When Bitcoin was introduced in 2009, individuals with a computer and internet access could lend their computer power (CPU) to mine Bitcoin. As the value of Bitcoin increased, so did the awareness of Bitcoin mining. The growth surge of the industry and its value drove innovators to seek ways to maximise efficiency: this began with a switch to the more cost-effective Graphics Processing Units (GPUs), before it was superseded by a new generation of processors designed specifically for the mining of Bitcoin — ASICs (Application Specific Integrated Circuits).
Proof-of-Work (PoW) is the original consensus algorithm in the bitcoin network. ASICs are designed to work in a Proof-of-Work (PoW) system. The idea behind the introduction of ASICs is to create a rig that is significantly more efficient at mining bitcoin than any other machine.
ASIC machines have divided opinions amongst cryptocurrency enthusiasts. Some bemoan its susceptibility to mining centralisation, seeing it as counter-intuitive to the idea of balanced and equal mining opportunity; on the other hand, others including economists such as Derek Hsue and Andrew Poelstra (mathematician, more so) see ASIC resistance as having the opposite effect to its intentions. Given the importance of ASICs to the generation of Bitcoin and its strong reputation as a secure technology, the benefits seem to outweigh the cons.
Security and economics
In order to make Bitcoin mining profitable, healthy capital investment in ASIC machines is necessary. The economics follow: the investment will enable Bitcoin mining for the lifespan of the machinery in the most efficient way possible > the miners will be rewarded in bitcoin > miners stand to profit more if the value of bitcoin increases < the security and resilience of the network aides the value of bitcoin. This correlative and mutually beneficial relationship between miner profitability and the security of the bitcoin network has been reinforced by ASICs.
GPUs vs ASICs — Incentives dilemma
Mining Bitcoin is no longer as profitable using GPUs following the rise of ASIC technology. This is good for the security and sustainability of the network. The reason I say this is due to the disparity in economic incentives. ASICs are invested (and heavily dependent) in the success of the Bitcoin network; GPU miners have the flexibility and incentive to hop between currencies for short-term profits, and aren’t committed to any single cryptocurrency. This instability can compromise the security of the network via a diminished hash-rate.
Since the mainstreaming of ASICs (2013 onwards) the hash-rate has been growing exponentially, and whilst it has left GPU miners in the past, it has vitalized a network that is 1) more expensive to attack, 2)more difficult to attack and 3)becoming more resilient every day.
51% attack argument — Irrational
The 51% attack debate is one that has divided many cryptocurrency enthusiasts, and will no doubt continue to do so. The idea behind the 51% attack is that an entity could be in a position where it would control more than 50% of the networks mining hashrate/computing power, thus allowing them to double-spend coins. Many have argued that the ASICs have expedited the reality of a 51% attack. I think this argument is irrational and flawed: let me tell you why.
The incentive to carry out a 51% attack on the Bitcoin network is weak.
It would be counter-intuitive for ASIC miners to conduct a 51% attack due to the conflict of interest. Any major attacks on the network could cause the price of Bitcoin to crash, negatively impacting the profitability of the ASIC machines, costing miners a significant amount of money. Economically it makes more sense to be a good miner rather than a bad miner. This favourable scenario has been propagated by the introduction of ASICs. As long as application-specific hardware machines are the most efficient method of mining Bitcoin, there will be little to no justification to conduct a 51% attack on the network. Bitcoin has largely been mined by ASICs since 2014, and we have not yet seen an attempted 51% attack. Arguably the very fact that ASIC manufacturers exist pre-dominantly for bitcoin means they have a vested interested in ensuring that a 51% attack does not occur due to the threat of their revenues. No one wants to disturb the “gravy train”. This is engrained in the economics of ASIC mining.
There are other notable benefits that ASICs bring to the Bitcoin network:
· Increase in efficiency in processing blocks. Less electricity is required to mine Bitcoin as a result of ASICs.
· ASIC-dominated networks immune to rental-attacks as outlined by Joseph Bonneau.
· Anti-hard fork. The decision to hard-fork from an ASIC-mined network to an ASIC-resistant network can be detrimental to the security of the network due to the drop in hash-rate.
· The volume of liquidity needed to manufacture ASICs is incredibly high. Manufacturers have a vested interest to continue to develop a solid ecosystem of resale base dependent on mining Bitcoin via ASICs.
ASICs are good for Bitcoin — and it will get better
Part of Bitcoin’s success can be attributed to the effective business model (for miners) that ASICs have pioneered. Bitcoin continues to be the most secure cryptocurrency network, with zero successful attacks carried out to date.
Multinational corporations including Samsung and Intel are venturing into the mining sector, and this should redistribute the market share that Bitmain currently possesses, giving birth to a competitive market that should instigate the decentralisation of ASIC manufacturing.
ASICs are the backbone of the Bitcoin network. Whilst Bitcoin continues to fluctuate in price, the security of the network is growing from strength to strength. ASICs are an important asset to Bitcoin and will no doubt play an important role in Bitcoin’s rise to prominence.
This blog was part of a wider research project that looked at the role ASICs will play in the sustainability of the bitcoin network.