It’s no secret that Bitcoin mining was a profitable business venture last year — but just how profitable was it?
First to the Gold Rush
2017 was an extremely profitable year for Bitmain Technologies Ltd., a privately owned Bitcoin mining company headquartered in Beijing, China. In addition to operating several of the world’s largest Bitcoin mining pools, Bitmain manufactures ASIC chips and the mining hardware that uses those chips. All total, the company raked in somewhere between $3 and $4 billion in profits last year, according to estimates made by Bernstein Research.
By comparison, dominant GPU manufacturer Nvidia’s operating profit was $3 billion during the same period, meaning Bitmain made roughly the same amount of money in 2017 as the technology industry giant. Unlike Nvidia, however, Bitmain achieved their success in only a fraction of the time – 1/6th, to be exact. In a report published last week, Bernstein analysts noted:
But Bitmain achieved this in merely four years, while it took Nvidia 24 years to get here.
How Did They Do It?
Bitmain’s rapid success stems from several sources of revenue within the Bitcoin mining supply chain, as shown in the following diagram from the Bernstein report:
First and foremost, the Chinese-based company revolutionized cryptocurrency-mining hardware by selling application-specific integrated circuits (ASIC) capable of mining Bitcoin 50 times faster than the competition. The company also manufactures and sells Antminer machines ranging from several hundred dollars all the way up to thousands of dollars per machine.
Secondly, Bitmain operates mining pools, which cuts down on mining costs by allowing miners to collaborate their efforts.
Most of the company’s profits come from the sale of their mining rigs, but their profitable mining venture in and of itself is nothing to scoff at. According to analysts:
The rest [of the profits] was largely generated by mining itself and, to a much lesser extent, by collecting management fees from the mining pools it operates and renting out the mining power of its mining farms through cloud services.
Thanks to their dominance on all fronts, Bernstein estimates that Bitmain holds claim to somewhere between 70 percent and 80 percent of Bitcoin mining’s total market share.
Furthermore, Bitmain is unlikely to go anywhere in 2018. According to the report:
In the year 2018, Bitmain will likely lead the cryptocurrency ASIC industry and migrate some of its chips to 10nm and the most advanced 7nm. That will make the company one of the top five users of TSMC’s 7nm in 2018, with demand comparable with Qualcomm’s, HiSilicon’s, or AMD’s.
That’s some serious company to keep.
Are you surprised to learn that Bitmain was so profitable in 2017? Do you think their success will continue into 2018? Let us know in the comments below!
Images courtesy of Quartz, Bitmain, Bernstein Research