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Expert: Renewable Energy Not Enough for Bitcoin’s Sustainability Problem

A PwC blockchain expert states that renewable energy is insufficient in addressing Bitcoin’s massive energy consumption.

Renewable energy will not solve Bitcoin’s (BTC) sustainability problem according to a blockchain specialist at Big Four auditing company PwC, Alex de Vries. De Vries presented his argument in a study published in sustainable energy journal Cell on March 14.

The research cites estimates from de Vries’ website, according to which Bitcoin consumed anywhere from 40 terawatt hours (TWh) to 62.3 TWh throughout 2018. According to the paper, this is on par with the energy consumption of countries like Hungary (40.3 TWH) and Switzerland (62.1 TWh).

De Vries quotes research published in 2014 that estimates that the energy consumption of the entire finance sector could be as high as 650 TWh of energy per year. Still, de Vries points out that this includes data centers, bank branches and ATMs. Bitcoin’s energy consumption estimate only considers mining and not Bitcoin ATMs and trusted third parties such as exchanges, wallet providers and payment service providers.

According to the cited data, the world’s data centers consumed about 194 TWh in 2014, and they are expected to increase by about 3 percent (to 200 TWh) by 2020. Bitcoin mining facilities purportedly use at least 20 percent (40 TWh) of this capacity.

De Vries also notes that the carbon footprint of a Bitcoin transaction outpaces that of a traditional non-cash banking transaction. He states that, in such a context, Bitcoin consumes 491.4 kWh to 765.4 kWh per transaction, while a traditional non-cash transaction has a carbon footprint of 0.4 kWh. This puts Bitcoin’s annual carbon footprint between 19.0 to 29.6 million metric tons of CO2.     

The research concludes that Bitcoin’s large energy costs and externalities like the rapid replacement of mining hardware, mean that renewable energy is insufficient in addressing Bitcoin’s energy problem.  

Instead, de Vries suggests that alternatives to Bitcoin’s energy-hungry Proof of Work (PoW) mechanism like Proof of Stake (PoS) can prevent “both extreme energy use as well as the incentive to develop specialized (singular purpose) [ASIC] hardware.”

In December 2018, Ethereum (ETH) co-founder Vitalik Buterin claimed that future blockchains with sharding based on PoS will be “thousands of times more efficient.”

In May 2018, Alex de Vries published an article called “Bitcoin’s Growing Energy Problem,” in which he claimed that Bitcoin’s network would use half a percent of the world’s energy by the end of that year.

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As ProgPoW Aimed at Stopping ASIC Mining Gets Supporting Votes, New Conspiracies and Debates Appear

Despite the large number of opponents and rumors of collusion between Ethereum developers and GPU producers, the ProgPoW algorithm has been supported by 94 percent of the community.

Ethereum (ETH) network users have unanimously supported the ProgPoW algorithm, which is expected to make the platform resistant to application-specific integrated circuit (ASIC) miners. Initially, opponents of the update prevailed over supporters by a margin of 96 percent, according to a Cointelegraph report on Feb. 15. The current scenario is exactly opposite, with 94 percent of voters favoring the implementation of ProgPoW, as evidenced by the Etherchain charts.

What is ProgPoW?

Simply put, ProgPoW is a version of the proof-of-work (PoW) algorithm, which is supposed to smooth the transition of the Ethereum network to proof-of-stake (PoS). As a part of this process, developers are exploring and proposing different solutions to fight off the mining difficulty bomb and make the network stable and resistant to attacks.

One of them is ProgPoW (programmatic proof-of-work), being designed by Ethereum developers to eliminate the gap in efficiency between Ethereum ASIC miners and graphics processing units (GPU) by making ASIC mining less efficient. This is necessary to protect the Ethereum network against a monopoly of ASIC hardware manufacturers.

The principle of the ProgPoW operation is slightly different from other algorithms that are resistant to ASIC miners. It is supposed to make the production of ASICs unprofitable since the manufacture process itself will require more financial and labor resources, and thus won’t pay off.

Making GPU cards more competitive and reducing centralization will be possible through making the task condition for mining impermanent and using all the resources and potential of video cards. The issue is that ASIC miners are designed for one specific task in mind: calculating blocks for mining cryptocurrencies. Meanwhile, video cards are flexible and can perform a number of tasks 一 from mining to transmitting an image.

Using a random task sequence eliminates the possibility of creating a fixed pipeline, as it happens with ASIC miners. In other words, to work with ProgPoW, miners need to be flexible.

Developers plan to reach such results with five innovations, under which the algorithm work will be based on computational capabilities, bandwidth and memory capacity.

Dominance shift

Keccak changes: The Keccak hash function size has decreased from the 64-bit keccak-f1600 to the 32-bit keccak-f800. The latter has been optimized for 32-bit platforms for better compliance with the architecture of video cards.

Increased mix state: This is the number of processor registers in which intermediate values ​​can be stored. They are significantly faster than RAM, because they are located inside the processor. In ASIC miners, chips are small and the number of registers lags behind graphic processors in performance. As a result, ASICs are forced to use RAM to work with this feature, which is several times slower.

Adding a random sequence of calculations in the main loop: The chip makes it impossible to create an ASIC device with a fixed pipeline, which could increase the speed of work or reduce consumption.

Adding reads from a small, low-latency cache with random addresses support: This causes ASICs to follow GPU memory hierarchy rules and limits their capabilities and performance.

DRAM increased from 128 to 256 bytes: Bigger volumes favor video cards. Specialized ASICs are not able to optimize a memory controller for the sake of improved performance.

Why do we need ProgPoW?

The main reason for developing the ProgPoW algorithm is the influence that ASICs have on the cryptocurrency sphere, which jeopardizes the main principle of cryptocurrency 一 decentralization 一 for the sake of making larger profits. Both giants like Bitmain and Innosilicon, and new companies like ASICMiner and Spondoolies, which monopolized the market, became the main reason for finding solutions to prevent centralization.

At the moment, Ethash, which is expected to be replaced by ProgPoW, is considered the most ASIC-resistant algorithm. Meanwhile, among the most vulnerable to attacks algorithms 一 Equihash, CryptoNight, X11 一 the efficiency of using ASICs exceeds that of GPU cards by several times. Ethash ASIC miners give users only a double advantage over video cards.

On April 3, 2018, Bitmain officially announced Antminer E3, capable of producing 180 mega-hashes per second (MH/s), with only 800 watts of power consumption. The ASIC miner model designed to mine ETH inspired other companies to join the ASIC hardware production, with unpleasant consequences for the Ethereum community 一 mainly related to the issues of security and integrity.

First of all, GPU farm owners started to suffer losses and lost interest in maintaining the network. In 2018, the revenues of the GPU cards producers fell and have been moving inexorably lower since then. Data provided by analytical company Jon Peddie for the Q4 of 2018 showed that total GPU shipments decreased by 2.65 percent from the preceding quarter, AMD shipments decreased by 6.8 percent, Nvidia decreased by 7.6 percent, and Intel’s shipments decreased by 0.7 percent. In total, year-to-year GPU shipments decreased by 3.3 percent. Global technology company Susquehanna revealed that the monthly profit generated for mining ETH with GPU rigs had dropped from about $150 in the summer of 2017 to zero values in November.

Profitability of mining with GPUs falls as ETH price slides

Moreover, hash rate and power became concentrated in fewer hands, which puts the network’s decentralization and security at risk. The reason is the market dominance of such mining giants like Bitmain, which built up its monopoly by producing new ASICs for top coins. The ecosystem has become increasingly centralized and vulnerable to attacks since then.

As new coins appeared on the CoinMarketCap charts, Bitmain stamped mining devices, one after another, for Monero, SiaCoin, ZCash, Bitcoin Cash. Coin developers began to worry about the threat of a 51 percent attack 一 a phenomenon when an attacker with 51 percent of a network’s mining hash rate in their hands is able to manipulate the network.

The last straw was on April 3, when Bitmain developers announced the release of the “world’s most powerful and efficient EtHash ASIC” for mining Ethereum and Ethereum Classic.

Since then, the Ethereum Foundation has been working on solving this problem, and as a result, the ProgPoW proposal appeared.

Precedents

At the moment there are not many programs for mining cryptocurrencies on the ProgPoW algorithm, possibly because of the existing equipment optimization problem. The first cryptocurrency on ProgPoW was Bitcoin Interest (BCI), which was switched to a new algorithm in September 2018. Its developers presented the first miner for the new algorithm.

One of the latest miners that received support from ProgPoW was the TT-Miner chip. It is closed-source software, available only for Windows and running on new Nvidia video cards. Additionally, this miner supports Ethash, UBQhash and MTP algorithms. The developers charge a commission of 1 percent, which is already included in all the devices.

Community reaction and opponents

The new algorithm has caused a lot of controversy in the community since it not only protects the network against ASIC mining, but also allegedly gives an advantage to Nvidia video card owners over users who have AMD devices. Vitalik Buterin called it a distraction, while many other developers are skeptical of the new algorithm. In the guidelines for voting, Ethereum developers claimed that, due to a number of trolling messages appearing on social networks, they cannot understand which voting accounts are real:

“We have noticed a lot of trolling and shills on both sides of the debates from anonymous accounts on forums, youtube, telegram, glitter, reddit and twitter. There is no way to know if these accounts are real people who actually have economic stakes in ethereum, or are simply fake troll or shill accounts funded by one side of the debate.”

The developers also don’t exclude a probability of resistance from miners, some of whom may be dissatisfied with the decline in already small incomes. This is evidenced by the relatively small support among the mining pools: Only 35 percent of them supported the upcoming update of the algorithm 一 though Ethermine votes made up 36.5 percent and Sparkpool 27.6 percent of the total number of votes.

Ethermine is the largest Ethereum network pool, which controls 27 percent of its entire hashrate. It is not known how the voices are distributed within the pools, but it can be assumed that the users are divided approximately equally. Thus, for each person who loses revenue as a result of ProgPoW, there is one who may benefit from other miners leaving the network.

Ethereum users have reacted differently to the new algorithm, with some of them being concerned about the possible drop in revenues and others doubting whether this step will be efficient. Martin Koppelmann, CEO and co-founder of Gnosis, thinks that such a radical update should be implemented only if it’s really necessary:

Jorge Izquierdo, co-founder of Aragon, agreed that ProgPoW is not the number one task for the development of the Ethereum network:

Some experts and users believe that the solution of making ASIC mining unprofitable may lead to more dramatic consequences than the reduction of miners.

For example, Eric Conner, developer of Ethhub.io, suggests that ProgPoW could lead to a chain split:

Another opposing point of view refers to using GPUs in countries with expensive electricity:

A number of miners and companies are also concerned about the fact that dominant ASIC producers may manufacture new hardware capable of working on ProgPoW. In particular, the co-founder of Sia, David Vorick, suggested that the new algorithm release won’t stop ASIC producers, and some of them might be able to secretly develop suitable devices in order to prevent possible hard forks.

Alexey Akhunov, one of Ethereum developers, said in a reply message:

“If we want to obsolete the current EtHash mining devices, but at the same time not to induce more secretive behaviour on the part of ASIC manufacturers, we need to ‘embrace’ it and switch to an ASIC-friendly algorithm now instead of an ASIC-unfriendly algorithm. Which [is] the opposite of what we are doing.”

Vorik also assumed that there are several large companies interested in producing special hardware for mining ETH, and the release of such devices would only be a matter of time.

Conspiracy theories

The conspiracy theories are vigorously discussed on the internet, and according to one, the team allegedly working on ProgPoW represents the interests of the leading manufacturers of GPUs 一 Nvidia and AMD.

Fuel was added to the fire by a statement of a team representative, who admitted that they have communicated with both Nvidia and AMD:

“We were lucky enough to have an email review that included engineers from the Ethereum Foundation, Ethereum Core Devs, Nvidia and AMD. The Nvidia and AMD engineers gave the algorithm a generally positive review.”

However, the allegations related to any agreements or conspiracies haven’t been proven, yet.

What’s next

Despite the fact that the update launch date is still unknown, the preparation for it is well under way. Ethereum Cat Herders, the group working on Ethereum hard forks, is going to audit the ProgPoW code once the voting ends. At the moment, developers are searching for companies to do the audit and are trying to raise $100,000 to perform it.

Meanwhile, Parity Technologies already integrated full ProgPoW support into its client, and other clients are testing the update, which means that the release may be just a matter of weeks away. Developers are also discussing the possibility of including the ProgPoW update in the next Istanbul hard fork in case two third-party audits doesn’t reveal any significant bugs or potential threats to the network.

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Unconfirmed: Chinese Media Reports Jihan Wu, Jenke Group to Soon Resign as Bitmain CEOs

The CEOs of leading mining ASIC producer Bitmain will be allegedly soon be retiring to give place to a successor surnamed Wang.

Jihan Wu and the Jenke Group will be reportedly soon retire as CEOs of leading mining ASIC producer Bitmain. Rumors about their departure were reported by Chinese local media Odaily on Dec. 28.

Odaily quotes an unnamed source familiar with the situation that Bitmain is currently in a transition period. Furthermore, the article also reports that employees allegedly weren’t optimistic about the outcomes of the double-CEO system.

The Chinese local outlet also notes that their successor is supposedly surnamed Wang, without providing further information.

In mid-November, Chinese local media reported that Wu would no longer be able to influence corporate decisions at the mining manufacturer, alleging that he had been demoted from the position of director to that of supervisor.

Odaily also reported today that unspecified sources declared that Bitmain is planning to cease all mining operations and already commissioned the relevant dealers to sell the used Antminer S9s. This, according to the article, would mean that the company will lay off over 500 employees.

In mid-May, Wu had told Bloomberg in an interview that the manufacturer was considering turning to artificial intelligence (AI) amid China’s crypto crackdown. At the time, Wu predicted that AI chips could account for around 40 percent of Bitmain’s revenue in the next five years.

The Odaily article referenced the AI division, noting that layoffs would include those from the AI, mining, overseas, and BCH Copernicus client teams.

At the end of December, Chinese social media sources reported that Bitmain had already allegedly fired its entire staff of BCH developers.

Bitmain has not responded to Cointelegraph’s request for comments on the CEO changes or the layoffs by press time.

The downward trend reported by the prices of cryptocurrencies this year also hasn’t spared graphics processing unit (GPU) producer Nvidia. As Cointelegraph reported today, Nvidia is facing a class action lawsuit over the losses reported by the company when lower crypto prices diminished demand for GPUs by miners.

According to the complaint, Nvidia “touted its ability to monitor the cryptocurrency market and make rapid changes to its business as necessary.” This assumption — according to the indictment — is a false and misleading statement.

As Cointelegraph also recently reported, after the decrease in GPU demand by miners, Nvidia was the worst performer in S&P 500, losing 54 percent of its stock price.

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American Tech Giant Intel Files New Patent for Energy-Efficient Bitcoin Mining

Technology company Intel has filed a new patent aimed at reducing energy costs for Bitcoin mining by up to 15 percent.

U.S. technology giant Intel has filed a new patent for “energy-efficient high-performance Bitcoin mining,” according to a U.S. Patent and Trademark Office (USPTO) filing published Nov. 27.

The Intel patent is dedicated to a “hardware accelerator implementing SHA-256 hash using optimized data paths” and aims to reduce energy for Bitcoin (BTC) mining up to 15 percent, according to the publication. The documents states that “clusters of SHA engines may consume a lot of powers (e.g., at a rate of greater than 200 W),” adding:

“Embodiments of the present disclosure include energy-efficient ASIC-based SHA engines that consume less power for Bitcoin mining operations.”

Back this spring, Intel had already filed a patent aiming to reduce the amount of electricity consumed by crypto mining, “minimizing energy consumption per hash and maximizing performance per watt,” as Cointelegraph reported Mar. 30.

Previously this year, Intel partnered with Enigma, a decentralized application (DApp) platform, to launch its blockchain testnet to provide the first environment for scalable end-to-end DApps.

Another partnership with Intel was signed this fall, aiming to address “gaps in the market” for solutions that power enterprise blockchain systems, with software multinational company SAP. Later in October, Intel partnered with hardware startup firm Ledger to provide innovative solutions for digital currency and blockchain applications, Cointelegraph wrote Oct. 27.

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Major Mining Pool F2Pool Publishes List of Minimum Prices for Profitable Crypto Mining

Co-founder of the world’s sixth largest crypto mining pool has published a list of break-even price points for various crypto miner models.

The CEO of China-based crypto mining pool F2Pool posted a company-branded infographic September 6 that indicates at what minimum price points the mining of various cryptocurrencies becomes unprofitable.

Shixing Mao, co-founder and CEO and of the world’s sixth largest mining pool F2Pool, published a list of price levels for major cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Zcash (ZEC) below which mining said currency with various different miners allegedly becomes unprofitable.

According to Mao’s graphic, if Bitcoin’s price hits lower than 36,792 yuan (about $5,376) point, this would mean that mining the cryptocurrency on an Antminer T9 would be unprofitable. In the case of using an S7 model miner, the break-even point amounts to a significantly higher 79,258 yuan (about $11,581) Bitcoin price point.

Break-even price points for different cryptocurrencies and miners

Break-even price points for different cryptocurrencies and miners Source: F2Pool’s CEO Weibo

In contrast to S7, mining Bitcoin on Antminer T9 model that was released in January 2017, is still profit-making at Bitcoin’s currently prices, while the newer Innosilicon T2 has the lowest threshold, amounting to 26,636 yuan or about $3,891.

At press time, Bitcoin is trading at $6,452, according to Cointelegraph’s Bitcoin Price Index

In mid-August, U.S. graphics processing unit (GPU) manufacturer Nvidia revealed that crypto mining hardware sales were much lower than expected in Q2 2018, claiming that the company does not expect to make significant blockchain-related sales for the rest of the year.

In July, major Taiwanese microchips producer TSMC once again decreased its annual revenue and capital expenditure estimates, following growth rate reduction in the crypto mining field, among other areas.

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Bitmain Subsidiary BTC.Com To Launch Ethereum (ETH) Mining Pool

While prices may be down in the gutter, the mining industry is still growing at a rapid pace, with firms like Bitmain, Canaan, EBang, and others doing their best to excel in the face of an overall market downtrend.

Bitmain, the world’s most valuable cryptocurrency firm, has forged ahead, recently revealing that its BTC.com subsidiary will open an Ethereum (and Ethereum Classic) mining pool in the coming days.

You may know BTC.com for its relative dominance over the Bitcoin network, hosting a hefty 16% of the hashrate outputted by BTC miners. The Bitmain-backed pool also holds a similar level of dominance over Bitcoin Cash, which the ASIC manufacturer is a proponent of, with a relatively substantial 14%. But now, BTC.com has unexpectedly set its eyes on the Ethereum blockchain, down just one rung from Bitcoin in terms of market capitalization.

As per statements gathered by The Next Web, Zhuang Zhong, the director of BTC.com’s mining pool operations, expects his firm’s operations to “grow to 12 percent of ETH total hashrate in the next 12 months.” Although this goal sounds rather ambitious, some believe that the Bitmain subsidiary can reach and surpass their ambitions, as BTC.com has become an integral part and a trusted name of the crypto ecosystem.

For now, this new pool will support Ethereum and Ethereum Classic, with users being given the opportunity to automatically switch between the two assets to maximize mining profitability. Zhong then elaborated on how exactly the pool is going to work, writing:

Because contracts are charged per line of executed code and miners are rewarded for dedicated hashes using GHOST, Ethereum provides multiple different reward incentives to contribute hash power to the network. We hope to expand Ethereum’s network by relaying those rewards through our FPPS system.

Oddly enough, the BTC.com executive noted that the new pool will likely be able to support Ethereum’s long-awaited Casper protocol integration, which will see the consensus of the Ethereum network switch from solely Proof-of-Work to a Proof-of-Stake (POS) focused model. Zhong added that a pooled POS design “is still possible,” but will likely “increase the complexity to design such a pool since miners need to deposit Ether to the mining pool, but we have a lot of hands-on experience with wallets and Ethereum smart contracts to make a PoS mining pool possible.”

For those who are unaware, Ethereum’s Casper protocol will allow users to ‘stake’ their Ether, with a reported ~500-1000 ETH being a minimum for a solo ‘staker’. So if BTC.com successfully transitions to a PoS model, it is likely that its service will garner lots of support and staked Ether.

Earlier this year, Bitmain, who has plans to go public in the near future, released the first-ever Ethereum ASIC mining machine, which threw many for a loop. The ASIC, named E3, was capable of outhashing a graphics card by many magnitudes, leaving some to believe that Ethereum’s time as a GPU-mineable coin was up.

Following the announcement of even more EthHash ASICs, some claimed that it was time for Ethereum to fork away from ASIC support. But as it stands, no moves towards ASIC resistance have been made as of yet.

Title Image Courtesy of David Mcbee/Pexels
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Ethereum Core Devs Debate Constantinople Hard Fork and “Difficulty Bomb” During Meeting

Ethereum (ETH) core developers have held their regular meeting on YouTube August 24 on the progress of client implementation and tests of the Enterprise Integration Patterns (EIPs) for the upcoming Constantinople hard fork.

The meeting started with a discussion of the latest updates on the processes of no-proof blockchain tests and the progress achieved on major ETH clients, with one of the devs explaining that there is a need to revamp some of the testing to avoid potential consensus issues.

This week saw the release of a number of new features; however, the devs noticed one instability with a “huge” major miner rewrite, which is supposed to be solved by the next update. By Monday, the devs are planning to push out another release “to have the whole thing completed” and finalize the mining release issue.

In terms of the Constantinople hard fork, hardly anything has changed for the last two weeks, according to the meeting. The devs reported on several bug fixes and new tweaks for the testnet, also noting that EIP-1211 will not be included in the upcoming hard fork.

The devs also came to a decision that it is far better for the network to stay on schedule and release new hard forks in time, as opposed to rushing with involving new EIPs or delaying those ready for implementation at the expense of the ones still under development.

Speaking about the possibility to have a second hard fork if it is “really hard to get the changes bundled for all EIPs for Constantinople,” one of the devs said:

“If we delay the time, we would want more features to this particular [Constantinople] hard fork and we should discuss if it’s good to have many changes in one fork, or it’s better to have less changes in many hard forks.”

The devs also decided to release new hard forks every eight months after the Constantinople hard fork. The proposal of a release every six months was rejected as it would create too much pressure for the devs team.

Further discussion was devoted to the issue of adding a “difficulty bomb” and its impact on the reduction and maintenance of block rewards. According to the devs, EIP-858 would reduce block rewards to 1 ETH per block, EIP-1234 would reduce block rewards to 2 ETH, while EIP-1295 would keep rewards to 3 ETH but will affect other factors such as the proof-of-work (PoW) incentive structure.

In order to determine which of the three possible scenarios is preferable, the devs called on the community members. Some of the participants pointed out the environmental impact of ETH mining, while others insisted on decreasing profitability or even excluding ASIC miners from the ETH network. In the end, the participants in the discussion could not reach common ground, so the devs decided to hold another meeting next week on August 31.

As of press time, Ethereum is currently trading at around $281, down almost 10 percent on the week and 41 percent on the month.

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Uber's Largest Shareholder Softbank Denies Deal With Bitmain, Other Investments Uncertain

An official from Softbank has denied their involvement in the investment deal with Bitcoin (BTC) mining behemoth Bitmain that was reported last week by both crypto and mainstream media sources.

As previously reported, Bitmain had allegedly sealed a pre-Initial Public Offering (IPO) financing deal which had brought its valuation to $15 billion. Both Chinese tech conglomerate Tencent and Japan’s SoftBank — another tech giant whose 15 percent stake in Uber makes it the drive-hailing app’s largest shareholder — were purportedly involved.

After receiving an anonymous tip that Tencent and Softbank were not actually involved in any deal with Bitmain, Cointelegraph reached out to SoftBank and Tencent for confirmation.

As a response to Cointelegraph’s request for information, Kenichi Yuasa of the Corporate Communication Office of SoftBank Group Corp. stated:

“Neither the SoftBank Group Corp. nor the SoftBank Vision Fund were in any way involved in the deal.”

Despite numerous requests for clarification, no one at Tencent has denied or confirmed the deal to Cointelegraph.

In response to a media request from Cointelegraph, Bitmain refused to comment on the matter.

The original story on SoftBank and Tencent’s participation in a deal with Bitmain was reported by Chinese publication QQ on August 4. In a Google Translated version of the article, QQ stated:

“The mainland officially completed the Pre-IPO round signing. This round of investors includes Tencent, Softbank [sic], and China Gold. The current round of financing is 1 billion US dollars, and the pre-investment valuation is 14 billion.”

After the story originally broke, there were no official confirmations or denials by either SoftBank or Tencent of their participation in an investment deal with Bitmain.

QQ’s report was picked up by mainstream media sources like Business Insider, which reported on August 14 that Bitmain had closed a “$1 billion funding round led by Chinese tech giant Tencent and Japan’s SoftBank,” linking their source as crypto media site CCN. Yahoo! Finance also reposted the story on Bitmain’s valuation from CCN, also linking to coverage of the matter from crypto news source CoinDesk.

As the media began reporting SoftBank and Tencent allegedly participated in a deal with Bitmain, bringing the company’s reported valuation to $15 billion, Blockstream CSO Samson Mow tweeted August 11 an image — reportedly from the Bitmain pre-IPO investor deck — showing the company allegedly had a large amount of Bitcoin Cash (BCH).

On August 12, Samson Mow also tweeted two images of Bitmain’s Q1 results, one in Chinese and one from Morgan Stanley, commenting:

“Why is Bitmain raising capital so fast & only showing Q1 results to pre-IPO investors? We’re well into Q3 now. The reason is Q2 was a disaster. Bitmain is sitting on a massive $1.24 billion USD in inventory & S9 prices dropped by ~85%! Q2 losses range in the $600-700 millions.”

In response to Mow’s tweets, Crypto Herpes Cat published a follow up on Medium, explaining several theories as to how Bitmain ended up with so much BCH — other than by selling BTC for BCH, as Mow purported — and what they are doing with their ASIC miners in a bear market, writing:

“How do you realize the value of this monolith crypto business and your holdings? You IPO and pass the bag on in one huge lumped stock offering and hope investors don’t realize all of your current assets are very, very illiquid.”

As early as June, Bitmain CEO Jihan Wu had hinted at the firm’s plans to launch its IPO on the Hong Kong Stock Exchange. Chinese publication QQ — the same source that alleged both Tencent and Softbank’s involvement in the recent financing deal — has recently suggested that the firm will be valued at $30 billion.

The seemingly refuted investments come after a year of reports that appeared to indicate Bitmain’s astonishing profitability.

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Rising Hashrates Amidst Shaky Crypto Market — “They’re Happy To Accumulate”

Since the start of 2018, Bitcoin has fallen by over 65%, leading some to guess that mining activity fell in correlation with declining prices. However, it has become apparent that this hasn’t been the case, with hashrates across multiple networks consistently seeing higher lows (and higher highs) amidst an overall market downtrend. Where’s the proof? You may ask.

Well, as seen by the following chart from Blockchain’s information and statistics service, the seven-day hashrate average has nearly quadrupled since the start of the year, even as Bitcoin underwent serious ‘dives’ downwards. This was also seen across other networks, albeit not as bad, with Ethereum seeing a doubling in hashrate, and Litecoin’s hashrate nearly tripling.

Taking hashrate statistics into account, one would assume that mining is still profitable for all parties involved. But according to a recent Bloomberg article, it may not be that simple. Over the past months, the likes of Fundstrat’s Tom Lee and Brian Kelly have claimed that the break-even cost of mining has been well above today’s prices. But hashrates continue to rise, up and up, with miners seemingly giving zero regards to the total fees of mining (electricity, maintenance, hardware etc.) postulated by market analysts.

According to Marco Streng, the CEO of Genesis Mining, larger corporate miners are edging out the in-home, consumer miners, with firms like his still making “major expansions.” He elaborated, stating:

“There are still major expansions happening, especially from more efficient miners. The expansion is so big that it compensated for the drop-out of not-so-efficient miners.”

The previous statement alludes to the fact that operations like his — data centers that span tens of thousands of square feet and consume many megawatts of electricity — have grown so much that they have forced retail users out of the market, while also driving up hashrates near-exponentially.

In theory, as continually noted by Tom Lee, an increasing hashrate (and a subsequent increase in mining cost), should lead to higher cryptocurrency prices, as the break-even level has been seen as an unofficial bottom by some analysts. Therefore, many believe that the opposite is true, but as computational power and operational costs move downwards, it becomes evident that there are other factors behind networks undertaking a growing miner population.

David Sapper, the chief operating officer (COO) at the Blockbid crypto exchange, noted:

“The increased hash rate means people are here for the long-term because they’re happy to just accumulate what they have, potentially even run at a loss. At the same time, At the same time, they do sometimes have to clear house and dump (though).”

This brings up a very interesting point, where miners, who are operating at equilibrium or a slight/medium-loss are only keeping their machines on to accumulate crypto for the long-haul. This move suggests that while some firms may need to sell some crypto to cover costs, that this longer-term ‘HODL’ approach may indicate a sentiment of the success of the market for years to come.

While some data centers may be operating at a loss, as the aforementioned Genesis Mining CEO points out, it varies from firm to firm as specific farms are subject to an array of factors that drive costs up or down. Genesis Mining, while recently making a move to shut down unprofitable mining contracts, has still expanded its centers, buying new hardware that can keep up with the rising hashrates. Additionally, there are firms like Bitmain, which manufacture ASICs and uses these machines to mine itself, making the Chinese firm relatively profitable in the process.

Although ASICs may continue to ramp up in power, power efficiency, and manufacturability, it still remains to be seen whether hashrates will rise exponentially into the future.

Image Courtesy of Marco Verch

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Chipping In: Bitmain’s Journey to a Multi-Billion Dollar Valuation

After the closure of an IPO funding round in August, the Bitcoin mining giant Bitmain is now worth $15 billion. Bitmain’s aim to raise $18 billion at a market capitalization of up to $50 billion could potentially result in one of the largest IPO in history. Founded only five years ago by Jihan Wu and Micree Zhan, Bitmain has presided over the transformation of Bitcoin mining from a quirky hobby into a multi billion-dollar industry. In a cut-throat environment where new technological advances are the lifeline of companies trying to stay ahead of the game, Bitmain has proven itself a fearsome competitor.

From bit parts to Bitmain

In spite of the stability of its position at the top of the industry, Bitmain was born of chance. Jihan Wu — then working in private equity, having graduated with an economics degree from the prestigious Peking University — came across Micree Zhan, an ambitious software developer with big ideas. Zhan tried to get Wu to help him source funding for his 2010 startup, DivaIP, but the project never came to fruition and the two men parted ways after a few months.

The beginning of their fateful partnership began a few years later in 2013, after Wu read a blog post about how Bitcoin had the potential to be “the most dangerous open-source project ever.” Wu had spent his entire life savings on the nascent cryptocurrency. Fortunately, things were beginning to pick up for both Bitcoin and the young investor. The price of Bitcoin had leapt from $20 to $900 and, at this point, Wu realized he could make 25 coins every 10 minutes. However, having gone all in with his savings, this return was not good enough. Wu realized he would need a more efficient way to mine. And then he remembered Zhan. After being given a crash course on Bitcoin, Zhan was tasked with creating a piece of equipment with the sole purpose of mining efficiently and quickly. On November 2013, the Antminer S1 was unveiled and the company has been skyrocketing every since.

Five years on and tens of billions of dollars later, Bitmain has secured investment from major companies across the globe. The deal included an investment from Japanese tech giant, Softbank, which currently holds a 15 percent stake in the successful ride-hailing app, Uber. Tencent, the developer of China’s most popular social media network, WeChat, which has over 1 billion monthly users and recently outstripped Facebook’s market cap by $72 billion in March 2018, also invested. Reports suggest that Bitmain is planning to launch its IPO on the Hong Kong Stock Exchange (HKEX) in September 2018, at an estimated valuation of $30 billion. In the first quarter of 2018 alone, Bitmain earned around $1 billion in net profit, closing a Series B funding round that saw its valuation rise to $12 billion at the time.

Bitmain also secured between $300 and $400 million from a Sequoia Capital subsidiary (Sequoia China), U.S hedge fund Coatue and EDBI — a governmental investment fund based in Singapore — in a Series B funding round in June.

Block party: How Bitmain maintains its vice grip

Bitmain’s transformation of the market with the Antminer S1 not only meant that the graphics cards and CPUs used by home computers could no longer keep up, but also that people who mined as a hobby were presented with a steep financial barrier if they wanted to shake it with the pros. Bitmain’s latest rig, the Antminer S9, is currently the most powerful miner available on the market. The rig has a hash rate of 13.5TH/s ±5 percent and can produce north of $300 in revenue per month. Bitcoin mining consumes vast quantities of energy, with one estimate stating that it is due to use a half percent of the world’s energy by the end of 2018. Small time players often find that the exorbitant energy consumption, combined with the cost of purchasing the number of needed units, makes it impossible to turn a meaningful profit. Bitmain’s ASICs are nonrefundable, bringing a consistent and irrefutable source of income, although the Antminer S9 does come with a (limited) warranty.

A prime example of vertical integration, Bitmain has designed every piece of equipment that goes into its rigs, builds them itself and then sells them to a client base that spans the globe. As well as renting out the machines on contract, Bitmain has also developed several sites with enormous concentrations of processing equipment, meaning they are able to improve their chances of mining new blocks. Miners are rewarded with a certain number of Bitcoin per block added to the blockchain. Blocks are found roughly every 10 minutes, meaning that the biggest players are able to make up to $7 million a day. Currently, Bitmain Technologies controls 45 percent of all existing computing power in the network.

Bitmain Control

Decentralization

Described as the ‘business brains’ behind Bitmain, Wu’s company has brought him both wealth and controversy. Bitmain’s processing power and domination of the market means that they have a lot of clout within the network. Most notably, Wu has consistently advocated for the increase of Bitcoin’s transaction capacity by eliminating the current 1 MB limit. Wu’s vocal support for this move led to the suspicion that he was behind the recent Bitcoin-Bitcoin Cash hard fork, aided by the fact that the split was supported by ViaBTC, a company that Bitmain happens to have invested in.

In spite of Wu’s claims of innocence, others still believe he has ulterior motives. In the words of Jack Liao, operator of the Shenzhen-based mining company, Lightning ASIC:

“He wants to control the code, he wants to control the environment[…]Then he can design the entire Bitcoin ecosystem.”

If true, the allegations suggest that Bitcoin is vulnerable to manipulation by both traders, who have large quantities of Bitcoin, and miners like Bitmain.

The CSO of the cyrptocurrency consulting firm Blockstream, Samson Mow, wrote in Fortune:

‘Jihan does have a lot of control for now, and much of that is simply due to mining centralization. As Bitmain is so vertically integrated, from selling ASICs, to operating mining farms, to running mining pools, he can prevent network upgrades and attempt to hijack the Bitcoin brand with things like [Bitcoin Cash].’

Despite this, Mow still believes the democratic and decentralized values that underpin Bitcoin remain uncompromised. Mow maintains that the real power lies with the users and that any power held by Wu will be short-lived.

Dark clouds on the horizon: Bitmain and a changing industry

Though Bitmain’s prominence over Bitcoin mining is undeniable, other players are starting to encroach upon its turf.

The mining giant’s fiercest competitor is Canaan, which recently announced its intention to launch an IPO. If successful, Canaan could beat Bitmain in becoming the first blockchain-based company to ever be listed on the HKEX. An unnamed source recently told the South China Morning Post that the company hopes to raise $1 billion. Prior to the HKEX, the company had been considering listing in the United States. Canaan’s previous attempts in China fell through after regulators disagreed with the proposed valuation of the deal.

Though Canaan operates 15 percent of the mining market, it is dwarfed by Bitmain’s 75 percent. And Bitmain doesn’t intend to give up any ground without a fight. Bitmain has a 66.6 percent share of global shipments compared to Canaan’s 20.9 percent. Canaan has been hard at work to remedy this, greatly increasing its prepayments to both Taiwan Semiconductor Manufacturing Corp. and Global Unichip Corp in an effort to get the upper hand over future production. However, Bitmain is in a stronger position to defend its sought-after position at the pinnacle of the industry.

Bitmain and Canaan

Since the introduction of the Antminer S5 several years ago, their power consumption has been slashed by about a third. This had the dual effect of allowing Bitmain to harvest Bitcoin at a great rate than ever before, while also attracting other miners who sought to buy the rigs for their own use. This left Bitmain with a 50 percent profit margin on the product. Now onto its ninth incarnation, Bitmain’s Antminer devices continue to hold on to their prestigious position at the top of the market. In a bid to ensure this is the state of affairs for the foreseeable future, the company slashed the prices of their product by more than 80 percent, in turn, forcing Canaan to lower the price of its A841 by 30 percent. It’s likely the products’ profitability will suffer, but Bitmain has its position of power and profit margin on its side.

Intelligent Design: Bitmain looks to AI to keep ahead of the curve

For the last two years, the brains behind Bitmain’s software innovation, Micree Zhan, has been working on a deep learning chip. Inspired by Liu Cixin’s wildly popular science-fiction novel, The Three-Body Problem, Zhan’s eureka moment came to him during his decades-long habit of meditation. Zhan was inspired by something called Sophon, a fictional proton-sized computer sent by an alien civilization to bring scientific discovery on Earth to a grinding halt. The long and short of this fictional example is that the aliens use the technology to take over the planet. It doesn’t take a wild stretch of the imagination to see how this translates to Bitmain’s dominance of the industry, along with its desire to keep things that way.

These souped-up ASICs could be a shot in the arm for the mining industry. Michael Bedford Taylor, a professor at the University of Washington, spoke about the kind of technology Zhan is trying to develop, albeit from a more communitarian perspective:

“This will invigorate the hardware field[…] We are about to see the emergence of all kinds of ASICs clouds, and the Bitcoin hardware community has demonstrated that under the right conditions, this can happen rapidly as a grassroots effort.”

Zhan’s idea is to incorporate some of the most common deep learning algorithms into Bitmain’s devices. With this generation of ASICs, users will be able to apply their own datasets and build their own models. The AI incorporated into the new devices will learn from the results and improve at a vastly accelerated pace. Google’s Deep Mind unit uses the same technology to train its AlphaGo artificial intelligence by using Tensor Processing Unit chips.

Their first publicly available version of this intelligent design vision is called the Sophon BM1680, which was released in October 2017. The chip can greatly speed up machine learning. Wu estimates that AI chips could bring in up to 40 percent of Bitmain’s revenue in the next five years.

President for life: Bitmain moves abroad to avoid clampdown

Thanks in part to low electricity rates, China was reported to have filed the most patents for blockchain in the world. However, moves to both regulate the crypto sphere and restrict the power consumption of miners threatens to drastically change the business environment in China.

In an effort to resist the clampdown, Bitmain has already begun to shift its operations abroad. In December 2017, Bitmain Switzerland was registered in the small Swiss canton of Zug. The company was registered under the name of Bitmain co-founder Jihan Wu, as well as that of Chinese national Ti Liu and Swiss national Christian Johannes Meisser. A spokesman told the Swiss paper Handelszeitung about the move:

“Bitmain Switzerland will play a central role during our global expansion.”

In a press release on Aug. 6, Bitmain revealed that it will also build a $500 million blockchain data center and mining facility in Texas. Situated in Rockdale, Texas, the project is due to finish in late 2018 and to begin operations by early 2019.

As philosophical debates rage about the future of blockchain and how it should be developed, Bitmain is sure to remain a powerful player at the international table. Whether its innovations contribute to the decentralization and democratic values that are so important to the community at large, however, remains to be seen.