TL;DR: The rise of cryptocurrencies has brought with it a significant demand for bulk graphic processing units (GPUs). Manufacturers of these units, which have proven to be very useful for mining cryptocurrencies, are desperately fighting to keep up with recent demand. The issue has polarized communities and raises questions about whether or not cryptocurrencies will provide long-term demand for manufacturers. This article hopes to dive into some possible answers and breaks down different perspectives on the issue.
- Ethereum's GPU Boom
- Pushback from GPU manufacturers
- Meeting market demand in 2018
- The Proof of Stake Issue
Last year, in what some enthusiasts might call the first successful moon landing since December 11th, 1972, cryptocurrencies celebrated stellar growth rates. Ethereum, Bitcoin, Litecoin, Ripple, and other such cryptocurrencies went from underground hobbies to heavily-backed and well recognizable stars. This shift, primarily due to an explosion of interest from a range of investors, miners, and tech startup companies brought with it several new challenges for hardware manufacturers.
As the price of these emerging cryptocurrencies has erupted, so has the demand for high-end graphics cards. What is a GPU and how does it perform calculations differently from another processor? GPUs (Graphics Processing Units) are computational units designed for completing simple yet massive calculations in a brief timeframe. A common example of this would be outputting high definition video to a monitor/television, rendering changes to a video game, or simulating physics engines for scientific experiments. As it turns out, these types of processors are also great for making the calculations needed to mine cryptocurrencies.
High-end GPUs have seen unprecedented price hikes and massive supply shortages from online and retail businesses because of this gold rush in cryptocurrency mining. Sales of high-quality graphics cards, traditionally used for gaming, have been reported to have spiked as much as 88% from last December. Those hit hardest by the cryptocurrency gold rush include mid to high-end products from AMD and Nvidia. The price of some mid-range and high-end GPUs doubled, and for more than a month, it was nearly impossible to find a retailer selling Nvidia GeForce GTX 1070s or an AMD Radeon RX 580s. These graphics cards are in such short supply as a result of new cryptocurrency demand, but why is this the case at all? Why are GPUs overtaking demand for other processing units?
Ethereum's GPU Boom
Ethereum is a blockchain-based platform which enables developers to build and deploy decentralized applications on top of a growing network. The advantage of Ethereum over something like Bitcoin is that it can support many different types of decentralized applications and general purpose contracts. Applications are not just limited to basic financial transactions but become applicable to any particular industry.
Ethereum also has the second largest market cap after Bitcoin and has gained massive growth in the last year. The market cap for Ethereum (Eth) has reached over $100 billion and has a circulating supply 82.7% greater than Bitcoin.
This recent demand for Ethereum applications has also brought significant demand for Ethereum miners. Ethereum mining is similar to Bitcoin mining, in that miners will also have to solve complex cryptographic puzzles to receive their reward. Except, Ethereum's Proof of Work algorithm requires not just computational power, but memory allocation as well. This reduces the competitive advantage of ASIC mining rigs (specialized hardware made for one type of calculation) over common GPU rigs. The result is a mining ecosystem which is resistant to the emergence of specialized hardware that favors bigger players and investments.
Ironically though, it would seem that this distinction in Ethereum has created a bigger problem than the one it was originally attempting to solve. The point of using GPUs over a specialized ASIC device was to maximize the opportunity for independent miners to participate. Seeing as how graphics card manufacturers can't seem to keep up with the community's demand though, it has created a buyer's market where bulk purchases from wealthy investors prevail small orders from independent miners.
Pushback from GPU manufacturers
Ethereum provides a highly valued service for decentralized application developers, as well as emerging financial institutions. Despite all of this new found demand from within the blockchain and mining community though, manufacturers seem vocal about sticking to their original market.
Nvidia has encouraging its retail partners to prioritize gamers over cryptocurrency miners, but this suggestion often falls on deaf ears. Retailers can generate much larger margins by selling directly to miners currently. It seems unlikely that retailers would act outside of their interests to follow the will of Nvidia's recommendations. While individual retailers are limiting bulk purchases so that miners can’t hoard stacks of graphics cards and alienate other consumers, most retailers are embracing demand. Other companies like Micro Center are specifically offering discounts to PC gamers who buy graphics cards alongside other components, which helps gamers but doesn't necessarily punish miners either. Micro Center blames the high demand from miners on constrained shipments from vendors, which vendors blame on industry-wide shortages due to contract limitations.
As you might imagine, video game makers also weigh in on this controversy. For miners, price increases simply represent changes to potential returns on investments. For members of the gaming community though, and businesses that revolve around this community, price increases often mean users migrating away from the PC industry. Price increases are driving troves of PC gamers towards consoles from Microsoft and Sony. Several huge players in the gaming industry are either rooting for, or against, these changes in demand based upon their interests.
Meeting market demand in 2018
This is a shortage that’s affecting pricing worldwide, not just in the US. It seems unlikely to end unless graphics card vendors can flood the market to keep up with interest, or cryptocurrency demand drastically dwindles.
Nvidia and AMD both share a similar business model of licensing their unit designs to manufacturers. The two companies focus on the design process of generating graphics cards and return a profit from these competitive licenses they provide to actual manufacturers. The result is a very politicized environment, where companies fight for the right to manufacture graphics cards at all. For Nvidia and AMD, this new demand simply means streamlining their workforce and sticking to their expertise. Rather, the crisis of GPU production falls on the shoulders of their first party vendors and chip manufacturers. A few of these manufacturers include Foxconn, TSMC, Samsung, Asus, Gigabyte, and EVGA. All of which have very specific contracts that outline their terms and prevent each other, as well as new manufacturers, from producing more units currently.
This business model produces a lot of unnecessary overhead and is a significant portion of the larger problem at hand. One thing is for certain though, which is that demand is not decreasing from both communities.
The Proof of Stake Issue
Many vocal members of the mining community, as well as the GPU industry, argue that Proof of Stake will diminish demand among miners and return the community to a balanced point. However, Proof of Stake's adoption timeline remains to be seen.
On December 31st, 2017 the Ethereum core development team released their first alpha test-net of Casper to the public. While a huge achievement worth celebrating, it is important to note what the alpha network has a long way to go. There's evidently a massive amount of work and research to be done before we’ll ever see Casper implemented on the main Ethereum network. In addition, Casper does not bring about the end of Proof of Work, but rather the coexistence of two great mechanisms which will further Ethereum's security and overall public support. While there's no official timeline for Casper's roll-out, it's safe to say that there's plenty of room for Proof of Work in 2018 and beyond.
This raises an important question for Nvidia and AMD:
If demand for both industries is not met, will the PC gaming industry survive to fight another day?
As miners are able to take larger risks, and buy more expensive GPUs, gamers will continue to receive subpar treatment over the next few years. It's understandable that this could significantly drive gamers and developers away from PCs, and over to consoles. It's conceivable that by ignoring miners to appeal to gamers, Nvidia and AMD are only hurting their long-term profits. Perhaps the best solution is to give the market what it wants and to issue more contracts to new manufacturers.
For PC gamers, this all represents a potential worst-case scenario, but whose fault is it? With no immediate solution being proposed, some comfort can be taken in the fact that companies will always want to generate larger profits. Selling more cards to as many people as possible is a clear answer, as profit is their primary goal. However, it's unclear that Nvidia and AMD understand their market has truly changed. Both gamers and miners need to collectively demand that the industry adapts to their calling, and hopefully that should push companies to increase the total potential orders they can handle instead of pushing off demand. Only through teamwork can both markets truly see a better landscape for GPU prices.