what are ASIC Miners?
ASIC miners use ASICs, Application Specific Integrated Circuits, which are specialized pieces of hardware designed to perform a single activity. In contrast, the majority of computer hardware in your home, such as the circuitry in your smartphone or in your laptop computer, is utilized to perform a variety of tasks. For example, if you have multiple programs open on your computer, such as a web browser and a text editor, then your computer is running multiple tasks and needs hardware that can specifically manage both those tasks. CPUs, or Central Processing Units, usually do the job in this scenario.
The issue with using hardware that is designed to run multiple tasks at once is that the hardware will generally not be the best option if you only want to perform a single task extremely well. ASICs, by their very name and definition, are designed to specialize in one type of task. Much of the computational work needed to maintain a blockchain network’s transactions, connections and account security is usually limited to a small number of power-intensive tasks.
Mining is required to sustain a blockchain network that operates by using a Proof of Work scheme. In terms of complexity, mining is a very simple process that will usually only utilize one software program, racks of hardware, electric power and time. This is where ASICs become useful for the blockchain.
Bitcoin & Cryptocurrency Mining
In the early days of Bitcoin, most miners used CPUs from home computers to make a profit mining bitcoin. It was simple; if the value of the Bitcoins you received for your mining efforts exceeded your electric bill and the cost of your computer hardware, then you were in the black. As blockchains have become more complex, CPUs and home electric power supplies no longer make mining a profitable endeavour.
More and more transactions occur every day, and the computational resources necessary to secure and validate these transactions has been increasing exponentially. Mining organizations have done everything in the books to cut costs, from moving to cheap power supplies near dams in upstate New York and rural China, to investing in warehouses full of ASICs. Greater research in both the areas of computer science and computer engineering have brought forth advancements in algorithm efficiency, software efficiency and hardware efficiency, and that advancement will continue for the rest of time itself. Whether or not these developments can arrive faster than blockchain’s puzzles’ complexity can increase is the real issue. If accessible progress in hardware and software cannot win the race against the blockchain’s computational complexity, then cost-cutting and other profit-maximizing strategies will have to make an appearance. Whether or not Satoshi Nakamoto saw this coming in his initial conception of the blockchain, cryptocurrency mining has seen huge barriers to entry develop in recent history due to these strategies.
Issues with ASIC Miners
Increasing barriers to entry in mining is an issue of recentralization after decentralization. While the purpose of blockchain is to decentralize the security and processes in maintaining a peer-to-peer network system, Proof of Work mining and ASICs have increasingly become a centralized matter. In other words, only individuals and corporations with deep pockets have the ability to enter the mining arena and still turn a profit. While users of Proof of Work blockchains can still appreciate the security and anonymity of utilizing these networks, it is troubling to know that the largest chunk of both the power running these networks and the collection of newly created tokens and coins will go to a select group of ‘central’ organizations and corporations.
Fortunately, creators of newer altcoins have taken these concerns into account when designing more decentralized block creation and mining schemes. While some blockchain developers adopt alternative mining algorithms to deter ASIC rigs, other blockchain ecosystems have been becoming more popular for their use of alternative proof schemes, such as Proof of Stake. Currently, we are going through a period that will test the blockchain community for the most efficient and accessible consensus schemes and most secure decentralized networks. The influence that ASIC investment has had on cryptocurrency ecosystems has nonetheless pushed blockchain technology in new directions, and has definitely started necessary conversations about revising blockchain algorithms, mining, and block creation schemes.
So you might be asking yourself by now, how does this affect my decisions as a prospective investor? First and foremost, if you are looking at investing in blockchains that use Proof of Work, such as Bitcoin there are a variety of variables to take into consideration. Since the relative value of a given cryptocurrency is based on both the total volume (the amount of existing coins) and the velocity at which transactions take place over the network, we can infer that the rate at which coins are mined and how mining validates transactions both affect the value directly. If coin mining is too expensive, then we can expect that there will be a limited amount of coins in the near future, making the asset scarce and therefore more valuable. This holds true as long as the velocity of transactions stays the same or speeds up, which is still dependent on the efficiency of mining. Since this is ambiguous terrority, it is more efficient to consider the case in which we hear news that large organizations are investing in mining a specific blockchain. There will be a high chance that through that investment in mining, the blockchain’s volume of coins will increase, as will the efficiency of the blockchain. This would make room for greater transaction velocity and a greater likelihood of a secure, quick and more valuable blockchain.