
Maker of First Bitcoin Mining ASIC Acquired for $466M - pmorici
http://www.coindesk.com/bitcoin-mining-asic-acquired-avalon/
======
vessenes
This acquisition makes absolutely no economic sense to me.

I have not seen estimates that put ASICMiner over 15% of total mining, and
have not seen any indications that they even have 16nm parts.

Presuming they do have 16nm parts, and can capture 100% of the GROSS revenues
of mining through to 10nm part availability, (call it 2 years) they will have
GROSS revs of (at today's prices): $850mm, or $425mm/yr

That's Gross. For the whole industry over the next two years. Net Income will
be dramatically lower than that for the industry as a whole. And, every
process jump you are at risk of being behind, and losing the sweetest bite at
the apple.

I may just be jealous, of course, but I don't see how these economics pay off.
In reality, you will have a hard time with more than 1/3 of mining power. If
we assume ASICMiner is at 15%, that's max $75mm or so in gross revs per year.
Is Bitcoin mining really a 6x Revenue /30x earnings business? Especially when
20%+ of that revs just came off the underlying's price moves in the last two
weeks?

At any rate, I just don't see this as a sensible acquisition under any
circumstances, and if I could short it somehow, I would short the hell out of
it.

~~~
mrb
It's not ASICMiner that is being acquired, it's Canaan Creative. You seem
confused because you seem to think Canaan Creative does the mining. They
don't. They design chips and mining gear. That's it. They are a traditional
hardware company, not a mining company.

I don't think anybody knows how much market share Canaan Creative has. It may
very well be higher than 15%.

As to 16nm: their CEO NG Zhang said they are already working on one, Avalon
7.[1] He also claims it is not that crucial to have 16nm _right now_ (but it
will be in 6-12 months). 16nm may cut power consumption by up to 50% compared
to 28nm according to him,[2] however he rightly points out even professional
miners like BitFury who have developped 16nm gear still run plenty of 28nm
gear since mining is still highly profitable _right now_.[3]

Finally, Canaan Creative is the Bitcoin ASIC designer with the most
experience. They have done 5 generations of chips: 110nm, 55nm, 40nm, and two
28nm chips. They all shipped and were very successful. So I am not too worried
their 16nm chips will come when the time is right.

[1]
[https://bitcointalk.org/index.php?topic=1453737.msg14843375#...](https://bitcointalk.org/index.php?topic=1453737.msg14843375#msg14843375)

[2]
[https://bitcointalk.org/index.php?topic=1186100.msg12703641#...](https://bitcointalk.org/index.php?topic=1186100.msg12703641#msg12703641)

[3]
[https://bitcointalk.org/index.php?topic=1186100.msg12707371#...](https://bitcointalk.org/index.php?topic=1186100.msg12707371#msg12707371)

~~~
vessenes
This is helpful context, and I like the idea that the most experienced Bitcoin
ASIC team out there is worth something. But that's really a lot of something
on top of what their mining skills seem to be; there are a number of bankrupt
mining company chip designers out there I know personally who aren't being
snapped up by the market -- and this would seem to indicate that bitcoin chip
design skills don't have quite the value Canaan is getting.

28nm gear is not profitable right now as far as I know, or it just got
reprofitable a day or two ago.

28nm parts give us something like .51 W / GH = 12 kwh per day per TH. That
power quote may be at the wall, but probably it's a bit more than that.

1 TH = $1.74/day right now, pre-halving, soon to be $0.85

Fully loaded costs of energy and datacenter: $.06 - $.12 / kwh = costs $.75 -
$1.44 day.

So, at $400 coins, those rigs were a loss unless you were in very cheap energy
and labor markets, and then just barely making some cash.

At $670, they are making a bit of money again, if you kept them around and
didn't decomm them in favor of 16nm parts.

I think the end of the road has been not just in sight but essentially here
for 28nm parts for the last couple of months. But, I did oversee a multi-
megawatt mining business that mined unprofitably for a number of months to
finish out our datacenter lease, so that is also a possibility here, and might
explain why 28nm miners won't go away right this second.

That said, if you know of ways to get fully loaded costs down into the $.02
-$.04/kwh, I would really like to learn more about that - I'd LOVE to be wrong
about this.

~~~
mrb
Canaan's 28nm chip (Avalon A3218 in the Avalon 6) does a lot better than what
you quoted: 0.3 J/GH at the wall.

As to electricity costs, _I_ was personally running a small 10 kW GPU farm at
$.02/kWh back in 2011 in Douglas County, Washington where most Public Utility
Districts are basically non-profits due to historical reasons in the region.
Most smart large-scale miners are paying $0.05/kWh or less. If not, they are
dumb and go bankrupt like KnCMiner did 2 weeks ago.

So 1 TH/s of Avalon 6 gear costs $0.36/day, however at $0.05/kWh it mines
$1.74/day right now (or $1.00/day 2 weeks ago when BTC was around $400).
Certainly profitable.

~~~
vessenes
Thanks for this context also.

There are some capex issues with scaling up that farm, and I bet you aren't
costing your own time in there. But, I hear you that it's possible, and it's
interesting to hear that $.05 fully loaded is possible outside of government
subsidy situations.

~~~
mrb
No, I did not count my labor. It is true that capex and opex of mining gear is
well-known and can be calculated so as to be profitable in and of itself.
However knowing how to manage all the other costs (labor + capex on the DC
itself) is what distinguish good mining companies from bad ones. IMHO these
areas is where KnCMiner made the biggest mistakes. Just compare a picture of a
KnCMiner DC vs. a Chinese DC and you will see KnCMiner did not try hard to
build cheap DCs...

~~~
vessenes
We ran two different ones; one with engineered fire suppression and custom
airflow, and one with a bunch of fans from the equivalent of Walmart. The
walmart guys ended up with a lot more of our business. :)

------
fubar682
Am I the only one who thinks bitcoin is nothing less than Tulip mania
[https://en.wikipedia.org/wiki/Tulip_mania](https://en.wikipedia.org/wiki/Tulip_mania)
fueled by Chinese hardware manufacturers & US VC firms like Andreessen
Horowitz?

~~~
mrb
Tulip mania's peak period lasted 6 months or so. Bitcoin has been growing for
7 YEARS. Why? Bitcoin solves a lot of real world problems. Tulips don't.

At least ~50 international financial institutions have R&D groups directly
working with block chains / Bitcoin (search "R3CEV partners"). Central banks
have reported positively on Bitcoin . As recently as last week a group of 90
central bankers met at the Fed to discuss the topic.[1] I can understand why
it looks like a mania to an external observer's eye, but it is definitely not
:)

[1] [http://www.coindesk.com/central-banks-blockchain-federal-
res...](http://www.coindesk.com/central-banks-blockchain-federal-reserve/)

------
mrb
How does HN's duplicate detection works? I had submitted this same URL 3 days
ago:
[https://news.ycombinator.com/item?id=11866192](https://news.ycombinator.com/item?id=11866192)

------
fiiiauuush
Will cryptocurrencies ever become large enough to compete with national
currencies? I guess I haven't seen much adoption since 2011 or so, at least
not compared to the hype generated in the news media.

And if Bitcoin isn't to be big, what will the acquisition of this company do
for those who acquired it?

~~~
heimatau
For some reason, this question triggered an idea. Why not create a 'gift card'
system that...uses RPOW/Blockchain/Bitcoin tech, that replaces whichever
currency that was used?

I know money and currency is tough to replace from the banks and nations
crippling grip but...couldn't large retailers just use their sizes to shift
how consumers pay for their services. IMO, with Starbucks having more than 1
Billion in their gift card network, I see this idea growing like a weed, if a
few people were to experiment with it.

On a related note, I think digital currency(ies) could give all parties
involved what they want (money/payment/tractability for the companies.
goods/services/privacy for the consumer. tractability/data for govts). I hope
this industry blossoms, I'm sure it will be only time before someone turns
this industry on it's head.

~~~
nols
There's no real reason for companies to do what you're suggesting. Why would
retailers move away from their local currency? And even if they decided to do
that why would they switch to something like the blockchain instead of just a
database to track holdings?

~~~
heimatau
It would need to be a concerted effort, imo. Not just one or two actors. But
if enough market share made the move, the benefits? Numerous. As I already
outlined, in my OP. In addition, to what I said, the (new) market would cut
out all middle men (Visa, etc...Chase/BoA, etc...maybe even others). I think
some downsides would be more or bigger insurers and maybe an aggregate of
wealth but even our current system doesn't tackle these issues.

No system will be perfect in the first increment but I think this would be a
step in a better direction, for all involved.

