Bitmain crypto miner maker earned more than Nvidia in 2017
Bitmain made an estimated $3 to $4 billion from hardware and mining pools in 2017, but can it last?
Investment research company Bernstein estimates that Bitmain earned $3 to $4 billion in 2017, CNBC reports. Estimates are based on "conservative" gross margins of 75% and operating margins of 65%. At the same time, Nvidia's earnings were estimated at $3 billion.
The company's bread and butter might be ASIC (application specific integrated circuit) mining cards, specially designed for cryptocurrency mining and around 50 times more efficient than equivalent GPUs (video cards). They usually sell for a few hundred to a few thousand dollars each, but Bernstein notes that Bitmain adjusts prices based on bitcoin prices at the time, so 2017 might have been a bumper year for the four year old Chinese company. When bitcoin peaked at around $20,000 the Antminer s9 was going for about $5,000 according to Bernstein.
Alongside the hardware, Bitmain also operates mining pools and cloud mining services, in which users pool their computing power for a better chance of mining blocks, and share the returns. These might also make a solid contribution to Bitmain's revenue.
There's definitely money in mining and demand for mining hardware has also had the effect of pushing up GPU prices. Nvidia and AMD have both been relatively powerless to do much about this, and it's rumoured that Nvidia will be releasing a mining card to boost its revenue and lessen the demand for its gaming cards.
Even when bitcoin prices peaked, the energy costs meant it probably wouldn't be worth mining bitcoin in Australia. But colder climes are seeing mass migrations, with miners setting up warehouses full of ASIC cards to optimise efficiency.
ASIC cards are mostly used for mining bitcoin, which has resulted in a small handful of warehouses and mining pools being responsible for almost the entire bitcoin network. In the case of bitcoin, there are only a few mining groups in charge of the network. Bitmain's Antminer pool, for example, controls about 15% of bitcoin's mining power.
To avoid this arms race effect and ensure more network diversity, most other cryptocurrencies penalise ASIC miners to make sure mining power remains more spread out. This hasn't deterred Bitmain though, and it's also diversified by offering high powered mining-specific GPUs for Ethereum and Dash.
Just like a cryptocurrency needs diversity, so might Bitmain. Bitcoin alone might be a relatively unreliable revenue stream, and the cost of its hardware might fluctuate just as much as bitcoin prices. Mining pools and high powered GPU mining hardware for other coins might help in the short run, but in the much longer run it might not last.
There's been a distinct shift away from cryptocurrency proof-of-work mining algorithms (hardware powered) to more efficient proof-of-stake systems which don't need any miners at all, per se.
Bitmain's Ethereum mining GPUs, for example, might quickly become useless when Ethereum switches to its Casper proof-of-work update. Bitmain became a multi-billion dollar business in just 4 years, while Nvidia spent decades getting to the same place. It might need to diversify further to keep growing.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, SALT, BTC