For ambitious mining and ASIC companies willing to pioneer in the energy and artificial intelligence fields, opportunities are everywhere.

Written by: Bitcoin Magazine

Interviewee: Zhang Nange

Translator: 0xFacai

It is well known that after the fourth halving, the Bitcoin mining industry is facing a test. Due to the significant reduction in Bitcoin's block subsidy, the hash price (income per terrahash) has reached a historic low. At the same time, the post-halving memory pool frenzy has weakened, adding fuel to the already tense mining operations.

Zhang Nange, founder and CEO of Singapore's Canaan Inc., is the first creator of Bitcoin-specific Application-Specific Integrated Circuit (ASIC) and was interviewed by Bitcoin Magazine. This is the first time the company has been interviewed by North American media, and Zhang shared his views on the industry's situation. Zhang commented on the origins of Bitcoin mining and presented his views on the prospects of chip design and the trend of environmental sustainability. He also pointed out the emerging opportunities for Bitcoin in the Middle East and the integration between Bitcoin and the AI industry.

The Open Source Core of Bitcoin Mining

Canaan was established in 2013 and launched the first Avalon ASIC machine, which completely changed the mining industry, marking a turning point in the computational efficiency that secures the Bitcoin network. As the industry gradually moved away from traditional GPU and CPU-based hash algorithms, the adoption and commercialization of professional ASIC hardware began to form large-scale mining operations.

This transformation at Canaan did not happen out of thin air but was the result of the company's open-sourcing of Avalon hardware and management software, leading to the widespread diffusion of ASIC-based hash technology. Zhang Nange pointed out that Bitcoin's early embrace of the open-source movement was "not a decision" but "a requirement for anyone who wants to participate in the blockchain community" and a means to "distribute computing power throughout the entire blockchain community."

"The best way to defend against a 51% attack is to quickly distribute ASIC-based computing to global users," Zhang Nange estimated that the risk of a 51% attack has been greatly reduced due to the democratization and large-scale deployment of ASICs. Subsequently, the open-source nature of Canaan's chip design prompted major companies including China's Bitmain and computing giant Intel to create their own ASIC machines.

Will Mining Efficiency Defy Moore's Law?

As a designer of ASIC chips, Canaan has been a beneficiary of the semiconductor industry's prosperity over the past decade. The core of this progress lies in Moore's Law, which states that computational efficiency roughly doubles every two years. Today, companies such as TSMC, Samsung, and SMIC are accelerating the production of 3-nanometer chips in search of optimization.

However, the development of semiconductor architecture towards smaller sizes is not without challenges. Increasing transistor density on increasingly smaller chips (i.e., sub-2-nanometer scale) can trigger quantum effects rather than classical effects. This state transition can lead to transistor failures and a potential deviation from Moore's Law.

The question now is: Is Moore's Law still valid, or will the prosperity of classical computing turn into a quantum downturn?

Facing these fundamental limitations of ASIC computing, Zhang Nange acknowledged that "in the past, as we increased performance, the cost per terrahash would decrease. Today, this curve has flattened, indicating that technological progress is entering a new stage."

"We are indeed seeing a slowdown in process node advancements, prompting us to adopt new transistor technologies such as GA (gate array) or nanosheet technology, as well as backside power transmission. This not only makes the surface smaller but also changes the structure of the circuit itself."

"Bitcoin computation appeals to pure digital logic, but today, we are moving closer to analog implementation with mixed-signal design." Zhang Nange stated that the increasing complexity indicates the need for "design technology co-optimization" (DTCC) between designers like Canaan and the foundries that produce their chips. Despite these challenges, Zhang believes that ASIC efficiency "will continue to increase in the next 3-5 years" and the company plans to release at least one new product each year, with each generation of products achieving "efficiency improvements of over 20%."

This efficiency improvement was demonstrated at the Bitcoin Asia conference held in Hong Kong on May 9, where Canaan unveiled the new generation A15 Avalon miner, which achieved an efficiency of 18.5J/T, compared to the previous A14 model with an efficiency of approximately 20J/T. Zhang Nange pointed out that the A15 has been specially optimized for variable environmental conditions.

In particular, Canaan has enabled overclocking in the A15, mocking common questions from buyers who often say, "Oh, you can get extra performance for free?!" Unfortunately, according to Zhang Nange, this is not the case, but the added feature is expected to bring additional operational flexibility to A15 customers.

Opportunities Hidden in the Middle East

Now more than ever, miners are seeking efficiency improvements to reduce costs and increase revenue. This is normal, but miners are turning to new technologies and new geographical locations to seek cheap electricity.

Zhang Nange pointed out that Canaan has made a strategic shift to address this market change and emphasized the company's recent collaboration with mining companies in the Middle East. "The Middle East is eager to invest in high-tech industries, and these countries are particularly welcoming to Bitcoin and cryptocurrencies. The Middle East is expected to become an important digital center."

When discussing regulatory issues in the Middle East, Zhang pointed out that the region "has made rapid progress in establishing complementary regulatory frameworks for mining." Therefore, companies supported by Abu Dhabi's sovereign wealth fund, such as Zero Two, have made significant progress in integrating Bitcoin mining and its waste heat for desalination.

Heat Recovery? A New Trend for Sustainable Mining Industry Development

Since Canaan's IPO on Nasdaq in 2019, the Bitcoin market has been booming, and Bitcoin mining companies have followed suit. As Bitcoin becomes mainstream, publicly traded large miners such as Marathon Digital Holdings Inc (NASDAQ: MARA) and Riot Platforms (NASDAQ: RIOT) have become household names during the bull market of 2020-2022.

However, with increased visibility, environmental organizations have also intensified their scrutiny, especially the Ripple-funded and ill-considered "Change the Rules" campaign led by the U.S. Greenpeace. When asked about environmental criticisms of the mining industry, Zhang Nange seemed undeterred and welcomed discussions on the sustainability of mining. "People's views on the environmental impact of Bitcoin mining are changing… Bitcoin mining helps develop the renewable energy industry."

In particular, the CEO of Canaan praised heat recovery as possibly the biggest trend yet to emerge in residential and commercial applications. "Heat recovery products for mining have been launched this year. I believe that in a few years, people will see many impressive products utilizing mining heat. Today, we can produce water close to boiling point through mining operations." He believes that this trend forms the basis for the sustainability of the mining industry and the overall trend of monetizing mining heat.

Zhang Nange also emphasized that the hydropower industry often faces supply-demand imbalances, and the mining industry can play a key role in strengthening the deployment of renewable energy. Instead of battery storage, Zhang believes that "Bitcoin mining can allow these facilities to operate at full capacity most of the time. This can shorten the payback period to about 5 to 10 years, meaning the same amount of capital can develop twice as many hydropower stations in the same time… The same principle also applies to purely driven renewable energy resources such as solar and wind power, which are affected by economic factors."

He believes that the mining industry will continue to move towards low-carbon energy and optimistically states that market forces driving the pursuit of low-cost energy indicate that "the mining industry can automatically balance environmental protection, economic benefits, and development."

AI + Bitcoin, Developing and Expanding Energy Assets

Traditionally, Bitcoin miners have always been pioneers in the electricity market, flocking to places with abundant and low-demand electricity. The symbiotic relationship between underdeveloped energy resources and the inherent flexibility and mobile network of Bitcoin miners has driven the development of grid-edge resources based on ASIC computing. However, according to Zhang Nange, this is not the end of the story.

He sees a new relationship forming between AI data centers and Bitcoin miners, with each miner seeking the lowest-cost energy input. Zhang Nange pointed out that "major participants" and "pioneers" have begun to realize the potential integration between Bitcoin mining and AI computing.

"In this context, Bitcoin mining can serve as the initial occupier of this 'stranded energy' and generate economic benefits before AI computing power comes online. This is what we have seen in the past 6 months."

Zhang also foresees that even after AI facilities are launched and operational, high-performance AI data centers and Bitcoin mining will coexist in the same location: "Considering the 25-30% power redundancy requirements of large-scale AI computing centers… Bitcoin mining can use redundant power and shut down when AI comes online."

Conclusion

The zero-sum mining industry remains its own biggest enemy, and with the fourth halving, declining profit margins, and the next wave of ASIC efficiency improvements, it can be said that profiting from mining is as difficult as squeezing blood from digital rocks.

However, on the other hand, the industry is showing positive trends. Canaan's CEO believes that for ambitious mining and ASIC companies willing to pioneer in the energy and artificial intelligence fields, opportunities are everywhere.

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