Crazy miners: Graphics card manufacturers who make 3 million per year are laughing in their dreams

Image source @Visual China

Crypto traders are partying in exchanges, and miners are sweating in virtual mines. Mining machines are running day and night just like the steam engines that devoured coal crazily during the first industrial revolution, but this time what is being devoured is no longer coal, but electricity and graphics cards.

Data shows that in 2017, more than 3 million graphics cards were bought by miners, with a total value of approximately US$776 million. The average price of each card was more than US$250, and they were all mid-to-high-end cards, with AMD graphics cards accounting for the majority.

Mining and graphics cards

What we need to know about Bitcoin and mining is that the total number of Bitcoins in the entire network will not exceed 21 million. This is just like the limited amount of gold that can be mined from a mine. This metaphor is the origin of Bitcoin "mining".

The resulting problem is that the difficulty of obtaining gold will continue to increase over time - Americans who flocked to the West during the gold rush went from panning gold from river sand to blasting mountains to mine it. This is also in line with the law of Bitcoin mining.

On the one hand, the speed at which Bitcoin is produced is halved every four years, so as time goes by, the unit time required to obtain Bitcoin will become longer, and has now been reduced from 50 coins per 10 minutes at the beginning to 12.5 coins per 10 minutes; on the other hand, as the number of people participating in mining continues to increase, the current distribution method for miners to obtain Bitcoin is generally based on the proportion of their own computing power in the total computing power of the mining pool. As more and more miners participate in mining, the benefits that can be obtained per unit of computing power will continue to decrease.

The computing power mentioned here is generated by the calculation of the graphics card. The principle of obtaining Bitcoin is simply to use the computer to calculate the hash function for hash collision. The computer that first collides with the correct hash value will obtain the ownership of the Bitcoin. Since the logic involved in this process is not complicated, compared with the CPU that is suitable for processing complex logic, graphics cards with multiple processors and natural characteristics suitable for a large number of violent calculations have become the first choice for miners.

Miners consider the price of graphics cards and the corresponding mining computing power, and select the most cost-effective graphics cards on the market as their mining tools.

In the mining race against time, the role of graphics cards is no longer an electronic component that needs careful care, but a raw material burned in the virtual world to mine Bitcoin. Although in theory the service life of graphics cards is very long, 5 to 10 years is the norm under normal use. However, for mining operations, 7*24 hours of uninterrupted full load work, and more dense space and worse heat dissipation conditions than ordinary computers, it is probably difficult to call it normal use.

Miners prefer A cards

In a sense, miners have become the saviors of the global graphics card market. According to the global GPC graphics card market report for the fourth quarter of 2017 released by market research firm Jon Peddie Research (JPR), global GPU shipments fell 4.8% year-on-year in the quarter, while desktop discrete graphics cards, which miners love, rose against the trend, with an increase of 9.7%.

So is it the Bitcoin craze that has created this phenomenon? As we mentioned above, the difficulty of obtaining Bitcoin will continue to increase due to the increase in mining time and the number of miners. Insufficient production capacity has prompted industrial upgrading. At first, Bitcoin could be easily mined with ordinary computers, then graphics card mining replaced CPU mining, and then ASIC mining machines and large-scale cluster mining. The Bitcoin mining industry has undergone many upgrades, and graphics card mining is no longer suitable for Bitcoin mining scenarios.

The gap between mining machines and graphics cards in mining applications can be simply compared to oil and coal - the more efficient fuel replaces the other in large-scale application scenarios. So why do we still say that miners have driven the increase in sales of desktop discrete graphics cards?

The value and difficulty of obtaining the popular Bitcoin are increasing rapidly. We have said that there are two main reasons for this: the total amount decreases over time and there are too many people and too little porridge. Mining machines and cluster mining are eating up the little profit left in the entire chain, and graphics card mining cannot make money from Bitcoin. But at the same time, we also need to understand that after the concepts of blockchain and Bitcoin became widely known, Bitcoin is not the only mainstream currency in the market.

According to the cryptocurrency players, the current mainstream currencies are roughly BTC (Bitcoin), LTC (Litecoin), ETH (Ethereum), and ZEC (Zerocoin). The former two have already produced special ASIC mining machines. Considering the equipment cost and operating cost (mainly electricity cost), graphics card mining has no profit. ETH and ZEC have become the new favorites of graphics card miners.

In other words, graphics cards still have application prospects in the field of mining, but they are no longer targeted at Bitcoin. Since different cryptocurrencies use different mining algorithms and logic, the requirements for graphics card performance are also different, and the benefits of mining with different graphics cards will be significantly different. Therefore, the more suitable the graphics card is for the current mainstream currency mining application, the higher its sales will naturally be.

It is understood that the combination with the highest return at present is to use AMD graphics cards to mine ETH. This is completely consistent with the data released by JPR on the increase in sales of AMD cards last year and the trend chart of Ethereum's strong rise until January this year.

A card market share rises

ETH Price Trends

Mining fever rewrites the graphics card market rules

In general, for electronic components like graphics cards that are updated quickly, the price of the same product should decrease over time. However, mining has changed all that.

Some netizens joked that AMD graphics cards may be the best financial product in the past year. According to data from price comparison websites, the price of this AMD RX570 graphics card continued to rise in November and December last year, especially after entering December, when it once soared to a high price of 3,799 yuan. Combined with the steep rise of ETH in December and early January mentioned above, the connection between them is obvious. It is understood that in 2017, when the cryptocurrency craze was surging, there were many cases of graphics cards being in short supply and having a price but no market.

Virtual currencies, starting with Bitcoin, have begun to demonstrate their powerful ability to rewrite market rules amid a wave of enthusiasm. Not only have virtual currencies become a major force in the financial markets and the Internet, their influence has also begun to penetrate into the real economy.

The price fluctuations caused by mining have caused dissatisfaction among gamers - gamers who only pursue high-end graphics cards for gaming are affected by the virtual currency market that has nothing to do with them, and need to pay a considerable premium to purchase graphics cards. In response to this, graphics card companies all claim that they will put gamers first, but in fact, as long as the graphics cards produced are sold out, does it matter who they are actually sold to? As the market is shrinking, the financial sponsors who are rising against the trend must seize it.

Who are the real winners of the gold rush?

People's crazy pursuit of Bitcoin and other virtual currencies reminds me of the American Gold Rush in the 19th century. In the westward movement that lasted for more than a century after the independence of the United States, the Gold Rush was the most legendary period in history.

The similarities between the process and today’s Bitcoin mining have been mentioned above, with enthusiastic people flocking to California under the lure of gold.

"Seamen abandoned their ships in San Francisco Bay, soldiers left their barracks, servants left their masters and flocked to the gold fields, farmers mortgaged their land, pioneers reclaimed the wasteland, workers threw down their tools, civil servants left their desks, and even missionaries left their missions."

The wealth that the gold rush brought to the United States was staggering - in 1852 alone, the world's gold production increased fourfold, and urban construction and development in the western United States also proceeded rapidly under this wave.

It is still hard to say whether the Bitcoin craze can bring changes to Internet technology and human development like the gold rush, but some things can be compared. In 1853, when the gold rush was at its peak, a young Jewish businessman began to sell a pair of low-waisted, straight-legged, and tight-hip pants made from accumulated canvas to gold miners, which were well received. He then established a company specializing in the production of such pants in his own name - these pants are today's jeans, and the name of the company is "Levi's".

History keeps repeating itself. Canaan Creative, a Chinese Bitcoin mining machine manufacturer, took advantage of the trend of Bitcoin mining machines replacing graphics cards and CPU mining in large quantities after 2012 and became the world's second largest Bitcoin mining machine manufacturer from scratch. In the four years from 2013 to 2017, Canaan Creative sold 160,000 Bitcoin mining machines, with revenue reaching 1.2 billion yuan in 2017 alone, and profits of about 300 million yuan. It is currently applying to be listed on the New Third Board.

While the big guys in the cryptocurrency circle are making money in the trading market, the real industries related to blockchain and Bitcoin are also moving in line with the trend. Canaan Creative and AMD are both examples of making a fortune outside the exchanges. For hardware manufacturers, it is not so important what will happen to Bitcoin in the future. As long as graphics cards and mining machines can be converted into more US dollars, taking advantage of the hype of blockchain and Bitcoin concepts to fleece the miners is a real bonus.

Those who are looking forward to the rise in cryptocurrency speculation are not the only ones waiting to reap the benefits.