Top US graphics card makers threatened by crypto rival

The graphics card market has exploded in recent years due to the rising price of Bitcoin, which hit $20,000 at the end of 2017, leading to a surge in miners who use the cards for their computational power. In the world of cryptocurrencies, in order to generate new “coins” users have to “mine” them. Mining is the process of using high computing power to solve complex cryptographic puzzles, and those who mine are called “miners.” 

Two top U.S. graphics card makers, Nvidia and AMD, are currently the go-to companies for miners seeking to buy GPUs (graphics processing units or graphics cards). In January, both makers were struggling to fill high demand (The Verge) from crypto miners, causing prices to soar by 50 percent.

Scientists and video gamers have expressed anger due to graphics cards shortage and rising prices. Nvidia has advised its retail partners to protect and prioritize gamers, and some retailers are limiting bulk buys from individuals.

However, Nvidia and AMD have a looming competitor in the market. Bitmain Technologies, a private and relatively unknown Chinese company, is releasing a high performing chip – dubbed the Antminer E3 – specifically for mining Ethereum coins, the second most popular cryptocurrency after Bitcoin.

What is Bitmain?

In the early days of cryptocurrency mining, miners would rely on graphics cards to generate new coins. Bitmain, a Beijing-based company founded in 2013, made the process more specialized with its application-specific integrated circuits (ASICs) for bitcoin. These computer chips can mine bitcoins 50 times faster than traditional video games graphics cards, according to Bitcoin Magazine.

ASICs are special computers built to mine cryptocurrencies on a specific algorithm, such as for a Bitcoin’s algorithm. Because ASICs are custom built for a single algorithm, you can’t use a Bitcoin ASIC to mine Ethereum, for example. But this specificity allows an ASIC to mine coins faster.

Graphics cards, on the other hand, are more flexible and are often used in gaming computer for rendering 3D animation and video. Their flexibility allows them to mine different coins.

Bitmain dominates the bitcoin mining market, but miners still typically use GPUs for other cryptocurrencies. The release of Bitmain’s Antminer E3 for Ethereum – expected around July and priced at $800 according to the company’s announcement on Twitter – will further reduce the boost Nvidia and AMD got from the crypto craze.

Why the crypto community dislikes ASICs

The world of cryptocurrencies is driven by the principle of decentralization, so ASICs pose a problem because it essentially allows those who produce this specialized hardware to centralize their staggering profit (Motherboard). Bitmain’s ASICs may be more efficient compared with graphics cards, but they’re far more expensive, which makes mining inaccessible to most people.

Developers of the Ethereum blockchain have long tried to make the network ASIC resistant by using hashing algorithms, which require more memory to maintain the egalitarian distribution of Ether, as well as the integrity of the network.

At the end of March, an Ethereum developer put forward an improvement proposal that suggested a hard fork – meaning a radical change to its blockchain protocol – to insure that it’s ASIC resistant.

However, in a recent core dev meeting, Ethereum founder Vitalik Buterin said he doesn’t think Bitmain’s Antminer E3 is a threat to the Ethereum blockchain. “At this point I’m leaning toward no action,” said Buterin. “We just have no idea what specific protocol change would actually manage to make a difference.”

Investors worried

Joseph Moore, an analyst with Wall Street investment firm Morgan Stanley, said Bitmain’s new ASIC could single-handedly bring an end to the GPU short supply.

“The superior economics [of Bitmain’s ASIC] is likely to drive down mining profits for graphics chips (which were already under pressure), and likely signal the end of the crypto graphics shortage by mid year,” said Moore as reported by Barron’s, a newspaper published by Dow Jones & Company.

While gamers are probably pleased GPUs will be back in supply, this spells money trouble for AMD and Nvidia. Along with such trouble is the concern that the Antminer E3 coincides with falling prices in cryptocurrencies, which could lead to less demand in supplies for mining overall.

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