Impact of Cryptocurrency on the Ongoing Component Shortage

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The worldwide focus on cryptocurrency reached the highest point at the end of 2017 when the price for bitcoin jumped to over US $19,000. Since then, there have been enormous heated discussions around cryptocurrency’s impact on the global financial market, government policy, etc. Those discussions, however, have not yet drawn any solid conclusions on how cryptocurrency can be charted or regulated. On the other hand, due to the digital nature of cryptocurrency, the global electronics industry has already seen a profound impact on the supply chain.

The mining of cryptocurrency requires vast computer resources, both software and hardware, to solve complicated mathematical challenges. The earlier generation of crypto mining machines were usually powered by high-end graphics processing units (GPUs). In 2017, it is estimated that cryptocurrency miners purchased 3 million GPUs with total sales of $776 million.  The exceptional demand from cryptocurrency miners has put a lot of allocation pressure on GPU availability. The computer gaming industry, which uses GPUs to support graphic-heavy functions, has suffered from lack of sufficient GPUs. Major GPU manufactures, including AMD and Nvidia, have also remarkably benefited from this growth. Although both companies plan to increase GPU production to meet potential demand from crypto miners, they have remained cautiously optimistic about the future due to the volatility of cryptocurrency.

To improve the efficiency of cryptocurrency machines, companies have developed application-specific integrated circuits (ASICs) to benefit the industry. These chips are designed to do one thing: mine cryptocurrency. The first Bitcoin ASICs were sold in 2013. In March 2018, the multibillion-dollar company, Bitmain, which dominates the cryptocurrency mining world, started to take orders for Antminer X3, a $12,000 ASIC that is good for mining Monero and other digital currencies secured with the same algorithm. Despite the ongoing controversy over using ASICs in cryptocurrency mining, Bitmain has gained tremendous success over their mining machines. According to Jihan Wu, the co-chief executive of Bitmain, it’s booked revenue was $3.5 billion in 2017.

The success of crypto mining companies is also impacting the world’s biggest chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), as they must use silicon wafers to build ASICs. For example, the Antminer S9 carries about 189 pieces of the ASIC chip BM1387, which was built on TSMC’s 16nm process. It is reported that the top three crypto mining companies, Bitmain, Canaan and Ebang, have all contracted their silicon wafers with TSMC. TSMC reported strong financial results for Q1 2018, generating US $8.5 billion in sales, a year-on-year 6.1% increase.  C. C. Wei, president and co-chief executive officer of TSMC, attributed the robust growth to “strong demand from high performance computing, such as cryptocurrency mining”.

It is hard to predict the future impact of cryptocurrency mining on the semiconductor industry due to strong fluctuations in the cryptocurrency market and uncertainty of new government policies. However, the cryptocurrency mining machine industry is a new vertical to watch as they are in competition for the already tight supplied wafers. The exceptional demand growth from this sector is consuming a sizable portion of the available wafers, making it hard for other verticals to receive enough supply of chips.

Additionally, as the first widely used application of blockchain technology, development of the cryptocurrency mining industry is worth watching as it indicates electronic component consumption trends from the blockchain-supported sectors. As the technology develops and new applications emerge, it is highly possible that more and more new sectors will join the competition of wafers, passive and active components, etc., making the current component shortage an industry normal for the electronics supply chain.

As an experienced distributor for over 40 years, Advanced MP Technology continues to stay ahead of industry developments by regularly researching upcoming innovative technologies and sectors as well as providing optimum solutions for our customers to confront preceding challenges. By doing so, we are well prepared to help our customers with ongoing supply chain interruptions and components shortages facing high technology manufacturers worldwide.