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Rehashed - #18 On ASIC Chips and Mining Monopolies (Part 1)

The Basics of ASICs

The spotlight on crypto mining has burned brighter lately with the increased development of ASICs - high-performance computing chips used to secure Proof-of-Work networks. With chip manufacturing kingpins such as Bitmain receiving increasingly high valuations in the market, the market has raised concerns around just how much influence miners have.

The computing chip world can generally be broken up into 3 broad categories: CPU, GPU, and ASIC. There is a flexibility vs. performance trade-off along the CPU to ASIC spectrum, with CPU’s generally flexible but low-performance and ASICs highly specialized and high-performance. David Vorick of Siacoin and Obelisk, has conducted extensive analysis on the mining chip ecosystem. Regarding types of chips, Vorick notes that ASICs are incredibly high performance:

“At one side, a ‘1’, we’ll put an Intel CPU. And at the other side, a ‘10’, we’ll put a bitcoin ASIC.” - David Vorick

ASIC stands for Application-Specific Integrated Circuit. As the name might suggest, they are optimized for one specific task in lieu of the ability to operate other functions. As ASICs are highly optimized for solving specific Proof-of-Work algorithms (meaning they wield greater hashpower than their CPU / GPU counterparts), they are the preferred chip for miners. Because ASICs are expensive, highly concentrated and high performance, “home-style” miner types using GPUs and CPUs are forced out of the market. This is problematic from both a security and philosophical standpoint: mining centralisation is largely antithetical to the core values of the crypto space. Everyone should have the opportunity to contribute to the consensus process within a given network, and the pleasure of supporting the blockchain ecosystem as a whole.

The Dark Side of ASIC Manufacturing

Because of their increased hashpower, participators manufacturing ASICs are incentivised to use these chips themselves rather than sell them on the free market. Essentially, a manufacturer is incentivised to sell an ASIC chip if, and only if, they sell it for a higher price than the profit they will make mining with the chip themselves.

As a consequence, ASIC chips are expensive and thus generally only used by large mining pools and entities. This leads to a centralised mining ecosystem, largely controlled by the manufacturers themselves. As seen below, two mining pools operated by Bitmain (AntPool and BTC.com) contribute roughly one-third of the total hashing power in Bitcoin mining.

Bitcoin Mining Distribution as of 21st July 2018

David Vorick, founder of distributed file storage project, Siacoin, ventured down the rabbit hole of mining by starting his own ASIC manufacturing company, Obelisk. The Obelisk team’s journey is both well documented and utterly fascinating. Due to unidentifiable forces, Vorick and his team have been stonewalled at each twist and turn in their quest to produce ASIC chips. However last month, Obelisk had success in releasing two new ASICs in the market: the SC1 for the Blake256R1 hash algorithm utilised in Siacoin and the DCR1 for the Blake2b hash algorithm utilised in Decred.

Next week, we will take a look at the ASICs that have been released this year for various Proof-of-Work networks and the ensuing fight for ASIC resistance.

 

In the News

SBS Bank voiced a wait and see approach towards cryptocurrencies and blockchain at their 2018 AGM in Invercargill.

A private group is raising cryptocurrency in order to build a floating island in the pacific.

The Big Four — the four largest accounting firms: Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers — have joined a trial for a blockchain service.

Insurance companies have begun to offer coverage to crypto startups that fear their crypto coins could be stolen.

More than 90 comments have been submitted to the US Securities Exchange Commission (SEC) regarding Bitcoin ETF regulations.

Coinbase, perhaps the world’s leading digital asset platform, is exploring adding five new assets to it’s offering.

Robert Mueller may have caught Russian hackers with bitcoin.

Augur, a prediction markets application which recently launched on Ethereum, continues to see increasing usage.

 

Upcoming Dates

27 July - Blockchain Forum Auckland

 

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

Freddie Archibald

 

View previous issue: Rehashed - #17 Value Capture within the Web 3.0 Stack

View next issue: Rehashed #19 On ASICs and Mining Monopolies (Part 2)


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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