How the mining “arms race” is starting to look like private equity in the 80s

Leo Zhang

By Leo Zhang

Token-buyers are largely unaware of the multi-billion-dollar effort by mining hardware manufacturers to build faster integrated circuits, but this industry creates tectonic forces that eventually move cryptocurrency markets.

Application-specific mining machines are antithetical to some cryptocurrency project maintainers. Teams from well-known networks like Ethereum and Monero are openly anti-ASIC, with the latter group threatening to fork away from their own network should Monero ASIC machines appear.

This week, rumors emerged that Bitmain, the largest Bitcoin ASIC-maker, is pursuing development of an Ethereum chip which--if true--could balkanize the community (see thread below). They've already announced a Monero miner.

Bitmain's powerful position results in part from the massive and surprising infusion of cash it generated by operating its own machines during the price run-up of 2017. Not unlike the innovative LBO artists of 30+ years ago, it has an unprecedented war chest from a new source--about $4 billion netted last year, according to Fortune.

What does this mean for the industry? Are ASIC manufacturers Barbarians at the Gate who threaten to consolidate the industry? Or will the success of Bitmain draw other silicon manufacturers like Intel or AMD into ASICs, enlarging the pie?

To understand why the question matters, peruse the links below, starting with a thread by ASIC-moderate Ethereum researcher Vlad Zamfir:

The take on ASICS in Monero-land is decidedly negative:

A scheduled network upgrade is planned for April 6
(Monero)

"The scheduled network upgrade introduces two major changes. First, a PoW tweak to curb any potential threat of ASICs and preserve ASIC resistance. As a result, miners will have to update their miners (i.e. mining software). Second, the minimum ring size is bumped to 7 (mixin 6). Therefore, pool operators need to ensure that payouts use a minimum ring size of 7 (mixin 6), otherwise they will get rejected by the network."

Some networks like Decred attempt to resolve the question "whether to fork, or not to fork" using on-chain governance systems, which typically rely on voting or ticketing schemes to assign power:

Decred ticket splitting is now live on the testnet

Which network "wins" isn't all about maximum hashpower. It's also about practical use--and one area where bitcoin lags is privacy.

Mimblewimble is a Bitcoin privacy scheme proposed in 2016 by Tom Jedusor. One encapsulating quotation from the paper describes why it was written: "The 'transaction graph' resulting reveals a lot of information and is subjected to analysis by many companies whose business model is to monitor and control the lower classes. This makes it very non-private and even dangerous for people to use."

The Mimblewimble concept has seen some attempts at implementation of late:

Development of Mimblewimble protocol

Other privacy schemes abound, including the mathematically tantalizing ZK-SNARK:

Rise of the SNARKs with Howard Wu (SCIPR Lab, Blockchain at Berkeley, UC Berkeley)

Other technical updates

Sia announces Sia-TV

A brain built from atomic switches can learn
(Quanta Magazine, by Andreas von Bubnoff)

"But the potential, he emphasized, is huge. That’s because the network, like the brain, doesn’t separate processing and memory. Traditional computers need to shuttle information between different areas that handle the two functions."

News & Commentary

Leaders Series: Caitlin Long at the Wyoming Blockchain Coalition
(Meltem Demirors)

"One reason is that Wall Street’s accounting systems are rarely in sync with each other and smart actors have figured out how to exploit these inconsistencies to their advantage. Some of this is nefarious, but much of it is just systemic sloppiness. We will only have a fair financial system when we restore property rights back to the owners of assets in the financial system, and account for them using honest ledgers."

Apropos of nothing: An accurate observation about ICOs.

What a ten-year-old duck can teach us about electricity demand
(The Economist)