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Rehashed - #19 On ASIC Chips and Mining Monopolies (Part 2)

The Proliferation of ASICs

Last week, we reviewed the rising tide of ASIC chip manufacturing. The table below illustrates the various ASICs released year to date by various players in the manufacturing ecosystem. Note that Bitmain, who controls over one-third of the hashpower in Bitcoin mining, continues to be the market leader in ASIC development.

In Pursuit of ASIC Resistance

As illustrated in last week’s post, the explosion in the development of ASICs for specific algorithms and their associated networks has led to mining centralisation. Increased hashpower and the concentrated number of ASIC manufacturers, has compromised Proof-of-Work networks, which currently account for the majority of the crypto ecosystem. From a network security standpoint, such centralisation of hashpower is cause for concern- a 51% attack of the network could occur at any time. As such, ASIC resistance has become a highly sought-after feature in the crypto community.

Privacy-focused cryptocurrency, Monero, has attempted to take such measures. One of the more incredulous discoveries from the Obelisk team’s journey was that an entity had secretly developed ASICs optimized for Monero’s hash algorithm. It was thought that these actors had controlled roughly 50% of Monero’s hashrate over a period of 12 months, making exceptional profits in the process and potentially placing the security of the network in a precarious position.

In order to cull ASICs, Monero hard forked, and is planning to continue to hard fork twice annually to keep any re-designed ASICs at bay. However, it may all be in vain - chip manufacturers are incredibly wily and will continue to adapt to market forks. Although Vorick and his team declared Ethash (a Proof of Work algorithm) to be significantly more “ASIC resistant” than other hashing algorithms, Bitmain has supposedly this month released the Antminer E3, an ASIC for Ethash, with many other manufacturers likely to be hot on their heels.

Proof-of-Stake to the Rescue?

While some networks believe they can shield their hash functions from specialised chips (e.g. Monero), this just results in an overhead of development resource which could be funnelled towards better endeavours. And besides, it’s unlikely that any solution will be foolproof in perpetuity. One potential solution to this ASICs dilemma is the emergence of a different form of consensus: Proof-of-Stake. While Proof-of-Work favours those capable of outputting more processing power, Proof-of-Stake favours those with a greater stake in the network. Essentially, a user can stake their assets in a node. This locks their assets, while the node runs the network’s consensus protocol. A portion of block rewards are then contributed to the staked assets. An analogy might be a term deposit at the bank. When you enter a term deposit, your money is essentially locked away - while it is in the deposit however, your money grows as you earn interest. You can’t use your money while it is locked away, but once you withdraw it, you have more than you started with. Although still technologically unproven, Proof-of-Stake is emerging as a hopeful consensus mechanism. There are exciting landmarks on the horizon; Ethereum is forging ahead with its Casper upgrade, which will enable the first next step towards Proof-of-Stake.

The Power of Rational Self-Interest

The second reason to be less fearful of ASIC dominance is rooted in game theory and the economics of mining. Even if a miner has 100% of the mining power- if they’re a rational self-interested economic actor, they are likely to remain a good actor within the network. This is because minors have a massive sunk cost in the form of mining hardware. ASICs are expensive, and because they are highly specialized, they can only be used for a particular hash algorithm and its associated networks. If a big player like Bitmain were to gain 51% hashpower and attack the Bitcoin network, it would immediately render all of their hardware that they have poured years of work and capital into, completely obsolete. As such, a miner’s expected motive should be to continue to support and secure the network; they want prices to go up and stay up. For this reason, the risk of a 51% attack is actually highly unlikely to come from someone that wields majority mining power. This is the beauty of the system - Satoshi really did create a faultless incentive network.

 

In the News

There’s been lots of chit chat regarding the Bitcoin ETF approval race lately. The green light of such an investment vehicle is likely to create immense upward pressure on Bitcoin’s price. The latest is that the SEC has rejected the application by Winklevoss twins to list the Winklevoss Bitcoin Trust. Several other ETFs in the running may be decided on by mid-September, with a final SEC extension deadline of March 2019.

Google has announced partnerships with Blythe Masters’ company Digital Asset and BlockApps, which will allow Google Cloud customers to integrate blockchain technology.

The number of class action lawsuits around ICOs in the U.S. is set to double.

A fascinating and dangerous behavioural economics experiment is unravelling within an Ethereum smart contract that currently has around (USD) $13 million at stake. For an in-depth dissection of the multiple powers at play, see here.

 

Upcoming Dates

August 15 - The Future of Blockchain, Digital Assets & Interoperability, Auckland

 

As always, thanks for joining - see you next week for Rehashed.

Freddie Archibald

 

View previous issue: Rehashed - #18 On ASICs and Mining Monopolies (Part 1)

View next issue: Rehashed #20 The Road to the Bitcoin ETF


About the author:

Capital markets to crypto convert. From Christchurch →  Boston → New York, Freddie became intrigued by the potential of the digital asset economy after plucking a book on Bitcoin off a New York library bookshelf in 2016. Her parents are thrilled that she is chasing magic money on the internet.

 

Disclaimer:  The above references an opinion and is for informational purposes only. The opinions expressed by the author do not represent the opinion of BitPrime.

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