The fight for semiconductors: Are crypto miners dominating?

Semiconductors are a staple of most industries, but the coronavirus pandemic has created a major supply bottleneck as production struggles to keep up with the demand. As supply becomes increasingly strained, there is a growing concern that cryptocurrency miners may be taking advantage of the situation.

Semiconductors are a staple of most industries – from aerospace to healthcare. They are also essential for the manufacturing of electronics for everyday use, such as smartphones, gaming consoles and automobiles. The semiconductor industry has been booming in recent years, yet it has struggled to keep up with demand as a result of several factors. This has led to shortages and skyrocketing prices.

The semiconductor industry is different from many other industries in that it’s extremely capital-intensive. Manufacturing plants cost billions to build and take years to complete – and they can only produce one type of chip at a time. Additionally, semiconductors have an average lifespan of roughly two years before becoming outdated or obsolete. All of this makes it difficult for manufacturers to quickly adapt and respond to changing market conditions or increasing demand.

However, COVID-19 has exacerbated these problems even further by creating a perfect storm for disrupting supply chains around the world. The pandemic has caused many factories in China to close.

Here’s a new wrinkle in the growing fight for semiconductors: the cryptocurrency miners.

Semiconductors have become the new oil, and as we all know, there is a heavy demand for oil.There are only so many chips that can be produced and bought, and it’s not just Bitcoin miners who want them.

Semiconductors are also used in other devices such as game consoles and smartphones. In fact, we all use them daily in one way or another. They power our computers, cell phones, cars and even home appliances.

Crypto miners are taking over semiconductors, but these items are not just used for mining Bitcoin. The current interest in crypto is driving the price of the equipment sky-high, and this has caused many to worry about the future of their business.

There’s been growing concern that the global chip shortage could last well into next year because of unprecedented demand from all corners of the consumer electronics world. Automakers are scrambling to find chips for their cars, and consumer electronics companies are trying to find enough chips for everything from laptops to video game consoles to televisions.

At least one of those groups — the cryptocurrency miners — has found a short-term solution: secondhand chips.

A few months ago, we asked on twitter how many of our followers were able to get a new graphics card. Roughly 73% said they couldn’t find one. On the surface, this might be due to high demand and low supply. But, if you go deeper into the issue, you will find out that it is not only due to high demand (related to gaming) but also due to crypto mining.

As we all know, Bitcoin is a cryptocurrency and digital payment system invented by an unknown programmer, or a group of programmers, under the name Satoshi Nakamoto. It was released as open-source software in 2009. The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called “blockchain”.

Bitcoin mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the Hashcash proof-of-work function.

Ethereum, the second-largest cryptocurrency behind bitcoin, is up more than 500% over the past year. That’s prompted a boom in demand for graphics processing units, or GPUs, which help mine cryptocurrencies and are also used by gamers.

Some miners have turned to eBay, where they’re finding corporate buyers selling off old GPUs at a discount. Others have joined Facebook groups, like “Crypto Mining Buy Sell Trade,” where they can buy new GPUs directly from individual sellers who bought them at retail and then decided they didn’t want them after all.

The semiconductor industry is dominated by a small number of companies that consistently sell their products to the same customers. It’s not an industry known for its dramatic fluctuations, but the past few years have been an exception.

Cryptocurrency miners have been a major force in the chip industry. They’ve been buying GPUs and ASICs in bulk, and the effect has rippled through the rest of the market. In 2017, GPU prices skyrocketed because crypto miners were snapping up every chip they could find. Game developers noticed, too, as they found it increasingly difficult to source cards for their own uses, and AMD even suggested that people stop buying up all its chips for gaming purposes.

Some of those cryptocurrency projects have failed since, which has given game developers relief from this issue. Despite this, crypto mining isn’t going away, and it’s still driving demand for chips today.

Semiconductors have been in high demand recently, with the TSMC and other chip makers pushed to the brink of their production capacity. While much of this demand has come from the automotive industry, it has also been fueled by cryptocurrency miners. Cryptocurrency miners are responsible for validating and processing transactions on a blockchain network in return for a reward.

The continued rise of cryptocurrencies like Bitcoin, Ethereum, and Dogecoin has resulted in an explosion of mining activity, requiring more and more powerful chips to verify transactions. This demand is not likely to subside anytime soon as cryptocurrencies continue to grow in popularity.

The semiconductor industry has been on a tear as demand for chips has surged during the pandemic. Investors have been betting that the strength will continue as economies reopen, pushing some chip stocks to new highs.

But the industry is facing a major shortage of the computer chips that go into just about every electronic device, from smartphones to cars. That’s partly because the pandemic disrupted supply chains last year, but also because of demand from cryptocurrency miners who are snapping up graphics cards and other hardware optimized for mining digital currencies like bitcoin.

Now there’s concern that chipmakers will allocate more of their limited production capacity to miners, excluding customers like auto and electronics companies who may be willing to pay higher prices.

 

The fight for semiconductors: Are crypto miners dominating?

 

 

The fight for semiconductors is real, but it is not just crypto miners that are contributing to the current shortage of chips.

Regulators in the U.S., Taiwan, and elsewhere are pressing chipmakers to prioritize production of semiconductors that go into everything from cars and mobile phones to laptops and video game consoles.

They fear shortages could threaten a global economic recovery as industries reliant on chips face supply constraints. The concern is particularly acute in the automotive industry, especially after chipmaker STMicroelectronics warned last week that its sales would fall short because of a shortage of chips.

The recent Bitcoin boom has led to a surge in the demand for GPUs, which has driven up the price and has become a challenge for gamers. While crypto miners have been blamed for this problem, NVIDIA CEO Jensen Huang thinks otherwise. The GPU shortage, as well as the chip shortage, has affected many industries, including automotive and gaming. According to Huang, crypto miners have nothing to do with the scarcity of chips.

 

In an interview with Protocol, Huang said that crypto miners don’t have much impact on the current situation because “the entire cryptocurrency market is worth about $300 billion.”

 

Comparing it to the billions of dollars generated by NVIDIA from sales of GPUs for gaming purposes, he said:

 

“it’s small potatoes.”

According to a research report by Susquehanna Financial Group, a global asset management and trading company, the fight for semiconductors is intensifying as crypto miners compete against PC manufacturers, data center operators and other chip customers.

The report suggests that miners could account for up to 20% of demand for graphics processing units (GPUs) in 2021, driven by the recent surge in Bitcoin’s price, which has risen by over 800% since March last year.

This increased demand from miners is creating a shortage of semiconductors around the world, with Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker announcing that it expects to face production shortages this year.

In 2020, the company posted record revenue of $35 billion, up 27% on 2019 due to a rise in demand for chips used in 5G devices, high-performance computing and gaming devices.

 

Currently, TSMC’s customers include Apple Inc., Nvidia Corp., AMD Inc., Huawei Technologies Co. Ltd., Qualcomm Inc. and Samsung Electronics Co. Ltd.

The report says that computer makers are already struggling to acquire graphic cards (GPU), with both AMD and Nvidia’s GPU inventories depleted at leading retailers.

 

Conclusion

The crypto market has been on a hot streak, and that’s bad news for the gamers. The sky-high graphics card prices are here to stay for a while, at least until the miners sell their cards or the more powerful ASICs make their way to the market.

As it turns out, you don’t need any specialized hardware to mine cryptocurrencies. In fact, you can use anything from your PC’s CPU to its GPU to its hard disk drive (HDD). But there’s a catch: you’ll only get minuscule profits or none at all because of how competitive and volatile the crypto market is these days.