Chinese start-up called Bitmain made $4 billion

Chinese start-up called Bitmain made $4 billion 

 secretive  that dominates the bitcoin "mining" industry likely made as much as chipmaker Nvidia did last year, Bernstein analysts estimate.

Based on conservative estimates of gross margin of 75 percent and operating margin of 65 percent, the analysts calculate that Bitmain made $3 billion to $4 billion in operating profit in 2017. Bernstein's U.S. semiconductor team estimates Nvidia's operation profit was $3 billion during the same period.

"But Bitmain achieved this in merely four years, while it took Nvidia 24 years to get here," the Bernstein analysts said in a report published Wednesday

-based Bitmain was founded by Jihan Wu and Micree Zhan in 2013. The company has since grown into one of the primary firms involved with bitcoin mining, the process of using computing power to generate bitcoins. Wu is also a widely followed figure in the bitcoin world.

In the early days of bitcoin, enthusiasts could use ordinary video graphics cards to profitably process computations needed to mine the cryptocurrency. But a Chinese-based company turned bitcoin mining into a specialized process in 2013 by selling application-specific integrated circuits, or asic, computer chip cards that could mine bitcoin 

Today, Bitmain sells Antminer bitcoin mining rigs that can cost several hundred dollars to a few thousand dollars each. The company also operates "mining pools" in which participants collaborate on bitcoin mining in order to cut costs. As a result, Bernstein estimates Bitmain has 70 to 80 percent of market share in bitcoin miners and asics.

The analysts estimate that most of Bitmain's revenue was generated by selling miners powered by the company's chips. "The rest was largely generated by mining itself and, to a much lesser extent, by collecting management fees from the mining pools it operates and renting out the mining power of its mining farms through cloud services."

Much of the growth in mining revenue came from the exponential rise in bitcoin prices, the Bernstein report said. Its analysis also indicated that "Bitmain shrewdly adjusts the prices of miners according to bitcoin prices."