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“We’re projecting no cryptomining going forward.”
-- Jen-Hsun Huang, CEO of Nvidia
On the most recent earnings release, the computing industry giant Nvidia reported much lower sales revenue from cryptocurrency miners than previously anticipated. The reasons are two folds:
1) consistently low trading price, and
2) monotonically increasing difficulty rate. The combination of the two trends is absolutely a nightmare for small-scale miners. Most GPU miners are opportunistic miners operating at close-to-cost. It is not surprising that the current mining cycle is squeezing out their profitability.
"Nvidia said it had expected about $100 million in sales of chips bought by currency miners in the fiscal second quarter. Instead, the total was $18 million in the period, and that revenue is likely to disappear entirely going forward, the company said."
Why is this happening? Why does hashrate continues to climb while price shows no sign of recovery?
The fundamental drive is the rapidly specializing processing capability. Over the past decade, we can clearly see mining hardwares graduating from CPU to GPU, and then from GPU to ASICs.
The disconnect between the current directions of difficulty and price is because the hardware cycle moves at a different pace with capital markets. While the GPU miners start to take a backseat in the grand mining race, ASICs manufacturers are fiercely competing for market shares. In December of last year, the rapid bull ride created a plethora of new entrants to mining hardware space. New machines such from Bitmain, Innosilicon, Avalon etc are constantly releasing new products. The fierce competition shortens the life cycle for each machines and accelerates the increase of overall hashpower in the market. The main manufacturers are now eyeing massive IPOs to accumulate more firepower. If price continues to trend downward, and hashrate continues to explode, will the current trend persist? Morgan Stanley Semiconductor reseach defines the mining cycle with four phases:
Given how quickly ASIC chips iterate, the competition between manufacturers is unlikely to slowdown until the demand from the mining operators start to significantly decrease. The fear of such scenario is part of the considerations these manufacturers are also looking into AI chips to help them get through the winter.
Such Darwinistic competition has repeated countless times in the history of hardware. For reference, read the thread below on the competition for calculator market dominance:
In the 1970s the cost - and size - of calculators tumbled. Business tools became toys; as a result prestige tech companies had to rapidly diversify into other products - or die!— Pulp Librarian (@PulpLibrarian) August 18, 2018
This is the story of the 1970s great calculator race... pic.twitter.com/37Uy6o35PX
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