Banking & Finance

Unfinished business

Famed “ghost town” now home to world’s largest Bitcoin miner

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Inside a Bitcoin mine

Ordos, a city in Inner Mongolia, grew in line with China’s thirst for coal. Now those plentiful pits have helped a new form of twenty-first century mining to prosper.

Bitmain is the world’s largest miner of Bitcoin. Although its headquarters are in Beijing, its factories are in Ordos, some 400 miles away. Housed in seven large hangers in a half-empty industrial park, Bitmain’s 21,000 computers run 24 hours a day, cracking the code that unearths new Bitcoins.

This is energy-intensive work. Quartz reports Bitmain burns $39,000 on electricity bills each day, and the majority of the energy comes from coal-fired power plants. In order to entice energy consuming customers, Su Jiahai, Bitmain’s government liaison, told TMT Post the local government offers a 30% discount on electricity rates.

Besides offering policy incentives, Ordos is also favoured for the stability of its energy supply. Other hot spots for Bitcoin mining in Yunnan and Xinjiang depend more on renewable energy (see WIC369), but its availability is less reliable. According to Quartz, a mine has the potential to earn five new Bitcoins every four minutes, with each coin worth around $4,000 as of last week. A constant energy supply is vital to success.

And Bitmain has had plenty of success. Its mining facilities earn around $250,000 a day and house close to 4% of the total processing power invested in Bitcoin, TMT Post reports. The company also has another 4,000 servers digging for a different cryptocurrency, Litecoin.

Bitmain also deals in hardware, vertically integrating its business. It not only mines for money, it designs the computer chips and processing units to do so, which it then also sells to other miners. It manages two mining pools – virtual networks where groups of miners combine their processing power to crack the blockchains quicker and share the dividends. These two pools comprise nearly 30% of Bitcoin’s global processing power.

Bitmain has grown so big that many worry it is poised to gain too much control over a currency that was conceived precisely to stop a single source governing its value. Samson Mow, CSO at consultancy firm Blockstream said, “[Bitmain CEO Wu Jihan] does have a lot of control for now, and much of that is simply due to centralisation. As Bitmain is so vertically integrated… he can prevent network upgrades and attempt to hijack the Bitcoin brand with things like Bitcoin Cash”.

Then again, Wu’s power is still dwarfed by that of Beijing.

Last week the Chinese government clamped down on the use of cryptocurrencies, banning ICOs (see WiC379). This week there were reports that Bitcoin exchanges would be banned as well and that only over-the-counter trading will be permitted. Yesterday China Bitcoin Exchange – the largest trading platform– said it would stop trading, leading to a 20% plunge in Bitcoin’s value.

With the industry facing tighter restrictions and greater uncertainty, Bitmain looks to have picked the right time to branch out into artificial intelligence.

The AI field already has a number of leading players, but experts believe the sector is overdue a hardware revolution and that blockchain miners are well positioned to deliver it. Michael Taylor, a professor at the University of Washington, thinks that application-specific integrated circuits (ASICs) will be the next hardware that AI units depend on, and ASICs are what Bitmain develops.

In April Finance Magnates, a magazine, reported that Bitmain had opened an AI research centre in Israel, and was combing America for talent. Its future ASIC chip, which will store deep-learning algorithms used in AI, already has a name. Bitmain’s co-founder Micree Zhan calls it Sophon, after a world-changing supercomputer featured in the Chinese sci-fi novel The Three-Body Problem (for more on this prize-winning book see WiC338).


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