipment development department to create its own 7-nanometer (nm) ASIC chips to run a large-scale mining facility. The GMO team said in June:

“We will use cutting-edge 7 nm process technology for chips to be used in the mining process, and are currently working on its research and development with our alliance partner having semiconductor design technology to realize high performance computer for mining. It will be possible to reduce power consumption compared to the existing mining machines with the same performance, and achieve a computational performance of 10TH/s [transactions per second] per chip.”

The company, despite its large amount of capital and resources, failed to take the size of the operations of Bitmain into consideration. As early as mid-2017, Bitmain was seeking a valuation of over $15 billion, anticipating a successful initial public offering (IPO) in Hong Kong.

Currently, GMO is valued at just over 169 billion yen, equivalent to around $1.5 billion. That is, a mere 10 percent of Bitmain’s valuation earlier this year.

Initially, GMO was convinced that, as a major internet conglomerate in Asia, it could outpace Bitmain and secure a big portion of the market share of the cryptocurrency mining industry. However, as a report by BitMEX would later reveal, Bitmain was ready for such competition and was willing to operate at a loss to squeeze out its competition.

On Christmas Day, Dec. 25, GMO called off its mining operation, absorbing the $320 million loss and halting the development, manufacturing and sales of its mining equipment immediately. A public document released by GMO read:

“After taking into consideration changes in the current business environment, the Company expects that it is difficult to recover the cryptocurrency-mining-business-related assets through selling mining machines, so the Company has decided to stop the development, manufacture, and sales of mining machines, thereby recording an extraordinary loss. GMO Internet will record losses from the transfer of receivables of approximately JPY 17.5 billion and allowance for doubtful accounts of approximately JPY 3.5 billion, recording an extraordinary loss of approximately JPY 24.0 billion in total on the consolidated accounts and the individual accounts.”

Even Bitmain struggled

The main competition of GMO was Bitmain, and GMO set out to outcompete the China-based cryptocurrency mining equipment manufacturer since its inception.

But, according to a report released by BitMEX Research, Bitmain sold many of its S9 miners, its flagship product, at a loss throughout the year, in a likely attempt to establish its dominance over the sector by engaging in a price war with its competition, which it knew other companies in the space could not handle.

In August, when the report of BitMEX Research was released, the price of Bitcoin was still hovering at around $7,000, above the breakeven cost of mining. As such, by the end of the third quarter of 2018, miners in the cryptocurrency space were still making profits and Bitmain was able to sell its Antminer S9 to mining facilities across the world.

Due to relatively high demand for mining, at the time, Bitmain could handle losses at the cost of creating a more inefficient environment for its competitors. But, as months passed by and a full-blown bear market hit in November, as the price of Bitcoin fell below the breakeven cost of mining at $6,900, Bitmain also started to struggle.

A paper by BitMEX Research released on Aug. 30 read:

“This analysis implies Bitmain are currently loss-making, with a negative profit margin of 11.6% for the main S9 product and a margin of over negative 100% on the L3 product. In reality costs are likely to have declined so the situation may not be as bad, however we think it is likely Bitmain are currently making significant losses. These low prices are likely to be a deliberate strategy by Bitmain, to squeeze out their competition by causing them to experience lower sales and therefore financial difficulties.”

Following a poor three-month period from September to December, Bitmain reportedly laid off 50 percent of its workforce. On MaiMai, a Chinese social media platform, one Bitmain employee confirmed that more than 50 percent “of the entire Bitmain’s headcount” has started to be let go.

The Bitmain staff member also added that some departments “have to be let go entirely” due to market conditions.

The priority of the layoff is expected to be newly established departments that work outside of the core scope and business model of Bitmain, such as artificial intelligence (AI).

The problem with Bitmain and other companies’ wide approach

In May, Bitmain released a statement that was not expected by the cryptocurrency community, disclosing the company’s long-term plans to compete against Nvidia, Intel and AMD — companies valued at over $100 billion — in the area of AI.

Confident in the sustainability of the cryptocurrency mining industry, Bitmain started to enter entirely new industries to go against some of the largest technology companies in the world.

In a series of interviews with Bloomberg Businessweek, Bitmain co-founder Jihan Wu said that AI chips are similar to Bitcoin mining chips in the sense that AI requires “lots of computations” and Bitcoin mining requires application-specific integrated circuit (ASIC) chips, which are applicable in AI. Essentially, the plan of Bitmain was to create chips using its existing chip designs to power AI systems and software.

The problem Bitmain and most companies in the cryptocurrency had in the first few quarters of 2018 was the aggressive diversification of services and products, often expanding outside of cryptocurrencies, without making necessary improvements in their core products and business models.

ConsenSys, for instance, the biggest blockchain software studio in the world, based in New York, laid off over 300 employees from its workforce to focus on a select group of products it can push to the mainstream to acquire active users.

Many companies in the cryptocurrency space, including the mining sector, have expanded their businesses to different sectors by moving out of the scope of mining and mining equipment manufacturing, and the overly aggressive approach failed as market conditions worsened in the third and fourth quarter of 2018.

Bitcoin Mining Profitability in 2018

Not all negative

According to cryptocurrency market data provider and wallet platform Blockchain, the hash rate of Bitcoin — or the level of computing power that supports the Bitcoin network — has declined from 61 exahash to 44 exahash, from August to December.

On Dec. 3, Malachi Salcido, the head of Salcido Enterprises, one of the largest mining facilities in the U.S., said that miners had left the market en masse. The executive emphasized that the price of cryptocurrencies would have to increase by large margins for mining to be profitable, but said that smart money is watching for the trend to reverse.

“I expect where we are at to possibly get a little worse before it gets better. Like all market bottoms, smart money is watching for the turn, that doesn’t happen usually quickly. It wouldn’t surprise me if the bottom is finally in February,” Salcido said, following the release of a paper by Fundstrat that revealed that at least 100,000 individual miners have exited the space.

However, from January of 2018 to December, the hash rate of Bitcoin has increased from 17 exahash to 44 exahash. Despite the substantial drop in the hash power of the dominant cryptocurrency, on a yearly basis, the hash rate of Bitcoin has risen by 158 percent.

Bitcoin Hash Rate in 2018

The recovery in the hash power of the Bitcoin network in December and the relatively high computing power of the cryptocurrency likely comes from large-scale facilities that are continuing to mine the digital asset.

Although individual miners relying on cloud mining platforms and small ASIC mining rigs are able to exit the space with a small loss, it is difficult for mining centers that have acquired long-term contracts from electric grid operators and purchased large amounts of ASIC miners to bring their operations to a halt.

As security expert and cryptocurrency researcher Andreas Antonopoulos explained:

“Part of the reason that’s [i.e., the death spiral of crypto] unlikely to happen is that miners have a much more long-term perspective. Meaning that, they have existing investments in equipment and they usually purchase electricity on long-term plans, they don’t pay it by the week. And therefore, if they have to wait to become profitable another three months and they have the equipment in place, they’re not turning it off.”

Large conglomerates such as Intel, the $213 billion technology conglomerate, are currently working on the development of efficient mining systems, which may improve the productivity of mining chips and equipment.

A patent Intel acquired for SHA-256 datapath for energy-efficient high-performance Bitcoin mining demonstrates a piece of hardware that is capable of being accelerated for the sole purpose of mining cryptocurrencies.

Samsung, South Korea’s biggest corporation by market valuation, is also currently using its foundry in its headquarters based in Suwon, South Korea to produce cryptocurrency mining equipment and chips.

Previously, due to the partnership between Bitmain and TSMC, a Taiwanese chip maker, the vast majority of chips were manufactured by the two companies, leading the market to be dominated by two firms.

Trend in 2019

Large-scale mining facilities are expected to continue their operations even through losses because of their long-term strategies.

It remains uncertain which factors could trigger crypto assets to recover in value over the next 12 months but with major cuts in their workforce and realignment of vision, having generated billions of dollars in profit from 2017 to 2018, companies like Bitmain have the capital to sustain their operations.

As such, although the majority of individual miners have exited the space, analysts expect major mining facilities to remain in the space and wait out the bear market of crypto assets, given that once the valuation of the cryptocurrency market recovers, miners will be able to begin recording profits once again.

Continue Reading

Bitmain, Roger Ver, Kraken Sued for Alleged Bitcoin Cash Hard Fork Manipulation

Florida-based UnitedCorp has launched a suit against Roger Ver and some other major industry players for allegedly planning a scheme to take control of the BCH network.

Florida-based United American Corp. (UnitedCorp) has purportedly filed a lawsuit against Bitmain, Bitcoin.com, Roger Ver, and the Kraken Bitcoin Exchange, according to a press release published Dec. 6. UnitedCorp alleges that the defendants planned a scheme to take control of the Bitcoin Cash (BCH) network.

Founded in 1992, UnitedCorp is a development and management firm with a focus on telecommunications and information technologies. The company manages a portfolio of patents and proprietary technology in telecoms, social media and blockchain. UnitedCorp also owns and operates BlockchainDomes stations, that provide heat for agricultural applications.

The suit filed in the U.S. District Court for the Southern District of Florida alleges that the defendants jointly used unfair methods and practices to manipulate the BCH network for their benefit and detriment of UnitedCorp and other BCH stakeholders. The release further specifies:

“UnitedCorp believes that the defendants colluded to effectively hijack the Bitcoin Cash network after the November 15, 2018 scheduled software update with the intent of centralizing the network — all in violation of the accepted standards and protocols associated with Bitcoin since its inception.”

On Nov. 15, the BCH network underwent an update, which divided the community into two main camps, those who support Bitcoin Cash ABC and those who support Bitcoin Cash SV. UnitedCorp states that the defendants took control of the coin’s network right after the upgrade using “rented hashing.” This allegedly led to the adoption of Bitcoin ABC rule sets, precluding other implantations from maintaining a democratic rule sets.

UnitedCorp also alleges that on Nov. 20 the Bitcoin ABC development team put a “poison pill” into the blockchain by way of a “Deep Reorg Prevention” in order to strengthen control over the blockchain ledger. That allegedly enables maintenance of control on implementations for future network updates.

The suit seeks injunctive relief against the defendants, asking to prevent them from ongoing actions against the BCH network and doing so in the future. Additionally, UnitedCorp seeks compensation, the value of which it claims will be determined at trial.

Bitcoin Cash has registered the major losses on the day. The altcoin is down by over 20 percent over the last 24 hours and is trading at around $103 at press time, according to CoinMarketCap.

Bitcoin SV (BSV), in turn, has seen noteable daily gains of over 27 percent, and is trading at around $112 at press time. BSV’s maximum supply is 21 million, while its market capitalization is around $1.9 billion at press time.

Continue Reading

Bitmain Adds 5 New Billionaires to China’s Wealthiest List

China’s latest rich list for 2018 sees five billionaires joining China’s wealthiest for the first time thanks to Bitmain’s market lead on cryptocurrency mining. The Hurun Research Institute 2018 Hurun Rich List now includes Bitmain’s founders, CEO and Vice President. The five have a combined wealth equalling nearly $9 billion USD. Bitmain Billionaires Though Jihan Wu is the name most associated with Bitcoin, co-founder Ketuan Zhan is the largest shareholder of Bitmain. Wu owns 20.25

The post Bitmain Adds 5 New Billionaires to China’s Wealthiest List appeared first on Bitcoinist.com.

Continue Reading

Annual List of China’s Richest Includes Crypto Entrepreneurs

China’s Hurun Research Institute has released a catalogue of the richest individuals in the country, listing cryptocurrency entrepreneurs among others.

The annual Hurun China Rich List, a catalogue of individuals in the country with a net worth over 2 billion yuan ($209 million), has listed several crypto entrepreneurs among China’s financial elite, according to a release published Oct. 10.

The Hurun Research Institute released the 2018 Hurun China Rich List of the richest individuals in the country, with at least 13 entrepreneurs whose business is related to cryptocurrency mining and trading.

The ranking includes such industry players as Micree Zhan Ketuan, co-founder of computer chip manufacturer of and software firm Bitmain Technologies, in the top 100 richest people in China, with an estimated wealth of 29.5 billion yuan ($2.4 billion). The next richest crypto entrepreneur is Bitmain co-founder Wu Jihan, taking the 204th place, with a personal worth of 16.5 billion yuan ($2.3 billion).

Zhao Changpeng, the founder of the largest cryptocurrency exchange Binance, was ranked 230th, with an estimated wealth of 15 billion yuan ($2.1 billion). Zhao is followed by OKCoin crypto exchange founder Star Xu and founder of Huobi Li Lin.

Zhang Nangeng, founder of computer hardware manufacturer Canaan Creative, and Hu Dong, founder of Bitcoin (BTC) mining machine producer Ebang International Holdings are listed in the Hurun report as well.

The list also includes BTC whale and serial investor Li Xiaolai, with an estimated wealth of 7 billion yuan ($1 billion). Recently, Li said that he will no longer invest in future blockchain projects. “So, if you see ‘Li Xiaolai’ associated with any project (I have been associated with countless projects without my knowledge, 99% is not an exaggeration), just ignore it,” Li warned.

In recent months, Bitmain has been making headlines, claiming to have the participation of high-profile investors like Chinese tech conglomerate Tencent, investment firm DST Global, and Japan’s SoftBank, in the firm’s pre-IPO in August. The companies have subsequently denied their involvement. A Softbank official told Cointelegraph that “neither the SoftBank Group Corp. nor the SoftBank Vision Fund were in any way involved in the deal.”

Singapore-based investment company Temasek also officially denied its participation in Bitmain’s IPO, stating that “Temasek is not an investor in Bitmain, and has never had discussions with, or an investment in Bitmain. News reports about our involvement in their IPO are false.” DST Global also confirmed that it had “never invested” in Bitmain’s pre-IPO.

Continue Reading

Crypto Mining Becomes Less Profitable, Shifts Towards ‘Bigger Players,’ Report Shows

Diar states crypto mining has seen record revenues in 2018, but the prices for electricity will soon make it profitable only for “bigger players.”

Bitcoin (BTC) miner revenues for the first six months of 2018 have already surpassed results in 2017, but the miners themselves see little profit, weekly crypto outlet Diar reports Monday, October 8.

As per the Diar report, the rewards and fees for BTC miners have already reached $4.7 billion in the first three quarters of 2018, around $1.4 billion more than the profits in all of 2017. Miners still gain 54,000 Bitcoin monthly, the outlet continues.

However, mining is gradually becoming profitable only for “big guns” as electricity prices are constantly increasing. Diar assessments show that the miners paying retail electricity prices have shifted towards unprofitability for the first time this September.

Revenue and profit ratio for miners in 2018. Source: Diar

The Diar report notes:

“Bitcoin mining has, at least for now, and most likely in the future, moved into the court of bigger players with deep pockets.”

However, even major companies might have to adjust their business, according to Diar. For instance, Chinese mining giant Bitmain, which received 95 percent of its revenue in 2018 from the sale of miners, is “acting like a swing producer” and opening pools in U.S. in order to keep the network profitable for miners.

As Diar wrote in the same weekly issue, San Francisco-based crypto exchange Coinbase’s U.S. dollar volumes have hit a 1-year low in the third quarter of 2018. However, in comparison to the same period last year, BTC trading volume is now slightly higher ($5.4 billion against $4.6 billion in 2017). In the meantime, exchange Bitstamp’s trading volume of BTC was around $4.4 billion, while it was at around $4.6 billion in the same period last year.

As Cointelegraph has previously reported, Bitmain announced a $500 million investment in August in blockchain data center and mining facility in Texas. The construction was estimated to be launched in early 2019, with plans to bring in 400 local jobs in the first two years.

Continue Reading

Bitmain IPO: Trial by Fire for the Mining Equipment Giant

While Bitmain’s IPO launch date is getting closer, recent retractions of large investor participation, increased competition, and possible losses may affect the company’s leading position on the market.

The views expressed here are the author’s own and do not necessarily represent the views of Cointelegraph.com

Bitmain, the world market leader for mining equipment, on the eve of an epic IPO — which could become the largest in the entire history of the IT market — is experiencing an equally epic publicity and information attack. Despite the fact that the upcoming IPO is getting closer, as demonstrated by a draft application for registration recently filed by the company on the Hong Kong Stock Exchange, its success may be questionable. 

The fact is that, since Aug. 21, official refutations have started to appear on the internet from companies that were previously listed in the Bitmain investor list. Beginning with SoftBank, the rumor about participation in the company’s IPO was also denied by DST Capital.

Without making unequivocal conclusions, let’s try to figure out whether there is any smoke when it comes to Bitmain’s IPO claims — to which its founder, Jihan Wu, prefers not to respond.

Reconnaissance

On June 6, media presented information that Bitmain’s IPO on the Hong Kong Stock Exchange was scheduled for September 2018 and, according to investment analysts, was expected to raise anywhere from $3 billion to $18 billion, thereby becoming the largest initial public offering in the IT market’s history, beating Facebook with its $16 billion.

However, on August 6, the company gave a more cautious outlook on the IPO date, taking the gap between the fourth quarter of 2018 and the first quarter of 2019. Nevertheless, a draft application for the listing on the Hong Kong Exchange indicates that the giant’s intention is getting stronger and the date for the launch of the initial offering is getting closer. Additionally, as part of the approval process, Bitmain has submitted a prospectus where it reported new financial data which was closed before.

According to the updated information, Bitmain earned $701 million in net profit in 2017, while various estimates show that the annual income for the same period ranged from $1 billion to $4 billion. A gross income claimed for the first half of 2018 exceeded the one received for the whole previous year and comprised $743 million, despite a significant fall in the crypto market.

However, according to the report published by BitMEX at the end of August, Bitmain could face “visible losses, which might be caused by “allegedly investing the majority of its operating cash in 2017 in acquiring Bitcoin Cash (BCH).” Experts believe the estimated potential losses could reach $328 million.  Additional calculations show that the ratio of the $2.5 billion revenue to the $701 million net profit in 2017 is more positive than that of 2018 ($2,5 billion and $743 million). Further analysis made by the BitMEX team implies “Bitmain are currently loss-making, with a negative profit margin of 11.6% for the main S9 product and a margin of over negative 100% on the L3 product.”

Given the continuing decline in Bitcoin’s price and the challenging situation in the mining hardware market, some experts suggest that the company’s IPO may become a challenging task. Although the corporation still remains the industry leader, with 60-70 percent share of the ASIC production market.

As of the beginning of October, the capitalization of Bitmain has reached $12 billion with its latest funding round in August 2018 reported to be $442.1 million. In total, Bitmain has raised $784.8 million to date and was rumored to have accumulated around 51 percent of the Bitcoin network hash — or that it was at least close.

One of the reasons the research group Sanford C Bernstein & Co. is given as an argument on why Bitmain may strongly need to start its IPO, is increased competition. Wall Street may also be occupied by the company Chinese Canaan Inc., whose value is estimated at about $500 million and Ebang International Holdings Inc., registered in the Cayman Islands. Both companies also announced an IPO with plans to begin before the year ends, which will also take place on the Hong Kong Stock Exchange. According to Reuters, Ebang is planning to raise up to $1 billion, while Canaan is targeting at least $400 million, which in total is 2 times smaller than the sum planned by Bitmain.

The challenges Bitmain is facing

In the middle of the summer, the media reported that Bitmain had held its first round of the pre-IPO and that among the investors there was a co-owner of Uber, Japanese SoftBank and Chinese IT giant Tencent, which developed the WeChat platform. WeChat itself is reported to be ahead of Facebook in terms of capitalization with the market valuation of $534,5 billion against $519,4 billion. Later, the insider information was released about DST Global participating in the pre-IPO.

Neither references to Bitmain’s publications disseminating information, nor the company’s comments on these data were provided. Information was distributed in Twitter with a reference to an investor deck screenshot.

By August, all three companies named originally as investors in Bitmain’s pre-ICO, have issued public denials. But this was only the beginning.

In late August — theoretically on the eve of September’s IPO, the analytical agency Sanford C. Bernstein & Co., which in 2000 merged with Alliance Capital, published a detailed report analyzing the challenges of Bitmain’s IPO.

The study is devoted to Bitmain and contains clear indications of the Chinese giant’s loss of technological advantage, connected with increased competition and the purchase of a large amount of Bitcoin Cash, which could pose a significant risk to the company if the digital token declines. Moreover, Bloomberg, which detailed the report of Sanford C. Bernstein & Co., pointed out that analysts directly called for Bitmain’s technological partner — Taiwan Semiconductor Manufacturing Co. — not to produce chips for ASIC-miners without a full prepayment.

Meanwhile at the Bitmain headquarters

The Chinese giant is consistently expanding its mining empire. In August, Cointelegraph reported that NVIDIA left the mining equipment market, unable to withstand the severe competition of Bitmain. Thus, it appears that 85 percent of the world’s mining equipment production market has come under the control of Bitmain, a figure with which the analysts of Sanford C. Bernstein & Co. agree.

More questions are raised by the above mentioned purchase of BCH, which according to some users, was either a risky investment, given the unstable market situation, or was made with the purpose of not disclosing Q2 income.

At the presentation for investors, Bitmain reported that, since the end of 2017, it consistently traded Bitcoin Cash for any available Bitcoin, despite the fact that the company lost about $500 million. A slide taken from an investor deck was published in Twitter, and caused a stormy reaction in the crypto community.

While information about the future IPO and the monopolized market was teeming with passion, Jihan Wu himself shared his opinion regarding the futility of ICOs and the prospects for Bitcoin Cash in an interview with Coingeek.

An imperturbable 32-year-old Chinese billionaire called ICOs “a bubble that will last for two years and then burst,” followed by the securities of crypto startups released on the blockchain. The Bitmain owner predicted a rate of $100,000 of Bitcoin’s fork — Bitcoin Cash (BCH) — and a dominant position in the market by 2023, as he believes only BCH corresponds to the real vision of Satoshi Nakamoto. Having intrigued Bitcoin evangelists in this way, Jihan Wu completed the interview without commenting on the prospects of his future IPO.

Possible scenarios

Bitmain has accumulated a lot of BCH, but there is no liquid market and there is no demand outside the market. A lot of ASIC-devices were released, but their profitability decreases as the complexity of BTC mining grows. So far the company has not developed any AI initiatives since the moment Jihan mentioned his plans to take on Nvidia.

The IPO process may be hindered by some of Bitmain’s mistakes, such as “producing too many units and buying too many speculative altcoins in a bull market,” BitMEX analysts say. Still they are not so catastrophic and “typical” of mining producers management teams.

The exchange specialists predict that in order to keep their industry dominance and achieve higher results, “the Bitmain management team may need to improve their management of company resources. Once the company goes public, capital allocation decisions in this volatile and unpredictable market will be difficult enough, letting emotions impact too many investment decisions may not be tolerated.”

Perhaps, the giant will reconsider their target sum for the IPO due to revealed losses, and increased competition.

Continue Reading

Sia Announces Hard Fork to Brick Bitmain ASICs

After close to a year of debates within its community, Sia has finally gone ahead with a hard fork to brick out Bitmain and Innosilicoin ASICs. Following the hard fork, only miners using Obelisk hardware will be able to mine on the blockchain. Pushing Back on Bitmain and Innosilicon ASICs Sia cofounder, David Vorick announced the news in a blog post on October 1st via the project’s Medium Account. According to Vorick: Sia is forking today

The post Sia Announces Hard Fork to Brick Bitmain ASICs appeared first on Bitcoinist.com.

Continue Reading

Bitcoin’s Energy Consumption in Summer: Rise or Fall?

Bitcoin’s rising energy consumption doesn’t rise quite so fast in the summer.

It’s no secret that Bitcoin (BTC) mining is an expensive business, and in more ways than one. Not only has it become less profitable since July 2016’s halving of mining rewards to 12.5 BTC, but competition among miners and an increasing hashrate have resulted in ever-higher energy consumption, with all the damage to the environment that implies.

Yet, as energy-intensive as Bitcoin mining is, a question still remains: Is there a seasonal variation in the cryptocurrency’s energy consumption? Even if consumption is rising on the whole, does something different happen during the summer months?

Well, data hasn’t been collected on Bitcoin‘s electricity consumption for long enough to provide a truly authoritative answer to this question, yet what data there is suggests that the summer brings a slight, but noticeable weakening to the rise in BTC’s energy consumption. This is most likely because, globally, energy prices increase during the summer months, putting a strain on the profitability of Bitcoin mining.

Steady growth

When it comes to the question of Bitcoin’s energy consumption, the first thing that needs to be stated is that direct data on consumption hasn’t been made available by the big mining companies. Still, a number of indirect estimations have been produced over the years — based on such metrics as profits, network difficulty and hardware efficiency — and these all show that consumption has been increasing consistently.

Key Network Statistics

Back in June 2014, the first rigorous study on BTC energy consumption was published by Karl J. O’Dwyer and David Malone of the National University of Ireland Maynooth. It estimated Bitcoin’s annual energy cost to be something between 0.1–10GW (accounting for the uncertainty as to which mining equipment was being used), although the authors settled — though without fully explaining why — on 3GW, which was equivalent to Ireland’s yearly consumption level at the time.

Since then, the most widely cited data has come from the Bitcoin Energy Consumption Index (BECI). Produced by analyst Alex de Vries, the BECI settled on a higher figure than that of O’Dwyer and Malone’s model, and it has continued to reveal steady, day-to-day increases in BTC consumption ever since it started collecting data in February 2017. In December, it put annual consumption at 32TW/h per year — equal to 3.65GW. By contrast, its latest figure — for Sept. 12 — indicates that the Bitcoin network is now eating up 73TW/h — or around 8.8GW – each year. However, in a standalone, peer-reviewed paper from May, de Vries put annual consumption at 2.55GW (22.4TW/h).

As the table below illustrates, de Vries’ data shows that there have been very few dips during this overall rise. The strong increases continued even during the first half of 2018, when the BTC price saw a considerable correction from its December high of $19,900. For instance, when the price fell by 46.2 percent over three months to the Feb. 17 price of $10,707, BTC’s energy consumption increased by 42.6 percent over the same period — from 34.96TW/h to 49.85TW/h. And when BTC’s value dropped by 9.87 percent between April and the end of June (to $6,366), its energy consumption rose by 20.9 percent (to 71.1TW/h).

Bitcoin Energy Consumption Index

This goes to show that, despite the recent ups and downs, BTC’s price was high enough to continue driving increased competition among Bitcoin miners, who added capacity to the network in a bid to claim freshly minted coins for themselves. This has had the overall effect of pushing energy consumption ever upward, undermining the sense that there’s any seasonal variation.

Marc Bevand — an entrepreneur who has produced his own calculations on BTC energy consumption — largely agrees with this impression.

“We don’t notice seasonal variations because the network has been growing quite fast, so any — presumably small — seasonal variation is lost in the large amounts of hashrate capacity — and thus energy consumption — being added every month. For example, a year ago, the hashrate was at seven exahash/sec and has grown to 45 exahash/sec today.”

However, despite the overall impression that there has been one continuous increase in consumption, some subtle variations are observable in the data that de Vries has collected as part of the Bitcoin Energy Consumption Index.

For one, if you calculate the growth in consumption between the 2017 summer months and compare it to the three previous months, you’ll see a slackening in the overall rate of increase. For Feb. 10 to May 10 (Feb. 10, 2017 being the first date for which data is available), consumption increased by 33.1 percent:

  • February 10 – 9.6TW/h
  • May 10 – 12.8TW/h

But between June 1 and August 31 (meteorological summer), consumption increased by only 21.9 percent:

  • June 1 –13.42TW/h
  • August 31 – 16.37TW/h

BTC Energy Consumption VS BTC Price 2017

What’s interesting about this is that Bitcoin’s price increased by 96 percent between June 1 and August 31, 2017:

  • June 1, 2017 – $2,405
  • August 31, 2017 – $4,714

By comparison, the price increase between the winter months of Feb. 10 and May 10 was ‘only’ 79 percent:

  • February 10 – $978
  • April 21 – $1,759

Put simply, BTC’s price grew faster over these three summer months of 2017, yet its energy cost grew more slowly.

Why? And what about the summer of 2018?

Well, in the three months between June 1 and Aug. 31, BTC energy consumption increased by only 5 percent:

  • June 1 – 69.6TW/h
  • August 31 – 73.1TW/h

Over the same period, BTC’s value sank by 6.3 percent. The thing is, its value dropped by a hefty 27 percent between March and May, during which time energy consumption actually increased by 31.6 percent. And between Dec. 1 and February 28, consumption increased by an impressive 69 percent, while the overall BTC value grew by only 7.8% between these three months (although they were big spikes over smaller time frames within this quarter).

BTC Energy Consumption VS BTC Price 2018

As with the year before, 2018’s movements underline two things: a) that the growth in energy consumption slows down to an appreciable degree in the summer months, and that b) this slowdown can’t be correlated with price movements, particularly with regard to 2017’s figures. In 2017, energy consumption slowed down while price rises accelerated; in 2018, even though the price had sunk on Aug. 31 relative to its position on June 1, it was still 49 percent higher than it had been on Aug. 31, 2017. Such an annual difference should, in theory, provide a greater incentive for miners to mine Bitcoin and to increase their mining capacities, yet we nonetheless see that they eased up on their growth during the summer months.

Summer = higher electricity prices

The fact that BTC’s price doesn’t fully account for its energy consumption raises a conundrum. However, it’s one that’s solved via reference to the other biggest factor in Bitcoin’s use of electricity, which is the price of electricity itself. On the global level, electricity is generally more expensive in the summer, when there is greater demand for it, both from people turning on their air conditioners and from businesses — including mining farms — needing more energy for cooling.

For example, the United States Energy Information Administration — a branch of the U.S. Department of Energy — found in a 2013 review that energy consumption in the U.S. peaks in the summer for residential, commercial and industrial customers, with the variation ranging from 18 billion KW/h to 67 billion KW/h (compared to non-peak times). Similarly, in France and Germany, demand for energy during hot weather in June 2017 caused consumption to rise by 2GW and 4GW respectively. Meanwhile, China — home to some of the largest mining facilities in the world — has been facing the possibility of power shortages this summer, “as the nation’s distribution networks struggle to cope with soaring temperatures and the fastest power consumption growth in seven years.”

RMIT University’s Centre for Urban Research explained in a 2017 report on electricity pricing in Australia:

“During hot weather, the electricity sector aims to reduce peak electricity demand via ‘price signals’ — higher prices for electricity used at times when many households use air conditioning to cool their homes.”

As a single example, the U.S. Energy Information Administration notes in a January bulletin that wholesale electricity prices peaked at $55/MWh in California during August 2017, when they had been only $36/MWh in January of that year — amounting to a 52.7 percent increase.

It’s therefore clear that electricity demand and pricing tends to increase in summer, particularly on a global level — and particularly in China, where mining is most prevalent. By extension, this would explain why the increase in Bitcoin’s energy consumption also tends to level off slightly during the summer, since miners are reacting to increasing costs — and decreasing profitability — by temporarily reducing their capacity, at least in areas affected by hot summers.

This finding is backed up by the select few individuals who actually devote themselves to tracking Bitcoin’s energy consumption. Speaking to Cointelegraph, Ian Wright, the founder of Power Compare, confirmed that there isn’t really any significant or pronounced seasonality in Bitcoin’s energy consumption. However, what little seasonality exists is driven by the cost of electricity.

“If there is a seasonality effect, it would come down to electricity prices. So, for example, prices may come down in some areas with a lot of installed solar capacity when the sun is shining. Or it may go up in other areas that are hot, as more people turn on AC and increase demand.”

Marc Bevand, who doesn’t really see any significant variations in energy consumption, nonetheless also acknowledges that consumption levels are affected by profits.

“The energy consumption is driven mostly by increases of the price of Bitcoin. If miners make more profits, they will invest more capital in mining farms.”

While he doesn’t explicitly mention electricity here, this assessment is still consistent with the idea that seasonal electricity prices can affect consumption levels, since these prices will inevitably have an impact on profits.

This idea is also backed up by a May paper authored by CoinShares Research, in which Christopher Bendiksen and Samuel Gibbons investigated trends in the cost of mining Bitcoin. In particular, their research confirmed that mining companies are significantly influenced by seasonality:

“We also note that miner migration and/or price hikes occur during the dry season in China.”

Even though this paper didn’t describe any mining network reducing capacity, the fact that networks have a tendency to migrate whenever they can would suggest that, when they can’t migrate to an area with cheaper electricity, they may simply scale back. As the authors conclude:

“Some miners may have felt the squeeze during the market bottom, particularly if they were latecomers in terms of the modernity of their mining gear and/or operate in areas with comparatively higher electricity costs.”

Renewables

While what is above demonstrates that BTC energy consumption is lightly seasonal — in that the increase in capacity slips a little during the summer — there are two caveats worth addressing. The first, which is the less serious, is that the figures produced by Alex de Vries aren’t unanimously accepted by all those who track Bitcoin’s energy consumption. For instance, entrepreneur Marc Bevand constructed his own model for calculating BTC’s energy cost, finding that it was anything between 2.85TWh and 6.78TWh per year. This is considerably lower than de Vries’ first estimation of 9.6TW/h (for February 2017), which then grew to 32TWh for December, and then to 73TW/h for this August. It’s also lower than the estimation put forward by SetOcean co-founder Oscar LaFarga, who put the annual consumption at around 18.25TW/h.

Other commentators have put their estimations even higher than de Vries. However, even with this variation, de Vries recently noted that he used the BECI’s methodology to write a peer-reviewed paper — although it produced a lower estimate than that of BECI for overall production. He also notes that a Morgan Stanley report criticized Bevan’s approach, which allegedly underestimates the cost of mining networks for cooling, which alone can consume up to 30 percent or 40 percent of a network’s revenue. As such, this analysis has stuck with de Vries’ figures. What’s more, even if they are well into the upper range of possibility, the consistency of the methodology used for the BECI means that this would have little impact on the attempt to specifically follow increases and decreases in BTC’s energy consumption over time.

The second caveat, which is more significant, is that BTC’s modest seasonality may be weakened even further as the industry matures. Ian Wright says:

“[…] the price of Bitcoin relative to electricity prices is increasingly the main driver of consumption and is also driving a shift away from high-cost areas to places with lower prices.”

Marc Bevan describes a similar process:

“Miners also design their mining farms to run 24/7/365, so seasonal weather patterns don’t interrupt their mining operations.”

Here, Wright and Bevan are referring in part to the establishment of new mining centers in cooler nations such as Iceland, where Bitcoin mining is on course this year to burn more energy than all of the nation’s homes combined. Big mining companies, such as Bitmain, are increasingly flocking to areas with cheaper renewable energy and colder climates, such as Canada.

In the process, they’ll dilute the vague seasonality currently visible in energy consumption charts, enabling consumption to rise consistently for as long as Bitcoin’s price remains high and it retains its onerous proof-of-work (PoW) algorithm. And by doing this, mining firms will also help to reduce the impact Bitcoin is having on the environment. That said, an energy expert at the University of Pittsburgh recently observed that such firms are already making significant use of green energy sources, and that Bitcoin’s overall consumption is still negligible compared to that of the banking industry.

But until Bitcoin moves almost completely to renewables, its energy consumption will continue to exhibit some slight seasonality, easing its foot off the gas during the summer months just as the rest of world is doing the opposite. While this subtle decline might seem like a bad thing from the Bitcoin community’s perspective, it doesn’t appear to have any negative consequences in practice — except for maybe an increase in average confirmation time for transactions in the summer of 2017, something which hasn’t been a problem in 2018 due to the rolling out of the SegWit upgrade. In other words, Bitcoin’s capacity is growing very steadily, making it easier than ever before to send a transaction to its network and have it accepted.

Continue Reading