ASIC mining is a hot topic where cryptocurrency is concerned. It is no secret that cryptocurrency mining takes enormous amounts of electricity, and it leads to mining centralization in a technology built on the basis of decentralization. Often, the selling point of recent blockchain technologies is that they eliminate mining centralization with their new consensus mechanism.
David Vorick recently revealed some harsh truths about an already ill-regarded ASIC mining ecosystem. Vorick is the lead developer of SIA, whose team started an ASIC manufacturing company. On the SIA medium blog, Vorick suggests that ASIC miners are basically money printing machines and that the only reason for a manufacturer to sell them is because they have a better machine at hand. The company you buy your ASIC from could be competing with a better machine owned by the mining company itself.
“At the end of the day, cryptocurrency miner manufacturers are selling money printing machines. A well-funded profit-maximizing entity is only going to sell a money printing machine for more money than they expect they could get it to print themselves. The buyer needs to understand why the manufacturer is selling the units instead of keeping them for themselves,” said Vorick.
Additionally, companies are willing to pay millions for exclusive access to secret ASIC miners, even for relatively new cryptocurrencies with low trade volume. As a result, an underground dark mining industry has developed. The only way to get rid of these ASIC miners is with hard forks that change the code. This is what Monero has successfully done, but it could only be a matter of time before ASICs strike back. Vorick estimates that for every Proof of Work (POW) cryptocurrency with a block reward of more than $20 million in the past year, there are secret ASIC miners farming it.
The profits generated by cryptocurrency hardware mining companies is immense. One of the biggest companies is Bitmain, based in China. SIA estimates that it cost Bitmain less than $10 million to manufacture the popular Antminer A3. Within eight minutes of the sale announcement, Bitmain had more than $20 million in pre-orders for the unit. Hardware mining manufacturers have a massive advantage over other market participants due to industry expertise and lack of competition.
Vorick also points out a technique used by hardware manufacturers known as “flooding.” Essentially mining companies sell millions of dollars’ worth of mining rigs knowing that the block reward is not sufficient for all customers to make their money back, even if the price of electricity was free. Dash is cited as an example of a blockchain where this has happened.
A bigger question on the rise is whether or not ASIC mining can be prevented. Monero, after all, invented secret ASICs (which generated massive profits) while the community was busy attacking Bitcoin and its centralized mining. ASIC miners have even been developed for Ethereum. The only viable option to Proof of Work may be a Proof of Stake (POS) or a Proof of Contribution (POC) mechanism, such as that put forward by CyberVein.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.