China – s Bitmain predominates bitcoin mining

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Two years ago, a Chinese chip-design experienced named Micree Zhan wasgoed reading China&rsquo,s seminal science-fiction novel, The Three-Body Problem, by Liu Cixin, while wrestling with how to create a fresh processor. He had already designed custom-made chips for the company he co-founded, Bitmain, that had made it into the world&rsquo,s leading bitcoin miner, permitting it to predominate the fresh, hyper-competitive industry of unearthing bitcoins. Now he needed a chip that could launch Bitmain onto a fresh trajectory, one that would help it master a world-altering technology called deep learning, a branch of artificial intelligence.

While performing his nightly meditation, a practice he has kept up for almost a decade, it all of a sudden came to Zhan. &ldquo,It wasgoed late at night, and something inspired mij&mdash,Sophon!&rdquo, he recalls. A sophon is a fictional proton-sized supercomputer from The Three-Body Problem that is sent by an alien civilization to halt scientific progress on Earth. It&rsquo,s capable of causing strange phenomena&mdash,such spil inscribing flashing words on the retinas of elite scientists. The aliens use it to take overheen Earth when their own planet is ruined by the chaotic gravitational coerces of its three suns.

Bitmain&rsquo,s newest product, the Sophon, may or may not take overheen deep learning. But by providing it such a name Zhan and his Bitmain co-founder, Jihan Wu, have signaled to the world their intentions. The Sophon unit will include Bitmain&rsquo,s very first lump of bespoke silicon for a revolutionary AI technology. If things go to project, thousands of Bitmain Sophon units soon could be training neural networks ter vast gegevens centers around the world.

Bitmain could pull it off, says Michael Bedford Taylor, a professor at the University of Washington who has studied the bitcoin mining industry and its specialized chips. Taylor says thesis types of chips, called application-specific integrated circuits, or ASICs, that are designed to perform a single function utterly efficiently could create the next wave of distributed computing (pdf). &ldquo,This will invigorate the hardware field,&rdquo, he says. &ldquo,Wij 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 toebijten rapidly spil a grassroots effort.&rdquo,

China&rsquo,s shadowy colossus

To capture how a Beijing startup is poised to challenge the likes of Google, Nvidia, and AMD te the deep learning arms wedloop, it&rsquo,s essential to understand Bitmain&rsquo,s pivotal role te the $70 billion bitcoin economy. Incorporated ter Hong Kong spil Bitmain Technologies Ltd, Bitmain&rsquo,s controlling shareholder is a trust registered ter the Cayman islands.

Bitmain co-founder Micree Zhan explaining the significance of the word &ldquo,Sophon.&rdquo, (Quartz/Zheping Huang)

The company is a miracle of vertical integration. Bitmain designs the silicon that goes into its bitcoin mining equipments, assembles the machines, then sells them to customers around the world. It also operates the machines for its own account, runs vast bitcoin mines that it rents out on contract to others, and, eventually, manages several of the world&rsquo,s largest mining &ldquo,pools&rdquo,&mdash,agglomerations of processing power so hefty that they greatly improve the odds of successfully mining a bitcoin block.

Bitmain may now be the most influential company te the bitcoin economy by virtue of the sheer amount of processing power, or hash rate, that it controls. Its mining pools, Antpool and, account for 28.9% of all the processing power on the global bitcoin network.

Hash rate is critical because bitcoin is te the midst of a messy &ldquo,civil war.&rdquo, Controlling chunks of hash rate provides miners with a public vote on the bewildering array of technical proposals dictating bitcoin&rsquo,s future. At the crux of the technical debate: How to increase the number of transactions the bitcoin network can treat at any given time. The latest split of bitcoin into bitcoin and bitcoin-cash illustrated one way to do this.

Bitcoin mining is the process of checking and adding fresh transactions to bitcoin&rsquo,s immutable ledger&mdash,its blockchain. Miners vereiste rival with one another to be the very first to find a fresh block. Te terugwedstrijd for performing this work, which requires massive processing power and incurs hefty electro-therapy costs, miners are rewarded with a certain number of bitcoins for each block they add to the blockchain. Presently, that&rsquo,s 12.Five bitcoins vanaf block, and a fresh block is found harshly every Ten minutes. At the current bitcoin price of about $Four,000, that&rsquo,s $50,000 up for grabs every Ten minutes, or $7.Two million a day.

Controversy and criticism overheen blockchain

Wu, the business brains behind Bitmain, is a polarizing figure ter the bitcoin world. He has bot a vocal and vociferous voorstander of one particular technical treatment to increase bitcoin&rsquo,s transaction capacity, one that would increase the size of bitcoin&rsquo,s blocks by eliminating the 1 megabyte limit imposed by the bitcoin&rsquo,s pseudonymous creator, Satoshi Nakamoto. Bitmain is among the signatories of the so-called &ldquo,Fresh York Agreement,&rdquo, which calls for doubling the block size under the Segwit2x proposal. Some see this spil technically risky, and philosophically fraught because it concentrates power te the forearms of miners&mdash,like Bitmain. &ldquo,Te France, nobody likes him at all. He is despised,&rdquo, said Sosthè,ne, the pseudonym of a Parisian bitcoiner I met ter Beijing.

Bitmain co-founder Jihan Wu ter the lounge of his headquarters ter Beijing. (Quartz/Zheping Huang)

Critics of Bitmain suspect that Wu wasgoed behind the latest, somewhat related split of bitcoin called the bitcoin-cash hard fork. That split wasgoed supported by a miner ter Shenzhen named ViaBTC&mdash,which happened to be a company that Bitmain has invested te. Wu denies he wasgoed behind the split and Bitmain has publicly said it&rsquo,s neutral on the matter. &ldquo,If wij had such an influence,&rdquo, he laughs, an earlier scaling proposal called Bitcoin Unlimited, which he and other vooraanstaand figures had backed, &ldquo,would have already bot activated.&rdquo,

Jack Liao, who runs a Shenzhen-based mining stiff called Lightning ASIC, has clashed with Bitmain. He says Wu is attempting to predominate the bitcoin economy and form it for his own completes. &ldquo,He wants to control the code, he wants to control the environment,&rdquo, Liao says. &ldquo,Then he can vormgeving the entire bitcoin ecosystem.&rdquo, Liao has clashed with Wu on social media te China, claiming that he&rsquo,s ready to take legal act against Wu for bad-mouthing his company, Lightning Asic.

Wu, 31 years old, spars with his critics on Twitter, where he says he is inundated by professional trolls. He famously published an expletive-laden tweet te 2016 te response to users who he believed were trolling him during one debate about bitcoin&rsquo,s future. It wasgoed promptly turned into memes and held up spil evidence that Wu wasgoed unqualified to lead the conversation about influencing the future of a protocol worth $70 billion.

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Wu says he regrets that particular Twitter outburst. &ldquo,If I had a time machine I would not have posted that,&rdquo, he says. Fixing his picture problem is partly why wij&rsquo,ve bot invited to Beijing to meet him&mdash,he infrequently grants interviews&mdash,and why wij were invited to visit his rigid&rsquo,s bitcoin mine ter Inward Mongolia the day following our meeting.

Another split for bitcoin is looming te November, when the community voorwaarde again determine if it will raise the block size limit. Wu, who favors the fresh split, says such schisms shouldn&rsquo,t be avoided. &ldquo,The core developers don&rsquo,t own bitcoin spil a entire,&rdquo, he says. &ldquo,Maybe they own the bitcoin-core software project, but bitcoin is not software, it is a kleintje of social agreement that is implemented by software. And if people do not agree with each other, a fork will be unavoidable. It is only a matter of time.&rdquo,

A chance encounter with a chip designer

Bitmain and Wu&rsquo,s power would never have come about had it not bot for a chance encounter on a Beijing street. Zhan, the Sophon chip designer and the technical brains behind Bitmain, wasgoed running a startup called DivaIP ter 2010 that made a set-top opbergruimte that permitted a user to stream a television voorstelling to a pc screen. One of Zhan&rsquo,s staff wasgoed canvassing for customers when Wu walked by.

Employees at Bitmain&rsquo,s Beijing headquarters. (Quartz/Zheping Huang)

Wu wasgoed then ter private equity, armed with a degree ter economics and psychology from Peking University, China&rsquo,s most august institution. Zhan, a graduate of the Chinese Academy of Sciences, famed for its technical degrees, wasgoed attempting to raise funding for DivaIP, so he asked Wu for advice. Ultimately Wu couldn&rsquo,t help, but three years straks it would be Wu who needed Zhan.

Wu had discovered bitcoin ter 2011 te a blog postbode, and one line stuck te his head. &ldquo,They described it spil the most dangerous open-source project everzwijn,&rdquo, he says. Bitcoin wasgoed envisioned spil a form of stateless money that could be wielded by anyone but managed by no one&mdash,with no central bankgebouw, and no government ter charge. &ldquo,Such a monetary system is possible. It doesn&rsquo,t have to be government-backed. It doesn&rsquo,t even have to be gold-backed,&rdquo, he says.

Te brief order, Wu emptied his canap account to buy bitcoin, then just a fringe idea. One bitcoin could be purchased for under a dollar te early 2011. &ldquo,I spent all my life savings to buy bitcoin te 2011,&rdquo, he said. &ldquo,Most people thought it wasgoed risky or a scam.&rdquo, Two years straks, bitcoin exploded, soaring from about $20 at the begin of 2013 to $900 by the end of the year and, ter the process, it captured mainstream attention. Wu realized that he could make money not just by trading bitcoin, but by creating it. At the time, a miner could earn 25 bitcoins every Ten minutes.

Wu had capital from his 2011 bitcoin investments. But he needed a chip designer. Remembering Zhan, Wu set out everything he understood about bitcoin ter an e-mail to him. &ldquo,I spent two hours reading up on bitcoin on Wikipedia,&rdquo, Zhan said. &ldquo,I knew it wasgoed a good thing. I determined to do this business instantly.&rdquo,

Bespoke silicon for bitcoin

Zhan&rsquo,s very first task wasgoed designing an ASIC that would run SHA-256, the cryptographic calculation used ter bitcoin, at maximum efficiency. The development of bitcoin mining ASICs escalated the wedstrijd to devote greater amounts of processing power to bitcoin mining.

Where bitcoins are unearthed. (Aurelien Foucault for Quartz)

&ldquo,Ter the beginning it wasgoed very harsh for Micree [Zhan],&rdquo, Wu says. &ldquo,He complained it wasgoed unlikely,&rdquo, to create an ASIC for bitcoin. But Zhan, 38, got the job done, and at record speed, taking just six months from idea to finished product. Time wasgoed critical, because bitcoin prices fluctuated frantically, meaning Bitmain could miss out on a once-in-a-lifetime chance to profit from the ongoing rally. Other players were already on the toneel, early ASIC makers like ASICMiner and Butterfly Labs crowdfunded their projects te 2012 to create the very first generation of bitcoin ASICs.

Te November 2013, Zhan&rsquo,s very first mining equipment, the Antminer S1, wasgoed ready, and Bitmain opened for business. Sales took off. &ldquo,Wij had very good sales during the entire of 2014,&rdquo, Wu says. Indeed, bitcoin klapper a historic high of almost $1,200 ter November 2013&mdash,only to crash months straks after fraud wasgoed discovered at Japan&rsquo,s Mt. Gox, then the largest exchange te the world.

By the end of 2014, the Mt. Gox-spurred crash waterput Bitmain te dire straits. Nobody dreamed to be paying expensive electro-therapy bills to mine a digital currency that wasgoed falling ter value. &ldquo,The price fell too low, and the entire business project wasgoed made when the bitcoin price wasgoed high!&rdquo, Wu laughs. &ldquo,So when the price fell there wasgoed not much request for our bitcoin mining equipments. Our roughest time wasgoed at the end of 2014.&rdquo,

Surviving the bitcoin crash

Wu and Zhan clung on. &ldquo,It wasgoed very rough,&rdquo, says Zhan. &ldquo,I thought if the price proceeds to druppel maybe Bitmain will pauze down.&rdquo, But by 2015, the cryptocurrency appeared to have bottomed out. There wasgoed enhancing rente ter the technical idea behind it&mdash,the immutable ledger known spil the blockchain&mdash,from some of the world&rsquo,s thickest banks and financial institutions.

At the same time, Zhan began working on the Antminer S5, the fifth iteration of Bitmain&rsquo,s mining equipment, which slashed power consumption by about a third compared to the S1. Spil bitcoin&rsquo,s price crept up, miners returned to the toneel, seizing on the Antminer S5 spil their equipment of choice. &ldquo,That chip wasgoed amazing,&rdquo, says Wu. &ldquo,It helped our company a loterijlot.&rdquo, Bitmain had a 50% profit margin on the product, according to Zhan.

The Antminer S5, which contained the BM1384 chip, turned around Bitmain&rsquo,s fortunes. Wu won&rsquo,t disclose the company&rsquo,s revenue and earnings, except to say that it is te &ldquo,a very good financial position.&rdquo, He claims it is cash-flow positive, and that it has overheen 70% of the market for bitcoin mining equipments&mdash,effectively providing 70% of all the processing power on the network.

The rigid sells hundreds of thousands of Antminers each year, according to Wang Jun, who leads work on the algorithms ter Bitmain&rsquo,s fresh deep-learning chips, and the bitcoin mining equipments are the rock-hard&rsquo,s major source of income. Wu told Bloomberg (movie) that the mine ter Ordos generates about $250,000 te revenue daily, and that he is programma to invest up to $200 million building fresh mines te the US.

Bitmain has few competitors for the Antminer. Because chip manufacturers vereiste depend on a rising bitcoin price to sell their wares, many were incapable to stay afloat when prices dropped ter 2014 and 2015. Today, Bitmain&rsquo,s chief competitor is San Francisco-headquartered Bitfury, which makes its own chips, sells them, and maintains mines ter Georgia, ter eastern Europe. It has about 6% of the global bitcoin hash rate.

Bitmain now employs 600 people headquartered ter a four-story building ter a high-tech park of the sort favored by tech companies te Beijing. It&rsquo,s renovating the building next om because it&rsquo,s running out of space. Inwards, scarcely anyone looks older than 25, spil circuit boards jostle for space with company-provided cans of Coke and other soft drinks. The majority of employees don&rsquo,t have a private rente te bitcoin, says Nishant Sharma, Bitmain&rsquo,s communications manager, doing their jobs without being invested te the debates, squabbles, and philosophizing of the cryptocurrency world.

ASIC clouds: The future of deep learning?

Spil the price of bitcoin skyrockets, Bitmain&rsquo,s future te the cryptocurrency markets seems assured. But ter the artificial intelligence wedloop, it&rsquo,s a minnow ter a field predominated by giants. Why should a Beijing bitcoin startup be able to contest with Google, Nvidia, and AMD?

Racks of Bitcoin mining machines inwards Bitmain&rsquo,s Ordos mine. (Aurelien Foucault for Quartz)

Wang Jun, who goes the AI program under Zhan, has spent two years working on Bitmain&rsquo,s deep learning chip. The idea is to etch te silicon some of the most common deep learning algorithms, thus greatly boosting efficiency. Users will be able to apply their own datasets and build their own models on thesis ASICs, permitting the resulting neural networks to generate results and learn from those results at a far quicker rhythm. This is a mechanism that Google&rsquo,s DeepMind unit, based te London, used to train its AlphaGo artificial intelligence, using its own Tensor Processing Unit chips.

Bitmain plans to sell thesis chips to any corporation that wants to train its own neural nets&mdash,which means a vast swathe of the economy. Wang says tech firms like Baidu, Alibaba, and Tencent are among his target customers. Bitmain may eventually build its own gegevens centers containing thousands of deep learning equipments and rent out that computation power to clients, just spil it does with its bitcoin mines.

Wang, a veteran of Baidu and Google, argues that Bitmain has an edge te the deep-learning wedstrijd because its mining technology evolved from individuals using desktop computers, to graphics cards, to custom-built silicon. The deep learning industry is simply going through the same evolution that bitcoin miners already experienced. So what&rsquo,s next? &ldquo,ASICs,&rdquo, Wang says. &ldquo,Ter the bitcoin ASIC area, who&rsquo,s the best te the world? Bitmain.&rdquo,

A nimble, very focused, effort could take on the best efforts from the field&rsquo,s giants, says Taylor, the professor. Bitcoin mining, with its concentrate on razor-thin margins and cost calculations, could have spawned a formidable competitor to the Googles and Nvidias of the world. &ldquo,The companies that excelled te bitcoin mining have developed the abilities to sustain te an ultra-competitive, very commoditized industry, have superior system-level vormgeving expertise and know how to keep gegevens center costs down,&rdquo, Taylor says. &ldquo,The victors ter the bitcoin [chip] vormgeving competition handily defeated US-based efforts.&rdquo,

Money is just a story wij tell each other

Zhan may have solved the problem of naming Bitmain&rsquo,s deep learning ASIC, but he still has slew on his mind. He&rsquo,s months away from launching Sophon, which is due on the market before year&rsquo,s end. Even after surviving the bitcoin crash of 2014, he says he still feels beset by crises and business challenges.

He turns to philosophy for guidance. Around the same time he read The Three-Body Problem, he read Sapiens: A Schrijven History of Humankind, by Israeli historian Yuval Noah Harari. Ter it, Harari argues that storytelling is the human attribute that permits groups, society, and civilization to form. &ldquo,If wij believe ter the same story wij can work together,&rdquo, Zhan says.

I ask Zhan if he remembers that Harari argues that money is among the most powerful stories humans have told each other for centuries.

&ldquo,Yes&mdash,money, countries, democracy, even companies&mdash,all of thesis things are just virtual,&rdquo, Zhan says. &ldquo,After reading that book, I thought, yes, he is right. It struck mij so much. It&rsquo,s a very good book.&rdquo,

Correction: An earlier version of this article said Micree Zhan graduated from Tsinghua, he finished work on his thesis at Tsinghua, but graduated from the Chinese Academy of Sciences.

Related movie: How To Mine Bitcoin From Your Own Rekentuig!

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