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Intel's New Bitcoin Mining Chip Could Be the First Big Threat to China

Intel's New Bitcoin Mining Chip Could Be the First Big Threat to China

The chip-making behemoth from Santa Clara, California, revealed its cryptocurrency mining endeavor earlier this month and the first version BonanzaMine chip in January. The first batch of the chips will be sent to Block Inc., Griid Infrastructure, and Argo Blockchain later this year.

In the Bitcoin mining hardware market, Bitmain and MicroBT hold a lion's share thanks to the unique technologies they use to create their high-performance chips. Until recently, few competitors have been able to come up with a chip that can compete with them.

It has become a lucrative business for rig makers to make money off the recent rise in Bitcoin's value by mining the cryptocurrency and earning Bitcoin as a reward for doing so. Profits from mining were $15 billion in 2021, up from $7 billion the year before.

In the long run, the arrival of Intel might reduce the price power of Chinese manufacturers and provide better maintenance services because of Intel's proximity to North American miners, according to industry participants. After China's ban on crypto mining in May, the region became the world's largest Bitcoin mining center.

"Having a U.S.-based manufacturer with the size, scale, and legitimacy like Intel is excellent for the entire crypto business," Dave Perrill, CEO of Eden Praire, Minnesota-based Compute North, stated. It's wonderful to have competition.

The existing price strategy and purchase terms, which are determined by the leading manufacturers, saddle their customers with various financial risks and operational costs. A fixed pricing, such as Intel's, ensures greater certainty.

Pre-orders for new models are offered by manufacturers before they have enough stock. Nick Hansen, the CEO of Seattle-based mining pool and hardware broker Luxor, says purchasers won't know the actual price until the equipment are shipped and they are given a price range.

That range is updated every day based on the manufacturers' internal pricing models for pre-ordered units. In these models, Bitcoin's spot price and the payback period, which is the amount of time it takes to break even, are critical.

Miners' cash flow may be strained by internal pricing algorithms that place a heavy emphasis on Bitcoin's price, which increases the possibility of a shakeout during downturn markets.

Perrill stated, "Our clients are looking for clarity. Given the volatility of the Bitcoin market, they want to know that the cost of Bitcoin mining rigs will not change by 50% next week.

Tong Lai, head of lending at Singapore-based Babel Finance, which provides lending services for Bitcoin miners, explains another reason why Chinese manufacturers don't sell machines at a fixed price: They don't have much control over their suppliers' pricing, which means these companies have less control over the final price for their mining machines.

It is possible that the 25 percent duty placed on imported mining rigs from China could be a significant factor in the decision of miners to purchase them. According to Lai, Intel has more control over its suppliers' price than Bitmain and MicroBT because of its power and scale in the semiconductor sector.

It's not just North American miners that are looking for better maintenance services from a domestic mining machine vendor.

According to Perrill, "Being here gives Intel a lot of advantages in the home market. It's Intel's advantage when it comes to things like warranty claims, repair, and how to deal with e-waste.

Mining businesses can reduce their operational costs by delaying the depreciation of their equipment through better maintenance. Lai noted that as miners utilize mining machinery with more quality issues, maintenance services become even more critical.

For Perrill, the most important issue is what happens to older grade machines. Hopefully Intel offers a more enterprise-grade strategy to this company, managing and configuring millions of devices at a time," says the author.

A lack of information on Intel's second generation chip, such as power efficiency and pricing, has some miners wary about Intel's impact on the sector. An Intel report submitted to the International Solid-State Circuits Conference shows that their first generation chip has an efficiency of 55 joules per terahash, putting it well behind Bitmain's most recent processor in terms of power efficiency. A spokeswoman for Intel told Bloomberg that more information about the company's second generation device, which is the one that buyers are purchasing, will be provided at a later date.

A Bitcoin mining rig's power efficiency is one of the most significant specifications for miners to evaluate in terms of profitability, according to Lai. Energy is a major expense for Bitcoin miners, and high power efficiency chips can help reduce that expense.

When it comes to a manufacturer's ability to mass produce a chip, there are two factors to consider. The first is the design of the chip, and the second is whether or not it has a dependable supply chain for the components.

Intel may need several years to catch up with Bitmain in terms of overall performance, according to Lai. "However, Intel's introduction into the market is unquestionably beneficial to the industry."