Most folks' introduction to cryptocurrency focuses on Bitcoin (BTC). It was arguably the first. It has the greatest adoption and the largest capitalization. Finally, it has been dead center or on the edges of a number of major news stories that have occured in a steady stream for the past several years. Here are just a few:
- The price. It has been mentioned every time it spikes for several years and again each time it retreats ("Bitcoin is Dead"). But so far it's never retreated that far. The price captures people's attention. It's easy to see why:
Bitcoin vs. Equities by discerniblyturgid on TradingView.com
Those flat yellow, orange and blue lines at the bottom of the chart? That's the DOW and 2 of the well known stocks everyone was kicking themselves for not buying in 2009 when bitcoin started.
- Donald Trump. Sure, why not. Bitcoin is recognized by its community as a store of value. If an election or other events make people skittish about the market, it seems some of that money flows into bitcoin. This is an indicator that bitcoin has gained credibility.
- Criminals. From low level potheads buying anonymously on the dark web to organized criminals, corrupt governments and terrorist organizations, cryptocurrency is recognized for its relative anonymity and portability. Speaking of portability...
- Donald Trump. Again. On the campaign trail the president repeatedly stated that one of the ways he would get Mexico to "pay for the wall" was to halt outbound remittances by undocumented immigrants. This flow of cash is quite substantial today. Bitcoin and other cryptocurrencies provide an unregulated and largely untracked, secure means of sending money anywhere in the world at much lower transaction cost than Western Union in minutes (well, in 30 minutes).
- Criminals. Again. Although it was largely viewed as a failure (and possibly a boon for MicroSoft as it targeted mostly pirated instances of Windows XP) when it failed to collect much of the potential haul, Wannacry virus forced many people and businesses to figure out how to purchase and use bitcoin in order to recover their data.
- Japan. China. Russia. All have announced plans to allow bitcoin exchanges to continue operation. Japan has, in the past month, officially recognized bitcoin as a method of payment. Liquidity in Chinese exchanges, which was hampered by Taiwanese and Chinese banks in April and May, is reportedly returning as the ChiComs have begun to embrace crypto (at least inasmuch as it may possibly undermine the dollar and provide options for international transactions)
- Increased adoption by legitimate businesses. From Donut shops to online electronics powerhouses, more businesses adopt bitcoin as a payment method every day. Recently, Alza, the largest online retailer in the Chech Republic and Slovenia, which also has retail stores throughout Europe, announced it would be accepting bitcoin for payment online and in stores and that it would be installing Bitcoin ATM's in several of it's brick and mortar locations.
Most of these stories, related specifically to bitcoin, occured in the past 3 weeks.
To be sure, bitcoin's value fluctuation is concerning as a store of value, but it is a recognized commodity by CBOT, NYMEX, COMEX and CME. After several high profile failures, remaining bitcoin exchanges have taken steps to become regulated institutions. The network has grown substantially. While there are challenges, Bitcoin's current market valuation of roughly $40B is nothing to sneeze at.
So what does this have to do with Gaming and AMD? Nothing, and everything. When BTC first came online, the coins themselves were instantiated by "miners" who ran cryptographic algorithms to discover "blocks" each of which is chained to the collection of preceding blocks in a database called the Blockchain. Part of the cryptographic mining operation facilitates the transaction of whole or fractional bitcoins between users. The cryptographic difficulty of early blocks was low enough that the coins could be found relatively quickly with any spare PC. As the number of miners grows, the cryptographic difficulty is automatically increased to fix the rate of coins mined. Intrepid miners found that the high processing power of expensive graphics cards intended for gaming PC's was ideal for solving cryptographic hashes and moved the processing onto the GPU's. Once this trend began, all miners switched to GPU mining as CPU mining was so much slower that even expensive CPUs could not compete. Put simply, as GPU's took over, providing 28X the power of a typical CPU for half the cost, the difficulty rose rapidly and CPU mining became completely untenable. This resulted in the first cryptomining rush on the video card market as miners competed (and in many cases combined forces) for "hashrates" that would increase the odds that they would be able to find the next coin. This began in earnest in 2014 and the price of current video cards at the time spiked as demand outpaced GPU suppliers' capacity.
The competition was so fierce that, by the end of 2014, a number of specialist equipment vendors had set up shop to create devices (known as ASICS) specifically to process bitcoin hashes. ASICs again increased the hashrate. Where 2014 GPUs were approximately 25-30 times faster than CPU miners, now the first generation of ASIC miners were up to 30X faster than GPUs. This is Moore's Law in rapid action. ASIC equipment has a limited lifespan as each successive generation of ASIC is often an order of magnitude faster than the last. The bitcoin mining network today is almost entirely composed of ASIC hardware. The hashrate has risen from 186 TeraHashes per second (TH/s) (that's a lot of hashes) in July 2013 to a staggering to a staggering 4.86 MILLION TH/s today. With all that power, the built-in difficulty increase has kept the rate of coins being found by all miners relatively constant; about 1 coin is born into the blockchain every 8 to 10 minutes, the same as 2013.
So, GPU mining for BTC died in early 2015 and will likely never return. Companies like ATI (a subsidiary of Advanced Micro Devices NASDAQ:AMD) and nVidia (NASDAQ:NVDA) who make the bulk of the most powerful GPUs experienced a massive spike in demand for about 14 months that disappeared as quickly as it had come. AMD was so unprepared for both the boom and the bust that they missed earnings and, arguably, have never fully recovered.
So, this was a one-time event, right?
So, this was a one-time event, right?
The answer is a bit complicated and "probably not". Moreover, there's very good reason to think that this event is repeating itself today and that the demand for GPU's for nongaming applications related to cryptocurrency will not falter this time and, for architectural reasons, AMD has a distinct advantage in this market over nVidia and all major GPU producers.
Enter Ethereum. Ethereum is a relatively new entrant in cryptocurrency. It was created after bitcoin and designed to avoid some of the shortcomings of the world's best known digital currency.
There are many, many alternative cryptocurrencies vying for marketshare with Bitcoin (at last count, at least 1400 separate active alternatives, collectively known as "altcoins"). At the beginning of March, BTC market cap exceeded the total of all other altcoins combined. The five next largest accounted for over 40%. Today, although BTC remains the largest, it has dipped below 50% of total crypto market value. This is remarkable for 2 reasons. In the same period that BTC declined in market share, it's price per coin more than doubled and, amazingly, total market capitalization increased 300%. Is it a bubble or a fundamental disruption? Two things are clear: real money is accelerating into the cryptocurrency markets at exponential rates, as is adoption--the transaction rates for bitcoin are at an all time high.
Bitcoin was designed and has come to be regarded primarily as a store of value and medium of exchange. It is purely a commodity supported by a network that rewards "miners" for finding new coins and processing transactions. The primary unit of the blockchain, a block, requires relatively little memory to process. The blockchain itself is a ledger of very simple transactions. You can verify any transaction that has taken place. You can find out how many bitcoins are at any address. You can send bitcoins. You can verify hashes. That's all the network really does.
Ethereum was created as a distributed computing network or "DCN". It's built upon the same cryptographic underpinnings as the bitcoin network, but it has been extended (some would say "hyperextended") to support applications running on top of the network. Ethereum supports a range of decentralized applications "DAPPS" which range in purpose from entertainment and social media to complex legal transactions, all of which have a weight on the network that can be expressed in transactions which are ultimately "paid" in tokens (analagous to bitcoins) called "Ether". So Ethereum's blockchain persists not only transfers of value, but a structure called "smart contracts" which can be executed automatically as events register with the network. These contracts are encoded into the network on every node of the blockchain and cannot be destroyed. (They are encrypted, so they are free from prying eyes).
Consider the story I heard from an gentleman I met a few weeks ago who works with the US Treasury Department's Office of Foreign Asset Control in Guatemala. These folks are now responsible, in part, for tracking payments from and to drug cartels and terrorist networks and have had to become blockchain experts. Yet he was mostly positive about blockchain's potential. He said in Guatemala, if you were to buy a piece of real estate that a government official wished to own, you would pay for it and register the deed, which would be kept in a single facility which might soon burn down, eliminating the official record of your ownership. The documents could be digitized, but if a registrars are corrupt, they can be destroyed.
Consider the story I heard from an gentleman I met a few weeks ago who works with the US Treasury Department's Office of Foreign Asset Control in Guatemala. These folks are now responsible, in part, for tracking payments from and to drug cartels and terrorist networks and have had to become blockchain experts. Yet he was mostly positive about blockchain's potential. He said in Guatemala, if you were to buy a piece of real estate that a government official wished to own, you would pay for it and register the deed, which would be kept in a single facility which might soon burn down, eliminating the official record of your ownership. The documents could be digitized, but if a registrars are corrupt, they can be destroyed.
If this same contract were implemented in Ethereum, there would be millions of copies distributed throughout the world on a network that cannot be "possessed", in a format that cannot be hacked. The smart contract can be updated with details of payments, with multiple originations and endpoints, each of which is validated hundreds of times to ensure the record is constantly and persistently up to date. It is this capacity of Ethereum that has, in the past month, driven it's market capitalization in "real" dollars upward faster than Bitcoin. Ethereum market cap is now 60% of Bitcoins.
So the market perceives BTC as a medium of payment (currency) and store of value (commodity). Ethereum provides both of these and an application framework that compensates "miners" for providing processing power for these applications. It comprises, by far, the largest, most capable and most redundant distributed programmable machine in existence.
Ether's rapid rise to second place and extended potential have captured the attention of the mining crowd for over a year and the network has experienced exponential growth for several months and Ethereum is passing through much of the same technological path as it's older brother, bitcoin, which is to say, the mining applications have been ported to GPUs to increase the hashrates and the supply of cards with the best mining GPUs is, well,
Ether's rapid rise to second place and extended potential have captured the attention of the mining crowd for over a year and the network has experienced exponential growth for several months and Ethereum is passing through much of the same technological path as it's older brother, bitcoin, which is to say, the mining applications have been ported to GPUs to increase the hashrates and the supply of cards with the best mining GPUs is, well,
a little thin to say the least. Those that are available are commanding a significant premium.
Note, while these cards all come from different manufacturers, they are all based off AMD's Radeon RX 480 GPU which is architecturally better for cryptomining than nVidia's (very good) graphics cards. It uses less power and is the current go-to card for Ethereum miners. newegg.com is probably the best known vendor of OEM components for performance PC's. (As an aside, they accept bitcoin as a form of payment). This is not a mom & pop shop. They ship more high-end graphics cards than any vendor in North America.
"But this is just another singular event for GPUs, like the one that occured with bitcoin, right?"
No.
One of the key differences with Ethereum is that they witnessed the ASIC transition. ASICs are expensive gear. A new generation of ASIC mining hardware emerges every 18 months making the last generation obsolete overnight. ASICs do one job and do it well. Once they're obsolete, they go to the landfill and must be replaced. Units range from $1000s to $100Ks. This has consolidated much of the bitcoin mining into corporate miners and cartels and many view this as a threat to decentralization.
So Ethereum was architected to do more than bitcoin and require a much larger memory footprint. While ASICs brute-force approach works on the smaller bitcoin data structures, it is prohibitively expensive to create one with the memory required to process Ethereum blocks efficiently. GPUs, on the other hand, are made to break down large memory structures and provide fast memory access to a large number of parallel processors build into the GPU. These cards and processors are optimized for 8GB of RAM. They're designed, tested and made by large manufacturers for a much larger market and a variety of uses. ASIC manufacturers are much smaller. They do not have the market weight to purchase high speed memory at price an ASUS or nVidia can. Even if they could, they do not possess the fabrication technology to build a board that can support the much larger storage requirements to make ASICs feasible.
So, for the forseeable future, Ethereum mining is stuck with GPUs and lots of 'em. They will, no doubt, adopt successive generations of 12 and 16 GB cards and Moore's Law will continue to drive a geometric rise in network capacity. For now, AMD has the best architecture for miners and they will continue to favor the latest versions of AMD GPUs over nVidia. They are doing so at a rate that is stressing supply of Radeon RXxxx cards and there is no disruptive technology on the horizon. The price of all cards is rising as a result.
This is bad news for high end gamers, who often use multiples of these cards in their PC's, but it's very good news for AMD, assuming they can meet the new demand and continue to scale their platform.
Cheers,
DT
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