With the price of bitcoin continuously reaching new highs, some of the more obscure costs behind the cryptocurrency mining boom are being increasingly overlooked.
A recent analysis by Cambridge University highlighted some of the environmental impacts stemming from digital currency mining. According to the report, the bitcoin mining process is so energy-intensive, that the annual carbon footprint exceeds that of entire countries. Moreover, bitcoin miners require powerful computing equipment which not only comes with a hefty pricetag, but also some very advanced chips inside.
Although much less discussed than the environmental concerns, yet more urgent, is bitcoin mining’s impact on chips— particularly during a time of a severe global semiconductor shortage. The surge in bitcoin demand has accelerated amid the pandemic, especially after several prominent financial institutions announced plans to begin incorporating cryptocurrencies onto their platforms. Given that there are only a finite number of bitcoins left to mine, the more the cryptocurrency is mined, the more complex the algorithms required to mine the cryptocurrency become.
The speed at which the complex algorithms can mint a coin is heavily reliant on how advanced the chips inside the computer are. With the price of bitcoin on the rise, the profitability of cryptocurrency mining has also accelerated. According to figures calculated by Elite Fixtures, it costs nearly $4,000 to mine a single bitcoin in Canada, with the figure closer to $5,000 in the US. With bitcoin currently trading over US$55,000, there are some hefty profits to be made. In fact, just last month, bitcoin mining revenues soared to a record $1.4 billion. As a result, miners have been splurging on more high-end computers and increasingly advanced chips.
However, the demand for semiconductor chips stemming from the bitcoin mining community is adding further pressure on chip suppliers, which are already stretched thin by the ongoing global chip shortage crisis. The chip shortages are impacting a wide range of industries, including US automakers, several of which have been forced to either cut production or continue building models without the necessary chip components. Similarly, smartphone and game console makers have been forced to delay the launch of new models, while some have been stockpiling their chip supply months in advance.
Samsung and TSMC, two of the biggest chipmakers in the world, produce the majority of chips used for cryptocurrency mining. At the same time, the two also serve as the main suppliers for major tech companies, including Intel and Apple— both of which contribute to a larger portion of chipmaker revenues relative to bitcoin miners. Despite this, however, chip production capacity continues to be diverted away from industries that require an ongoing supply.
Aside from specialized chips, crypto miners have also been snatching up more servers and computers— forcing demand for regular Dram chips used in PCs to skyrocket. Coincidentally, the second quarter of the year also happens to be the typical peak season for server chip purchases, which are vital for big tech businesses such as Facebook and Google. These factors have subsequently impacted prices of Dram chips, which have surged by more than 60% since the beginning of the year.
Chips are one of the most costly components of electronic devices used by consumers, such as gaming consoles, smartphones, and PCs. However, even an increase in supply will likely not bring prices down anytime soon. Chip production is a lengthly process that can take upwards of three months, especially with the increasingly difficult task of sourcing raw materials. In fact, the process is beginning to take even longer, given the growing scarcity of raw inputs.
So, going forward, what is the big picture for the chip crisis? Well, given that bitcoin mining ceases to be profitable once the price falls below an average of $3,800, there is a very long way to go before the chip market sees some form of stability.
Information for this briefing was found via Cambridge University, Elite Fixtures, and Coindesk. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.