How Jihan Wu Lost Control of Bitmain
Following the rise of cryptocurrency, Bitmain has been in the headlines a couple of times, mostly for news related to their mining devices. However, recently, the mining giant has made the news for one negative issue after the other. This time, its famous CEO Jihan Wu is at the center of controversy.
Jihan Wu is a Chinese billionaire, industry influencer, and the co-founder of Bitmain. He is an outspoken supporter of Bitcoin Unlimited, a proposed solution to the issue of scalability on the Bitcoin blockchain. Wu also maintains Antpool, currently the largest mining pool with about 16% mining power (hashrate). This has made him a highly prominent influencer and thought leader within the industry. In 2017, Coindesk added him to their list of the ten most influential figures in the blockchain world. Fortune also ranked him in third place on “The Ledger 40 under 40” list for his outstanding work in finance, business, and technology.
Bitmain
Bitmain is a Beijing-based mining operation and hardware outfit. It was established in 2013 by Jihan Wu and co-founder Micree Zhan, who is also the founder of DivaIP. The firm currently has offices in Amsterdam, Shanghai, US, Chengdu, Hong Kong, Qingdao, Shenzhen, and Tel Aviv.
Bitmain creates mining devices based its own ASIC chip technology and is the owner of several brands and pools including Antpool, Antminer, and Hashnest. ASIC devices are the best options for mining Bitcoins and have seen an explosion in popularity, in recent years. A lot of BTC miners have abandoned Graphics Processing Units (GPUs) for these devices, to increase profit.
The company controls Antpool and BTC.com, two of the largest Bitcoin mining pools in the world, with a combined hash power of almost 50%. Unfortunately, this has led to some backlash, since the whole idea of Bitcoin is to have a decentralized network.
Since its establishment, Bitmain has raised billions of dollars, including a $400 million funding round led by Sequoia Capital, leading to a valuation of $12 billion. In September 2017, Sequoia Capital and IDG invested $50 million in the firm, to support the development of chips for artificial intelligence. The firm recently raised $1 billion in a funding round led by the Chinese tech giant, Tencent Holdings, and other big investors.
So far, Bitmain has partnered with Bitpay to create open source mining software and has also invested in other blockchain companies. In May 2018, the firm led a $110 million funding round for Circle Internet Financial, bringing Circle’s valuation to about $3 billion.
Controversy at Bitmain
In late 2018, Business Insider reported that Bitmain profitability records show discrepancies. According to these reports, the documents submitted by Bitmain Technologies during its funding round, do not match up with those submitted during the filing for its Initial Public Offering.
The figures stated in its IPO were significantly less than those in the funding round, leading to suspicion. At the end of September 2018, the Chinese mining giant began the filing procedure to list its shares on the Hong Kong stock exchange, and according to the Financial Times, they aimed to raise about $500 million at a valuation of $18 billion.
In the prospectus for its initial public offering, Bitmain recorded its 2017 net profit as $701.4 million but changed that figure to $1.1bn in the documents published before its pre-IPO funding round, worth $422 million. Both documents were filed a month apart. According to CrunchBase, Bitmain’s August 2018 funding round consisted of Huangpu River Capital, Crimson Ventures, and CAS Investment Management.
Bitmain and the Fall of BCH
During the cryptocurrency boom of 2017, Bitmain, under Jihan Wu, made a judgement call, to put huge amounts of its reserves into Bitcoin Cash. At the time, each unit of the cryptocurrency was trading at more than $2000. It seemed likely that cryptocurrencies would only continue to rise as the market moved into 2018.
As the industry would later find out the hard way, that was not the case. Instead of rising, digital currencies took a nosedive for what was the worst market correction since their emergence.
This situation also affected Bitcoin Cash, which traded for less than $200 at a certain point in 2018 and even dipped below $100 in December. Along with Bitmain’s huge investment in Bitcoin Cash came the need to recruit developers as well as dedicate mining resources to the currency. Now, the company has reportedly cleaned out its Bitcoin Cash development staff, including new recruits.
Jihan Wu and the BCH Mining War
In 2018, Bitcoin Cash was scheduled to undergo a hard fork that would allow the network to effect necessary upgrades to its functionality. Unfortunately, there was a huge disagreement on what these upgrades should have been. On one end, Jihan Wu pushed for an upgrade known as ‘Wormhole,’ which would give the BCH blockchain features that would allow it to host smart contracts and applications. This would have seen BCH adopt Ethereum’s model.
However, Craig Wright, an industry influencer who has claimed to be Satoshi Nakamoto, the anonymous originator of Bitcoin, had a different plan for BCH, know as Bitcoin Satoshi’s Vision. This split the fork into Bitcoin Cash ABC on Wu’s side and Bitcoin Cash SV on Wright’s side, and led to a controversial mining war in the process. Both men have openly criticised each other since then.
Jihan Wu Steps Down
According to a publication by Sanyan Blockchain, a Chinese news outlet, due to a combination of recent shortcomings the board of Bitmain has undergone a restructuring and has demoted Jihan Wu from director to supervisor. This means that he will no longer have voting rights regarding the future of the company.
The statement reads “After changing to a supervisor, there are no voting rights, so Wu’s power is smaller, and he cannot participate in the business decision-making of the enterprise.” Bitmain has probably done this as a way to save its reputation after a series of what seem like impulsive moves on the part of its co-founder.
Following the news, there has been speculation concerning Bitmain’s financial state. In 2017, the company was declared highly profitable, with annual revenue of over $2.5 billion. However, as explained above, a large amount of its cash reserves were stored as Bitcoin Cash, which has underperformed in the past year.
Despite his demotion, Wu still owns a 20.25 percent stake in the Bitcoin mining outfit, which continues to release new mining products even after the fall in profitability within that area. Its latest releases include the Antminer S15 and T15 hardware devices.
Final Thoughts
Bitmain has grown in size and revenue since its creation and has expanded under the leadership of Jihan Wu. However, that same leadership may have crippled the company’s operations. There is no doubt that Jihan Wu remains a brilliant founder who has taken the company to its current status as one of the largest and most profitable mining outfits in the world, with a three-year projected valuation of $40 billion.
Even more so, he has done this in a relatively new industry, with obstacles along the way. But as with every company, the board of Bitmain hopes to take their company to even greater heights and may be doing what is best for them in the long run.
