What is Bitmain and Why Is It Worth 12 Billion Dollars?

If you read my previous post on what mining Bitcoin is all about, you may have heard of Bitmain.   Bitmain is the big daddy of mining companies, they throw their weight around in pretty much every aspect of the blockchain ecosystem, from mining to trading to policy.  It was founded in 2013 by Jihan Wu, a former private equity fund analyst based out of Beijing, and an all around mysterious character/billionaire.   The headquarters of the company has since moved to Hong Kong given regulations of cryptocurrency and mining in China. 

Bitmain – What Do They Do?

Bitmain’s main business is the creation and sale of the mining hardware – specifically ASIC cards (most under the AntMiner name).    AntMiner cards range in price from $250 – $1000.   They also own AntPool, which is the worlds biggest crypto Mining Pool company.    A mining pool is when a group of miners who are part of a pool share their processing power and then split the mining rewards equally.    It is kind of like when a whole office buys a lottery ticket together and agrees to share the winnings equally.

Why Is Bitmain Worth So Much?

Bitmain was one of the first companies that leveraged the gold rush in mining and provided high-end hardware to service this demand.   Their hardware is often in such demand that it sells out in minutes or is on back-order for months, which has also created a very lucrative and expensive secondary market.   Given this was a new industry, with little competition at first, Bitmain established the market and has been able to operate at very high margins since –  up to 50%.     Fortune has estimated that Bitmain’s net profit for Q1 2018 was approximately 1.5B !! That is huge – to give a frame of context Bitmain’s profits from 2017 were almost the same as chip-maker NVIDIA, per this CNBC article.      Given how big the company is there are now talks for an IPO.

Bitmain Controversy

Bitmain has had its fair share of controversy, due to several allegations.

1. Bitmain has it’s own mining operations and competes with their buyers.  They develop their own devices and since they have the best tech they have a distinct advantage in the mining market.   The ethos of mining used to be that an independent hobbyist could tinker and put together a system in their garage using some technical know-how and make some money.  But Bitmain has access to low-cost electricity in China, plus first access to their own hardware – so they win.  Independent miners are getting crushed by Bitmain.
2. Re-Selling Used Hardware.  This has a bit of a conspiracy theory bent – but the internet is ripe with allegations that Bitmain uses their own high-end devices until they have developed new tech, then sell the old ones as new un-used hardware to unsuspecting customers.   Seems unlikely to me.
3. They Are a Monopoly.  People claim unfair business practices such as pricing and throttling of inventory, and exerting undue influence over the bitcoin ecosystem.   I don’t know enough about this to have an opinion.

Stories about companies like Bitmain are fascinating to me.  This company was started less than 6 years ago, originally selling super basic microchips for do-it-yourself computer enthusiasts who wanted to try their hand at some type of hard to understand mathematical wealth creation.

Fast forward six years and you have a super-secretive awkward Chinese billionaire running a $12B company that has huge server farms in ghost cities in China, is getting into Artificial Intelligence and has massive sway on a decentralized financial ecosystem.    Wow!