ASIC = The end of decentralized mining

[SgtSpike]

jjshabadoo, you may be exactly right.

BUT, you're failing to consider that the market will take this into account.  The market knows the potential for future price drops (especially with all the anti-ASICs claiming the end of the world about it).  The market knows that it is a risky move to become an early adopter of ASIC technology.  Therefore, the market will only demand so much of ASIC technology from the start.

Sure, some early ASIC adopters might not ever make their profit back.  So what?  What is it to you?  If you don't think buying ASIC miners early on is a good idea, then don't do it.  Some people will try it, and others will not.  That's the way the free market is supposed to work - everyone weighing risk vs reward by their own criteria, and coming up with what they believe will be a smart decision regarding it.

I am not worried at all, and am not really sure why other people are worried.

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[jjshabadoo]

Because ASIC is a GIANT leap with almost NO marginal cost after initial purchase. CPU to GPU was a giant leap as well, but GPU's were still limited by availability and electrical costs/infrastructure. FPGA is really an incremental change from GPU because they are not cheap unless they are produced in HUGE quantity and their only advantage over GPU is power consumption.

ASIC is an exponential leap in hash rate, power consumption AND eventually cost.

How many people built GPU farms over 10 GH ? not many because it typically required new home wiring, heat dissipation and a high monthly electrical cost in the face of an uncertain and volatile bitcoin value. plopping down 10k to build a big GPU farm took alot of thought, knowledge and risk among other things so it was inherently self limiting.

ASICs are basically plug and play so there is no technological limit for the potential miner. They have almost no electrical cost so no new electrical infrastructure is needed. They have almost zero operational cost once deployed so again, no limiting factor there.

The ONLY barrier to entry is the initial capital investment, but we ALL know the price for these will drop dramatically after the initial development, once again, how the hell do the early adopters ever get their money back?

Unless as someone suggested that the developers pay $1million and then mine until they get their money back and then start selling the ASICs for 1k or something.

[SgtSpike]

Once again, why does it matter who gets their money back?  If you don't believe it is a good idea to be an early ASIC adopter, then don't be one.  It's as simple as that.

[P4man]

Good responses, but can someone actually frame a sound economic argument as to how ASIC will profitable for both vendors and miners who buy them?

It just doesn't work no matter how you slice it.

I agree with you on this one.
Well, miners smart enough to convert their investment in mining bonds and sell them to the highest bidders may still profit. Plenty of suckers around, just look at current mining bond prices.

As for asics endangering or protecting the network from a 51% attack; Im not sure there is an impact either way. Since the variable cost of asics approaches zero, it will likely be similarly easy or hard to mount an attack with asics as it is today.

[jjshabadoo]

Because I'm concerned about the sustainable development of bitcoin since stability will lead to widespread adoption. Uncertainty will place many miners on the sideline and it could lead to a network hash rate that stalls instead of grows steadily.

Free markets are not the end all be all of economics. They require rational decision making to reach a pareto optimal state. The point is, bitcoin could be crushed in the process if confidence wanes.

I didn't get into mining to make big money. I like hardware and wanted to support what I believe could be an incredibly democratizing force for everyone.

I guess I'm just a naive idealist.

[Bitcoin Oz]

I trust the free market to decide and no one is forcing you to buy an ASIC.

Im sure no one will plonk down 25 large knowing they will take a massive loss. If the bitcoin price keeps rising it wont take many btc to cover the initial investment then they can sell hardware cheaply afterwards which to me seems the most logical to avoid pissed off customers

[P4man]

BUT, you're failing to consider that the market will take this into account.  The market knows the potential for future price drops (especially with all the anti-ASICs claiming the end of the world about it).  The market knows that it is a risky move to become an early adopter of ASIC technology.  Therefore, the market will only demand so much of ASIC technology from the start.

Ah, the infallible free market.
Not gonna happen, not when almost none of the requirements for perfect competition are met.

[pieppiep]

Oh, some computer hippies make their own money with some cpu's everybody can buy and sell if it fails.

Oh, the same computer hippies now use gpu's to do the same thing. Some even place rack's full of computers with multiple videocard in each computer, starting to get more serious, but still something they can easyly resell if it fails.

Nice, multiple parties are building fpga cards and lots of people are buying them. Not all cards are easyly resellable so lots of people really invest in bitcoin and have confidence for it to succeed.

Woow! A company invested 1 million dollars to build even faster miner with an ASIC. This must be something lots of people want so it will succeed.

That's how I see it. ASIC gives more trust in bitcoin than the more 'simple' ways of mining.

[mrb]

Because ASIC is a GIANT leap with almost NO marginal cost after initial purchase. CPU to GPU was a giant leap as well, but GPU's were still limited by availability and electrical costs/infrastructure. FPGA is really an incremental change from GPU because they are not cheap unless they are produced in HUGE quantity and their only advantage over GPU is power consumption.

You are delusional about the capability of ASICs

The efficiency increases from CPU, to GPU, to FPGAs, and to ASIC are all comparable. Roughly a 10x increase every time:
40nm CPUs do up to about 0.1 to 0.5 Mhash/Joule.
40nm GPUs about 1 to 2 Mhash/Joule.
40nm FPGAs about 20 Mhash/Joule.
40nm ASICs will do about 200 Mhash/Joule.

(All numbers above can vary with clock, voltage, etc, but roughly that's the baseline to have in mind.)

ASICs will only offer a 10x efficiency increase because a logic block like SHA-256 shrinks to about 1/10th the number of gates when ported from an FPGA to an ASIC. And the number of gates is the primary factor determining power consumption. As to the cost of ASICs, it won't be different from FPGAs. The Spartan-6 LX150 costs Xilinx maybe $10 to manufacture, but it sells for $100-150. Same thing for the future ASIC mining chips of the same die size, they will cost $10 and sell with a more or less similar markup. Bottom line, ASICs are not an "exponential leap in hash rate, power consumption AND eventually cost".

If the Bitcoin mining industry (vendors and miners) survived all previous efficiency increases, there is no reason it will not survive the next one. And the reason it survives the jumps is because 10x isn't that big of a deal. The electricity costs vary by even more worldwide ($0.02 to $0.40 per kWh), so mining with an ASIC with high electricity costs will be about as profitable as mining with FPGAs in an area with low costs.

[phelix]

1. Devs will not change the algo in order to influence ASIC production because it would be a very stupid thing to do
[...]

care to elaborate?

[pieppiep]

There is no reason to change the algorithm because it is not broken.
If you choose any other algorithm it can also be implemented in asic.
If you change it because 'asic is to fast, it is not fair', the algo should have been replaced with scrypt (like litecoin used) the moment gpu miners became active.
In my opinion the algo won't have to be changed even when quantum computers will exist, they can reduce the cost of finding a collision from 2^256 to 2^128. Not sure if they are also good for mining though.

[mrb]

1. Devs will not change the algo in order to influence ASIC production because it would be a very stupid thing to do
[...]

care to elaborate?

For one, devs don't care about all the mining business. I remember that Gavin, when questioned in an interview about Bitcoin last year, was unable to answer specifics about which GPU miner software to use, or even which GPUs to buy, because he was "uninterested and out of touch" with the GPU mining advancements.

[SgtSpike]

@P4man, time will tell whether you are right or the market is.  I'm putting my money on the market though.  

Because I'm concerned about the sustainable development of bitcoin since stability will lead to widespread adoption. Uncertainty will place many miners on the sideline and it could lead to a network hash rate that stalls instead of grows steadily.

Free markets are not the end all be all of economics. They require rational decision making to reach a pareto optimal state. The point is, bitcoin could be crushed in the process if confidence wanes.

I didn't get into mining to make big money. I like hardware and wanted to support what I believe could be an incredibly democratizing force for everyone.

I guess I'm just a naive idealist.

A network hash rate that stalls?  Are you kidding?  I don't see any possible way that the network hashrate could stall with the release of ASIC miners.  It will increase very quickly...

Confidence in the profitability of mining may wane (but not to the point of stalling hash rate any time soon), but confidence in the technology itself will never be stronger.  As someone else mentioned earlier in this thread, it will mean that Bitcoins will be protected by ASICs - the best application-specific technology that money can buy.  After all, don't you WANT Bitcoin to be protected with the best?  That means that anyone malicious will have that much harder of a time trying to attack the network.  Essentially, that's the true goal at the heart of mining.  Anyone sitting on the sidelines should at least be applauding this upcoming innovation.

@phelix - the devs won't change the algo for a variety of reasons, including, but not limited to:
- No one would trust Bitcoin if it can be so easily overcome by ASIC miners.  GPU's and FPGA's are moderate protection, but anyone with a large bank account could create their own ASIC.  Therefore, the sooner ASIC miners are also helping to protect the network, the better.
- No matter what the algorithm is changed to, an ASIC could be developed for it.  Therefore, Bitcoin needs to embrace ASICs, not run from them by changing the algo every 6 months.
- Changing the algo would show people that Bitcoin is wrong/weak/untrustable, and that core pieces of it can be changed at the whim of a handful people.
- Changing the algo would ultimately serve to waste the time, money, and effort of many valuable people in the Bitcoin community currently working on developing ASICs.  We'd likely lose most of them.

Basically, changing the algo would cripple or kill Bitcoin.

[ice_chill]

Should be renamed: ASIC = The end if Botnet CPU mining

[Vladimir]

as SgtSpike said, but

Basically, changing the algo would cripple or kill Bitcoin.

Changing algo, I bet, would simply split the network in two parts, one with old algo and asic's, secure and still viable, another with new algo which will act as a reservation for those who cannot adapt to progress and prefer to slowly or more likely quickly die out.

[zvs]

Because ASIC is a GIANT leap with almost NO marginal cost after initial purchase. CPU to GPU was a giant leap as well, but GPU's were still limited by availability and electrical costs/infrastructure. FPGA is really an incremental change from GPU because they are not cheap unless they are produced in HUGE quantity and their only advantage over GPU is power consumption.

ASIC is an exponential leap in hash rate, power consumption AND eventually cost.

How many people built GPU farms over 10 GH ? not many because it typically required new home wiring, heat dissipation and a high monthly electrical cost in the face of an uncertain and volatile bitcoin value. plopping down 10k to build a big GPU farm took alot of thought, knowledge and risk among other things so it was inherently self limiting.

ASICs are basically plug and play so there is no technological limit for the potential miner. They have almost no electrical cost so no new electrical infrastructure is needed. They have almost zero operational cost once deployed so again, no limiting factor there.

The ONLY barrier to entry is the initial capital investment, but we ALL know the price for these will drop dramatically after the initial development, once again, how the hell do the early adopters ever get their money back?

Unless as someone suggested that the developers pay $1million and then mine until they get their money back and then start selling the ASICs for 1k or something.

they don't get their money back.  just like the ppl buying 7970's exclusively for mining.

it makes no sense, as it'd require an extremely bullish stance on bitcoins.... and, then, you'd be better off just buying them with that cash.

but, the thing is, lots of people treat this as a hobby

[P4man]

You are delusional about the capability of ASICs

The efficiency increases from CPU, to GPU, to FPGAs, and to ASIC are all comparable. Roughly a 10x increase every time:
40nm CPUs do up to about 0.1 to 0.5 Mhash/Joule.
40nm GPUs about 1 to 2 Mhash/Joule.
40nm FPGAs about 20 Mhash/Joule.
40nm ASICs will do about 200 Mhash/Joule.

I think you are vastly underestimating the potential of asics; a 130nm asic is ~40x as energy efficient as current 65nm fpgas for sha256 hashing according to papers ive seen and linked. A 40nm asic would therefore be closer to 100x more efficient than an FPGA.

But thats not the main point here. The main point is the variable cost per GH where the difference is even bigger. For FPGAs you are looking at ~$1 per MH. For an asic you would be looking at less than $1 per GH.

The Spartan-6 LX150 costs Xilinx maybe $10 to manufacture, but it sells for $100-150. Same thing for the future ASIC mining chips of the same die size, they will cost $10 and sell with a more or less similar markup. Bottom line, ASICs are not an "exponential leap in hash rate, power consumption AND eventually cost".

A spartan 6 price is not affected by bitcoin difficulty. Just like with cpus and gpus, demand for such chips comes from non bitcoin applications, if bitcoin difficulty goes x100 tomorrow, spartan 6 prices will remain unaffected, as will gpu and cpu prices. Its market prices of these chips that largely determine bitcoin difficulty, not the other way around. If xilinx would start seling spartan 6s for $10 you would see a huge increase in bitcoin difficulty, but a huge increase in difficulty will have close to zero impact on xilinx prices.

But for a bitcoin asic, its market value is 100% determined by (future) bitcoin difficulty. If difficulty goes up x100, its market value will drop by ~100x, causing even higher difficulty. There is no such feedback effect for cpus, gpus, or fpgas.

[punin]

jjshabadoo, how is any of this different from CPU, GPU and FPGA generations, except in magnitude?

I think P4man answered your question pretty well:

A spartan 6 price is not affected by bitcoin difficulty. Just like with cpus and gpus, demand for such chips comes from non bitcoin applications, if bitcoin difficulty goes x100 tomorrow, spartan 6 prices will remain unaffected, as will gpu and cpu prices. Its market prices of these chips that largely determine bitcoin difficulty, not the other way around. If xilinx would start seling spartan 6s for $10 you would see a huge increase in bitcoin difficulty, but a huge increase in difficulty will have close to zero impact on xilinx prices.

But for a bitcoin asic, its market value is 100% determined by (future) bitcoin difficulty. If difficulty goes up x100, its market value will drop by ~100x, causing even higher difficulty. There is no such feedback effect for cpus, gpus, or fpgas.

.. Although I would add this is not a catastrophe for anyone except the early adopters of ASIC, as they will unlikely get their investment back. I'd rather see a large rollout of ASIC, where thousands of ASIC units will be mass-produced and shipped to willing early adopters, who have deposited payments to an escrow service.

[P4man]

.. Although I would add this is not a catastrophe for anyone except the early adopters of ASIC, as they will unlikely get their investment back. I'd rather see a large rollout of ASIC, where thousands of ASIC units will be mass-produced and shipped to willing early adopters, who have deposited payments to an escrow service.

For those miners, thats potentially even worse, unless they are fully aware of how many of those units are ordered and will be sold in the next 6 or 12 months. Including those of a competitor, if any. What BFL should do if they want to maximize their profits is more what you suggested; accept preoders for a few months without shipping a thing and not saying how many orders they have; then unleash all their terrahashes and make its customers cry. Lower prices, rinse, repeat.

No matter how you slice it though. an ASIC provider playing its cards right can almost certainly earn more by selling its hardware than by mining itself. And that tells you that whoever is buying, isnt likely to make a profit.

Agreed that for bitcoin this is not a problem. I just hope someone sets something up that allows me to short mining companies investing in these asics.

[BoardGameCoin]

There's a relatively straightforward licensing model that will allow roll-out for an ASIC manufacturer that shares the risk/reward with the early adopters: have the initial release be analagous to an IPO, where you are buying both X number of ASICS and a small_percent * X royalty slice on all future ASIC purchases. This allows the manufacturer to rapidly recoup their cost, but also allows the early adopters to hedge against ASIC cost reduction.

-bgc