As cryptocurrency prices have been exploding over the past few months, so have the amount of people looking to mine them.

This surge in demand for mining equipment has led to a gold rush as people attempt to get their hands on the latest equipment. One of the most popular pieces of hardware that is used for this is the Graphics Processing Unit (GPU).

These have been the staple of the cryptocurrency miner for a number of years as their raw processing power is beneficial to Proof-of-Work mining algorithms. There are a number of coins that GPUs can turn their hash power on.

However, there are also a number of challenges for the GPU miner that they should be concerned about. One of them is the reaction by the chip makers themselves and the other is the the threat posed by ASICs.

Let’s take a deeper look into the current landscape.

GPU Madness Angers Some

There are many people who are not too happy about the impact that cryptocurrency mining is having on the GPU market and prices. For one, many gamers are complaining about the shortage and how it hits their pocket.

There are also those who use the GPUs for scientific computational experiments. These researchers can often not afford to buy the highly inflated prices of GPUs to complete an experiment that often does not produce a monetary return.

These concerns are also shared by the chip manufacturers themselves. They are concerned that their sales are too highly correlated with that of the cryptocurrency market. Right now they are cresting on a demand wave and worry about downturns.

There are rumors that companies such as Nvidia that are trying to slow supply of their GPUs by placing restrictions on its downstream graphic card partners. They hope that this will have the effect of driving demand back to the original gamers and scientists.

It is also less than certain that these rumors are true. Although Nvidia may not like the irregular earnings that volatile demand could have, they are unlikely to cut off a sizeable chunk of their current demand.

In quite a contradictory stance, they have also decided to increase the prices in order to limit demand from the miners themselves. They hope that this could have the impact of keeping revenue constant in a downturn.

Threat Posed by ASICs

The Threat Posed by ASICs
Image via Fotolia

Application Specific Integrated Circuits (ASICs) have been viewed as one of the biggest threats to traditional mining hardware and smaller miners globally. These are developed for the express purpose of mining particular coins and do so with lethal efficiency.

More technically, these ASIC miners are able to provide their buyers with more computational power per watt of electricity and per dollar of capital. This makes them an attractive option for the miner.

These were initially produced initially for the Bitcoin PoW mining algorithm by a large Chinese company called Bitmain. Taking advantage of some loopholes in the protocol, Bitmain was able to produce these specialized chips.

They have also had the affect of making Bitcoin mining much less decentralized as only the largest mining operations can really afford to buy these ASICs. Now, seeing the effectiveness that these have had with Bitcoin, the manufacturers are developing ASICs for other coins.

For example, a manufacturer called Baikal has announced that they are looking to build an ASIC that will be used to mine the cryptonite algorithm. This is currently in use by coins such as Electroneum and Monero.

The Monero community has viewed this with a great deal of suspicion. This is because given that Monero is a privacy conscious coin, centralization is a threat to that privacy. They have hence decided to hard fork their chain in order to avoid the threat posed by Baikal and their ASICs.

Bitmain is not likely to let the ASIC boom get away from them either. They have actively been developing alternate ASICs. For example, they recently undercut the Siacoin developers when they released an early version of their Antminer A3.

They also have the Ethereum mining industry in their sites. They have been rumoured to be working on an ASIC that can mine using the ETASH algorithm. This is something that the Ethereum developers are adamant should not occur.

They have always claimed that their coins were ASIC resistant and they are likely to implement changes that could prevent this. Moreover, Ethereum is actively looking to move to Proof-of-Stake minion in their upcoming Metropolis upgrade.

Potential for Other Algorithms

Although PoW is viewed as an essential part of the consensus algorithm, there are many who are experimenting with other mining algorithms that are less energy intensive and less dependent on brute force computing.

Currently, the second most popular mining algorithm is Proof-of-Stake. This essentially allows for consensus to be built by those who hold “stakes” in the coins. These nodes are the validating nodes on the network and the coins staked are the collateral that keeps the network honest.

There are also other interesting mining proposals that are gaining steam in the community. One of those is Proof-of-Capacity. This is currently in use with the Burst coin algorithm and allows for coins to be mined directly on the hard drives of the miners.

Price of Gold, Price of Shovels

There is also another much larger factor that is at play with GPU mining prices currently. This is how the expected returns to the miner are likely to be impacted by falling cryptocurrency prices.

So far 2018 has seen a precipitous fall in the price of all cryptocurrencies and this is likely to have a marked impact on the potential return on investment of GPU mining rigs. This will mean that less people will be buying the latest GPUs off the shelf.

There is also the chance that they could attempt to sell the cards that they currently hold. This could have the impact of flooding the second hand market with used GPUs.

However, the computer gamers and scientists should not be celebrating just yet. Cryptocurrency markets go through corrections regularly and this could also be another example of that.

Featured Image via Fotolia

Posted by Editorial Team

Editors at large. Posting the latest news, reviews and analysis to hit the blockchain.