Obelisk explains the state of ASICs and crypto mining

The startup Obelisk wants to create more secure, more future-proof networks for cryptocurrencies like Decred and Siacoin. Obelisk is a wholly-owned subsidiary of Nebulous, Inc. Nebulous, Inc. is the creator of Sia and employs the Sia Core team.

Obelisk started as a project by the team behind Sia, a promising cryptocurrency project with a working product. They now have a team of over 16 skilled ASIC and electronics engineers with decades of experience, in addition to building out a dedicated Obelisk team.

Obelisk will produce powerful, profitable ASIC mining hardware for Decred and Siacoin. We look forward to shipping the first batch of Obelisk SC1 and DCR1 miners by end of June 2018.

Sia is a decentralized storage platform secured by blockchain technology. The Sia Storage Platform leverages underutilized hard drive capacity around the world to create a data storage marketplace that is more reliable and lower cost than traditional cloud storage providers. Sia is reinventing cloud storage. Their technology connects users who need file storage with hosts worldwide offering underutilized hard drive capacity. Blockchain technology secures their data and enables improved economics for users and hosts.

ASICs crush GPUs for crypto mining

Most cryptocurrencies rely on GPU mining, which is inherently less secure than ASICs. Countless numbers of GPUs exist throughout the world in large Ethereum mining farms, corporate settings, government facilities, and more. A large number of GPUs can 51% attack smaller cryptocurrencies, leading to serious security issues.

Moreover, most GPU mining pools automatically switch to the most profitable coin, which means miner incentives are not aligned with that of users. If a coin drops in value, miners simply switch to another coin. With ASICs, incentives are better aligned – miners cannot switch, which means they care more about the success of the coin.

Bitmain dominates mining

Bitmain is estimated to control more than 70 percent of the market for Bitcoin-mining hardware. It also uses its hardware to mine bitcoins for itself. A lot of bitcoins: according to Blockchain.info, Bitmain-affiliated mining pools make up more than 40 percent of the computing power available for Bitcoin mining.

Bitmain has been branching out of late, releasing new ASICs designed to mine Ether, Zcash, Monero and Siacoin.

Bitmain and its affiliates could gain a majority of the networks’ mining capacity for each of those coins. This would give Bitmain enough power to disrupt or maliciously attack the networks. The coins are developing software upgrades (Monero developers have delivered) for ASIC resistance.

Current State of Crypto Mining

David Vorick, the lead developer of Sia, a blockchain based cloud storage platform wrote about the current state of Crypto mining.

Since starting Obelisk, they have learned a lot about the mining space, as relevant to GPUs, to ASICs, to FPGAs, to ASIC resistance, mining farms, electricity, and to a whole host of other subjects that coin developers should be more aware of.

The vast majority of ASIC-resistant algorithms were designed by software engineers making assumptions about the limitations of custom hardware. These assumptions tend to be incorrect.

Many were confident in the equihash algorithm.

ASIC developers can make sorting memory. A lot of algorithm designers don’t realize that in an ASIC, you can merge the computational and storage pieces of a chip. When a GPU does equihash computations, it has to go all the way out to off-chip memory, bring data to the computational cores, manipulate the data, and then send the altered data all the way back out to the off-chip memory.

Bitmain released powerful ASICs for equihash. The Bitmain ASICs are 5x to 10x slower than Obelisk internal studies believe they could be. Vorick expects new better equihash ASICs within months.

For any algorithm, there will always be a path that custom hardware engineers can take to beat out general purpose hardware. It’s a fundamental limitation of general purpose hardware.

Ethash (Ethereum algorithm) is by far the most ASIC resistant algorithm Obelisk looked at but there are still ASICs that can be made to beat GPUs.

CPU, GPU and ASIC are not separate, Nvidia, Intel, and other companies refer to their products as ASICs.

If there is a 1 to 10 scale to measure chip flexibility.

A ‘1’ is an Intel CPU. A GPU is a ‘2’. And ‘10’ is a bitcoin ASIC.

As you move from a ‘1’ to a ‘10’, you lose substantial flexibility, but gain substantial performance.

A few months ago, it was publicly exposed that ASICs had been developed in secret to mine Monero. It’s estimated that Monero’s secret ASICs made up more than 50% of the hashrate for almost a full year before discovery.

Obelisk believes a full 3 different groups were actively mining on Zcash with different ASICs prior to the Bitmain Z9 announcement.

Obelisk estimates it cost Bitmain less than $10 million to bring the A3 Sia miner to market. Within 8 minutes of announcing the A3, Bitmain already had more than $20 million in sales for the hardware they spent $10 million designing and manufacturing.

Cryptocurrency miner manufacturers are selling money printing machines.

The manufacturer can sell future revenue to get revenue today. This can offset high capital costs.

Obelisk believes it took Bitmain about 5 months to create the A3 miner, and it took Halong about 9 months to create the B52 miner. Those miners were completed using place-and-route methodologies, especially given the relatively poor performance of each.

Scaling and costs

A rule of thumb is that every time you 10x the amount of money you are spending, you can save about 30% per part.

If you are spending $100 million on mining units, you might get units for $500 each.
If you are spending $1 billion on mining units, you can squeeze that price down to $350 per miner.
If you spend $10 billion then your per-miner price might drop to $245.

Mining farm costs

The average professional mining farm is paying somewhere between 4 and 6 cents for electricity, and then another 3 to 6 cents for management and maintenance. A total cost of $50 per kilowatt per month is probably somewhere close to the median for large scale mining farms. As techniques improve and the industry grows, we expect this number to fall closer to $35 per kilowatt per month (including maintenance, land, taxes, etc.) throughout 2019 and 2020. Obelisk does not believe that anyone paying more than $80 per kilowatt per month will be able to remain competitive unless the price of cryptocurrency continues to rise rapidly over the next year.

Bitmain is somewhere around the $30 per kilowatt per month mark.

The biggest takeaway from all of this is that mining is for big players. The more money you spend, the more of an advantage you have, and there’s not an easy way to change that equation.