Anyone who entered the cryptocurrency market this time last year is now likely to break out into a cold sweat at the merest mention of the word Bitcoin. At the end of 2017, the world’s biggest digital currency hit an all-time high of nearly $20,000. However, the crypto-frenzy soon subsided, and the price steadily declined. That is, until November this year, when it took a sudden nosedive from the $6k mark to its current place, hovering around $4k.
The price decline hasn’t just affected Bitcoin, although as the highest flyer, it had the furthest to fall. Other cryptocurrencies including Ethereum, XRP, and Litecoin have also taken a beating on price. This crash isn’t just bad news for cryptocurrency investors. Some companies had set up huge mining operations based on the profitability of mining Bitcoin and other digital currencies. Now that the crypto-boom is over, they’re in real trouble.
US-based mining firm Gigawatt reportedly filed for bankruptcy at the end of November, with debts tallied at somewhere between $10 million and $50 million. Japanese internet giant GMO posted third-quarter losses of over $5.5 million for its cryptocurrency mining operations.
Chinese company Bitmain, which manufactures mining hardware and runs several large mining pools, announced its IPO intentions back in September. Some commentators have issued dark mutterings that those intentions are now on a “death spiral,” amid rumours of its worst-performing quarter on record.
Wider Market Impact
It’s not just privately-owned mining firms that are suffering. Many cryptocurrency miners use specialist dedicated hardware called Application Specific Integrated Circuits (ASICs) like those manufactured by Bitmain. However, some mining rigs use graphics processing units (GPUs).
Nvidia’s core business is producing GPUs, so as the price of Bitcoin went up, so did the price and sales of GPUs. Now, GPU sales and the company’s share price have both crashed along with the value of Bitcoin. AMD also produces GPUs and reports considerable declines in sales as the year has progressed.
Because an ASIC is only built for the single purpose of mining cryptocurrencies, those who purchased them on the basis of mining profitability are now left with some very expensive ornaments. The price of Bitcoin no longer returns enough profit to cover the electricity they consume.
However, a GPU is a more flexible piece of hardware, that can be put to other uses, and even generate profit in other ways than just mining cryptos.
Unlike the cryptocurrency market, cloud computing is booming. Amazon Web Services (AWS) is currently the biggest provider, driving a significant proportion of Amazon’s overall profit. The global market for infrastructure as a service (IaaS) is expected to grow by 35.8% this year, to more than $40 billion.
A significant contributor to this growth is the rapid pace of artificial intelligence (AI) development. AI relies on vast quantities of data to feed algorithms. Processing data at this scale requires computing power at a rate that’s growing exponentially.
Open AI blog estimates that since 2012, the computing power needed for AI training runs has doubled approximately every 3.5 months. The big cloud providers like AWS and Microsoft Azure cannot build data centers fast enough to keep up with this ever-increasing demand. Some companies, such as Alibaba, are now looking to quantum computing in an attempt to meet customer needs.
However, tech startups are taking an innovative approach, aiming to decentralize existing unused GPU power into a global cloud computing network. Tatau is one such company with a vision of becoming the world’s largest supplier of computing power, but without owning any computers.
Decentralizing GPU Power
The Tatau platform runs on the Ethereum blockchain, making use of smart contracts to manage computing transactions. How it works is that anyone wanting to buy or sell computing power registers for the service. When someone puts in a request for computing power to run a particular algorithm, they bid for it using Tatau tokens.
The network finds one or more parties who can contribute the required computing power, and the funds are held in escrow by smart contracts until the job is complete. Once the job is confirmed completed, the funds are distributed out to the parties who supplied the computing power.
Those with computing power to share on the network can price it according to the electricity costs in their own location. In this way, they have an assurance that their GPU usage remains profitable.
Tatau points to the fact that many cloud service providers use data centers that rely on central processing units (CPUs) which are less efficient than GPUs. By harnessing the untapped potential of idle GPU resources around the world, the company believes it can offer computing power to AI developers at a significantly lower cost than cloud providers.
Tatau is one of a few companies that have spotted this gap in the market. DeepBrainChain and SONM are two other examples of blockchain-based cloud computing targeting the burgeoning potential in AI development.
Can Cryptocurrency Mining Profitability be Salvaged?
While in the last few days of 2018 the prices of Bitcoin and Ethereum are climbing and it looks as if it’s still possible that the price of Bitcoin may make more meaningful recovery, it may already be too late for those who’ve put all their eggs into the ASIC mining basket.
However, the emergence of decentralized cloud computing using GPU’s provides some hope of profitability to those who invested in hardware. This will also be good news for AI developers who will have a new source of computing power to feed their hungry creations.
Perhaps cryptocurrency mining can sustain its profitability after all.