Mining Tycoon Wu Jihan and the History of Bitcoin Mining in China

Jessy, Golden Finance

On April 20, Beijing time, Bitcoin ushered in its fourth halving.

Halving represents an increase in the difficulty of mining, which has a profound impact on the mining industry. Mining is undoubtedly the most closely related vein between China and Bitcoin.

At its peak, China once accounted for more than 70% of Bitcoin mining computing power, and Bitmain alone had more than 50% of the computing power. Such a high computing power is enough to launch a 51% computing power attack on Bitcoin.

After the Chinese government forcefully cleared the mining industry in 2021, a large number of mines evacuated China. Bitcoin's mining computing power in China has even dropped to zero. With the export of Chinese mining machines and the recovery of mining power, the big bosses behind those large overseas mines are still Chinese. According to statistics from chainbulletin, in 2023, China will still account for 21% of Bitcoin's computing power. In those areas that are not incorporated into the national power grid, the roaring mining machines are still working day and night.

China is a significant part of the history of Bitcoin mining. The fate of mining leaders has also risen and fallen with the changes in the industry, and the life experience of former mining tyrant Wu Jihan is a mirror reflecting the development of mining in China.  

Unique Mining Tyrant

In China, an industry leader that cannot be ignored in the history of Bitcoin development is Wu Jihan, who is the Chinese translator and early evangelist of the Bitcoin white paper, and is more well-known as the founder of Bitmain.

At the peak of Wu Jihan's career, that is, in 2018, Bitmain's self-operated mining accounted for more than 50% of the special computing power, and at this time, it was already possible to launch a computing power attack on Bitcoin. At that time, Bitmain was indeed in its heyday, and computing power was power. In the battle between the big and small blocks of Bitcoin, Wu Jihan led Bitmain and miners to fork Bitcoin, and BCH was born.

From another perspective of the fork incident, China at that time enjoyed a high voice in the crypto industry.

In 2018, eight of the top ten mining pools in terms of computing power were located in China. Mining farms that sprang up near small hydropower stations in Sichuan and thermal power plants in Inner Mongolia have made a number of Chinese mine owners rich. At that time, local governments also turned a blind eye to mining activities. After all, the taxation of large mines is also a fiscal revenue, or there is no place to consume excess electricity. Even some local officials participated in it.

In 2018, a reporter from Golden Finance visited a mine that was about to be built in Inner Mongolia, and at that time he directly discussed cooperation on electricity discounts with the local flag chief.

The amount of mining power is only one aspect. At this time, China still occupies the center of the crypto industry. Many projects are going to make a pilgrimage to the East. If there were no funds from the East, there might not be Ethereum today.

In June 2021, China banned mining and Bitcoin plummeted. With the tightening of China's Bitcoin policy, most of the mines moved out of China. Mainland China, which once accounted for more than 70% of Bitcoin mining computing power, gradually lost its voice in the development of Bitcoin. Bitcoin mining computing power in China even fell to zero at one point. By the beginning of 2022, China's mines had basically completed the great migration to overseas, and countries such as the United States, Russia and Kazakhstan became the countries with the largest influx of computing power. The United States also became the mining power overlord.

It seems to be a coincidence that in the year when Bitcoin mining officially "withdrew" from China, Wu Jihan left Bitmain. The departure was due to the internal struggle of Bitmain. Since then, Wu Jihan has become low-key, which seems to be related to China's policy on virtual currency.

Wu Jihan's Twitter has been inactive for a long time. The last tweet was in 2018. His personal profile on Twitter still reads "Co-founder of BITMAIN".

After leaving Bitmain, Wu Jihan has not completely disappeared from the industry, but he is no longer in the spotlight. He deliberately keeps a low profile and basically does not attend important conferences in the industry. He avoids media interviews.

Mining has basically left China, but there are still Chinese people behind the mining companies that have gone overseas and some mining pools. Wu Jihan brought BitDeer, which was separated from Bitmain and focuses on the overseas market, to Nasdaq.  

Leaving Bitmain, but inseparable from mining 

At the beginning of 2021, Wu Jihan resigned as CEO and chairman of Bitmain. The civil war between Wu Jihan and Zhan Ketuan ended. BitDeer, the cloud computing business of Bitmain, and its overseas mining farms were separated and belonged to Wu Jihan.

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From the perspective of the split business, Wu Jihan was either smart or lucky at the time, and what belonged to him was cloud computing power and overseas mining farms. Shortly after the split, the Chinese government began to clear out the mining farms.

BitDeer is a platform that provides users with mining machine sharing services, which saves users the complicated process of purchasing, installing, and hosting mining machines. In 2023, it helped Wu Jihan realize his dream of ringing the bell on Nasdaq and became China's mining unicorn. Bitmain, which has mentioned IPO again, has not yet been listed.

The establishment and success of BitDeer is also a product of the continuous change of mining technology and business model. Over the years, not only has the hardware mining machine for mining been constantly replaced, but also the individual mining has shifted to collective mining. The popular cloud computing mining model is also on the rise. This model allows everyone to participate in the mining of cryptocurrencies such as Bitcoin without owning or managing mining machines themselves, but only needs to pay to rent the computing power of the organization.

BitDeer has three main businesses: self-operated mining business, that is, the company mines cryptocurrencies for its own accounts; computing power sharing business, providing two solutions: cloud computing power and computing power market; in the computing power market solution, the company acts as a medium to connect third parties (such as miners or mine owners) and customers with computing power needs, and only charges service fees.

According to BitDeer's fourth-quarter financial report last year, we can find that the bulk of its revenue still comes from self-mining income. It is currently the world's second largest holder of self-owned computing power, and its mines are in the United States, Norway, Bhutan and other places.

As can be seen from the above, Wu Jihan, who left Bitmain, did not leave the mining industry. He opened mines overseas in a low-key manner to make money.

The way Wu Jihan's mine went overseas is what regular mines do. On the other hand, mining has not completely disappeared in China.

In areas that are not incorporated into the national power grid, mining is still quietly going on in private hydropower stations. According to statistics from chainbulletin, in 2023, China's Bitcoin computing power accounted for about 21.1%, second only to the United States. The reason for this, according to industry insiders, is that some miners will evade domestic monitoring through foreign proxy servers, conduct small-scale and secret mining in remote areas, and even use off-grid power generation to avoid power monitoring.

The policy withdrawal cannot kill the mining industry, and it can grow tenaciously in the cracks. When leaving Bitmain, Wu Jihan also took away the digital asset financial service platform Matrixport. It is more like a private bank in the Web3 world. Although there are many financial management platforms on the market now, the biggest feature of Matrixport is that it is regulated and has licenses in Hong Kong and Switzerland, targeting high-asset customers and institutional customers. Matrixport is more well-known to insiders for its frequent publication of research and judgments on the market.

POW is not dead, mining is endless 

It cannot be ignored that the POW narrative is actually gradually losing its charm. The main reason behind this is that it consumes too much energy and is not environmentally friendly. Ethereum has therefore switched to POS. Mining is no longer the main narrative of the industry.

In order to cope with the reduction in income caused by halving, miner groups are also working together to find solutions.

The mining industry is chilling. In the last bear market, some mining companies filed for bankruptcy. In this bull market, a cruel reality has also emerged. The rise and fall of mining stocks and Bitcoin have decoupled. As Bitcoin continues to break new highs, mining stocks have fallen instead of rising.

In the short term, institutions seem to be more inclined to go long on Bitcoin ETFs and short on mining stocks. We have seen this situation since the beginning of 2024.

For traditional investors, they could have invested in the cryptocurrency circle by investing in mining stocks, but now they have a new option-Bitcoin spot ETFs.

For the mining industry, this can be regarded as an attack from both sides. So last year, inscriptions became the new favorite of miners, and they made a lot of money. Because of the interests involved, the miner group is also the largest support group behind the inscriptions. The biggest beneficiaries of issuing assets on Bitcoin are undoubtedly miners. From this perspective, after the halving again, "innovations" such as inscriptions and runes that can increase miners' income will definitely emerge in an endless stream.

In order to cope with the increase in costs, it is not only necessary to open up new sources of income, but also to reduce costs.

According to the mining report released by CoinShares, the average production cost of each Bitcoin is expected to be US$37,856 after the halving in 2024. With the continuous increase in mining costs, self-developed mining machines have become one of the ways out. After the halving, the difficulty of mining has increased, and the performance requirements for mining machines have become higher and higher. Self-developed mining machines can also help reduce costs and increase efficiency. BitDeer announced its self-developed mining machine at the beginning of this year and has purchased chips from TSMC.

Looking at the development history of the mining industry and its development trajectory in China, we can see that as long as POW does not disappear, miners will always find ways to survive and even make enough money. Just like Wu Jihan, who has experienced the peak, turmoil, palace fighting, and low-key behavior, he can still flexibly continue to contribute the Chinese people's strength to the mining industry.