From NVIDIA to Binance, selling shovels is the strongest business model.

In 1849, during the California Gold Rush, countless people with dreams of getting rich flocked to the American West.

German immigrant Levi Strauss originally wanted to join the gold rush, but he keenly discovered another business opportunity: miners' pants often get damaged, and there was an urgent need for more durable workwear.

Thus, he made a batch of denim pants from canvas, specifically to sell to gold miners, and from this, a clothing empire named “Levi's” was born, while the vast majority of those who actually participated in the gold rush ended up losing everything.

On November 20, 2024, NVIDIA once again delivered a “heaven-defying” financial report.

Q3 revenue reached a record 57 billion USD, a year-on-year increase of 62%; net profit was 31.9 billion USD, soaring 65% year-on-year. The latest generation of GPUs remains a scarce commodity that “money can't necessarily buy,” with the entire AI industry working for them.

At the same time, in the world of cryptocurrency across the cyber shore, this script is also playing out.

From the ICO bull market in 2017, to the DeFi summer in 2020, and then to the Bitcoin ETF and Meme wave in 2024, retail investors, project teams, and VCs continuously rotate in each narrative and each wealth story, but exchanges like Binance have always stood at the top of the food chain.

History always rhymes.

From the California Gold Rush of 1849 to the cryptocurrency frenzy and the wave of AI, the biggest winners are often not the “miners” directly competing, but those who provide the “shovels” for them. “Selling shovels” is the strongest business model to traverse cycles and harvest uncertainty.

AI Gold Rush Enriches Nvidia

In the public's perception, the protagonist of this wave of AI is undoubtedly the large models represented by ChatGPT, which are intelligent agents capable of writing copy, creating artwork, and coding.

However, from a commercial and profit perspective, the essence of this wave of AI is not an “explosion of applications,” but an unprecedented revolution in computing power.

Like the California Gold Rush of the 19th century, tech giants like Meta, Google, and Alibaba are the prospectors, engaged in a gold rush for AI.

Meta recently announced an investment of up to $72 billion in artificial intelligence infrastructure this year, and stated that next year's spending will be even higher. CEO Mark Zuckerberg said, he would rather risk “missing out on hundreds of billions of dollars” than fall behind in the research and development of superintelligence.

Amazon, Google, Microsoft, and companies like OpenAI have made record capital expenditures in the AI field.

The tech giants are going crazy, and Jensen Huang can't stop smiling; he is the Claude Lévi-Strauss of the AI era.

Every company that wants to build large models must purchase GPUs on a large scale and rent GPU cloud services. Each model iteration consumes a massive amount of training and inference resources.

The model cannot outperform competitors, and the application cannot find a clear commercialization path. It can be rebuilt from scratch, but the GPUs purchased and the computing power contracts signed have already been paid for in real money.

In other words, regarding the proposition of “Can AI change the world?” and “Can AI applications profit in the long term?”, everyone is still exploring. However, if you want to participate in this game, you must first pay the “entrance fee” to the computing power provider.

NVIDIA is right at the top of this computing power food chain.

It has almost monopolized the high-performance training chip market, with H100, H200, and B100 becoming the “golden shovels” that AI companies are scrambling for. It has created a dual moat of technology and ecology by linking software ecosystems (CUDA), development tools, and framework support downward from GPUs.

It does not need to bet on which large model will win; it only requires the entire industry to continue to “gamble”: bet that AI can create a certain future and support higher valuations and budgets.

In the traditional internet, Amazon's AWS used to play a similar role. Whether a startup can survive is one thing, but sorry, you have to pay for the cloud resources first.

Of course, NVIDIA does not exist in isolation; behind it is a whole “shovel supply chain” that is also laughing all the way to the bank under the wave of AI.

GPUs require high-speed interconnection and optical modules, and A-share companies like New Yisheng, Zhongji Xuchuang, and Tianfu Communication have become an indispensable part of the “shovel” industry, with their stock prices rising several times this year.

The transformation of data centers requires a large number of cabinets, power systems, and cooling solutions. New industrial opportunities continue to emerge, from liquid cooling and power distribution to data center infrastructure. All component manufacturers related to “AI servers”—including storage, PCBs, connectors, and packaging testing—are successively harvesting valuations and profits in this wave.

This is the terrifying aspect of the shovel-selling model:

Prospectors may lose money, gold mining may fail, but as long as people are still digging, the sellers of shovels will never lose.

The large models are still struggling with “how to make money,” while the computing power and hardware chain are already steadily making money.

Coin Circle Shovel Seller

If the shovel seller of AI is NVIDIA, then who is the shovel seller of Crypto?

The answer that everyone can think of: exchange.

The industry is always changing, but the only constant is that exchanges keep printing money.

2017 was the first real global bull market in the history of cryptocurrency.

The threshold for launching tokens in projects is extremely low; with just a white paper and a few PPT slides, they can go online for financing. Investors madly chase after “tenfold and hundredfold coins,” countless tokens go online only to return to zero. Most projects are frozen or delisted within 1-2 years, and even the founding teams disappear from the timeline.

However, there are fees for listing projects, users must pay transaction fees, and futures contracts are charged based on position.

The price of the currency can be halved again and again, but the exchange only cares about the trading volume; the more frequent the transactions and the more severe the fluctuations, the more it earns.

In 2020, during the summer of DeFi, Uniswap challenged traditional order books with the AMM model, and various mining, lending, and liquidity pools made it seem like “centralized exchanges were no longer needed.”

But the reality is very subtle, as a large amount of funds move from CEX to on-chain mining, and then return to CEX during peak times and crashes for risk control, cashing out, and hedging.

In terms of narrative, DeFi is the future, but CEX is still the preferred entry point for deposits, withdrawals, hedging, and perpetual contract trading.

By 2024-2025, Bitcoin ETFs, the Solana ecosystem, and Meme 2.0 will once again push cryptocurrency to new heights.

In this cycle, whether the narrative has turned into “institutional entry” or “on-chain paradise”, one fact remains unchanged: there is still a large amount of leveraged capital flowing into centralized exchanges; leverage, futures, options, perpetual contracts, and various structured products constitute the “profit moat” of exchanges.

In addition, CEX is also integrating with DEX at the product level, and trading on-chain assets has become the norm in CEX.

The price of coins can rise and fall, projects can rotate, regulations can tighten, and sectors can shift, but as long as people are still trading and volatility remains, the exchange is the most stable “shovel seller” in this game.

Besides exchanges, there are many “shovel sellers” in the crypto world:

For example, mining machine companies like Bitmain profit by selling mining machines rather than mining, allowing them to remain profitable through multiple rounds of bull and bear markets.

Infura, Alchemy and others provide API services and benefit from the growth of blockchain applications.

Stablecoin issuers like Tether and Circle earn “seigniorage” on digital dollars through interest rate spreads and asset allocation;

Pump.Fun and other asset issuance platforms continuously tax by issuing Meme assets in bulk.

……

In these positions, they do not need to bet every time on which chain will win or which Meme will go viral, but as long as speculation and liquidity remain, they can print money steadily.

Why is “Selling Shovels” the Best Business Model?

The real business world is far more brutal than people imagine; innovation often comes with near-fatal risks. Achieving success requires not only personal effort but also reliance on the course of history.

For any periodic industry, the results are often like this:

Building upper-layer applications is like mining for gold, pursuing Alpha (excess returns). You need to bet on the right direction, the right timing, and outsmart your competitors. The win rate is extremely low, and the odds are extremely high. A slight misjudgment could lead to total loss.

Building the underlying infrastructure is like being an upstream shovel seller, earning Beta. As long as the entire industry continues to grow and the number of players keeps increasing, one can reap the benefits of scale and network effects. Shovel sellers are in the business of probability, not luck.

NVIDIA does not need to choose which AI large model can “run out”, and Binance does not need to judge which narrative can last the longest.

They only need one condition: “Everyone continues to play this game.”

Moreover, once you get used to NVIDIA's CUDA ecosystem, the migration cost becomes unimaginable. Once your assets are all on a large exchange and you are accustomed to its depth and liquidity, it becomes very difficult to adapt to a smaller exchange.

The endgame of the shovel-selling business is often monopoly. Once a monopoly is formed, the pricing power is completely in the hands of the shovel sellers, as evidenced by NVIDIA's gross margin of up to 73%.

To summarize from a very blunt perspective:

Companies that sell shovels earn the “tax of industry existence,” while companies that mine for gold earn the “time window bonus.” It's essential to capture user attention within a brief window; otherwise, you risk being abandoned. Those who create content or narratives earn “money from attention fluctuations.” Once the trend shifts, the traffic evaporates instantly.

To put it more bluntly:

Selling shovels is betting that “this era will go down this path”;

Building an application is like betting that “everyone will choose only my company.”

The former is a macro proposition, while the latter is a brutal elimination match. Therefore, from a probabilistic perspective, the winning rate of selling shovels should be an order of magnitude higher.

For us retail investors or entrepreneurs, this is also a profound insight: If you cannot see who the ultimate winner is, or do not know which asset will increase several times, then, invest in the one who provides water to all the miners, sells shovels, or even just sells jeans.

Finally, let me share one more piece of data: Ctrip Q3 net profit 19.919 billion, surpassing Moutai (192 billion) and Xiaomi (113 billion).

Don't just focus on who shines the most in the story,

Think about who can continuously charge in all stories.

In an era of frenzy, serving the frenzy while maintaining calm is the highest wisdom in business.