9

I understand that some people have access to cheaper electricity than others. However why not just open mining facilities in the parts of the world offering the lowest cost structure? If that is not possible, then a joint miner with those miners would seem more profitable than selling the most profitable newly invented ASICs chips to the general public.

In some situations I know people will buy older ASICs miners that are no longer profitable for various reasons including a desire to help the network or speculating on future bitcoin price increases retroactively making the mining profitable. That is not my area of focus. I am more interested in why the newest most profitable ASICs chips are being sold.

John Adamson
  • 454
  • 3
  • 8

2 Answers2

16

I think the simple answer is that a company doesn't have to be a "Bitcoin believer" in order to manufacture Bitcoin mining hardware. The companies that produce ASIC chips also produce other products for other industries. They are perfectly profitable just selling their chips to mining equipment manufactures, and probably don't feel the need to enter the world of speculation on a young, digital currency.

At their core, these companies are silicon chip factories, and there is lots of demand for custom silicon chips in the market. There's no need for them to change up their business model and become Bitcoin mining facilities.

Don't forget that during the California Gold Rush, the wealthiest man in town was the guy selling shovels :)

Jestin
  • 8,812
  • 1
  • 22
  • 32
  • Not only that. Maintaining a data centre is a hard problem. It's like saying "surely it's more profitable for Bloomberg to do all the trading themselves instead of providing the service they do". There are a lot of complexities that running a mining operation entails. – Aron May 25 '16 at 23:15
4

Some companies have done exactly that, and have come under fire for it. Butterfly Labs was famously outed by US authorities for running customer-purchased hardware to generate profit for themselves, only releasing to the customer after the purchased-hardware was past its peak profit-generating potential.

KnC, another mining hardware maker, announced in 2014 that they would only produce hardware for their own purposes, following numerous customer complaints about their business practices.

BitMain, by far the most successful producer of ASIC hardware, has chosen to sell their products directly to customers and have profited immensely from doing so. Selling directly has a few advantages, most notably that the money is received by BitMain instantly. This capital can now be immediately redirected to developing ever-faster bitcoin hardware, rather than waiting for the hardware to pay for itself. This cycle has allowed BitMain to take a consistent lead in ASIC technology, both in price per kW and price per hash, and reduced the company's exposure to fluctuations in bitcoin price.

With that said, BitMain has no incentive to completely forgo using their hardware for their own gain. It is possible that they mine with in-stock units waiting to be shipped or sold. They also have a cloud-mining service which allows customers to purchase hardware that is operated by BitMain. Any excess capacity from their cloud mining operation could be used to mine for BitMain directly. The difference between them and KnC is they have not made it a cornerstone of their business model.

TLDR: companies that have made profit off their own hardware have done so after using customer pre-orders to fund their R&D, many now face legal repercussions for this practice. BitMain has created a stable and successful mining company choosing to sell directly to customers and reinvesting in new R&D, allowing their technology to surpass that of their competitors. They probably still mine for themselves, but it isn't the core of their business

brandondoge
  • 411
  • 2
  • 4