Ethereum prices have dropped from their week high of $585 after rumors surfaced indicated that a new Application-Specific integrated circuit (ASIC) mining rig from Bitmain had been dedicated to Ethereum mining. ASIC chips are created for the sole purpose of mining a single cryptocurrency, which can be seen as a centralization of mining, an anathema of the decentralization principles that many investors and cryptocurrency enthusiasts have come to embrace about the crypto markets.
The ASIC units far outpace standard mining GPUs in several ways, including a lower need for energy consumption as well as a higher rate of return. In addition, ASIC units allow gamers to utilize their GPUs rather than having that power devoted to mining. However, in addition to being application-specific, ASIC units are far more expensive to build and and would be challenging for the average miner to procure. Miners utilize their graphics cards to “mine” coins, which are then held or sold. Currently, AMD and Nvidia are the leaders in the markets for those graphics cards.
As of February 20, 2018, an opinion piece published in The Merkle argued that the pursuit of an ASIC mining unit by Bitmain was essentially pointless, as “there is a very real chance Ethereum will switch to proof-of-stake in the very near future, which would render any real mining efforts completely obsolete.”
However, a Yahoo! Finance article posted March 26, 2018 relayed that an analyst for leading Wall Street research firm Susquehanna, Christopher Rolland, said that the firm had confirmed that Bitmain is “just months away from shipping the first miners compatible with Ethash, the Proof-of-Work (PoW) hashing algorithm used by Ethereum…”
Rolland wrote a letter to clients that said, “”During our travels through Asia last week, we confirmed that Bitmain has already developed an ASIC [application-specific integrated circuit] for mining Ethereum, and is readying the supply chain for shipments in 2Q18. 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.”
Bitmain is the largest manufacturer of miners containing the ASIC chips. The announcement resulted in Susquehanna reducing price targets for shares in AMD and Nvidia, from $13 to $7.50 and $200 from $215, respectively, referencing the impending competition from Bitmain’s introduction of the ASIC chip mining units into the market. The analysis left Nvidia with a neutral rating, but downgraded AMD’s to negative from neutral. After the news, shares of AMD fell 1.79 percent on Monday, but shares of Nvidia rose 4.94 percent. (Rolland noted in his letter that, “Nvidia has a stronger and more durable gaming franchise which would help it work through this potential Ethereum-related unwind.”)
Up to this point, Ethash has been ASIC-resistant, meaning that Ethereum and other currencies can only be mined with the standard GPU chips. However, AMD recently issued their annual filing and indicated that the demand for GPUs could be “materially adversely affected” if circumstances changed and the demand for GPUs decreased as a result of miners not purchasing.
TechCrunch reported that the introduction of ASIC-chips for Ethereum mining would “change the mining equation entirely” and lead to the centralization of Ethereum mining. The TechCrunch article on the news included quotes from the founder of TryMining.com, Mikhail Avady, who said, “It’s going to affect a lot of the market. Without understanding the hash power of these Bitmain machines we can’t tell if it will make GPUs obsolete or not. It can be seen as an attack on the network. It’s a centralization problem.”
Avady seems optimistic, however, indicating that multiple manufacturers of the ASIC chips would decrease the centralization issue in the mining market. Avady isn’t the only one. The CEO of Cypherium had this to say: ““The price of ETH is becoming consolidated as people become more realistic about blockchain technology. People are looking for higher quality blockchain projects. I believe a rebound in ETH’s price will come soon as panic surrounding regulations begins to fade.”