The blockchain industry has recently experienced a surge of policy-driven optimism, leading to a rise in the value of virtual currencies. Bitcoin, in particular, has once again surpassed the $10,000 mark, sparking excitement across the cryptocurrency community. Among the direct beneficiaries of this trend are mining rig manufacturers, whose products are essential for Bitcoin extraction.
According to data from Frost & Sullivan, the world's largest growth consulting firm, Bitmain and Canaan Creative ranked first and second globally in terms of Bitcoin mining machine computing power and shipments as of June 30, 2019. Kong Meng, CEO of the VeryHash computing power platform, estimated that Bitmicro's Shenma mining machines performed exceptionally well in the second half of the year, potentially surpassing Canaan's Avalon miners.
The demand for Bitcoin mining hardware is closely tied to the price of Bitcoin itself. As long as Bitcoin's value continues to rise, mining remains profitable. However, other factors such as mining rig efficiency, operational management of mining farms, network difficulty, and regulatory policies also significantly impact profitability.
The Heart of Mining Hardware Distribution
As November arrives, the temperature in Shenzhen begins to drop, but the mining rig market in Huaqiangbei's SEG Plaza is heating up once again.
Han Xiaohu, who started selling mining equipment in 2017, operates a roughly 20-square-meter shop on the fifth floor of SEG Plaza, employing over a dozen sales personnel. He noted that very few shops managed to survive the industry's downturn, with the number dropping to single digits earlier this year.
With the recent rise in Bitcoin's value, mining hardware sales have become profitable again. Current estimates indicate around 82 mining-related businesses in SEG Plaza, with retail shops concentrated on the fourth and fifth floors, while mining offices are scattered throughout the building.
During the peak in late 2017, the mining hardware trade in Huaqiangbei was at its most vibrant. Soaring Bitcoin prices made mining rig sales one of the most lucrative businesses in the area. Not only did specialized dealers flock to secure storefronts, but even merchants traditionally selling phones, computers, and other electronics began offering mining rigs to capitalize on the trend.
Couriers from major logistics companies were constantly hauling away carts loaded with mining equipment. dealers from around the world moved from booth to booth, inspecting goods, negotiating prices, and placing orders—some transactions involving hundreds of machines and millions of dollars were settled in mere minutes.
"At the peak, over half the shops in SEG Plaza were selling mining rigs," Han remarked, pointing to store signs bearing the word "mining" as indicators of newly opened businesses. "Back then, we were too busy to even think about renovating. The mining business was volatile; many sellers were in it short-term and didn't want to invest in refurbishment. You might put up a new sign only to find business had already slumped."
The emergence of Shenzhen as the world's largest mining hardware distribution hub is no coincidence. Huaqiangbei has long been a center for electronics trading, having seen booms in products like iPhones, custom-built computers, and memory modules. With the rise of Bitcoin, mining rig sales became a highly profitable venture, attracting traditional electronics dealers to pivot toward this new opportunity.
Additionally, the local government in Shenzhen has maintained a relatively tolerant stance toward emerging technologies like blockchain. More importantly, the robust electronics design and manufacturing capabilities in and around Shenzhen have made it an ideal location for mining hardware chip production.
However, starting in March 2018, increased global regulatory scrutiny on virtual currencies led to a sharp decline in Bitcoin prices. Mining rig values plummeted, sales contracted dramatically, and the industry entered a prolonged downturn. The extended bear market forced many mining businesses into bankruptcy.
The first half of 2019 saw Bitcoin prices begin to recover. "Sales were particularly strong from April to July this year," Han noted, attributing this primarily to the rising value of Bitcoin. "Antminer and Shenma mining machines have been selling very well, while Avalon and Ebang miners have struggled due to production capacity issues."
Regarding the recent policy support for blockchain technology, Han remained cautious. "Sales have still been relatively slow lately. New mining rig sales are primarily going overseas, while domestic demand is mainly for updating existing equipment in mining farms."
Walking through the fourth and fifth floors of SEG Plaza, few shops have customers engaging in serious discussions—most owners or sales staff are passing time playing mobile games. Li Dongnan, responsible for the mining service platform QuickFrog, noted that for Bitcoin mining, policy factors are only short-term indicators with limited impact on long-term fundamentals.
The Evolution of Bitcoin Mining
On November 1, 2008, amid the global financial crisis, an individual or group using the pseudonym Satoshi Nakamoto published the Bitcoin whitepaper, "Bitcoin: A Peer-to-Peer Electronic Cash System," outlining a new vision for digital currency. Bitcoin was born.
On January 3, 2009, the Bitcoin genesis block was created. Initially, the block reward was 50 Bitcoins, with new coins generated at a rate of 50 every ten minutes. This reward halves approximately every four years.
The total supply of Bitcoin is permanently capped at around 21 million coins. When the total reached 10.5 million (50% of 21 million), the block reward halved to 25 Bitcoins. Upon reaching 15.75 million (an additional 5.25 million, or 50% of 10.5 million), it halved again to 12.5 Bitcoins. In the current cycle, the system rewards users who successfully validate transactions with 12.5 Bitcoins per block.
The Bitcoin rewarded through this process represents the system's initial issuance and circulation. In many ways, this resembles the extraction of buried mineral resources. Thus, industry participants refer to the provision of computational resources to compete for transaction validation rights as "mining." Those who participate are called "miners," the computational resources they use are "mining rigs," and the computing power these machines possess is called "hash rate."
How Bitcoin Mining Operates
Since all Bitcoin is obtained through mining, how exactly does the process work? This involves two key concepts: mining farms and mining pools.
Much like extracting coal or gold, Bitcoin mining requires equipment—in this case, computers solving complex mathematical problems. A Bitcoin mining farm is essentially a facility housing dozens, hundreds, or even thousands of mining machines working collectively to solve these problems and earn Bitcoin.
Typically, Bitcoin mining consumes enormous amounts of electricity. According to a CCTV investigation, a medium-sized mining farm with 5,000 machines consumes approximately 60 million kWh annually—equivalent to the yearly residential electricity consumption of a town of 100,000 people. Consequently, most mining farms are located near power stations where electricity costs are low.
Currently, Bitcoin mining operations primarily use either hydropower, concentrated in regions like Yunnan and Sichuan, or thermal power, mainly found in Inner Mongolia.
If mining farms represent the physical collection of mining hardware, mining pools represent the aggregation of miners' computational power. Specifically, a mining pool is an open, automated platform where miners contribute their machines' hash rate to collectively mine Bitcoin and share rewards.
As more miners join the network, the total computational power increases, making individual mining increasingly unpredictable. To achieve more stable returns, miners began pooling resources to compete more effectively, giving rise to the concept of Bitcoin mining pools.
In practice, mining pools don't perform calculations themselves but distribute tasks to connected machines. By joining a pool, Bitcoin users avoid the need to run full nodes while reducing variance in their mining rewards.
In the short term, mining success involves an element of luck. Pool profitability is influenced by "luck"—higher luck increases the probability of earning Bitcoin and achieving greater returns. Currently, mining pools primarily use three reward distribution methods: PPLNS, PPS, and PROP.
According to BTC.com data, the top five mining pools by hash rate are Poolin, F2Pool, BTC.com, AntPool, and ViaBTC, with the latter three affiliated with Bitmain.
Industry Transformation and Competition
As Bitcoin's total value has grown, a comprehensive industry ecosystem has emerged, roughly divided into upstream, midstream, and downstream sectors. Upstream involves the design, production, and sale of mining hardware; midstream encompasses mining pools and farms; downstream includes exchanges and wallets.
Mining machines are crucial to Bitcoin extraction, with power consumption per unit of hash rate serving as a key performance metric. Given equal computing power, lower energy consumption indicates better machine performance.
Initially, Bitcoin block rewards were larger, and success rates for transaction validation were higher. As overall network computational power increased, mining became increasingly difficult, necessitating continuous hardware upgrades to maintain profitability.
The Journey to ASIC Dominance
Looking back to 2011, Bitcoin mining chips underwent significant evolution, transitioning from personal computer CPUs and GPUs to Field-Programmable Gate Arrays (FPGAs).
In August of that year, Canaan Creative founder Zhang Nangeng, then pursuing a PhD in computer science at Beihang University, appeared on the Bitcoin Forum under the ID "ngzhang." He began promoting his self-developed FPGA miners—Icarus and Lancelot—gaining recognition within the community. Since his real identity was unknown, members referred to him as "Pumpkin Zhang," a nickname that persists today.
By June 2012, U.S.-based Butterfly Labs announced plans to develop an Application-Specific Integrated Circuit (ASIC) miner vastly superior to existing FPGA models. The company promised to deliver the first batch of ASIC miners by October that year, raising $1 million through crowdfunding.
If successful, ASIC technology could multiply Bitcoin mining profits. While this represented a major advancement for mining, it posed a significant threat to Pumpkin Zhang's operations.
Inspired by Butterfly Labs' crowdfunding approach, in August 2012, Jiang Xinyu (aka "Fried Cat"), a prodigy from the University of Science and Technology of China, and David (Fan Dawei) conducted an IPO on the GLBSE exchange. Their company, Asicminer, issued 40,000 total shares, with Fried Cat's Bitfountain holding 59%. Shares were priced at 0.1 BTC each, raising approximately 1 million RMB at prevailing exchange rates. Upon hearing the news, Bitmain co-founder Jihan Wu immediately invested in Fried Cat's venture.
Amid growing excitement around ASIC technology, three teams raced to develop viable machines.
Pumpkin Zhang soon partnered with Yifu Guo, an early Bitcoin adopter and Chinese-American programmer, announcing in September 2012 their collaboration on an ASIC miner. With his passion for Japanese anime, Pumpkin Zhang named the new machine "Avalon."
Butterfly Labs repeatedly delayed their promised October delivery, buying time for Pumpkin Zhang and Fried Cat.
In January 2013, Canaan launched the world's first ASIC miner.从此，Avalon and Pumpkin Zhang were etched into Bitcoin's history, marking the dawn of the ASIC mining era.
That same year, Jihan Wu and Micree Zhan decided to establish Bitmain, launching the Antminer S1 in December. Its performance surpassed the Avalon A1, and Bitmain's rapid iterations of Antminer models gradually outpaced competitors.
The Race for Public Listings
With Bitcoin's return to the $10,000 threshold, major mining hardware giants have revived their plans for public offerings.
On October 28, Canaan Creative formally submitted its prospectus to Nasdaq. Credit Suisse, Citigroup, Huaxing Capital Holdings, and CMB International jointly underwrote the offering. Trading under the ticker symbol CAN, the company aimed to raise $400 million—a significant reduction compared to its earlier Hong Kong IPO targets.
The prospectus revealed that for the first half of 2019, Canaan Technology, the entity listed on Nasdaq, reported total revenue of 289 million RMB, down sharply from 19.471 billion RMB during the same period in 2018—an 85.2% decrease. The company posted a net loss of 331 million RMB, compared to a net profit of 216.8 million RMB a year earlier.
Canaan's product revenue primarily comes from two sources: blockchain products and AI products. Blockchain products, particularly mining hardware sales, have consistently been the company's mainstay.
In the first half of 2019, Canaan's mining equipment revenue amounted to 287 million RMB, mostly from Avalon A8 series sales. AI products generated only 500,000 RMB in revenue, compared to 300,000 RMB in the second half of 2018. Prior to this, Canaan's AI products had generated no income.
Recently updated prospectus materials showed continued losses into the third quarter of 2019. This is puzzling given that Bitcoin prices began recovering in the second quarter, breaking through $10,000 in May and even reaching a high of $14,000. While Bitmain and Shenma reported substantial revenue growth during this period, Canaan continued to struggle financially.
Meanwhile, industry leader Bitmain has reportedly restarted its IPO process. According to sources, the company has secretly filed with the U.S. Securities and Exchange Commission (SEC), with Deutsche Bank acting as underwriter. Bitmain has declined to comment on market speculation.
Previously, in 2018, Canaan, Ebang International, and Bitmain all submitted prospectuses to the Hong Kong Stock Exchange, with none ultimately succeeding. Canaan had also attempted listings on China's A-share market in 2016 and the New Third Board in 2017, both ending in failure. This time, Canaan and Bitmain have shifted their listing targets to Nasdaq.
Yang Jiakang, CFO of Qudian, who has worked on numerous U.S. and Hong Kong listed companies, explained that the regulatory focus differs significantly between the Hong Kong exchange and Nasdaq.
"U.S. regulators primarily care about whether investors are willing to buy, Yang noted. "Even Chinese internet finance companies that might not comply with local regulations can list in the U.S. In contrast, the Hong Kong listing committee employs certain screening criteria to determine which companies can list, focusing on sustainable operational capabilities—such as whether future operations might face regulatory rejection, business model sustainability, and customer concentration levels."
Yang further elaborated that U.S. regulatory核心 revolves around accounting principles and complete, truthful disclosure. They examine whether appropriate accounting treatments are applied and, if there are flaws, whether they have been fully and accurately disclosed to investors. As long as disclosures are complete and truthful, decision-making power rests with investors. The U.S. system can operate this way due to its robust class-action mechanism—companies that deceive investors face severe penalties, ranging from executive imprisonment to corporate bankruptcy.
On November 12, reports emerged that Canaan planned to list on Nasdaq on November 20, with chairman Kong Jianping allegedly sending out invitations. However, Kong denied the rumors on social media, joking, "What does this invitation look like? If anyone has one, please send it to me so I can study it."
Frequently Asked Questions
What factors determine Bitcoin mining profitability?
Mining profitability depends on several key factors: Bitcoin's market price, the efficiency and power consumption of mining hardware, electricity costs, network difficulty, and regulatory environment. Higher Bitcoin prices generally increase profitability, while rising energy costs or network difficulty can reduce margins.
How do mining pools distribute rewards to participants?
Mining pools primarily use three reward distribution methods: PPLNS (Pay Per Last N Shares), which rewards miners based on their contribution to the last set of shares; PPS (Pay Per Share), which offers instant payouts for each share submitted; and PROP (Proportional), which distributes rewards proportionally to work contributed during the round.
Why are mining companies seeking listings on U.S. exchanges rather than in Asia?
U.S. exchanges like Nasdaq focus primarily on disclosure requirements and accounting standards, allowing companies to list if they provide complete and accurate information to investors. Asian exchanges often employ more qualitative screening criteria, evaluating business sustainability and regulatory compliance, which has proven challenging for mining companies given the industry's volatility.
What's the significance of ASIC miners in Bitcoin's development?
ASIC (Application-Specific Integrated Circuit) miners represented a quantum leap in mining technology, offering vastly superior efficiency compared to earlier CPU and GPU mining. Their introduction professionalized Bitcoin mining, dramatically increasing network security while raising concerns about centralization of mining power.
How does Bitcoin's halving cycle affect mining operations?
Bitcoin's predetermined halving events—which reduce block rewards approximately every four years—directly impact mining economics. Each halving decreases mining revenue unless offset by price increases or efficiency improvements, historically creating significant pressure on less efficient operations.
What are the main challenges facing Bitcoin mining companies today?
Key challenges include Bitcoin's price volatility, increasing energy consumption concerns, environmental regulations, technological obsolescence of mining hardware, and evolving global regulatory frameworks. Companies must navigate these while maintaining operational efficiency and competitive advantage.
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