Are crypto miners grabbing the lion’s share of semiconductors?

This year, semiconductors are once again making headlines, but how much of the shortage can be ascribed to crypto miners?

The world has been battling with a shortage of semiconductors, which are the chemicals that carry electricity between metals and isolates, for the past several years. Silicon is the most well-known semiconductor.

When it comes to electronic devices, the important semiconductors are processors and other microcircuits, which can be found in practically every gadget people use on a daily basis, from smartphones to cars. In terms of sales, semiconductors set a new global record in 2021. Electronics output exploded as well, with game consoles devouring hundreds of millions of complicated semiconductors. The amount of GPUs produced reached previously unheard-of heights, with major manufacturers such as Nvidia setting new manufacturing records.

Despite this, the cost of electronics soared, and manufacturers of related goods struggled to secure semiconductors.

Crypto miners: Are they guilty or not?

 

It has become normal to blame bitcoin miners for the global lack of GPU cards and semiconductors, not just mentioning them. Miners, to their credit, would purchase up large swaths of graphics processing units, sometimes completely emptying entire warehouses.

Some countries, who are suffering from a severe scarcity of cards, are already battling bitcoin mining. At the same time, the producers do not take such a firm stance. In June 2021, AMD CEO Lisa Su stated that miners are not to blame for the scarcity of, or even full lack of, specific GPU cards. She claims that their impact on the market is often minor, accounting for only 5 percent to 10% of total demand.

Andy Long, the CEO of White Rock Management, a Swiss digital asset technology firm, agreed with Su that mining isn’t totally to blame:

“Graphics processing units (GPUs) are still in high demand for Ethereum and other cryptocurrency mining.” The amount of regular GPUs going to miners, according to Nvidia, is in the single digits, but the true figure is likely higher — at around 20%.”

The COVID-19 epidemic is another key issue contributing to the GPU scarcity. The supply chain revealed that, as a result of many employees working from home, the number of purchasers expanded to the point where graphics processors, a critical component in home computers, just vanished from the market.

However, in the start of this year, the situation with miners’ hunger for GPU cards began to alter drastically. The first reason for the move is that Ethereum (ETH) will switch to the proof-of-stake (PoS) protocol in the summer of 2022. The Ethereum blockchain is currently maintained by miners who solve cryptographic problems in exchange for a reward that is calculated based on the hash rate of each particular GPU. This is referred to as “proof-of-work” (PoW). Miners will no longer be required after Ethereum changes to the new protocol since crypto holders will validate block transactions based on the number of tokens they stake. Because GPU cards will no longer be required for Ether mining once Ethereum 2.0 is implemented, demand for them will plummet.

This shift in demand has already become apparent. Nvidia’s GPU card sales have dropped by 75% in the first two months of 2022 compared to the same period in 2021, since huge mining corporations that used to buy such cards have stopped doing so. This means Nvidia will be compelled to refocus GPU cards on the gaming market and lower pricing.

Other factors have contributed to the price drop. The United States has decreased import duties on Chinese goods by 25% since April of this year. Because America is a major player in the GPU market, with companies like Nvidia, AMD, and Intel, the tariff reductions have resulted in lower GPU card pricing.

Buyers’ interest in the cards is also waning, owing to the gradual return of employees to workplaces after two years of remote work, as well as the requirement for a powerful computer at home to comfortably execute professional activities.

“Dedicated mining cards are now a bigger part of the picture,” Long explained. “These are cards that don’t have any video output and are entirely for data processing.” We first saw these in 2017 when specialised Pascal architecture cards like the P106 and P104 were released. Now, the Nvidia CMP line is specifically aimed at miners, with some high-end SKUs only available to those prepared to put orders in the tens of millions of dollars. The lack of dedicated gaming cards is due to simple supply and demand for gaming — as well as “HPC” applications where users employ gaming GPUs for rendering and AI jobs.”

The deficit will not be eliminated

 

The answer to the GPU card shortage appears to be straightforward: manufacturers must produce enough cards to match demand. In practise, however, this is not the case. The supply of silicon wafers, which are needed to make the chips, is one of the issues. The demand for wafers was very low in 2019, but after the entire world was quarantined in 2020, the demand for computers, tablets, TVs, and other chip-based technology skyrocketed. The demand for wafers has risen to the point where Sumco Corp, the world’s second-largest wafer maker, has announced that its output would be booked until 2026.

Processors, GPU cards, and memory cards, on the other hand, require more than simply silicon wafers. Following the commencement of the war in Ukraine, world semiconductor makers faced a scarcity of neon, which is required for the operation of the laser systems that create the chips. The issue is that Ingas and Krion, two Russian enterprises, manufacture 45–54 percent of the world’s supply of neon-containing gas mixes. It is unclear how global manufacturers would seek a way out of this scenario.

Some experts predicted that the semiconductor scarcity would end in 2023 in March 2022. According to the CEO of Micron Technology, one of the largest makers of computer memory and data storage, manufacturers will be able to build up a sizable stock of chips and organise supply starting this year. There will be no such issues in 2023, and global corporations will be able to return to their pre-pandemic levels of production.

However, the situation in Ukraine has the potential to halt this recovery and redouble the chip shortfall, causing prices to climb with renewed intensity. Intel recently stated that it has stockpiled neon and is continuing to monitor supply issues while looking for alternative sources. Samsung has said that some facilities may encounter shortages, while ASML, a Dutch company that makes scanners for printing chips used by TSMC and Samsung, has expressed its concerns, stating that important mechanical equipment may be in limited supply during the next two years.

So, what will happen to semiconductors, and hence equipment, in the near future? The GPU market is likely to rebound from the COVID-19 pandemic and dropping demand from miners, but global events are putting manufacturers to the test once again with a shortage of components for equipment production. Of course, it’s reasonable to expect the company to locate raw materials and establish new supply chains, but no one can say when that will happen. In any event, the semiconductor scarcity appears to be persisting, and GPU card prices will rise once more, but this time, the miners will have had nothing to do with it.

 

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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