Bitcoin ASIC Supremacy: It’s all about efficiency

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For a very long time the Bitcoin mining, especially ASIC manufacturers, have reported the energy efficiency of the mining machines.

There are several mining Hardware companies, and each company makes different types of ASIC hardware to explore the efficiency in a better way of mining bitcoin; when the ASIC hardware becomes more energy-efficient, the cost of mining bitcoin declines, respectively.

Honestly, everyone wants to make more profits and pay fewer debts and bills. Therefore, most of the miners want an energy-efficient miner, and that means more profits for hardware makers who can make a more energy-efficient hardware’s

Let’s have a look at the evolution of the mining hardware

GPU mining in the early days of bitcoin mining

A while ago, mining was done using GPU, which is commonly known as graphics cards. The chipset provided a fast processing power twice or thrice more than the specialized in the parallel computing in comparison to the CPU.

At that time, the world-leading GPU designers Nvidia and AMD maintained the acquisition in the global dominance in this market until today. Both the GPU and crypto miners benefited from each other mutually. But unfortunately, there was a need to develop a faster and dedicated ASIC miner, thus reducing GPU machines’ use.

The benefits of using ASIC miners and GPUs are not clear, but the difference becomes more shocking when you compare GPU, FPGA, and ASIC miners in the bitcoin mining sector. Between the release of the ATI Radeon HD 6990 in March 2011 and Canaan’s Avalon1 in January 2013, efficiency difference improved from 510,000 W/TH to 8,333 W/TH.

As a result, both Nvidia and AMD stopped relying on cryptocurrency mining completely.

ASICs mining and efficiency setup

ASIC is a very specialized chip designed and optimized specifically for one task (mining only). The tool mentioned is extremely powerful, and its pre-programmed chips are set in the machines. The tool cooling system is built in the system, and also the ethernet ports are connected to the internet via a browser interface or IP address.

Note that the ASIC machines cannot be switched to mine cryptocurrency using different algorithms. Basically, its setting can only allow the operator to reconfigure mining speeds and mine using different cryptocurrencies using the same algorithm.

Production processes

There are five main production processes this includes

Chip design is the first stage. Here the chip and the basic logic design are established, and the physical layout is mapped out, and a back-end verification on the plan is conducted.

Wafer production. The foundry produces the wafers for the ASIC design. Here the design companies and foundries may enter into non-disclosure agreements to keep the basic property rightThe foundry receives detailed information about the chip design, and the layout is completed. Once the foundry completes the prototype successfully, it launches for mass production. It takes about three months to deliver the wafers once the orders are placed

Packaging and testing, after the wafers complete the production, they ship the products to the Outsourced Semiconductor Assembly and Test (OSAT) for packaging into the ASIC chips, where they are tested to ensure that the products are in great working condition and meets all the quality control procedures. The order forecast gives OSAT 30 days in advance for the companies to purchase the required materials. Note that the buyer has the right to request a refund for any damaged or low yield package upon delivery.

Procurement of other components, in addition to what is in ASIC chips, the mining hardware consists of other components such as the procurement circuit board, fan casing, and many others. A company can design to maintain the design or change it depending on the supplier of the components   

Assembly is the prefinal step, and it involves creating mounted circuit boards and integrating them to produce the final product. The design may involve testing the product at different stages to ensure and record the testing results.

Warehousing is the final step after the quality and product storage is carried out.

Let’s have a look at the battle of supremacy

Overview and a brief history

After Bitcoin was launched in early 2013, the first mining bitcoin mining machine, ASIC, was shipped to Avalon. Note that butterfly labs were the first company to announce the success of making the first mining machine ASIC in mid-2012.

After they announced the success of making an ASIC miner, they made tens of millions of dollars in orders, but unfortunately, they were unable to deliver. When they attended the bitcoin summit in late 2012 and early 2013, they sandwiched the place with frustrations. Customers were demanding for their miners.

In 2014 the US court ordered a shutdown of the butterfly labs. This was a piece of pure luck for Avalon as the market leader since 2013.

From the beginning of 2015 to 2018, Bitmain built up a dominant position in the market since it had the most efficient market tools. In 2017 Bitmain power was in the bull market, and it successfully owned a share of about 75%.

Over the past few months, the competition has been stiffening up, with more robust products from new players in the game like microBT gaining more traction and pushing away Bitmain’s lead. In 2019 MicroBT share was believed to be 35%; however, Bitmain is still the leader and the force to be reckoned with.

Canaan

From what we saw earlier on the Canaan IPO, we can conclude that Canaan acquired the name Avalon in 2014. This is the first company to make Bitcoin ASIC available to the public market. It was considered an extremely intelligent and well-executed piece of corporate finance from the company’s perspective.

Sadly, the company performed worse than we all expected since the IPO generated a loss of about $150 million in 2019 compared to the estimated loss of approximately $29.8 million.

The course of this large miss was because of the inventory pre-payment write-downs, amounting to $103 million in 2019. The IPO prospectus included the provision write-downs I the first six months of 2019 only of $0.1 million, comparing that with the full-year charge of $103 million.

In fact, the write-down was too large and happened so quickly after raising $9 million in the IPO the situation was cooking up, to say the least, “due to the current circumstances in the market halving reasonable weaker prices and extra investment in 2017 illusion. The company and everyone expected that there would be slow sales and moderate write-downs, but the extent caught us red-handed. The investors are unhappy with the shares of about 76.99% of the IPO since it was higher than Bitcoin. At the time, Bitcoin was battling at 17%.”

On 22 May 2020, Canaan announced its first quarterly results, where it had a revenue of $9.8 million and up 44.6% YoY, and a net loss of US$ 5.7 million. I think the fascinating part of the results was the earning call when the management decided to provide an update on the market situation and outlook for the next generation of Canaan shares.

Due to the huge loss Canaan made in its’ first quarter of the year, the company blamed the February global pandemic on the relatively weak sales.

The company also reported that the average order size is increasing as the mining industry is heating up and becoming more robust. MicroBT and Bitmain also said the same thing.

Even after more combine their forces, we see an increasing number of inquiries, which are in bulk and bulk potential order inquiries. We see the key clients or big clients drive sales.

Looking at Canaan 2020 earning call, with a state of technology, the company indicated that 5 nanometers of their products would be on the market by 2021. The Canaan management also mentioned that their new Avalon A1146Pro would have an efficiency of 42J/TH. Comparing this with their A1166, which is currently on sale with an efficiency of 47J/TH, the new Avalon A1146Pro still lags behind the two big players.

MicroBT and Bitmain who have their product at 30J/TH and below. Ideally, these two companies appear to be building an efficiency lead and leaving their competitors a huge field to catch up with.

However, the company believes that 5-nanometer, which the most advanced technology, lakes a longer cycle to be mass-produced. Canaan also believes that coming 2021, the product will be reaching mass production.

I think Canaan will be facing a challenge gaining trust from investors because of what happened shortly after the IPO. Also, the geopolitical may present a challenge since Canaan has a US listing, it looks harder for the Chinese to accept it.

Furthermore, Canaan has raised over $90 million from the US markets, thus receiving a $60 million net cash at the end of 2019. Looking at their first quarter of 2020, this has fallen to 12.45 million.

From what we have learned in 2020, ASIC manufacturing is a very intensive market. If a company does not have a good technical lead, the company may find it challenging to run on bullish like Bitman and MicroBT.

Looking at the Canaan case, the company is struggling to generate free cash and transparency for its customers and stakeholders. However, this does not mean the company is dead; it means the company has a lot to do and change to up its game.

Ebang

In April 2020, Ebang, a Chinese ASIC manufacturer, filed for an IPO in the US, right after their previous attempt in Hong Kong failed two years ago. Ebang’s recent filling is evident that the company is struggling with sales and big losses, just like Canaan.

In 2019 alone, Ebang generated big losses of $30.6 million in 2019 out of a revenue of $109 million. In 2020 the revenue declined by more than 67%, which worse than Canaan’s 47%. The good thing is the losses were not as much as for Canaan, which had a margin of about 40%.

The company reported that “due to the significant drop in bitcoin prices in 2018 and 2019, we recorded a write-down for the potential absolute slow-moving inventory and that of the lower-cost market which had a negative impact on our profitability”. The company also pointed out that if the bitcoin price significantly drops again, they will be forced to make the same write-downs again.

In 2016 Ebang launched its first EbitE9+. However, looking at their report, the company has never been close to being a leader in this field. The latest Ebit machine has an efficiency of 57J/TH, ranking it behind the other four manufacturers mentioned earlier in this article.

Ebang admits that the environmental challenge and panic caused by the outbreak of the global pandemic in early 2020 negatively affected their business. But they have hope that they will materially and adversely affect the results of their operation and their financial situation.

We are looking at the current cooking political tension between the US and China. The Canaan profits are warning their IPO, and Ebang market is weak regarding the chances of success to pull off their IPO in the US. What we are sure of is that we will have a volatile market.

Bitmain

Bitmain is one of the largest and a leader in ASIC manufacturing, and it remains a private company having an unsuccessful IPO attempt in 2018. The IPO remains on the company’s agenda due to the power struggles between its co-founders Micree Zhan and Jihan Wu.

According to the 2018 IPO information, Micree Zhan leads, and he owns more than 35% of Bittman’s equity through his company known as Cosmic frontier limited. Jihan Wu holds the second position with about 20.25% of the shares through his company known as victory coverage limited (BVI) vehicle.

It is so sad to see Bitmain having an unsuccessful IPO acceptance until they resolve the power struggle issues. However, it seems like the public markets are less tolerant of this kind of power struggles in Bitmain.

In 2019 Bitmain lost its position as the leader in efficiency to MicroBT and a little less to Innosilicon and Ebang. It can be considered that this is the result of Bitmain tape output failure.

Despite its low product efficiency, it still leads the market due to its strong manufacturing capabilities and strong relationships with major players in the supply chain.

Bitmain’s latest product Antminer S19Pro has an efficiency of 30J/TH; its cutting-edge technology backs this up alongside MicroBT. Despite its cosmic governance, its manufacturing capabilities, and the scale that it appears to be facing, Bitmain will still remain to be number one in the industry.

MicroBT

The company was founded in 2016 by Dr. Yang Zuoxing, a former director of Bitmain, who is still considered to be Bitmain driver of success in early space. It is believed that Dr. yang is the largest shareholder in MicroBT.

When he left Bitmain, he was sued to violate Bitmain’s patent rules allegedly and for embezzlement of $15000. But by now, we can tell that all these issues have been resolved.

The company reported having completed financing in January 2019 at a valuation of a stunning $510 million. But the amount investors invested was kept confidential and out of the public.

MicroBT launched its first product in 2017, and over the past few years, the company has reported being performing great, and it has been seen to be taking Bitmain’s market shares of about 35% by bitcoin network Hashrate. Moreover, MicroBT, unlike its competitors, the company has a 100% track record in respect to the four tape-outs resulting in products.

The company products have been more energy-efficient than its competitors Bitmain throughout 2019 and 2020. With the Whatsminer M30S++ operating at 3J/TH. Even though this is marginally behind Bitsmain S19 pro, which is running at an efficiency of 30J/TH, MicroBT takes the lead in the last 19+ months. This is reasonable and correct since the MicroBT next product will still retake the lead.

Conclusion

As we have learned from this article, the ASIC miners’ efficiency has a lot of advantages over the electronic devices. We have also seen that there are considerable performance and efficiency differences between ASIC miners depending on the manufacture.

In bitcoin mining, efficiency is measured by the ratio of power consumption, and power is measured in watts and miners’ Hashrate. Therefore, the more efficient ASIC miner is, the more bitcoin mining get cheaper, make our environment greener, and the company capable of building the most energy-efficient ASIC miner makes more profits as we have seen for the MicroBT and Bitmain

 

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