It's no secret that the bitcoin mining industry is being tested after the fourth halving. The price of hash (terrahash revenue) has hit record lows as the bitcoin block subsidy was slashed. Meanwhile, the post-mempool halving frenzy has subsided, adding fuel to the fire of already strained mining operators.
Nangeng Zhang, founder and CEO of Singapore-based Canaan Inc, creator of the first application-specific integrated circuit (ASIC) for bitcoin mining, sat down with bitcoin Magazine for the company's first interview with a North American media outlet to comment on the state of the industry. Zhang commented on the origins of bitcoin mining and offered his perspective on the chip design landscape as well as trends in environmental sustainability.
Zhang also identified burgeoning opportunities for bitcoin in the Middle East, as well as the convergence between the bitcoin and artificial intelligence (ai) industries.
bitcoin-magazine-po/episodes/Canaan-CEO-The-Next-Wave-of-bitcoin-Mining-Efficiency-Is-Coming-e2jlpog”>Hear to the full audio interview with Canaan CEO Nangeng Zhang on the bitcoin Magazine podcast. Click bitcoin-magazine-po/episodes/Canaan-CEO-The-Next-Wave-of-bitcoin-Mining-Efficiency-Is-Coming-e2jlpog”>here to tune in.
The open source core of bitcoin mining
Founded in 2013, Canaan revolutionized mining with the launch of its first AvalonMiner ASIC machine, marking a turning point in computational efficiency for those securing the bitcoin network. As the industry moved away from traditional GPU and CPU-based hashing, the adoption and commoditization of specialized ASIC hardware saw commercial-scale mining operations begin to take shape.
This radical change by Canaan did not occur in a vacuum, but rather led to the ubiquitous proliferation of ASIC-based hashing after the company open-sourced both its Avalon hardware and management software. Zhang noted that this adoption of the open source movement in the early days of bitcoin “was not a decision,” but rather “a requirement for anyone who wants to get involved in the blockchain community” and a means “to decentralize computing power throughout the world”. world.”
“The best way to defend against (51% of attacks) was to quickly distribute ASIC-based computing to users around the world.” In Zhang's opinion, the risk of a 51% attack has greatly decreased due to the democratization and large-scale deployment of ASICs. Since then, the open source nature of Canaan's chip design has led major companies, including China-based Bitmain and computing stalwart Intel, to create their own ASIC machines.
Running (bitcoin) against Moore's Law: Trends in chip efficiency
Canaan, as an ASIC chip designer, has benefited from the semiconductor manufacturing boom for more than the last decade. At the center of this progress is Moore's Law, an observation that computational efficiency has doubled roughly every two years. Today, companies such as Taiwan Semiconductor (TSMC), Samsung (SSLF), and Semiconductor Manufacturing International Corporation (SMIC) are moving toward the production of 3-nanometer chips in this quest for optimization.
However, the move towards ever smaller architectures for semiconductors is not without challenges. Increasing transistor density on increasingly smaller chips, i.e. scales below 2 nanometers, invokes quantum, rather than classical, effects. This regime change leads to transistor malfunction and possible divergence from Moore's Law.
The question now is: will Moore's Law hold or is the classical computing boom turning into a quantum bust?
Zhang, when asked about these fundamental limitations in ASIC computing, acknowledged that “in the past, when we improved performance, the cost per terrahash went down. Today, this curve has flattened. “This indicates that technological advances are entering a new phase.”
“In fact, we are seeing a slowdown in the advancement of process nodes, which is driving us to adopt new transistor technologies like GA (gate array) or nanosheet technologies along with rear power delivery. It's not just about making the surface smaller, but about changing the structure of the circuit (itself).”
“bitcoin computing appeals to purely digital logic, but today we are approaching a mixed-signal design for analog implementations.” This increase in complexity, according to Zhang, suggests the need for “design technology co-optimization (DTCC)” between designers like Canaan and the foundries that produce the chips themselves.
Despite these challenges, Zhang believes AISC efficiency “will continue to increase over the next 3-5 years” and the company plans to launch at least 1 new product per year with “efficiency increases of more than 20%” per generation.
This efficiency gain was evident at the bitcoin Asia conference in Hong Kong on May 9, where Canaan launched its bitcoin-asia-302140959.html”>Next Generation AvalonMiner A15with an efficiency of 18.5 J/T compared to ~20 J/T offered by the previous model. model A14. Zhang noted that the A15 is particularly optimized for variable environmental conditions.
Notably, Canaan has enabled overclocking capabilities on the A15, and Zhang mocked the common refrain from buyers who often comment: “'Oh, you can get extra performance for free?!'” Unfortunately, that's not the case. , according to Zhang. but the additional capabilities promise to create additional operational flexibility for A15 customers.
Decentralized computing: a look at the Middle East
Now, more than ever, miners are looking for efficiency gains to… *drumroll*… reduce their costs and increase revenue. This is, of course, normal, but miners are turning to new technologies and geographies in their search for cheap energy.
Zhang highlighted a strategic shift by Canaan to address this shift in the market, emphasizing the company's recent decision to partner with mining companies in the Middle East region. “(The Middle East) is eager to invest in high-tech industries. These countries are particularly welcoming to bitcoin and cryptocurrencies. The Middle East promises to become a crucial digital hub.”
On the issue of regulation in the Middle East region, Zhang noted that the region has “progressed rapidly in establishing complementary regulatory frameworks for mining.” It follows that companies such as Zero Two, backed by Abu Dhabi's sovereign wealth fund, have made significant progress in integrating bitcoin mining and its waste heat to desalinate salt water.
Heat Check: Trends in mining sustainability
Since Canaan's IPO on the NASDAQ in 2019, the bitcoin market has been on fire and with it, bitcoin mining companies. Publicly traded megaminers like Marathon Digital Holdings Inc (NASDAQ: MARA) and Riot Platforms (NASDAQ: RIOT) became household names during the 2020-2022 bull market following bitcoin's arrival into the mainstream.
But, with the increased visibility, also came increased scrutiny from environmental organizations, particularly the ill-conceived Change the Code campaign, funded by Ripple and run by Greenpeace USA.
When asked about environmental criticism of mining, Zhang seemed unmoved and welcomed the debate on sustainability in the mining sector. “The perception that bitcoin mining is environmentally unfriendly is changing…bitcoin mining can help develop renewable energy industries.”
In particular, Canaan's CEO praised heat recovery as perhaps the biggest trend yet to develop in residential and commercial applications. “This year, heat recovery products for mining were launched. I think in a few years people will see a lot of very impressive products that use heat from mining. Today, we can generate almost boiling water from mining operations.” In his view, this trend underlies the sustainable attributes of mining and a general trend towards heat monetization in mining as a whole.
Zhang also highlighted the hydropower industry, whose power often suffers from a mismatch between supply and demand, as a key area where mining could boost the deployment of renewable energy.
Instead of battery storage, Zhang posited that “(bitcoin mining) can allow these facilities to operate at full capacity most of the time. This can reduce the payback period to approximately 5 to 10 years, meaning the same amount of capital can be developed. the double hydrostations in the same time period… the same principle applies to other renewable energy resources such as solar and wind energy driven purely by economic factors.”
He believes mining will continue its trend toward low-carbon energy resources and expressed optimism that the market dynamics driving the pursuit of low-cost energy show that “mining can automatically balance environmentalism, economic efficiency and development.” ”.
ai and bitcoin Convergence: Developing and Scaling Energy Assets
bitcoin miners have typically been pioneers in the energy markets, flocking to where energy is plentiful and demand is low. The symbiotic relationship between underdeveloped energy resources and the inherently flexible and mobile network of bitcoin miners has driven ASIC-based computing to develop resources at the edge of the network. But, according to Zhang, this is not the end of the story.
He sees a new relationship forming between ai data centers and bitcoin miners, each seeking the lowest-cost energy inputs. Zhang took note of the “big players” and “pioneers” who have begun to realize the possible integration between bitcoin mining and ai computing.
“In this context, bitcoin mining can serve as an initial occupant of this (stranded) energy, (generating) economic benefits before ai computing power comes fully online. This is what we have seen in the last 6 months.”
Zhang also foresees the co-location of high-performance ai data centers and bitcoin mining even after the ai facilities are operational: “Given the redundancy requirements for large-scale ai computing centers (25- 30%) power redundancy… bitcoin mining can use the redundant power and turn it off when (the ai comes online).”
Conclusion
The zero-sum mining industry, as always, remains its own worst enemy. Coupled with the fourth halving, shrinking margins and the next wave of ASIC efficiency, it would be fair to say that making profits from mining could be as easy as squeezing blood from a (digital) rock.
But on the sidelines, positive trends are occurring in the industry, and Canaan's CEO sees opportunities abound for entrepreneurial ASIC and mining companies willing to blaze a trail on the frontiers of energy and artificial intelligence.
