Cryptocurrency surge: Miners and gamers battle for graphics cards

"As soon as dozens of graphics cards arrived at the warehouse, they were swept away by the mining farm owner in Sichuan."

At the end of February, Wang Zhi (pseudonym), the owner of the fourth floor of SEG Market in Huaqiangbei, Shenzhen, lamented to the reporter of Daily Economic News that the graphics cards Wang Zhi sold were RTX 3070, a high-end gaming graphics card, priced at 8,500 yuan per piece, which doubled the official guide price, but it has been out of stock since the second half of last year.

As the virtual currency market is booming, Nvidia (NVDA.US) gaming graphics cards have become a scarce commodity that game (DIY) players and "miners" are competing for. Miners are frantically buying up, and graphics card prices are rising. The market is in a situation where "cards" are hard to come by, which has also angered gamers.

Nvidia is quite helpless. Although it does not want to miss the dividends of the surge in virtual currency, for Nvidia, half of its revenue comes from the gaming business, gamers are its loyal users. Therefore, Nvidia has to "take" two major measures to appease the emotions of gamers.

First, NVIDIA announced that it would limit the mining capacity of the ForceRTX 3060, which will be officially released on February 25, in order to "dissuade" miners from purchasing this graphics card; second, the company launched a series of professional mining cards in an attempt to remove miners from the gamers' track.

Nvidia is personally "cracking down" on mining, so gamers can buy new graphics cards? It seems that this is not the case...

Why are high-end gaming graphics cards being targeted?

A graphics card (specifically an independent graphics card), also known as a display adapter, is mainly used to control the computer's graphics output. It is responsible for processing the image data sent by the CPU into a format recognized by the monitor, and then sending it to the monitor to form an image. It is often used in video editing and games.

Generally speaking, graphics cards mainly complete repetitive and simple tasks assigned by the CPU. Mining is to use the chip to perform a calculation related to random numbers, and then obtain the answer in exchange for virtual currency rewards. This calculation is also repetitive and uncomplicated. Graphics cards coincide with the "solving" requirements of mining algorithms and are good mining tools.

Currently, graphics cards are mainly used to mine Ethereum (ETH). Unlike Bitcoin, during the mining process of Ethereum, a DAG file is generated, which needs to be called all the time, so there must be a dedicated storage space for it. In addition, among all the virtual currencies that can be mined by GPUs, the mining ROI (return on investment) of Ethereum is the highest.

However, since the introduction of the Dagger-Hashimoto algorithm in June 2016, the size of Ethereum's DAG has increased by about 520MB per year and has now increased to 4GB. Therefore, with 4GB as the dividing line, high-performance graphics cards with video memory greater than 4GB are basically used for mining.

In fact, the GPUs manufactured by NVIDIA were originally targeted at the electronic game market. They were processed into graphics cards and then further used in game consoles or gaming laptops. They are high-end gaming hardware in the market.

On September 2 last year, NVIDIA held an online press conference and officially released the consumer-grade graphics card GeForce RTX 30 series, including RTX 3070, RTX 3080, and RTX 3090. In terms of performance, they beat the 20 series in all aspects, and advertised that the quantity would be increased without increasing the price, and gamers shouted "It's so good".

Bitcoin historical price trend Image source: Huobi.com screenshot

However, since November 2020, virtual currencies have embarked on a rapid upward trend, with Bitcoin soaring from US$15,000 to US$61,800; the price of Ethereum has also risen from around US$380 to a high of US$2,040 on February 20, an increase of more than 4 times.

Ethereum historical price trend Image source: Huobi.com screenshot

Under the attractive benefits, miners began to frantically buy high-end gaming graphics cards. The prices of RTX 30 series graphics cards have soared, and they are in short supply. Not only that, old graphics cards in the second-hand market have also been swept away by miners who are "hungry for food".

Whether it is on shopping platforms, brand official websites, or computer accessories stores, it is difficult to find the RTX 30 series. The shortage of graphics cards has continued from the second half of last year to now.

Interestingly, miners have also set their sights on idle computers in Internet cafes. Xu Tian (pseudonym), the owner of an Internet cafe in Mudanjiang City, Heilongjiang Province, revealed to the reporter of the "Daily Economic News" that "During the epidemic prevention and control period in Northeast China in December 2020, the government required Internet cafes to have one seat for each person. Therefore, in an Internet cafe with more than 100 computers, only more than 50 computers were open every day. Later, someone recommended using idle computers to mine Ethereum."

Xu Tian said that his internet cafe computers are equipped with 1080 graphics cards, and there are currently more than 50 computers mining. At the beginning (December 2020), the daily income of a computer was about 30 yuan. The Internet access fee for each computer in the internet cafe is 4 yuan/hour, and the mining income is equivalent to renting each computer for more than 7 hours. However, with the continuous increase in the computing power of the entire network, the mining income of his computers has declined by 30% in the past month and a half.

Amid the mining craze, it’s hard to find a card in Huaqiangbei

In order to further understand the current situation of the graphics card market, a reporter from the Daily Economic News recently visited the SEG Market in Huaqiangbei, looking for RTX 3070 and RTX 3080 graphics cards on the pretext that a design company needed to assemble dozens of high-performance computers. However, after visiting the entire SEG Market, the above graphics cards were basically out of stock, with only one or two stores having a few.

"How many (graphics cards) do you want? If you can't offer that price, we may not sell it to you. We do have RTX 3070, but not many, and you need to confirm and pay immediately." Li Wen (pseudonym), the owner of a computer accessories shop on the third floor of SEG Market, told reporters.

With the serious imbalance between supply and demand, graphics cards have obviously become a seller's market. Li Wen told reporters that the price of RTX 30 series graphics cards changes every day. The current price of RTX 3070 is 8,500 yuan. There are only three of them. No bargaining is allowed. If you want to look around before considering, it may be sold out.

For graphics card sellers, they prefer miner buyers. Miner buyers are "rich" and buy hundreds of graphics cards in packages. They place orders and pay quickly and may become long-term and stable customers.

"As soon as dozens of graphics cards arrived at the warehouse, they were swept away by the owner of a mining farm in Sichuan." Wang Zhi showed reporters the chat records of his multiple transactions with the owner of a mining farm in Sichuan, as well as photos of a batch of graphics cards that had been shipped out. "For those who build computers, not only has the cost of graphics cards doubled, but they are also out of stock."

Wang Zhi also told reporters that more than 80% of those who come to SEG Market to look for RTX 3070 and RTX 3080 graphics cards are mining. When communicating with reporters, a buyer from Iran, speaking not very standard Chinese, asked if there was an RTX 3080. Wang Zhi replied that there was only one and the price was 13,500 yuan.

According to the quotation from SEG Market in Huaqiangbei, the price of RTX 3070 is basically 8,500 yuan, while the official guide price of this model starts at 3,899 yuan, which is more than 4,600 yuan more expensive than the starting guide price. The current price is more than twice the starting guide price; the quotation for RTX 3080 is 13,500 yuan, and the official guide price starts at 8,500 yuan.

Compared with Ethereum, its price has risen more than 4 times since November last year. Therefore, although the price of graphics cards has increased by nearly 100%, the income from mining is still very considerable. For gamers, a graphics card costs 8,000 to 9,000 yuan, or even tens of thousands of yuan, which is not affordable for most people.

Under the influence of capital, the confrontation between miners and gamers is like that between elephants and ants, with a huge disparity in strength.

For miners, the ROI of mining is the determining factor for purchasing graphics cards. After comprehensively considering the GPU's hash rate, electricity costs, and hardware investment costs, if the price of Ethereum is high enough, a considerable ROI will be formed, which will lead them to purchase GPUs without hesitation. After all, computing power directly determines profits.

The reporter of "Daily Economic News" learned that each graphics card mining machine generally has 6 to 10 graphics cards built in, similar to a home desktop computer, but without a monitor. On March 8, data from the "CoinIn Mining Pool" platform showed that the RTX 3080 8 cards (computing power/measured power consumption: 760M/2000W) had a daily net income of 474.54 yuan for Ethereum, making it the Ethereum mining equipment with the highest daily income.

The so-called RTX 3080 8-card is a mining device composed of 8 RTX 3080s. Calculated at a price of 13,500 yuan per card, the cost of an RTX3080 8-card mining machine is 108,000 yuan. Without considering the increase in the computing power of the entire network, an RTX 3080 8-card mining machine needs 228 days to recover its investment. Generally speaking, miners can accept a payback period of less than one year, and if the price of the currency rises, the payback period will be shortened, otherwise it will be lengthened.

Gamers are angry, Nvidia starts to restrict mining

In response to the reporter's request that "the design company needs to assemble some high-performance computers and needs more than a dozen RTX 3070 and RTX 3080 graphics cards", Wang Zhi said frankly, "At present, there is a serious shortage of graphics cards, and there is really no way to get more than a dozen."

However, Wang Zhi suggested that if design companies need to assemble computers, they can choose other models of graphics cards, avoid the RTX 30 series, and replace them with professional graphics cards or 2060, P1000, P2000, etc., which have good graphics performance and are not expensive. At present, the hardest hit area of ​​​​the price surge is only the RTX 30 series that miners are popular with.

"Before, we generally recommended gaming cards to customers because professional graphics cards were more expensive than gaming cards. But now the situation is reversed. Now when people who do graphics processing and design have computer installation needs, we recommend graphics cards instead." Wang Zhi told reporters, "Graphics cards are more professional, while gaming cards have better comprehensive performance."

With the price of RTX 30 series products doubling, design companies can choose professional graphics cards. For gamers (DIY), high-performance graphics cards are a rigid demand and there are no substitutes. Price increases and shortages have a direct impact on them. Many gamers expressed their anger on social platforms that graphics cards were taken away by miners, and some left messages on Nvidia's official platform, demanding restrictions on mining.

For Nvidia, which earns nearly half of its revenue from gaming, gamers are its loyal users. Therefore, in the battle between miners and gamers for graphics cards, Nvidia had to take measures to restrict mining to protect the interests of gamers.

On February 19, Matt Wuebbling, marketing director of the GeForce department, published a blog post on the company's official website titled "GeForce Is Made for Gaming, CMP Is Made to Mine," which roughly means "GeForce belongs to players, and CMP is made for mining." It mentioned two major measures that Nvidia will implement to restrict mining.

First, for the GeForceRTX 3060, which will be officially released on February 25, a detection for the Ethereum mining algorithm will be designed in the software driver of this graphics card to halve its hash rate (cryptocurrency mining efficiency) to ensure that the graphics card will eventually reach the hands of gamers.

Second, Nvidia has launched a new product line called CMP (Cryptocurrency Mining Processor), which is specifically designed for cryptocurrency mining. CMP has been stripped of its video output interface, and its core architecture is different from that of regular graphics cards, making it more suitable for mining rather than normal graphics processing.

The 60 series graphics cards have always been the "sweet card" in the DIY market, positioned as "medium-range performance at a medium price", and are the choice of most players. As the release date of the RTX 3060 graphics card is getting closer, NVIDIA officially announced that it will hold a Douyin live broadcast event on the evening of the Lantern Festival on February 26.

It is worth mentioning that the newly released RTX 3060 graphics card is priced at 2,499 yuan in the live broadcast room. Such an attractive price made the live broadcast popular before it was broadcast, and players were eager to grab the low-priced "dessert card" RTX 3060 in the live broadcast room.

However, on the night of the live broadcast, the RTX 3060 graphics card was not more available due to the restriction on mining computing power. The reporter searched on the Douyin platform and found that many digital bloggers complained that this was Nvidia's "Monkey Night" and "Script Night".

One blogger bluntly said, "This is a man vs. machine battle, and I am just a pure cow and horse trying to make up the numbers."

Nvidia wants to have both miners and gamers

Against the backdrop of a global GPU shortage, Nvidia's performance hit a new high. On February 24, Nvidia released its fourth quarter and full-year financial report for fiscal year 2021, showing that its fourth quarter revenue was $5 billion, a year-on-year increase of 61%, setting a record high for four consecutive quarters; its full-year revenue was $16.675 billion, and its net profit reached $4.332 billion, both up more than 50% year-on-year.

It is worth mentioning that in the fourth quarter results, Nvidia's gaming business contributed US$2.5 billion in revenue, accounting for half.

Nvidia's revenue

Nvidia CEO Jensen Huang said that the demand for the RTX 30 series GPUs released last year was incredible. With the increasing demand for ray tracing, deep learning super high sampling (DLSS) technology and AI, the gaming GPU series has begun to enter a major upgrade cycle.

Amid the mining craze, high-performance gaming graphics cards continue to flow into mining farms. Therefore, the market is quite curious about how many GPU products have flowed into the "mining farms" of virtual currencies.

Analysts also questioned this at the earnings conference after the release of the financial report. Nvidia CFO Colette Kress admitted that in the last quarter, about $100 million to $300 million of sales came from "miners"; it is expected that in the first quarter of the new fiscal year from February to April, there will still be about $50 million of sales from "miners".

How many graphics card products are flowing into the "mining farms"? In fact, it is difficult for all parties to know. Take the graphics card dealers in Huaqiangbei SEG Plaza as an example. They buy goods from different brands, and no one knows whether the secondary sales buyers are miners or gamers.

In addition, Colette Kress publicly stated that this quarter (the fourth quarter of fiscal year 2021), whether there is a mining boom or not, the results may be the same because its supply is limited. In other words, the cake made by Nvidia is so big that it will not worry about selling whether there are miners buying it or not.

This actually reflects the company's true thinking, whether it is supplying to miners or gamers, as long as there is money to be made. But the key point is that if miners buy too much "cake", gamers will not be able to eat enough. If players are not satisfied, they will turn to other companies to buy.

Therefore, judging from the two measures mentioned above by Nvidia, it does not want to make a choice. Both miners and gamers want it.

From the perspective of external factors, AMD has made continuous progress in the chip field in recent years. If Nvidia does not restrict mining, its high-performance gaming graphics cards will gradually become mining cards. Then, the market share of gamers may be snatched away by AMD, and Nvidia's channel control ability will be weakened. Secondly, the price of virtual currency is rising, and Nvidia does not want to miss this wave of dividends.

Nvidia launches professional mining cards, will miners buy it?

In the battle between miners and gamers for graphics cards, Nvidia has taken two major measures to try to remove miners from the gamers' race. Will miners buy into Nvidia's professional mining cards?

The reporter of Daily Economic News learned that in addition to graphics cards, there are also professional mining machines on the market that can mine Ethereum, such as the A9, A10, and A10 Pro mining machines produced by mining machine manufacturer Innosilicon, and the Antminer E3 mining machine produced by Bitmain.

However, like graphics cards, Ethereum mining machines are also rare. "There are Ethereum mining machines, but they are very scarce, such as A10 Pro. There are only a dozen of them in the entire Huaqiangbei mining industry, and they are very expensive," Huaqiangbei mining machine merchant Chen Li (pseudonym) told reporters.

The A10 Pro that Chen Li mentioned is an Ethereum mining machine released by Innosilicon in the second half of last year. The selling price was about 30,000 yuan at that time. When it was shipped in January this year, the price rose to more than 62,000 yuan. Now in March, the price of A10 Pro has climbed to more than 120,000 yuan, quadrupling.

According to the data from the CoinIn mining pool, the net profit of Ethereum for the Innosilicon A10 Pro (computing power/measured power consumption: 720M/1300W) was 452.84 yuan on March 8. If the price of an A10 Pro is 120,000 yuan, the payback period is about 265 days.

As mentioned above, the daily net income of RTX 3080 8 cards is 474.54 yuan, and the payback period is about 228 days, which is 1 month shorter than the payback period of Innosilicon A10 Pro.

In addition, professional mining machines only have the single attribute of mining. Once a mining accident occurs (coin price plummets), the mining machine can only become waste. Looking back at history, in the mining accident at the end of 2018, the price of Bitcoin fell to around US$4,000, and the mining income could not cover the cost. Many small and medium-sized mines could not support it and could only sell mining machines at a discount. The mining machine that was previously sold for as high as 20,000 yuan per unit only cost more than 1,000 yuan during the sale. In fact, nearly 80% of the mining machines were treated as waste and processed by kilogram.

In contrast, graphics cards have a stronger ability to resist risks. If a mining accident occurs, graphics cards can be resold in the second-hand market to "recover blood." Therefore, miners are much more receptive to graphics cards than professional mining cards.

Therefore, it remains a question whether miners will buy into the professional mining cards launched by NVIDIA.

According to information revealed by NVIDIA, the CMP HX series of mining cards are divided into four models, and the computing power is gradually increased from 26MH/s to a maximum of 86MH/s.

Nvidia said that the CMP HX series is a computing card "purely for mining services" that does not perform graphics processing and is optimized for cryptocurrency mining to achieve the best mining performance and efficiency. CPM does not meet the specifications of GeForce GPUs, so it does not affect players' access to GeForce GPUs.

In other words, the CMP HX series, like other professional mining machines, may only be reduced to slag when a mining disaster occurs, and cannot be sold at a good price in the second-hand market.

GPU shortage may continue until 2022, is it worthwhile to go crazy mining?

Under the influence of the global COVID-19 pandemic, starting from the second half of last year, 8-inch wafers and 12-inch wafers have experienced production capacity constraints and prices have continued to rise, and have gradually spread to the entire semiconductor supply chain, with wafer prices rising, PCB boards rising, packaging and testing rising, and chips rising... The global chip industry is caught in a dilemma of shortages and price increases.

Before the shortage of automotive chips was resolved, there were shortages of mobile phone chips and electronic components. Xiaomi China President Lu Weibing once said on Weibo, "This year's chip shortage is not just a shortage, but an extreme shortage. This year is not just a general shortage, so I won't set a flag and dare not promise that there will be no shortage of mobile phones this year."

How severe is the GPU shortage right now? JPMorgan analyst Harlan Sur said in early March that the GPU shortage may continue until 2022.

Harlan Sur said that the current global demand for chips has been 10% to 30% higher than production capacity. It will take chip foundries three to four quarters to significantly increase production capacity. Chip packaging, transportation and production will take another one to two quarters, so it will take one year for the chips to finally reach consumers.

AMD President and CEO Lisa Su also publicly stated at the end of January this year that the GPU market does need to further increase its overall production capacity and will be in a shortage in the first half of this year.

As for the reasons for the shortage, in addition to the decline in the wafer factory's 8-inch wafer production capacity and TSMC's full load, Su Zifeng also pointed out that the insufficient delivery capacity of the packaging factory also affects the supply of consumer-grade CPUs, GPUs and other chips.

In the context of tight GPU supply and the rapid development of the stay-at-home economy, the demand for graphics cards in the consumer market has been in short supply. With the mining craze surging, miners with capital are frantically buying up, and a large number of gaming graphics cards have flowed into the mining market. In addition, the ASIC chips required for professional mining machines are also manufactured by manufacturers such as TSMC, which has squeezed the production capacity of other consumer electronics to a certain extent.

On March 11, financial economist Alex de Vries also wrote that because mining equipment needs to operate at high load for a long time, its lifespan is generally short. As Bitcoin soars, many people will continue to increase their investment in mining, which will further aggravate the current global chip shortage and eventually lead to shortages and price increases for products such as cars, computers, and mobile phones.

It is worth mentioning that mining is also a high-energy-consuming industry. Previously, the Bitcoin Power Consumption Index released by Cambridge researchers showed that if Bitcoin were regarded as a country, it would be among the top 30 countries with the largest power consumption in the world. The annual power consumption of Bitcoin mining is about 121.36 terawatt hours (1 terawatt hour is 1 billion kilowatt hours). This figure has exceeded the power consumption of Argentina, the Netherlands, and the United Arab Emirates, and is expected to soon exceed Norway.

In fact, there has been a long-standing controversy over “Is virtual currency valuable?” and “Is it worth investing a lot of resources in mining?”

Some people believe that, so far, the value of virtual currency in other aspects has not been truly realized, and it is not worthwhile to consume a large amount of social resources such as chips, electricity, and manpower to pursue virtual currencies such as Bitcoin.

However, some people believe that part of the reason why virtual currencies are so popular is that they reflect the new technical ideas in their underlying design, namely blockchain technology, which has the characteristics of decentralization, information immutability, anonymity, etc., and has subverted the traditional currency system. Tesla, PayPal and other companies have begun to accept Bitcoin as a means of payment, and mainstream virtual currencies such as Bitcoin are becoming more and more recognized.

Is it worth investing a lot of resources into mining?

Since 2017, mainstream virtual currencies such as Bitcoin and Ethereum have experienced three surges. The surge from November 2020 to now has been even more turbulent and surging. This surge has made crazy miners no longer satisfied with professional mining machines, but also set their sights on high-end gaming graphics cards. As miners rushed to buy them, the price of graphics cards doubled, and it was hard to find a "card" in Huaqiangbei.

During the interview with the graphics card merchants, Wang Zhi said something that impressed the reporter. After she sent out a batch of graphics cards needed by the Sichuan mining farm owner, she kept two Asus RTX 3070 Raptors. She said: "They can just use the third-tier small brand graphics cards for mining. I really can't bear to sell them graphics cards with such good performance as the Raptor. It would be a waste to use them for mining."

It seems that even Huaqiangbei merchants cannot answer the question of "Is virtual currency valuable?" How long this "hot money" will last may only be answered by time.