Following news of an ASIC mining rig from Bitmain, as well as similar products in development from three other Chinese companies, Ethereum prices have dropped over $100, well below their one-week high of $585. An ASIC, or Application-specific integrated circuit, is a chip that is created with the specific and sole purpose of mining a single cryptocurrency.
According to Susquehanna analyst Christopher Rolland, China-based Bitmain — the largest producer of mining rigs that use ASICs — is just months away from shipping the first miners compatible with Ethash, the Proof-of-Work (PoW) hashing algorithm used by Ethereum, as well as a variety of other cryptocurrencies.
“During our travels through Asia last week, we confirmed that Bitmain has already developed an ASIC for mining Ethereum, and is readying the supply chain for shipments in 2Q18,” Rolland noted. “While Bitmain is likely to be the largest ASIC vendor (currently 70-80% of Bitcoin mining ASICs) and the first to market with this product, we have learned of at least three other companies working on Ethereum ASICs, all at various stages of development.”
In the past, Ethereum has been mined using Graphics Processing Units (GPUs), which more recently has led to shortages of the chips, angering folks in the gaming world. An ASIC would change the Ethereum mining equation entirely, resulting in a certain amount of centralization and also creating a higher barrier of entry for more casual or entry-level miners. A similar situation arose in relation to Bitcoin: Bitcoin ASICs helped drive adoption of the coin, but also lead to a more centralized Bitcoin mining pool, thwarting the decentralized philosophy held by many in the cryptosphere.
Speaking on these new ASICs:
“It can be seen as an attack on the network. It’s a centralization problem,” said Mikhail Avady, founder of TryMining.com. “What would be bad is if there was only one Ethereum ASIC manufacturer,” he said. “But with Samsung and a couple other players getting into the game it won’t be bad for long.”
ASICs Vs. GPUs
Until now, Ethereum’s Ethash had been ASIC-resistant, allowing the coin and other similar cryptocurrencies to be mined using the GPUs commonly found in gaming computers. The two leaders in GPU manufacturing, Nvidia and AMD, each benefited greatly from last year’s cryptocurrency price boom, which had a correlative effect on mining. In fact, many investors treated these two companies as “proxy stocks” for the cryptocurrency industry.
While the release of an Ethereum ASIC miner may not cause mining-related demand for GPUs to completely evaporate — Monero, for example, has promised to alter its mining algorithm regularly to maintain ASIC-resistance — it could have a noticeable effect on AMD’s revenue in particular. In its recently-published annual filing, the company warned that GPU demand could be “materially adversely affected” if miners stopped buying.
Nvidia, on the other hand, has a stronger and more durable gaming franchise which would help it work through this potential Ethereum-related unwind, according to Rolland.
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