If 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.