DIGITAL ASSET GLOSSARY

Application-Specific Integrated Circuit (ASIC)

Application Specific Integrated Circuit (ASIC) is designed to perform a single function very fast. Since 2013, ASICs have been used for bitcoin mining (first done with basic CPUs, then high-end GPUs, then FPGAs, and finally with ASICs.
Share on facebook
Share on twitter
Share on linkedin
Share on telegram
Share on whatsapp
Share on reddit
Share on email

December 8, 2020

Most devices we use, such as PCs, tablets, and smartphones are built to run multiple applications. We use them for everything from a work Zoom call to playing games (possibly at the same time!).

To perform these different functions and computations, these devices are fitted with multi-purpose integrated circuits called CPUs (central processing units) which can handle the instructions from different programs. These CPUs are built for a variety of functions, but not for efficiency.

In contrast, an Application Specific Integrated Circuit (ASIC) is designed to perform a single function very fast. ASICs are used across various areas of computing, such as machine learning and IoT devices. Since 2013, they have also been used for bitcoin mining. Bitcoin mining was first done with basic CPUs, then high-end GPUs (Graphic Processing Units), then field-programmable gate arrays (FPGAs), and finally with ASICs.

Digital Assets Glossary ASIC

 

WHY ARE ASICS SUITABLE FOR BITCOIN MINING?

For a new block of transactions to be written to the blockchain (the public database), computers (bitcoin miners) work on finding a proof-of-work code for this block by performing a complex calculation known as a hash.

The miner that gets the proof-of-work code is rewarded with bitcoin, which is how new bitcoins enter into circulation. That’s why bitcoin mining is a competitive process: the more hashes you perform, the higher the chances of you getting bitcoin, which incentivizes people to invest in machines and chips that can perform these calculations faster.

In addition, the difficulty of these calculations is constantly increasing so mining power is added to the network to keep up, which also creates an incentive to invest in faster throughput.

This is why bitcoin mining is now done by ASICs and why these ASICs get faster all of the time.

 

SOME FACTS

The Avalon chip, produced by Canaan Creative, was the first application-specific integrated circuit (ASIC) designed for bitcoin mining and it entered the market in 2013.

Like all chips, the R&D expenditure is extremely high which means the chips must be produced at high scale for the chip maker to be profitable. This results in a highly concentrated industry.

Today, the three largest producers of ASICs for bitcoin mining, Microbt, Cannan, and Bitmain – all Chinese – collectively have over 90% market share.

Most bitcoin miners are formed into pools to spread the risk/reward: to split the cost of the equipment and to increase the chances of getting bitcoin. While some of the pools are located in places like Iceland, where electricity is cheap, the majority of these pools are in China.

 

WHAT TO KNOW MORE?

For a deeper dive into how hardware for cryptocurrency mining has evolved, as well as the economic impact and much more, we recommend this excellent report from ARK Invest.

 

THE METACO VIEW

“Bitcoin mining is a competitive process that incentivizes the industry to invest in producing ever more efficient ASICs. Inevitably, this weaponization of the mining industry leads to concentration in large specialized firms and pools, which some people argue increases the risk of 51% or other attacks. 

However, we see this as just another sign of the professionalization of the crypto ecosystem. The more specialized firms invest in ASICs and other technology, the more skin in the game they have and the less likely are to want to disrupt it.”

SUBSCRIBE TO NOT MISS OUT

Leave us your email and we will email you everytime we publish a new term in our Digital Assets Glossary!

    Lead Source

    Last Name

    Details for Lead Source

    Share on linkedin
    Share on twitter
    Share on facebook
    Share on whatsapp
    Share on twitter
    Share on linkedin
    Share on facebook
    Share on email
    Share on whatsapp

    Discover other concepts in our Digital Assets Glossary

    AtoZ-Digital Assets Glossary-Definitions-Yield farming

    Yield farming

    Yield farming allows cryptocurrency holders to earn rewards — typically other crypto tokens — in exchange for lending out their coins.

    Read more »
    AtoZ-Digital Assets Glossary-Definitions-XBT

    XBT

    XBT is an abbreviation for Bitcoin. The main difference between XBT and BTC is that the former has been prescribed by ISO.

    Read more »
    AtoZ-Digital Assets Glossary-Definitions-Crypto Wallet

    (Crypto) Wallet

    A wallet is a system that allows you to send, receive, and store cryptocurrency. Wallets keep your private keys safe.

    Read more »

    Thank you for your interest.

    Our sales team will get back to you shortly with more information about SILO.

    Terms & Conditions

    METACO SA is committed to protecting and respecting your privacy, and we will only use your personal information for the purpose of your enquiry.

    By accepting this Terms and Conditions, you allow METACO SA to process your personal information to provide you the content requested, as well as regular information about our products, services and news.