Introduction

The bitcoin mining industry is constantly evolving, especially in the aftermath of the fourth halving. Hash prices (revenue per terahash) have plunged to historic lows as the Bitcoin block subsidy has been slashed, causing many mining operators to feel the pinch. Amid this backdrop, Nangeng Zhang, founder and CEO of Singapore-based Canaan Inc, took a moment to chat with Bitcoin Magazine. As the brains behind the first bitcoin mining application-specific integrated circuit (ASIC), Zhang provided insights into the state of the industry, offering a unique perspective on chip design, environmental sustainability trends, and the increasing opportunities for Bitcoin in the Middle East.

For those keeping up with the TTL (technology talking lingo), we dive into open-source developments, chip efficiency, and the fascinating, often convoluted dance between Bitcoin and artificial intelligence (AI). So, hold on to your digital wallets as we explore Zhang's insights.

The Open Source Core of Bitcoin Mining

Canaan shook the blockchain world when it launched the AvalonMiner ASIC in 2013. This was a game-changer that marked a significant leap in computational efficiency, taking us far away from the days of using slowpoke GPUs and CPUs for hashing. But how did this revolution not just run aground? Easy - by embracing the open-source movement!

In Zhang’s words, the decision to go open-source wasn't just a strategy, it was a necessity. “The best way to defend against [51% attacks] was to rapidly distribute ASIC-based computing to users worldwide,” Zhang stated. This decentralization not only mitigated the threat of 51% attacks but democratized access to mining technology. And the ripple effects? We've witnessed the emergence of notable players like Bitmain and Intel, who have plunged into creating their own ASIC machines.

Canaan's early leniency on intellectual property has turbocharged competition, leading to massive innovation and acceptance in the blockchain community. Zhang felt that this move helped in the decentralization of computing power across the globe, making the ecosystem robust and secure for everyone involved. “It’s not just a business decision; it’s an ethical stance,” Zhang quipped, alluding to the integrity inherently built into Bitcoin’s decentralized framework.

Running (Bitcoin) Up Against Moore’s Law: Trends In Chip Efficiency

When Canaan entered the semiconductor market, the world was still caught up in the heyday of Moore’s Law – the nifty observation that computational efficiency doubles every two years. Fast forward to today, where firms like TSMC and Samsung are elbowing each other to achieve 3-nanometer chip production. But here's the kicker: the smaller the chip, the trickier it gets!

Once we tumble into sub-2 nanometer scales, quantum effects crash the party, causing transistors to misbehave. This deviation has brought into question whether Moore's Law still holds water. Zhang himself acknowledged this while noting the slowing returns from just shrinking down chip sizes. “We are indeed seeing a slowdown in process nodes advancement, which is promoting adoption of new transistor technologies,” Zhang explained. We're talking about going beyond surface-level upgrades to completely reconfiguring circuit structures.

Facing such constraints, Canaan has had to be inventive. Adopting technologies like GA (gate array) and nanosheets, Zhang hinted that a revolution lies in restructuring rather than just resizing chips. This radical approach indicates that while bit-by-bit advancements might be tough, that doesn’t spell doom for ASIC efficiency, which according to Zhang, should continue rising over the next few years. He humorously noted the enthusiasm of buyers at the Bitcoin Asia conference when they heard about new overclocking capabilities in their latest A15 AvalonMiner: “’Oh, you can get extra performance for free?!’” Well, not exactly, but these tweaks do provide operational flexibility, making the A15 particularly resilient in varied climates.

While the journey ahead is full of engineering puzzles, Zhang remains optimistic. The chip efficiency gains – an expected 20% per generation – are not just theory but have real-life implications for mining operations looking to cut costs and maximize output in a highly competitive landscape.

Decentralizing computation: A look to the Middle East

Now, more than ever, miners are on the lookout for efficiency gains to… *drumroll*... reduce their costs and increase revenue. This is, of course, par for the course, but miners are turning to new technologies and geographies in their quest for cheap power. Zhang noted a strategic shift on the part of Canaan to meet this change in the market, emphasizing the firm’s recent move to partner with mining firms in the Middle East region. “[The Middle East] is eager to invest in high-tech industries. These countries are particularly welcoming to Bitcoin and cryptocurrency. The Middle East holds great promise to become a crucial digital hub.” On the topic of regulation in the Middle East region, Zhang noted that the region has “quickly advanced in establishing complimentary regulatory frameworks for mining”. It follows that firms like Zero Two – backed by Abu Dhabi’s sovereign wealth fund – have made significant strides to integrate bitcoin mining and its waste heat for the purpose of saltwater desalination.

Heat check: Trends in mining sustainability

Since Canaan’s IPO on the NASDAQ in 2019, the bitcoin market has been on fire, and along 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 upon bitcoin’s arrival to the mainstream. But, with the increased visibility, also came increased scrutiny from environmental organizations, notably the Ripple-funded and ill-conceived Change the Code campaign led by Greenpeace USA. When asked about environmental criticisms of mining, Zhang appeared unphased, welcoming discussion of sustainability in the mining sector. “Perceptions of bitcoin mining as environmentally unfriendly are changing… bitcoin mining can help to develop renewable energy industries.” In particular, the Canaan CEO praised heat recapture as perhaps the biggest trend yet to play out in both residential and commercial applications. “Mining heat recovery products have started this year. I think in a few years, I believe people will see many very impressive products that utilize heat from mining. Today, we can generate near-boiling water from mining operations.”

AI and bitcoin convergence: Developing and scaling energy assets

Typically, Bitcoin miners have been pioneers in the power markets, flocking to where power is abundant, 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 computation to develop resources on the edge of the grid. 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 searching for the lowest-cost energy inputs. Zhang made note of “major players” and “early movers” that have begun to realize the potential integration between bitcoin mining and AI computation. “In this context, bitcoin mining can serve as an initial occupant of this [stranded] energy, [generating] economic benefits before AI computing power fully comes online. This is what we have seen in the past 6 months.” Zhang also foresees co-location of AI high-performance data centers and bitcoin mining even after AI facilities are up and running: “Given the redundancy requirements for large-scale AI computing centers (25-30%) of power redundancy… bitcoin mining can use the redundant power and shut off when [AI comes online].”

The open source core of bitcoin mining

The year was 2013, and a little company called Canaan decided it was time to shake up the bitcoin mining game. Enter the AvalonMiner ASIC machine – a pioneer in computational efficiency for crypto enthusiasts. ASICs made GPUs and CPUs look like dinosaurs, and soon, commercial-scale mining was the name of the game. But wait, there’s more! The genius move was making their Avalon hardware and management software open source. Zhang, the tech wizard behind Canaan, explains, “Going open source wasn’t just a decision; it was a necessity. We had to decentralize computing power to defend against those dreaded 51% attacks.” Can you smell the decentralization spirit? Spreading ASIC-based computing worldwide significantly reduced the risk of such attacks. And thanks to Canaan’s innovation, massive players like Bitmain and Intel jumped into the ASIC pool, transforming the bitcoin mining landscape.

Running (Bitcoin) up against Moore’s Law: Trends in chip efficiency

If you think Moore's Law is as solid as bedrock, think again. Moore’s Law predicted that computational efficiency would double every 2 years, right? But now we're hitting a snag. Sure, TSMC, Samsung, and SMIC are aiming for 3-nanometer chip production, but we’re venturing into quantum territory here, folks. Zhang puts it rather succinctly, “Our past performance boosts lowered cost per terrahash. Today this curve is flattening.” Translation: The classical boom is meeting quantum gloom. So, how’s Canaan tackling this? By embracing new tricks like gate array or nanosheet technologies. Think of it as adding nitrous oxide to a car engine—except more complicated. Despite these hurdles, Zhang has high hopes. He predicts ASIC efficiency will rise for the next 3-5 years, and Canaan aims to release a new product annually with over 20% efficiency gains. Now, if only we could all get a 20% efficiency boost in our daily lives! Their latest product, the A15 AvalonMiner, offers better efficiency and can even overclock. Cue applause from miners everywhere!

Decentralizing computation: A look to the Middle East

Hungry for efficiency like a teenager in a pizza shop, miners are searching high and low for ways to cut costs and boost revenue. Zhang highlights the Middle East as a promising new arena for bitcoin mining. What's the buzz, you ask? Strategic partnerships in a region teeming with cheap power and a welcoming attitude towards cryptocurrency. Zhang hints, “The Middle East is eager to invest in high-tech industries and create a digital hub.” Dubai, anyone? Regulatory clarity in the region is also a plus. Companies like Zero Two, backed by Abu Dhabi’s sovereign wealth fund, are pioneering ways to use waste heat from mining for saltwater desalination. Imagine extracting bitcoin and drinkable water simultaneously—winning!

Heat check: Trends in mining sustainability

When Canaan went public on NASDAQ in 2019, bitcoin market chatter was as hot as a jalapeno. Megaminers like Marathon and Riot became the rage during the bull market, but fame brought scrutiny. Cue Greenpeace’s Change the Code campaign, and suddenly everyone was a mining critic. Zhang, however, isn’t losing sleep. “Perceptions of bitcoin mining as environmentally unfriendly are changing,” he states confidently. Mining might just be the hero renewable energy needs, especially when it comes to heat recapture. “Today, we can generate near-boiling water from mining operations,” Zhang says. Hot stuff indeed! Pair bitcoin mining with renewable resources like hydropower, and you’ve got a match made in eco-heaven. Zhang believes this trend will keep mining steering towards low-carbon energy resources, balancing the environment and economic efficiency.

AI and bitcoin convergence: Developing and scaling energy assets

Bitcoin miners have a knack for sniffing out abundant power, like truffle pigs hunting delicacies. This ability to thrive off-grid is now converging with another heavyweight—AI data centers. Zhang sees this pairing as the next frontier. “Major players are realizing the potential integration between bitcoin mining and AI computation,” he notes. Think of bitcoin mining as the warm-up act before the AI headliner takes the stage. It’s a win-win! AI centers need redundant power, and bitcoin miners can gobble it up when the mercurial AI gods take a breather. This symbiotic relationship enhances both industries’ efficiency and scale.