Will bitcoin ASIC miners still be dominated by the Chinese?

Bitcoin mining, for the majority of its current lifespan, has been dominated by one country in almost all aspects. That would be the country of China. At one point in time, China dominated the global bitcoin mining hashrate with over 65% of all hashrates coming from a bitcoin mine located within the borders of China. But like with everything, the tables turn.

Last year around May, the inevitable came as the Chinese government banned all bitcoin miners from mining in China. Almost all the large scale miners were forced to shut down and move operations overseas. Most of them went to the US as crypto friendly regulations started to arise with the popularity of crypto during the 2021 bull run.

At the moment, the large majority of bitcoin mining hashrates are coming from North America, which includes the US and Canada.

But China still dominates in another area of bitcoin mining. And that is bitcoin ASIC miner manufacturing and chip design.

The large behemoths of Bitmain and MicroBT have been dominating the ASIC space for the majority of bitcoin’s life. Early movement, proprietary design, strong supply chain, agile manufacturing, and years of experience have given both Bitmain and MicroBT a large moat in their competitiveness.

Along the years, a few companies have tried to come out with their own ASIC design and architecture only to quickly realize that they are no match for the ASIC kings.

But just earlier this year, Intel announced their intention to manufacture a rival chip to Bitmain’s. At a mining initiative earlier this year, Intel revealed their first-generation BonanzaMine chip and is ramping up for the second generation. This made huge news in the mining scene as Intel’s reputation gave this announcement strong credibility.

A few mining companies have already made purchases of the Intel mining chip, such as Block Inc., Grid Infrastructure, and Argo Blockchain. They expect to be able to receive the new chips later this year in 2022.

Many people have already speculated that Intel’s entry into the bitcoin mining scene could weaken the Chinese manufacturers’ pricing power and dominance. Now that many miners are located in North America, proximity to the California-based Intel could improve supply chain movements and maintenance care extended to buyers.

In any industry, competition is healthy. It motivates innovation, newcomers, adaptability, and the long-term sustainability of the industry. Many believe Bitmain and MicroBT have been the leaders for too long and think that new rising competition could help the industry overall.

One aspect that miners are looking forwards to is the fixed pricing model of Intel’s chips. At the moment, Bitman and MicroBT only supply their ASICs on a variable pricing model. This uncertainty is sometimes unwarranted from buyers and large-scale miners that need confidence in pricing to balance profitability.

“Prices of pre-ordered machines are updated every day within that range based on the manufacturers’ internal pricing models. Bitcoin’s spot price and the payback period, which is the time needed to break even, are key factors in these models” — Nick Hansen, chief executive of Seattle-based mining pool and hardware brokerage company Luxor.

Tong Lai, head of Singapore’s Babel Finance which provides lending services for Bitcoin miners, has stated that Chinese miner makers do not sell machines at a fixed price. The reason being is that they do not have much control over its suppliers’ pricing costs. This disables them from having future certainty to prices and profits.

Details on Intel’s second-generation chip, such as power efficiency and pricing, are yet to be available and some miners are skeptical of the significance of Intel’s entry into the industry. Intel revealed its first-generation chip has the power efficiency of 55 joules per terahash falling far behind Bitmain’s latest model, according to Intel’s paper submitted to the International Solid-State Circuits Conference. The details on its second-generation product, which is what the buyers are purchasing, will be released at a later time, a spokesperson from Intel told Bloomberg. (1)

But familiarity and location are a huge plus for North American miners. Intel, being a world leader in many aspects of the computer industry gives miners the assurances that Intel puts quality at its top priority. The location also allows Intel to provide enterprise-grade maintenance programs for miners which may allow for mining rigs to have a longer shelf life.

Time will tell on whether Intel can pull some market share away from Bitmain and the other Chinese ASIC manufacturers. The chip and semiconductor manufacturer market share are still dominated by a few companies, let alone the bitcoin ASIC miner space. There is a great piece that summarizes the current state of the land when it comes to semiconductors done by Compass Mining which can be found here.

Intel is going to need a lot of resources and networks in order to break in and make a huge impact in the mining scene. If they really are able to get a large market share in the US, then they could have some positive momentum. But if miners all over the world are still content with using miners from the existing powerhouses of Chinese miners, then Intel is going to have an uphill battle.

As stated before, there’s already been a lot of teams trying to take down the leaders of the bitcoin mining space, but going up against them is like going up against Goliath. They have the experience, networks, knowledge, and agility to navigate in this industry. First mover advantage is also a key factor.

Leave a Reply

%d bloggers like this: