In a pre-IPO funding round, the world’s largest Bitcoin mining and chip developer, Bitmain, raised $1 billion, valuing the company at $15 billion.
Bitmain Fundraising is Building up a Significant War Chest
Beijing-based Bitmain is the leading manufacturer of Application Specific Integrated Circuits (ASICs), specialized computer chips designed to mine Bitcoin and other cryptocurrencies. The company also operates mining pools that allow individuals and other companies to contribute computational resources to improve the probability of earning Bitcoin rewards for validating transactions.
The company was founded 5 years ago by Jihan Wu and Micree Zhan when Wu was was just 27 and has quickly become the most dominant overall manufacturer of cryptocurrency-mining equipment as well as operator of mining operations and pools.
Wu, Bitmain’s co-CEO, has ambitious plans for the firm intending to maintain its market lead in hardware as well as develop new products related to Artificial Intelligence (AI) according to an interview with Fortune in June, 2018. He also realizes that regulations are going to be one of the major challenges for his firm going forward:
In fact, this round of Bitmain fundraising is just the latest to go along with a $400 million at a $12 billion valuation series B round led by Sequoia Capital just over a month ago in June 2018, according to Crunchbase.
Some of the money from Bitmain fundraising has already been put to use in strategic investments the company has made. The firm invested in Block.one, the company behind Ethereum rival EOS in July according to Bloomberg and also recently invested in Opera, which is adding cryptocurrency features to its web browser.
Perhaps the reason for the hearty valuations and splashy investments have to do not only with the potential of the cryptocurrency mining market but it has also shown the company’s ability to generate healthy profits even during turbulent times for the price of Bitcoin.
According to an email obtained by Fortune’s newsletter Term Sheet, Bitmain had a net profit of $1.2 billion and a 50% net margin in 2017 and they nearly matched those profits in the first quarter of 2018 with $1.1 billion net profit.
A Bitmain IPO Is Likely Coming Soon
The report from QQ also mentions Bitmain’s plans to IPO on the Hong Kong Stock Exchange, possibly being listed before the end of the year. This is consistent with Wu’s statements in an interview with Bloomberg in June that he was open to the idea of a public listing for the company.
A publicly listed Bitmain would make the company even more of a behemoth in a market it already dominates. The Bloomberg article also references research from Sanford C. Bernstein & Co., which in February 2018 released a report that indicated Bitmain mining hardware is responsible for 70- 80% of all Bitcoin mining. Not to mention that Bitmain-controlled BTC.com and Antpool mining pools are responsible for about 40% of the hashrate (computing power) of total bitcoin mining over the past 3 months according to BTC.com.
Bitcoin Mining Pool Hash Rate – Past 3 Months
Going public would help Bitmain maintain this considerable lead in its current markets and would also help to legitimize the company in the eyes of regulators. The move would also help the company to diversify into other businesses where it can utilize its expertise in chip manufacturing yet avoid some of the risk that comes with cryptocurrency markets.
Will Bitmain Ruin the Decentralization of Bitcoin?
So what will the flurry of Bitmain fundraising mean for Bitcoin and the broader cryptocurrency markets? Well, one of Bitcoin’s primary differentiators is its decentralization. With the vast amounts of influence that Bitmain already has in the Bitcoin mining industry and the war chest to maintain or increase their lead the fear is that they may become ‘too’ dominant.
The security of Bitcoin is ensured through its Proof-of-Work consensus algorithm that requires significant computational power and thus electricity to validate (or mine) each transaction.
In order to validate a transaction miners use mining hardware to find the answer to a cryptographic equation that’s so difficult the only way to find the solution is to guess. The first miner to guess gets a reward (currently 12.5 Bitcoin or about $85,000 at the time of writing) and the probability of winning is proportional to how much power the miner has compared to all those trying to mine.
If a miner were ever able to gain control of 51% of the network, they would in theory win more often than not and that could allow them some control over which transactions go through or potentially the ability to alter transactions.
Though Bitmain has never shown any inclination towards this type of ‘51% attack’ on the Bitcoin network, with its vast and growing resources and influence there is a concern among the crypto community of the centralization they represent, and ‘centralized’ is a dirty word in crypto-speak.