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Austin Jacob Sam Klemens • May 20th, 2020

What are ASIC miners?

ASIC MinerIf you’ve spent any amount of time looking into cryptocurrency mining…

You’ve probably heard the term ASIC brought up.

We know what you’re thinking.

Can I mine profitably with ASICs?

Well, keep reading, to find out what ASICs are, and if they’re the best way to mine cryptocurrency in 2020.

Let’s jump right in.

ASICs Explained

An ASIC miner is a specialized type of computer that’s designed to do one thing: secure a cryptocurrency network.

In exchange for securing the network, the owner of the ASIC stands a chance of receiving a block reward. That block reward is a set amount of cryptocurrency which differs per network.

block reward

Currently, on the Bitcoin network, the block reward is 12.5 BTC (although soon it will be 6.25 BTC). Assuming a low-end price of $5,000 per BTC a single block reward (there is a new block in Bitcoin every ten minutes) is worth $62,500. That equates to a daily mining payout of $9,000,000, again a low-end estimate.

In this article, we’ll focus on Bitcoin as it’s the largest and most well-known cryptocurrency. However, the following information will apply equally to any POW (Proof of Work) blockchain.

  • ASICs are specialized computers designed to secure a POW blockchain network. They earn money when the blockchain network gives an ASIC the block reward.
  • ASICs are expensive and they generate significant amounts of heat and noise. Because of that, as well as other factors, they take a good deal of technical expertise to set up and operate.
  • ASIC mining works best at scale. A mining farm is a large warehouse or other building with thousands or tens of thousands of ASICs mining in unison. The largest mining operations are currently located in China although that is slowly changing.

Coin Specialization

ASICs are specialized machines. Not only are they designed exclusively for the mining of cryptocurrency, but they’re also specialized for different coins.

For example, a Bitcoin miner cannot be used to mine GRIN. That being said, ASIC miners can switch between coins with similar architecture.

Bitcoin miners will sometimes switch between BTC and BCH, depending on which is the most profitable to mine at that moment.

 

Proof of Work 101

Blockchain currencies which are secured by ASIC miners are known as Proof of Work (POW) coins. POW was the first consensus security mechanism to ever solve the double-spend problem and is one of Satoshi’s greatest contributions to the world.

Since the invention of Bitcoin, many other consensus mechanisms have been invented or refined. POS (Proof of Stake), DPOS (Delegated Proof of Stake) and BFT (Byzantine Fault Tolerant) protocols to name a few.

While many of these protocols offer an advantage over POW in terms of energy usage and speed, POW has a few things going for it.

  • It’s tested and secure. Bitcoin has been going strong for more than a decade without being hacked, all the while being worth significantly more than other currencies making it the biggest honeypot out there. Other consensus mechanisms have not proven themselves like POW has.
  • So long as the ASIC security network is extensive, as it is for Bitcoin, a POW blockchain is very difficult to attack. In order to attack Bitcoin a hacker would need to purchase more than $1 billion worth of equipment. That’s a low-end estimate, the true price could be much higher assuming the equipment could even be bought at all.

The ASIC Lifespan

After the cost of the ASIC machine itself, the primary factor influencing Bitcoin mining profitability is the cost of electricity. This is why you tend to see Bitcoin mining farms in certain locations and not others.

The golden ideal for Bitcoin mining would be somewhere with extremely cheap electricity that’s also cold year-round so that artificial cooling is not required.

Also affecting profitability is the lifespan of an ASIC miner, it’s not long. ASIC miners can only operate at peak efficiency for a year or two before new hardware is released. As new ASICs come online and start pushing the hash rate higher the Bitcoin network will automatically adjust the mining difficulty up.

This will make it more difficult to profitably mine Bitcoin, difficult enough that older miners will typically not make enough money to cover the cost of electricity. One exception to this is a parabolic bull run.

In cases where the price of Bitcoin significantly appreciates over a short period of time old miners may be brought back online as they can mine profitably but this is typically only a short term event. To stay profitable the largest mining farms must regularly buy new ASICs to replace the old.

ASICs: A Blessing or a Curse?  

As with so many topics in crypto, ASIC miners and POW security as a whole are controversial. Here are three of the most common reasons that ASICs are seen as a negative.

  • The first Bitcoin were mined on laptops and desktop computers. During the early years it was possible for the average crypto enthusiast (what few there were) to profitably mine Bitcoin with a small investment. Once ASICs came along the game changed. Bitcoin mining can still be quite profitable, however you may need millions or tens of millions of dollars’ worth of equipment to find that profit. This leads us to the second point.
  • One million crypto enthusiasts mining Bitcoin all across the planet leads to a much more decentralized and secure network than several hundred large mining operations securing a majority of the Bitcoin network. Traditionally a majority of all Bitcoin mining has happened in China. This led to worries that the Chinese government could nationalize the mining operations and force the operators to attack Bitcoin with a 51% attack. As of 2020 mining operations are beginning to become more globally dispersed but the threat of ASIC mining centralization is still a real concern.
  • ASICs use electricity. A lot of it. Environmentalists love to point to data showing that Bitcoin’s mining network (to say nothing of all the other POW networks combined) uses as much electricity as of all Denmark. This is clearly not good. However… There is some nuance to this argument that is worth discussing in detail.

Bitcoin ASIC Mining & Renewable Energy

For argument’s sake we’ll assume that it’s true that Bitcoin mining does actually use as much electricity as all of Denmark. Even if that’s the case, what often fails to get remarked upon is that a majority of Bitcoin’s electricity demands are met by renewable energy sources.

We mentioned that most mining happens in China and there’s a reason for this: cheap hydropower. Quite a few of the largest Bitcoin mining operations are located close to Chinese hydropower stations.

Many of these hydropower stations generate excess electricity that would go totally unused if not for Bitcoin mining.

In the last year, natural gas Bitcoin mining has also been a hot topic. Fracking has sprung up all over America and the oil output is tremendous. However, a byproduct of fracking is natural gas.

Natural gas that is often unprofitable to transport and so fracking operations are increasingly burning it off in a process known as flaring.

Natural gas being flared. A portable Bitcoin mining rig can instead use that gas to power a set of ASIC miners

 

A portable Bitcoin mining operation provides a solution. A small ASIC mining farm can be built inside of a shipping container and brought to a fracking site.

Excess natural gas can then be used to power the Bitcoin mining operation. Burning the natural gas to power an ASIC mining farm is actually better for the environment than just flaring the gas.

On one side of the POW debate you have people who abhor Bitcoin’s high energy usage, and on the other side, you have people who say a majority of Bitcoin’s energy comes from renewable sources and Bitcoin’s energy use is no cause for concern. In reality, the truth is probably somewhere in the middle.

Bitcoin does get a lot of energy from renewable sources, but certainly not all. Should Bitcoin persevere and more mining operations continue to pop up all over the world (as all evidence suggests they will) then this debate will no doubt become even more lively in the future.

Conclusion

Bitcoin and the Proof of Work consensus mechanism are new inventions from a historical perspective. We’re currently in the early days and it’s impossible to say how everything will play out.

It could be that after trying everything else POW proves to be the only reliable consensus mechanism capable of securing a trillion-dollar blockchain currency.

Or perhaps POW will be supplemented by something like POS down the line. It’s too early to tell.

For now however ASICs are the backbone of Bitcoin and many other networks and despite their high energy usage and inefficiencies on the small scale, they’ve done a great job of protecting Bitcoin and the hundreds of thousands of people who use it every day.

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