This change in protocol has implications for the future course of the network. It also touches on multiple interests and is a showcase of blockchain-internal powerplays and vested corporate interests.
What are ASICs and why are they controversial?
Proof-of-Work (PoW)-based crypto-mining requires specialized hardware. In the beginning, Bitcoin-Miners user Central Processing Units (CPUs) to mine Bitcoins. Later, miners switched to Graphics Processing Units (GPUs), which were more specialized in their mining capabilities.
Eventually, ASICs – Application-Specific Integrated Circuit – were introduced. These microchips can calculate a hash up to 100,000 times faster than CPUs and are extremely efficient in crypto-mining.
The good: They are faster and add computing power to the network.
The bad: Previously, mining had been distributed across thousands of miners worldwide. With ASICs, just a handful of industrialized ASIC-mining farms dominate the network. Part of the reason is that ASICs are more expensive, making it more costly to start a mining operation.
Many crypto enthusiasts believe this domination contrasts the original idea of decentralization. With centralized mining farms, Bitcoin has become a representation of the system it sought to replace.
Ethereum sees mining as a temporary solution
Ethereum was never meant to be a network for miners. Instead, its developers are working on an algorithm called “Caspar,” which is based on Proof-of-Stake (PoS). But so far, progress has been slower than expected.
PoS is a consensus process that does not require much computational power. Mining, on the other hand, requires nodes to solve complex mathematical puzzles and thus consumes large amounts of energy.
That’s why PoS is more environmentally friendly compared to mining and could solve some of the scalability issues of growing blockchain networks.
As Caspar is not fully developed yet, PoW-based mining is currently being used on the Ethereum network. But this was only ever meant as a temporary solution, until Caspar is ready to take over.
New ASIC-Miner threatens Ethereum’s power structure
That said, Ethereum was never particularly “miner-friendly”. And certainly not regarding ASIC-miners.
That’s why Ethereum’s current Ethash algorithm is more ASIC-resistant than other crypto-algorithms. It levels the playing field between GPUs and ASICs, at least sort of.
Due to Ethash, Ethereum was still in the era of GPU mining, until about six months ago.
Then things started to change. Bitmain, a Chinese manufacturer of ASIC-miners, released the Antminer E3, the first ASIC-miner specialized on Ethereum.
Even though the E3 is not that superior compared to GPUs – just about 100% to 200%, which is not much – it represented a threat to the Ethereum core developers.
Ethereum strikes back: algorithm change
The E3 would give miners more power in the network, but the developers strike back.
Firstly, the Constantinople hardfork will reduce mining rewards from five to two Ether. A significant reduction. The hardfork was planned in January but got postponed to February.
It is rather uncontroversial within the network. Thus, there isn’t really anything the miners can do about it. The community support is with the development team.
Secondly, the Ethereum core developers met in early January to discuss how to further strengthen Ethereum’s ASIC-resistance.
The result: A new mining algorithm called ProgPoW.
ProgPoW is a modification of the current Ethash- algorithm. It reduces the advantage of ASIC-Miners compared to GPUs. As a result, ASIC-mining will not be lucrative anymore.
A powerplay between developers and miners
This is not just about hardware. Developers and miners are competing for power in the network. The more powerful the miners, the less powerful are developers and vice versa.
All of this is at the core of many industry debates and revolves around the question of decentralization.
In a system governed by miners, eventually there will be centralized mining farms run by corporations. Just a handful of those miners could work together and manipulate the network.
If, however, mining is more distributed across the entire network, like it is the case with CPU or GPU-based mining, miners’ cartels will be less powerful.
But in this case, the existing power gap will be filled by the network developers, who can then govern the blockchain without a challenger.
Chinese ASIC manufacturers vs. American GPU manufacturers
Besides the powerplay of miners and developers, corporate and political interests are at play as well.
Chinese ASIC-manufacturer Bitmain is dependent on those cryptocurrencies than enable ASIC-mining. But half of the top-12 cryptocurrencies have already replaced PoW with other consensus mechanisms. Hence, they don’t need any miners anymore, and Bitmain becomes redundant.
American GPU-manufacturers like AMD and Nvidia support ProgPoS, because it reduces the capabilities of ASIC-mining and keeps their GPUs competitive. That said, GPU manufactures will also get hit once Ethereum switches to Caspar.
Altogether, this story shows that the blockchain industry has grown to a size where there are multiple powerful interests continuously try to gain the upper hand. The idea of a completely decentralized, distributed and trustless P2P network remains utopia. Anarchies are ruled by the strongest.
As blockchain is still a new technology, it’s often difficult to understand the interests involved in certain decisions. But ultimately, whether the discussion is about ASICs, PoS, PoW, or hash algorithms, most issues come down to one simple question: Who has the power in the brave new blockchain world?