Who is continuing to benefit from Musk’s bandwagon, behind the myth of Bitcoin and Dogcoin wealth creation?

Stories of overnight riches brought by Bitcoin (BTC), Dogcoin (DOGE), SHIB, etc. have captured the attention since 2021. However, cryptocurrencies are a common occurrence, and no one can tell how many bubbles are behind the cryptocurrency frenzy.

Who is continuing to benefit from Musk's bandwagon, behind the myth of Bitcoin and Dogcoin wealth creation?

Since 2021 Bitcoin (BTC), Dogcoin (DOGE), SHIB and others have brought eye-catching stories of overnight riches.

However, cryptocurrencies are a common occurrence, and no one can tell how many bubbles are behind the cryptocurrency frenzy.

The birth of cryptocurrencies has given rise to a large number of computing chips used to “develop” cryptocurrencies around the world, and since the production process of Bitcoin is called “mining”, these chips are also called mining chips. The bitcoin craze has also spawned a boom in the mining machine market. In the gold rush story, the business of “mining gold” is obviously more secure than the business of “selling shovels”.

For the mining machine chip, the pursuit of arithmetic power never ends, from GPU, FGPA to ASIC, miners all hope to obtain higher arithmetic power with lower energy consumption and improve production efficiency. Some say that the field of mining chips is one of the few in the chip industry where China dominates, so what is the truth? Nvidia, Bitmain, Jia Nan Weizhi, Bit Micro and other mining chip manufacturers, who is the “king of mining chips”?

Miners have a very high bargaining power
The price of mining machines fluctuates with the price of coins, and the miners “reap the benefits”.

If you want to get cryptocurrency, there are two ways, one is to buy it in a transaction, and the other is to mine it yourself. Mining can be seen as the primary market for cryptocurrency trading, or as the upstream link in the chain.

Just like regular mining, in cryptocurrency mining, the miner’s job is to mine the resources. The reward for mining resources from the ground is the cash value of the resources, while for blockchain miners, cracking the puzzle can be rewarded with the corresponding cryptocurrency. The cost of mining comes mainly from mining machines and electricity.

Not to mention that Bitcoin has achieved a ten million times increase since its release, alone from the beginning of 2020 to May 14, 2021, it rose by 569%, reaching $61,200,000 per piece at its peak; Ether (ETH) rose by 2,829% during the same period; and the biggest dark horse of the year, Dogcoin, has risen by 5,192% since the beginning of 2021.

What drives miners to keep investing more and more is not only the continuously rising price of virtual currencies, but also the sense of urgency that currencies are getting less and less mined and harder and harder to mine.

Bitcoin, for example, with rewards initially set at 50 Bitcoin currency rewards per block, was halved to 25 on November 28, 2012; to 12.5 on July 9, 2016; to 6.25 again on May 11, 2020; and it will be halved again by 2024. This halving process will repeat until the total amount of Bitcoin currency rewards paid out reaches 21 million. Fewer rewards mean more difficulty in mining.

Earlier, only professional and specialized miners were responsible for mining. As some companies bought more specialized miners and traveled to areas with lower electricity costs to set up mining farms, the barrier to entry for retail investors grew higher and individual miners were no longer competitive. So miners are combining resources to compete effectively by joining open mining pools, which mine coins and distribute them to each miner according to their contribution. Others participate in mining through a mining cloud service platform like Bitty Fawn.

No matter how the mining model changes, what remains the same is the demand for mining machines, which are now in a “seller’s market”. On the one hand, with the price of a large number of cryptocurrencies rising, the market demand for high-quality, high-performance mining machines has increased; on the other hand, the shortage of chips, which has been intensifying since last year, has also suppressed the supply of mining machines, and the combination of factors makes high-quality, high-performance mining machines expensive and difficult to obtain.

At the same time, there are a limited number of suppliers of high-quality, high-performance mining machines, which dictates their higher position in the market. Due to the high volatility of bitcoin prices, suppliers are often reluctant to commit to long-term contracts with fixed pricing terms, and as a result, the prices of such mining machines are typically closely correlated with cryptocurrency prices and have similar volatility.

This also shows that unlike the perception that coin speculators can get higher excess returns, while the returns from selling machines are relatively fixed, quality mining chip makers and mining companies actually have high pricing power in the industry chain and are better able to lock in profits from rising cryptocurrency prices.

Who is stronger in “selling shovels”?
Nvidia, Bitmainland and Bitmicro each have their own strengths.

Cryptocurrency miners have gone through the CPU, FGPA, GPU, and ASIC mining era, and after rounds of evolution, CPU and FGPA are no longer mainstream, and GPU and ASIC are gaining momentum.

In the GPU space, NVIDIA is the leader. 2020 Q4, the cryptocurrency mining business brought NVIDIA $100-300 million in revenue, accounting for 2%-6% of its total revenue.

On February 19, this year, NVIDIA said it would launch a series of GPUs specializing in bitcoin mining, and the main purpose is to respond to the special needs of miners. The main purpose is to address the special needs of miners. At the same time, NVIDIA will also launch the CMP series of chips dedicated to ethereum mining, it is reported that the CMP series will not have computing image capabilities, but has a lower peak core voltage and frequency, will improve mining performance and efficiency.

But in fact GPU due to the lack of competitive arithmetic power, for mining ethereum and some other virtual coins is still appropriate, but in mining bitcoin, and ASIC than no advantage at all. ASIC is currently the mainstream way of bitcoin mining.

Unlike other chip industries across the board, Chinese mining ASIC chips have a near monopoly on the bitcoin chip business. The big players in this field include Bitmain, Jia Nan Wei Zhi, Bitmicro and others.

According to third-party measurement data, among a host of bitcoin miners, if payback time is used as a measure, those within 300 days are the first tier, those between 300-600 days are the second tier, and those above 600 days are the third tier. So, in the first tier are mainly Ant S19, Ant T19, Sleipnir M30S, Sleipnir M20S and Avalon 1146, while the second tier includes miners such as Wingbit E12, Jaguar F5M and Core Motion T3.

In terms of arithmetic power, the Ant S19 and Sleipnir M30S series are far ahead, with the Ant S19 being developed and produced by Bitmain and the Sleipnir M30S being developed and produced by Bitmicro, both of which are also currently mainstream miners. From the point of view of the existing products, the two R & D strength is comparable.

However, Bitmainland (BTCM.N) has considerable R&D potential. According to Bitmainland’s annual report, it acquired a miner manufacturer in 2021, which is working with MediaTek to develop miners. The existing miner products include 7nm ASICs, and the relevant miners will be delivered by the end of April 2021.

In terms of sales and availability, the Bitmainland and Bitmicro official websites show that the Ant S19 and Sleipnir M30S series are sold out, respectively. Bitmainland’s 7nm chip for mining machines is manufactured by TSMC, and Bitmicro’s 8nm chip is manufactured by Samsung. Whether the tight upstream chip manufacturing capacity is cutting single these two mining chip factories is not known from the public information for the time being.

Notably, according to Bitmain’s annual report, in February 2021, it signed a final purchase agreement for 5,900 Bitcoin mining machines at a total price of approximately RMB 55.2 million. Under the framework agreement, it was agreed in principle to purchase up to 10,000 bitcoin mining machines in 2021. These miners will all be used for bitcoin mining to bring in revenue.

So, it’s hard to tell if the shortage is due to a lack of cores, or if the mining machine manufacturers are using the machines they produce for mining themselves. What is certain is that the “chip shortage” has made it more difficult for other mining chip makers to get chip capacity, which is not a market capture opportunity for the top companies.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/who-is-continuing-to-benefit-from-musks-bandwagon-behind-the-myth-of-bitcoin-and-dogcoin-wealth-creation/
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