The rise of cryptocurrencies such as Bitcoin has had some side effects, including the increased demand for gpus by Nvidia.
Encryption was not considered when designing gpus, but gpus and ASICs have become the two default options for most encrypted operations.
Bitcoin suffered setbacks in 2018 after experiencing rapid growth in previous years. However, there are signs that cryptocurrencies may be about to change.
The renewed strength of Bitcoin brings hope that NVIDIA may benefit again, but different circumstances make NVIDIA unlikely to receive the same boost this time.
NVIDIA is a company known for its graphics processing unit or gpu. These gpus have long been associated with games, especially first-person 3D shooting games, but other applications have emerged in recent years. For example, artificial intelligence is a promising new area that raises the need for gpu.
However, in recent years, all new applications for gpu have had a greater impact on gpu than cryptocurrency and bitcoin (especially bitcoin-dollar). There are many other cryptocurrencies, such as Ethereum and Ripple, but Bitcoin has become a proxy for encryption. With the development of Bitcoin, cryptocurrency is also developing.
After a period of weakness, Bitcoin and other cryptocurrencies have shown new strengths in recent months, and some may wonder what impact such development would have on companies like NVIDIA (if any). There is a saying that no listed company is more affected by the rise and fall of encryption technology than Nvidia.
Nvidia’s chief executive, Jensen Huang, said in a earnings conference call that he acknowledged that Nvidia was severely affected by cryptocurrencies.
“Obviously, we were surprised. I mean, we are as surprised as everyone else. The aftermath of the cryptocurrency is longer than we expected. The price is starting to fall, and we expect the rate of decline to be faster than it is falling. Much, but when prices fall, we expect demand to rise much faster than it falls.”
The full record of the earnings conference call contains this statement. Therefore, if the cryptocurrency has had a huge impact on Nvidia, as Nvidia itself admits, then if bitcoin and other cryptocurrencies re-emerge, what effect will they have on NVIDIA?
The impact of Bitcoin and other cryptocurrencies on NVIDIA
The rise of cryptocurrencies can be said to be spectacular, especially for bitcoin. As bitcoin prices soared, demand for bitcoin surged. In response to the huge demand for encryption technology, bitcoin miners had to figure out the best way to tap new bitcoin in the shortest possible time.
High-end gpus from Nvidia or AMD were found to be a good solution because they outperformed the original method. Bitcoin and other crypto miners have invested heavily in their own “data centers”, which are often not equipped with high-end graphics cards using NVIDIA gpu. As a result, NVIDIA’s sales jumped. Not only has sales increased, but the price of GPUs has also risen because some models have become scarce due to excessive demand.
Bitcoin rose from about $250 in the second half of 2015 to nearly $20,000 at the end of 2017. This is an increase of nearly 800% in less than 30 months. In the same period, NVIDIA’s share price rose from around $20 to around $200. It is safe to say that cryptocurrencies such as Bitcoin have played a role in helping Nvidia. They further increased the company’s sales and stock prices.
Bitcoin’s prosperity is about to burst, but changes may be happening
Bitcoin prices peaked at the end of 2017 after several years of growth. However, bitcoin’s situation was different in 2018. By the end of that year, bitcoin prices had plummeted by about 80% to around $4,000. But there are signs that Bitcoin may be in the early stages of a new bull market. Other cryptocurrencies are expected to appreciate with Bitcoin.
If this is the case, then if we take into account what has happened in recent years, NVIDIA may benefit from it. But past performance does not predict future results. In order to determine how much NVIDIA is likely to gain another huge boost from encryption, we need to see why cryptocurrencies first turned to Nvidia.
Why cryptocurrency mining decided to use gpu at an early stage
The password miner is not limited to using gpu. There are several options to choose from, the most common ones include:
- Use a central processor or cpu
- Use a graphics processing unit or gpu
- Use field programmable gate array or fpga
- Use an ASIC
All of these options have their own advantages and disadvantages. Depending on the particular cryptocurrency discussed, some of these options may or may not be more appropriate than others.
In the early days of Bitcoin, people could use only the CPU on their PCs to mine Bitcoin. However, those days are gone forever. Today, the large amount of mathematical calculations that Hash needs, has pushed the bitcoin mining work to a “mining farm” designed specifically to accomplish this task.
Compared with CPU, using gpu can more efficiently complete the large amount of computational work required for bitcoin mining. In addition, unlike the other three options, the asic designed for Bitcoin was not available in the early days. Fpga can replace asic, but they are not as cost effective as asic, although they offer the benefits of reprogrammability. All of these factors add up to make gpu an early darling of Bitcoin miners. Such as the Gepu provided by NVIDIA or AMD.
Why is cryptocurrency not so great for NVIDIA?
Times have changed. Asic dedicated to bitcoin mining has joined the gpu. For example, asic designed by Bitmain. Gpu and asic are the two preferred methods for cryptocurrency mining, each with advantages and disadvantages. For example, bitcoin’s work proves to rely on the SHA-256 hash algorithm. ASICs can be more efficient than gpu. If speed and power consumption are the most important, then asic should be the first choice.
On the other hand, the logic in asic is fixed and cannot be adjusted or upgraded. Asic changes will become useless if the algorithm used changes. In contrast, gpus tend to have longer lifespans because they are less likely to be outdated like asic. This is helpful for cryptocurrency miners because it gives them more time to recover their investment.
Still, profiting from crypto mining is becoming more and more difficult for several reasons. Bitcoin miners are under pressure to remain profitable, forcing them to prioritize the most cost-effective mining methods. This includes moving to a place where electricity costs are lower, but you should always use asic. The rise in encryption prices will give miners some room to maneuver in using gpu, but the profit curve tends to be good for asic.
This encryption trend is good for ASIC designers, but for GPU vendors like Nvidia, this is not a positive development. Still, gpu still has a place in encryption because asic is not available for all cryptocurrencies. In addition, some cryptocurrency algorithms often change, making the use of asic very difficult.
The impact of encryption on NVIDIA will be limited
If the price of encryption technology continues to rise, Nvidia will get a modest boost as GPU demand will be boosted. However, with the growth brought by encryption technology, it is almost impossible to reproduce the growth a few years ago. Unlike previous years, gpu’s competitive form is a suitable alternative, such as asic and fpga, but with less competition.
This is especially true in the field of bitcoin where asic has matured. If Nvidia wants to get a huge boost from cryptocurrency, it is most likely to come from a cryptocurrency other than Bitcoin, and Bitcoin has no ASIC option. However, once this cryptocurrency becomes popular, ASIC designers are likely to invest resources to introduce a better product than the GPU.
This means that there is now a ceiling on how much NVIDIA can benefit from the increase in encryption prices. In most cases, the demand for gpu will be limited by the existence of alternatives. The only exception is that if a cryptocurrency becomes popular, the use of asic is ruled out due to technical issues.
All in all, the boom in bitcoin and other cryptocurrencies has surprised many people, and most people are not in a good position. NVIDIA has launched a product that meets market needs at the right time and in the right place, even if it has never been designed for a specific purpose.
The accidental wealth that NVIDIA has acquired is the result of a unique environment that is unlikely to be replicated again. If Nvidia wants to tear again, it must find another catalyst. Cryptographic currency is unlikely to be the culprit. It must be something else.