At the Hong Kong Web3 Carnival, DongZhou invited Shenyu, the co-founder of Cobo and F2Pool, for an exclusive interview. Shenyu shared his understanding of the industry cycle, the impact of Bitcoin halving on mining, and the current investment mentality. He believes that the Bitcoin ecosystem is developing rapidly, and it is gratifying to try new technologies, but it is still in the early stages. The demand for AI chips competes with the demand for Bitcoin mining machines, but it may not be a competitive relationship. Shenyu reminded investors to maintain psychological balance, avoid FOMO, and think about the market from a larger perspective. He also talked about the future development of the metaverse, believing that data and ownership will be stored and presented through blockchain technology. Ultimately, the development of Crypto needs to solve real problems.
Original author: blocktempo
During the Hong Kong Web3 Carnival, DongQu had the honor of inviting Shenyu, co-founder and CEO of Cobo, a digital asset custody solution provider, and co-founder of F2Pool, the world's largest mining pool, for an exclusive interview to talk about Shenyu's understanding of the industry cycle. In addition, with the Bitcoin halving approaching, Shenyu shared how the changing pattern of the mining industry will affect the market. Interestingly, he also shared his current state of mind about his investment.
How Bitcoin halving will impact mining companies
First, Dongqu raised questions about the competition and elimination mechanism of Bitcoin mining companies, asking Shenyu what preparations the major mining companies have made before and after the Bitcoin halving event, and which types of mining companies are more likely to survive in the process. Shenyu said that in fact, there are three main types of companies in the Bitcoin mining industry, each of which has different characteristics and strategies to cope with market challenges.
First of all, North American mining companies are mainly listed companies, which mainly rely on cheap oil and gas field resources and some redundant electricity resources in North America. In the last round of bear market, a large number of such mining companies went bankrupt and reorganized due to high leverage ratios... and other reasons, and cleared a large amount of debt at a discount.
In the past six months, with the sharp rise in cryptocurrency-related stocks in the U.S. stock market, these mining companies took this opportunity to raise large amounts of funds, strengthen cash flow, and begin to expand into new business areas such as Bitcoin's second-layer solutions and NFTs.
The second type of companies are mainly supported by Chinese capital and are distributed in South America and Africa. These non-listed companies do not have such strong financing capabilities and pursue low-cost operations. Their business models rely on traditional mining payback period calculations. In the past six months, many low-cost, high-speed expansion mining plants have emerged in Africa, with costs about half of those in North America. Especially after the Bitcoin halving, these mining companies are expected to expand rapidly because they can run high-power machines.
The third category is emerging mining companies supported by national investment institutions. The goal of these companies is not only to make profits, but also to participate in market competition and obtain early Bitcoin production. Some small countries have also begun to use national funds and local surplus electricity to invest in the construction of mining farms.
Overall, the main players in the market are divided into these three categories. At present, the Bitcoin halving has a greater impact on the second type of mining companies, because they are more sensitive to cost changes and are carrying out large-scale mining machine relocation to optimize mining costs.
The copycat season may not come
At present, the daily emission of Bitcoin is about 60 million to 70 million US dollars. After the halving, the block reward will be directly reduced by half. In this regard, Dongqu asked Shenyu about his views on the market of Altcoin after the Bitcoin halving, and how much will the increase and expectation be?
This time, there will most likely not be a "copycat season" because the current players in the market are different from the previous players. From the perspective of miners, after the Bitcoin spot ETF was passed on January 10, they had already hedged their risks several months in advance to cope with the risk of Bitcoin halving. In addition, we have seen that many listed companies have used the good news of the ETF's passing to raise a large amount of legal currency funds.
Some miners have moved their mines to lower-cost South America and Africa, which reduces their cost sensitivity and allows them to maintain a gross profit margin of about 10% to 20% even with the previous generation of mining machines. Therefore, even in the case of a Bitcoin halving, the economic impact on these miners is relatively small, especially considering that the price of Bitcoin has risen before the halving.
For investors, especially those who invest in Altcoin, this cycle is characterized by the inflow of funds into Bitcoin mainly through channels such as ETFs. As for when these funds will flow to other cryptocurrencies, we are still observing.
In May last year, Shenyu assessed that it was in the "early stage of the bull market" and the absolute bottom of the bear market had passed. The cryptocurrency industry was in a state of looking for new narrative logic and development. So, at this stage for this cycle, where does he think the cryptocurrency market is?
I think it is highly likely that in the mid-term of the bull market, the market has begun to pick up and has found a new narrative logic, but it is not yet in a state of very high leverage and FOMO.
Shenyu also reminded readers that since the market is a dynamic, multi-party complex system, relying on a single indicator or historical data to predict the market top is often not suitable for the current situation. He suggested that the best practice is to continue to observe market developments and rebalance and reallocate assets when a certain stage is reached. This approach can help keep a stable mentality when the market falls rapidly or enters a bear market, and may increase their absolute rate of return.
How AI chip crunch changes mining landscape
As the global demand for chips and advanced processes increases, the demand for the new Bitmain S21 mining machine (using 3 and 4 nanometer technology) is in direct competition with the demand for AI chips. Shenyu explained the chip demand pattern of AI companies and mining machines, and expressed how he thinks these factors will affect the future of Bitcoin mining.
From my perspective, the two sides may not be in a competitive relationship. Since the Bitcoin chip structure is relatively simple and pursues the ultimate power consumption ratio, this has promoted the rapid iteration of chip technology and greatly shortened the traditional 18-month development cycle. As early as 2018 and 2019, some mining chip manufacturers have begun to develop AI-oriented chips because the two have similarities in computing and power consumption control.
Bitcoin has spawned a new chip design philosophy called full-customization methodology, which essentially means using the same technology in chip manufacturing through some manual wiring to further squeeze its performance and make its power consumption ratio better. These methodologies have also begun to be applied to the design of some AI chips. We have also seen some AI-oriented chips made by companies like Bitmain and Shenma, which have already shipped millions of units in the market.
Looking ahead, I think mining and AI chip companies will gradually merge, and the boundaries between products will become blurred. Although the mining market is currently a cash cow, with tens of billions of dollars in output each year, the growth focus of the chip industry may shift to AI in the future. The experience and technology accumulated in Crypto mining will contribute to the development of the AI field.
In addition, for readers who are not familiar with the mining industry, it is important to understand that there is a time delay between the fluctuation of crypto market prices and the change of computing power, which is usually 6 to 12 months. Therefore, the change of computing power in the next six months will depend on the price of chips. Unless the price reaches an extremely high level, it will affect the demand change on the entire production capacity side.
The necessity of Bitcoin ecosystem expansion
In the review at the end of 2023, Shenyu once said that he was a little surprised by the development of the Bitcoin ecosystem, which may be "unnecessary" for many Bitcoin "valueists". Judging from the current situation, it is not just Layer2, Side chain, Rollups, NFT, etc., the BTC ecosystem is now flourishing, and the funds invested by users are also quite amazing. Shenyu shared his views on the current Bitcoin ecosystem.
At present, the Bitcoin system can be divided into two parts. First, the Bitcoin main chain is mainly used as a store of value, and it is difficult to make major updates or iterations. Its core function is to ensure decentralization and relative stability. On this basis, many innovative attempts that gradually emerge from the bottom are also underway. In the past year or so, we have also seen many interesting attempts emerging from the bottom up. In the end, everyone found that it was still difficult to innovate on the first layer of Bitcoin, and finally had to choose a second layer or a side chain to develop.
In addition, although technologies such as the Lightning Network lack bottom-up application scenarios, the recent economic incentives have solved this problem to a certain extent, attracting a large number of real users to try it in the BTC ecosystem, which is a gratifying progress. At the same time, we are also closely observing the development trends of these second-layer and sidechain technologies, which are still in the early stages.
The current situation is this: with a large amount of assets deposited in Bitcoin, these assets have an urgent need to obtain income and interest on Ethereum . These demands could not be met for a long time in the past. These scenarios suddenly emerged, and everyone will test and try them out.
What will be the final state of the Bitcoin ecosystem? It is not so obvious now, but these attempts are good, and we need to try and eventually find a path.
Talking about the Bitcoin ecosystem, Shenyu also shared the challenges it is currently facing. He believes that although it is in its early stages, the ecosystem is moving in an optimistic direction.
I think the early views of some large companies and Bitcoin Core on the Bitcoin ecosystem show a positive trend. Even if some members of the Core team may not like the emerging changes, they cannot stop these developments, which is the charm of the decentralized network. This network naturally promotes many market demands and innovative gameplay, even if these innovations may seem clumsy in the early stage.
Just like many things that emerged on Ethereum in the early days, it was also a mess and full of various problems, but in the end there were indeed successful cases. The same is true for Bitcoin. We need to observe more and give it enough time and patience to develop. There should be some revolutionary new developments. At present, we are still in the early stages of this process.
Last December, Bitcoin core developer Luke Dashjr posted a post on X, saying that the inscription was actually a spam attack on the Bitcoin network, and hoped to fix it before the latest version in 2024. As a result, it became one of the main factors for the $ORDI plunge at the time, and the dynamic zone also took this opportunity to ask Shenyu for his opinion.
The Bitcoin ecosystem is a three-party game: core developers develop code and submit proposals; miners use computing power to vote to decide whether to support and implement these proposals; and finally, users vote.
This structure ensures the decentralized nature of the system, meaning that even the Core Team cannot unilaterally reject a feature or new idea. This decentralization is a major advantage of Bitcoin over other tokens or chains. In its current state, it is difficult for any new development on the chain to be determined by a single entity.
Competition in the custody business and the current situation of introducing DeFi
As the cryptocurrency market matures, including the launch of Wall Street ETFs and the gradual compliance of exchanges, traditional banks and custodians are entering the cryptocurrency field. What does this mean for Cobo, which has been committed to wallet custody since 2017?
First of all, this is a good thing. For a long time in history, new users in the crypto industry, especially novice users, have been troubled by a problem: "I know that cryptocurrencies may have value and a future, but after purchasing them, how should I store them and how should I store them safely?"
With the development of modular blockchain narrative, the performance of blockchain will be gradually solved in the next two to three years. The final possible state is that many applications we use use blockchain technology at the bottom layer, but users are not aware of it, such as MPC private keyless wallet, smart wallet (Smart Contract Wallet/Account, SCW), and AA wallet based on Passkey.
The user has the key without any notice, and in a relatively decentralized way. The development of a large number of good experiences on the chain and the technology of non-private key wallets will eventually allow a large number of users to truly use blockchain technology in a variety of scenarios.
For Cobo, we have always been focused on how to safely store and use private keys, as well as a series of risk controls during use. We provide different underlying private key management methods for different stages of the industry's development, from the earliest centralized HSM (hardware security module) solutions to these institutions, so that they can meet the requirements of internal risk control and auditing, while meeting the permission management of multiple users.
As the industry develops, we also provide a multi-signature solution based on MPC, avoiding the single point risk of institutions, allowing multiple institutions and insurance companies to perform a private key sharding and multi-signature solution; at the same time, we have also developed smart wallets on the chain, including user Control Wallet solutions.
Cobo is facing the entire crypto market, focusing on some attempts and wallet innovations in the future when a large number of users will flood in. From my perspective, the influx of traditional institutions will make the path wider. In the end, there are two core issues, first, performance issues, and second, user experience. After the keyless experience is solved, we will usher in a better and truly grounded Crypto development state.
Looking back at the development of the industry, at this point in time, does Shenyu think that the idea of "decentralization" is contradictory to parochialism?
The development of the cryptocurrency industry has tried many technical routes in the blockchain, from the earliest Blockchain Trilemma, to the performance issues of the discovery chain, and then the problem of expensive block space.
After nearly five or six years of trial and development, we finally chose the modular blockchain approach, making some compromises and balances at different levels, and finally making the cost of the entire blockchain low enough for end users to adopt. To some extent, it sacrifices a certain degree of decentralization, but for high-value applications at the top level that have a great demand for decentralization, you can still choose to go to Layer 1, which is more expensive at this level, and it is OK to be willing to pay this price for this freedom and decentralization.
However, most of the information ultimately formed by the value network we transmit will not be of high value. There will definitely be a large amount of low-value application-side information, which can be guaranteed to be secure and transparent through a degree of weak decentralization. It can be said that there are now various choices and combinations to make blockchain scenarios richer.
The investment philosophy of the whale and maintaining mental balance
During the Lunar New Year this year, Shenyu provided encouragement to crypto investors on the X platform and reviewed his previous "Crypto Asset Accumulation Plan from $1,000 to $100 million". He suggested that when personal assets reach $10 million to $100 million, 10-15% of the assets can be invested in the track you are optimistic about, which can not only keep investors busy, but also prevent unplanned investment behavior. It can also be seen that he is keen to track hot spots on the X platform.
Therefore, Dongqu also asked Shenyu, what track has been particularly concerned about recently? What trends must be paid attention to this year?
My style is to try something new and interesting, to make mistakes, and to observe the development of these technical routes. Today in 2024, I pay special attention to the development of "modular blockchain".
From the expansion problem of Bitcoin ecology in 2017 and 2018 to the expansion problem of Ethereum ecology, it took seven or eight years for the market to finally give the answer, that is, modular blockchain, and has demonstrated practical application cases. We don’t know what its final status and its upper-layer applications will be, but the trend is very certain. This market may be the next market worth more than 100 billion US dollars, so I personally put more energy and focus on the modular blockchain sector.
Interestingly, Dongqu also asked Shenyu what his current mental state is regarding investing in cryptocurrencies. Is he still investing in Fomo?
Everyone will definitely have FOMO, because groups have emotions, and the underlying biological principle is Fomo. The best thing I did in 2023 was to spend more time reading after the market turned bearish, and then reflect on the pitfalls and poor performance. The biggest gain in 2023 is to reduce the FOMO mentality.
Many times you just need to do a thought experiment. For example, when you see something new, you are very excited. You think about it for a day or two, and then the thing is over. You may not actually execute it or try it.
You just need to figure out what its core value is and what value it can capture. Then you might not do it, because once you figure it out, it might just be a short-term thing.
If you expand your local perspective and look at the entire market from a higher level, you will find that many actions are actually meaningless. You will not do those experiences that may seem good in the short term, and sometimes even give you a lot of incentives in the short term, which make you feel good, but are actually harmful in the long run. When you are used to thinking about things from a larger and longer perspective, you can get rid of the FOMO mentality at that time.
During the interview, Shenyu also shared that investors of different generations have different perceptions and reactions to the market, especially with the rise of a new generation of investors. Shenyu noticed that investors born after 2000, in particular, have lived in a digital and internet environment since childhood and are more sensitive and adaptable to market changes.
The new generation of post-00s are more adaptable to the entire process of Internet development because they have been Internet natives since birth.
They are more sensitive to market sentiment. As old investors and old crypto like us, our sensitivity in this regard is definitely not as good as everyone thinks. We are also aware of this trait, so we pay less attention to and pay less attention to short-term changes in market sentiment.
You need to think clearly about what kind of money you are making, whether it is money from market sentiment or money from the cycle.
Different money has different return targets.
For the new, younger generation, they may have less initial capital accumulation; but they have a lot of time and a better sense of the Internet. With these advantages, the path of looking at market sentiment is more suitable for them. This is a big difference between the old and new crypto . Many post-00s no longer play with us... (laughs)
I think the new generation of post-00s is also very good. They are more adaptable to the entire process of Internet development because they have been Internet natives since birth.
AI and the Metaverse Era for Future Crypto People
At the end of the interview, as a wallet custodian and crypto OG, Shenyu spoke frankly about the industry transformation process, and responded frankly to what impact AI will have on the cryptocurrency industry and wallet custody. What kind of better understanding should people in the crypto have of AI? What will the future look like when everyone in the crypto will use AI?
I think we are at a very good time intersection now, because we are basically in a period of rapid and vigorous development of multiple technologies. Blockchain technology has solved performance problems in the past decade, AI technology has begun to be widely used, and future autonomous driving and robotics technologies are also gradually taking shape.
What is exciting is the integration of these technologies, such as the native interaction between blockchain and AI, and the direct interaction between a large number of IoT devices and AI Agents. In this direction, each terminal and AI Agent may have its own smart wallet and key, which can autonomously purchase, trade and invest in data within the scope of human authorization.
In the future, this cross-industry integration will require the improvement of more basic modules, including improving the accuracy of encryption technology and AI models, in order to achieve large-scale implementation of blockchain technology and applications.
In the past two years, as technology giants have launched more advanced VR hardware devices, the market's expectations for the Metaverse have gradually grown. These innovative hardware devices not only improve the quality of the immersive experience, but also lay the foundation for the application scenarios of the future Metaverse. How does Shenyu view the future of what everyone calls the "Metaverse"? Will it still be dominated by Web3?
The final Metaverse may be quite different from what we imagined in Fomo during the past two or three years of bull market. The core is that the data and ownership in the virtual space will be stored and presented through blockchain technology, and the user experience will be more seamless. In the past, we first issued assets on the chain, hyped assets, and then looked for their application scenarios. However, in the future, as the performance of the chain improves and the cost of data storage decreases, a large number of games and Metaverse applications will make it possible to store high-value data assets on the blockchain seamlessly.
In addition, combining the native characteristics of blockchain such as DeFi andAMM will promote spontaneous value discovery and enhance financial attributes. Instead of relying on NFT to find applications as in the past, it is better to do the opposite and put the assets of mature applications on the chain. This process will be driven by the development of hardware technologies such as AI and VR.
In the previous Metaverse craze, many investors and users rushed to buy virtual land, which was regarded as valuable digital assets on multiple platforms. However, after the initial investment frenzy, many people began to question the actual value and purpose of these investments, especially when they found that in addition to owning them, they did not know how to effectively use these assets to create value. Shenyu said at the end of the interview:
In contrast, Crypto has done two things in the past 10 years: First, we have issued a large number of on-chain assets, such as a large number of ICOs in 2017 and 2018. At that time, the issuance of a large number of assets was purely conceptual and speculative, just like the Internet bubble in 2000, when everyone could speculate as long as they bought a domain name. In the early stage, it did promote the development of the industry, and this was the bubble period.
The same is true for NFT. We first issued a large number of assets, then tried and failed, and the bubble burst. In the end, it still depends on applications. In the end, the Internet relied on a large number of applications that truly solved real problems. Everyone benefited from it. It was developed in this process. The future of Crypto may also be the same. There are a lot of time machine rules, and there are opportunities hidden in them. Let's make a rough analogy, and the final state may be similar.
Therefore, a technology will go through a bubble period, then a period of mass madness, and finally true maturity. This is a typical cycle of technological development, and Crypto cannot escape this process.
