The Chinese cryptocurrency and artificial intelligence giant has become a target of the United States

Chinese cryptocurrency and artificial intelligence tycoon Zhan Qituan is facing a crisis.
US customs officials in recent months have seized some shipments of Bitcoin mining rigs made by his company Bitmain. Pressure on the 45-year-old billionaire escalated this month, after Washington imposed sanctions on his other companies that design and supply artificial intelligence processors.
This is not the first time that Zhan’s ambitions to build a Chinese version of Nvidia have threatened his business empire. Bitmain nearly folded five years ago due to its lavish spending on developing artificial intelligence chips, sparking a civil war with its co-founder for control of the company.
While Bitmain continues to focus on cryptocurrency mining, Zhan subsequently turned those AI chip efforts over to Xiamen Sophgo Technologies, which along with 15 subsidiaries was added to the US Commerce Department’s entity list this month.
The company’s problems began when an artificial intelligence processor made by the world’s leading chip maker, Taiwan, was found in Huawei’s AI card, allegedly to circumvent sanctions. TSMC has begun investigating whether or not it was purchased by Sophgo.
The US said Sophgo posed a risk of being transformed into Huawei and claimed it was “acting at the behest of Beijing” to build up domestic chip production in China.
Sophgo, Bitmain and Zhan did not respond to requests for comment. Sophgo has previously denied working with Huawei, and Bitmain has said it is not involved.
TSMC declined to comment on customer relations but said that, as a law-abiding company, it is committed to complying with all applicable rules and regulations including export controls.
Zhan’s recent challenges highlight the obstacles Chinese entrepreneurs face, especially for those keen to make a mark in the semiconductor space, where the geopolitical blow between the US and China has set back many of the country’s most ambitious technology companies.
People with knowledge of Sophgo’s operations describe a number of semiconductor-related business lines. They include designing in-house AI processors and CPUs for supercomputers, as well as supplying Nvidia’s high-end graphics processing units to Chinese data centers.
The US blacklisting results in Sophgo officially separating from TSMC, and is likely to pose challenges for its partner Bitmain, which also relies on the Taiwanese chipmaker to manufacture its chips.
People close to Bitmain said access to TSMC helped it become the world’s dominant manufacturer of bitcoin mining rigs with an estimated 80 percent of the market. Bitmain has for years spent hundreds of millions of dollars to pre-purchase TSMC’s capacity, forcing rival miners to turn to other, less capable chip foundries, the people said.
“The energy-efficient chip is the heart of the mining machine,” said Nishant Sharma, founder of cryptocurrency mining consultancy BlocksBridge Consulting.
Zhan was designing chips for televisions when Bitcoin started gaining more attention. In 2013, he turned his technical prowess toward designing specialized processors known as ASICs to more efficiently implement the hashing algorithms that unlock new bitcoins. By 2017, Bitmain’s sales had jumped to $2.5 billion, according to its IPO prospectus.
Zhan’s vision for the company expanded into artificial intelligence. And in the US, Google has just unveiled ASIC devices to run deep learning algorithms, which it calls TPUs.
“We are a company focused on high-performance processors,” Zhan told a gathering in Beijing in 2017. “We started with cryptocurrency processors and now we are entering artificial intelligence. It is a new application area but not a complete focus.”
Bitmain’s first AI chip, the BM1680, was manufactured by TSMC and shipped in 2017. But then the price of Bitcoin started to fall, and with it the demand for cryptocurrency mining rigs. Hopes for a Bitmain IPO in Hong Kong have faded.
The startup laid off hundreds of employees, and Wu Jihan, Zhan’s co-founder, fired him and curbed AI spending. Zhan fought back by seizing control of a Bitmain AI chip unit registered in his hometown of Fujian and filing a lawsuit against Wu. The company, Fujian Sophon, told the court that Zhan’s ouster has the potential to change the direction of “our country’s chip and blockchain development.” Wu eventually left.
In 2022, Zhan moved Bitmain’s AI chip efforts to Sophgo, which he owned almost entirely when it was created. The lines between the two companies are still blurry. The entities affiliated with Bitmain and Sophgo share some executives, addresses, and phone numbers in official Chinese business records. Last year, they jointly sought to recruit new graduates at the Harbin Institute of Technology, according to an announcement.
One customer of their AI chips, Haitu Technology, described Sophgo as a “recommended distributor” for Bitmain in a filing with Chinese securities regulators in late 2022. Haitu said Bitmain itself does not sell its AI processors to companies Small and medium sized.
Sophgo has sent its AI processors to public security bureaus and smart city projects in Fujian, Anhui and Beijing, according to a company presentation seen by the Financial Times. Its AI accelerators have also been used to build an AI computing cluster in Shandong.
Nick Brown, a researcher at the University of Edinburgh, said the company’s latest CPU, the SG2042, represents a leap forward for the open source RISC-V architecture on which it is built, and is comparable to Intel and AMD processors for some supercomputing tasks.
“For workloads that need a lot of computation, a lot of processing, a lot of computation, they perform very well,” Brown said, after testing the chips on supercomputing machines at the university.
“It’s the first RISC-V CPU that can arguably be a serious offering for high-performance workloads,” Brown said.
Public records show that some Chinese supercomputing centers, isolated from American chips, have begun using Sophgo processors.
“Once Chinese companies gain a foothold, Western companies basically have no chance,” Chan said at a conference in 2019. Now Sophgo will have to figure out how to manufacture its processors in China.
Additional reporting by Eleanor Olcott and Nian Liu in Beijing
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