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Comment by wmf | Hacker News Reader

Note that Bitmain is mostly a hardware vendor, although they do mine using their own equipment. Most of these chips will be sold to other miners, not used by Bitmain themselves.

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To repeat a comment from elsewhere, supposedly Bitmain's approach is to "burn in" their chips by mining and then sell them.

This approach gives them the latest, most energy efficient chips at a low cost since they then get sold.

Obviously, they could optimize the mine-to-sale ratio dynamically as mining-profits and chip-prices change.

So Bitmain is ordering 16 nm ASICs from TSMC but what they're selling you is last-generation... 16 nm ASICs.

Like a used motor in a "new" car. Unregulated...

It doesn't matter. Either it works or return it under warranty.

So they are like the saloon owners of the gold rush - huge profits made off of short term insanity of the masses.

Sort of, but they also represent a massive amount of Bitcoin's hashrate themselves.

I was wondering about this, why do they sell them instead of mining them? They could sell the older model once the new chips they designed are ready no?

Rumor is they do exactly that...

The cynical answer is that customers are willing to pay more than the hardware will ever mine over its lifetime.

The non-cynical answer is that setting up gigawatts of data centers is not trivial and not Bitmain's core competency. Also, selling the hardware upfront locks in the profit even if the price of Bitcoin later crashes.

Of course. That's the same non-cynical answer to the question "Why would TSMC sell the hardware instead of mine with it?"

TSMC also gets some benefits from being neutral; they don't compete with any of their customers. Bitmain has never been neutral.

The % of the network they would control would be too high maybe? Fundamentally the value of their product is based on the price of bitcoin. A single miner that gets close to 50% might be seen a a huge risk and drive down the price.

This is already the de facto case with Jihan. The threat is enough.

This article from last May says he has influence over 16.4% of blocks:

https://www.investopedia.com/news/who-jihan-wu-and-does-he-b...

Do you have any more recent numbers that tell a different story?

Let’s say some party/group gets 51%. Now they “own” the blockchain. Doesn’t its value drop to 0, thereby making the whole effort pointless?

I’m not going to buy BTC (or whatever) from that system, therefore the owners take no cash from it. Yeah they have all the BTC, but so what?

Everyone loses. What am I missing?

The movie plot here is to secretly get 51% of the hashrate, cash out a billion-dollar fraud, then walk away. In reality it's unlikely to happen.

If that were possible, it would be a one time thing I am guessing. But it's possible to short bitcoin now I believe. So ruining the network/reputation could be profitable?

I am speculating and don't know for sure.

You probably can't short a large enough amount to make it worthwhile. Also, due to Murphy's Law the price would probably go up.

That's my point exactly. They sell them to other people to ensure that doesn't happen.

Now I'm not actually sure if they produce enough for that to be relevant. But my understanding is they dominate the asic market and asics are the only thing that are profitable for mining bitcoin. It could be if they didn't sell and mined themselves they would have enough mining share to cause people to lose faith in the currency and crash the market.

> What am I missing?

Shorts? Conventional wisdom states that a 51% attack would destroy the very same value it would misappropriate, but when you can bet real money on BTC crumbling you get an entirely different playing field. Still very unlikely as everybody with that kind of hashrate is already rewarded far too handsomely, but if someone ever offers shorts on one of the smaller altcoins, I'd almost expect someone to state an at least cost-neutral attack just for kicks.

Because they can get more money faster by selling the mining units. Mining is not a guaranteed return but selling a unit is. Plus large scale mining requires a large capital risk (electricity), that is compounded with the large capital investment into the hardware.

Plus if they have significant BTC reserves (I believe they do) then selling mining equipment strengthens the BTC network and improves the value, maybe, of their current holdings.

This is even more interesting than I thought at first glance: by selling hardware to other miners (for conventional money, I suppose, as that's what they need to pay upstream suppliers like TSMC) they can fund large mining power bills without having to sell their cryptotokens to do so, which would depress the market, which would threaten their whole business. BTC will crash whenever the influx of money into the network is lower than the outflux to power suppliers. Miners can't "hodl" everything when they have power bills to pay. Selling chips to mining investors is a form of inviting new money into the network.

Diversification of assets is a real thing at that scale. They don't sell everything, but a balanced approach from conservative (selling mining equipment) to aggressive (mining as much BTC as possible.... and some other political stuff I won't get into) is how Bitmain runs their business. It's smart. You want to balance your ranges.

They're literally the ones selling shovels in the Bitcoin gold rush. Seems like a very good strategy. Plus, all the rumors they mine with the hardware a bit before selling, which I tend to believe because it's the obvious thing to do (you earn some BTC plus do the burn-in, which lets you catch defective units early).

A large percentage of the units shipped in January had clearly been in use for a while prior to shipping.

So to answer your question... they do mine their own hardware, and a lot of it.

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