Since Bitcoin’s inception in 2009, cryptocurrency mining has been popular both for average enthusiasts and hardcore fanatics.
In the early days there was no such thing as an application-specific integrated circuit (ASIC), which are more commonly known as ASIC chips. Mining was first done with regular Central Processing Units (CPUs), which meant PC enthusiasts with the best hardware had a head start mining Bitcoin.
According to an article by University of Washington Professor Michael Bedford Taylor, a little over a year later in 2010, people around the world were given the code to begin mining Bitcoin with Graphics Processing Units (GPUs), which sparked the beginning of many a nerd’s love affair with mining the preeminent cryptocurrency.
It didn’t take long for hobbyists to start building rigs, with graphics cards suspended over a motherboard, connected with PCIE extension cables. This led the way to a plethora of different adaptations, as miners looked to increase their hashing power.
The party was spoiled somewhat with the development of ASIC miners, which entered the market in 2013 with more powerful chips constantly being developed that completely outperformed their GPU cousins.
Mining - in layman's terms
Mining is the process in which transactions are recorded and immutably stored on the Bitcoin Blockchain. For a more in-depth explanation of the process, you can read our essential guide here.
This process is done by computers, which firstly take Bitcoin transactions and bundle them into a block. Once the block reaches its maximum capacity (1MB in the case of Bitcoin), the block is then ready to be added to the Blockchain.
In order to do this, a miner, using either GPUs or ASIC miners, must solve a complex Proof of Work cryptographic algorithm in order to add the block to the Blockchain. Should they be lucky enough to do so, they are rewarded a certain number of Bitcoin. At present, the reward is 12.5 BTC.
Additionally, miners earn a fee for processing transactions that are stored on blocks. The higher the transaction fee, the sooner your transaction is processed by miners.
GPUs vs ASIC miners - a never ending battle
Those miners that got into the game early would have reaped the benefits of the scaling difficulty of mining. The process is designed to become more difficult as more miners vie to validate transactions and unlock blocks.
In the early years, there weren’t that many miners so rewards were higher and the algorithms were less difficult to solve. But as more people started using their PCs to mine, this became more difficult.
Mining started out with CPUs validating the blockchain, which moved on to GPUs before the creation of ASIC chips changed the game altogether.
Bitcoin’s Proof of Work algorithm is known as SHA256. Both GPUs and ASIC miners can process this algorithm, but the latter chips are far more efficient.
So when ASIC miners, like Bitmain’s powerful Antminer S9 came onto the scene, traditional GPU miners’ profitability suffered due to the advantage ASIC chips had in solving the SHA256 algorithm.
Luckily, the emergence of altcoins like Ethereum reinvigorated the GPU mining sector, with an algorithm that favoured GPU chips. Described as ASIC resistant, this allowed hobby miners to employ their PCs and GPUs to mine Ethereum without the threat of of mass-produced ASIC miners cutting into their profits.
Despite the existence of ASIC miners, the demand for GPUs soared and even led to a stock shortage in the middle of 2017.
AMD and Nvidia couldn’t keep up with the ravenous appetite for their GPUs. Some retailers in the US completely ran out of stock of AMD cards as enthusiasts clamoured to get their hands on GPUs as the price of Ethereum and Bitcoin steadily increased throughout the year.
It was hardly surprising that both Nvidia and AMD enjoyed solid performance gains in their respective share prices. Nvidia in particular grabbed headlines at the end of the year, ending as the top chip manufacturer on the Standard & Poor’s 500 index.
Nvidia also launched their new Volta-powered Titan V graphics card which gamers with money to burn lined up to buy.
Not focused on mining
While it’s hard to believe that AMD and Nvidia resisted the urge to turn their focus to building GPUs for mining purposes, both have maintained that their priority is building graphics cards for gaming.
While Nvidia have designed boards dedicated to mining in 2017, most of their chips have been built for the conventional purpose of GPUs - that is rendering graphics. Nvidia admitted that they had seen massive growth due to the demand of the cryptocurrency mining industry.
Meanwhile AMD took a more measured approach, announcing that they wouldn’t include cryptocurrency mining in their long term growth planning in July 2017. But six months later, CEO Lisa Su had changed her tune, expressing AMD’s plans to enter the Blockchain space - depending on the rate of worldwide adoption in 2018.
Nvidia’s CEO Jensen Huang gave a fresh take on cryptocurrencies and his company’s involvement in March. Given that their GPUs are in computers around the world, they have inevitably become part of the Bitcoin mining web.
As Huang stated on CNBC’s Fast Money show, their “processor serves as the perfect processor to enable this supercomputing capability to be distributed”. GPUs are just one of many cogs embedded in the network of computers constantly validating the Bitcoin Blockchain.
Despite a rocky start to the year for cryptocurrency markets overall, Huang was confident that the technology was far from dying:
“The ability for the world to have a very low-friction, low-cost way of exchanging value is going to be here for a long time - Blockchain will be here for a long time.”
GPUs under the cosh
While Nvidia and AMD are watching the cryptocurrency space closely, and have enjoyed growth from it’s break into the mainstream in 2017, they are facing stiff competition from companies developing hardware specifically focused on cryptocurrency mining.
As reported in February by CNBC, Chinese mining hardware manufacturer Bitmain posted bigger profits than both Nvidia and AMD in 2017. Bitmain are understood to have made between $3 to $4 bln in operating profit, compared to Nvidia’s $3 bln.
This is substantial, given that Bitmain only manufacture ASIC miners for a number of different cryptocurrencies.
Bitmain’s flagship Antminer S9 is touted as the world’s most efficient Bitcoin miner, but the company has continued to branch out, in particular creating miners that can solve different Proof of Work algorithms.
This has led to a number of outcries from the wider cryptocurrency community - opposing any monopoly on mining which validates various Blockchains, citing securities concerns from overcentralization.
Smaller cryptocurrencies like Siacoin considered hard forking their Blockchain when Bitmain launched it’s Antminer A3 Siacoin miner but eventually opted not to do so, while Monero carried out with this plan in the wake of Bitmain’s launch of their Monero miner last month.
Even Ethereum has finally come under threat, after Bitmain announced the launch of its first ever Ethash ASIC miner last week. Of course the Ethereum community has already been debating the merits of a hard fork to counter the Bitmain Ethash ASICs. Ethereum founder Vitalik Buterin’s white paper suggests that the protocol is already ASIC resistant:
“One notably interesting feature of this algorithm is that it allows anyone to "poison the well", by introducing a large number of contracts into the blockchain specifically designed to stymie certain ASICs.”
There is no official word on the way forward from Ethereum, while Bitmain’s website indicates that the first batch of Antminer E3 units will be shipped mid July.
In a competitive, corporate world, the emergence of ASIC miners was always going to make it hard for amateur enthusiasts to get ahead. Nevertheless, profitable mining is still achievable with GPUs, but investors with big cheque books can get their hands on the most powerful hardware on the market - whether or not the community likes it.