Crash and Burn: The Ruthless Bitcoin Mining Industry

Conor Maloney

January 11, 2019

Put it this way – the Bitcoin mining is not for the faint of heart.

Mining was once a hobbyist activity for crypto enthusiasts running Bitcoin nodes for fun and a sense of community more than to make money. Sure, there were always believers, but many people were just excited at the prospect of making their own, as Bitcoin godfather Andreas Antonopoulos calls it, “nerd money” without ever really considering the possibility that one day a Bitcoin would be worth even a single cent, let alone thousands of dollars.

How things have changed!

Mining is now a multi-billion dollar industry, with extreme risks and cut-throat competition. pressure of the bear market causing operations to mine at a loss, hoping for the best and in a bizarre but understandeable turn of events, even leading some miners to short the Bitcoin market to hedge against losses.

One of the criticisms of Bitcoin mining is that it favors the wealthy miners more and more as time goes on, with smaller operations being squeezed out in favor of huge, sprawling mining farms worth hundreds of millions of dollars.

The competitive and unforgiving nature of the industry was quite dramatically illustrated by the rise and fall of heavyweight mining hopeful GMO Internet, which proudly announced the production of an ASIC miner with higher performance capabilities than the Bitmain S9.

GMO Internet Takes On The World

GMO Internet probably thought they had it made. They had just released a miner more powerful than that of the most powerful mining company on the planet – what could go wrong?

The company’s downfall is beautifully described in a blow-for-blow tweetstorm written by Yasmine Elmandrja of ARKInvest:

Here’s what happened:

GMO didn’t just announce the launch of their new 7 nm miner, but boldy declared war on Bitmain while they were at it. While stating that they had respect for their top competitor, GMO said they would “top Bitmain” which is worth $12 billion USD at last count and become the number one leader in Bitcoin mining hardware manufacturing.

And Fails

Unfortunately for GMO, Bitmain’s S9 wasn’t the only competition – just the most visible one. Bitmain is large enough to lose and still win, absorbing failed experiments into the gigantic budget they’ve generated through years of success and market dominance. While GMO Internet is actually a larger company, their foray into Bitcoin mining was short lived.

GMO failed to do their homework – they beat the S9 alright, but so did several other mining companies whose products are portrayed in the chart above.

More accurately, the net present value (NPV) or profitability over time of those products is shown in the chart. You’ll find those competitors on the profitable side of the chart – unlike GMO.


Crash And Burn

The least profitable of six different products, GMOs miner launch was a massive failure which gained no traction, took gargantuan losses, and the internet giant ended up having to crash out of the mining industry altogether, selling off its machines wholesale and announcing a staggering loss of $218 million USD.

The whole mess goes to highlight the incredibly high stakes of the industry and the ever-shifting and improving standard of hardware quality. GMO Internet will live, but taking such a huge loss after announcing world domination is bound to have wounded the company’s pride and coffers a little, yet another casualty of the brutal “crypto winter” that continues to impact companies throughout the industry.