What Happens When a Chinese Giant Swoops In on Your Tiny Cryptocurrency
Bitmain maintains a near-monopoly on Bitcoin hardware, now it’s coming for Siacoin.
A Chinese cryptocurrency mining giant just swooped in on a tiny cryptocurrency with some high-end hardware, and the developers behind the US-based Siacoin are worried that a foreign shake-up is on the horizon.
The cryptocurrency world hasn’t been the same since specialized Bitcoin mining hardware called ASICs first hit the scene back in 2013. Unlike the versatile graphics cards and CPUs found in everyday computers that were originally used to mine Bitcoin, ASICs–short for application-specific integrated circuits—are made to do only one thing incredibly efficiently: Mine cryptocurrency.
One of the side effects of the adoption of ASICs by miners is they turned cryptocurrency mining from a niche hobby into a massive industry with a high financial barrier to entry (ASICs cost around $2,000 apiece, and the biggest operators have warehouses full of them). And in the world of ASIC cryptocurrency mining, a Chinese hardware company called Bitmain is king. Not only is Bitmain a chief supplier of ASICs, but it also operates two of the world’s largest Bitcoin mining operations that together account for 39 percent of the entire network’s mining power.
On Wednesday, Bitmain announced it was expanding its mining operations with the Antminer A3, a new ASIC specifically made for a hashing algorithm called BLAKE(2b). This matters, because at the time of writing a small cryptocurrency called Siacoin is one of only two cryptocurrencies that uses BLAKE(2b); the other, Raiblocks, is worth $16 USD per coin compared to Siacoin’s five cents. In comparison, one bitcoin is worth roughly $12,000 at the time of writing. Not only will Bitmain be mining Siacoin itself (though it’s uncertain how much Siacoin mining power is operated by Bitmain), but on Tuesday it also began selling A3 miners to anybody who can pay.
This is worrying for Siacoin—the currency of blockchain-based data management platform Sia, which has aspirations of being integrated by Netflix—since large miners have a degree of power in blockchain-based systems. If one company manages to capture more than half of the entire network’s total mining power, for example, they could execute blockchain-damaging attacks. Enlarged status in the community is a factor, too; last year Bitmain played a role in splitting the Bitcoin network in two, which created a competing cryptocurrency called Bitcoin Cash.
Not everyone is happy about Bitmain swooping in like this—namely Siacoin co-founder David Vorick, who plans to release his own ASICs for Siacoin in June. Suddenly, Vorick and his ASIC company, called Obelisk, are in competition with a Chinese giant that has a near-monopoly on Bitcoin mining hardware. And making things worse, it’s already beat him to market to mine his own cryptocurrency. On Wednesday, Vorick posted his displeasure to Reddit, saying that the Siacoin developers are worried.
“As a developer, Bitmain moving into the Sia space makes me uneasy,” Vorick wrote in a Reddit post on Wednesday. “Bitmain has historically been extremely greedy, and very willing to sacrifice the well-being of the community, of their customers, and of the ecosystem if it means they can make a couple of extra dollars.”
Vorick cited Bitmain’s reported 50 percent margins on its hardware and perceived overselling as the reasons for his criticisms.
“Bitmain will sell more units than the Sia ecosystem can sustain, and many people end up with large losses,” Vorick wrote in the Reddit post. “Bitmain will not end up with losses, because they were paid up-front with non-refundable money.”
The main concern among Siacoin developers, according to Vorick, is that the influx of powerful Bitmain miners will likely drive out less capable GPU and CPU miners on the Siacoin network, centralizing Siacoin mining. And because the difficulty of mining Siacoin increases in proportion to the network’s total mining power—meaning that ASICs will be extremely profitable at first, but mine more slowly over time—mining could be less lucrative for customers who’ve pre-ordered Obelisk ASICs by the time they arrive.
In his Reddit post, Vorick broached the possibility that the Siacoin community could implement a change to the mining code so that the Bitmain ASICs would be unusable. However, he noted that this would probably hurt Bitmain customers in the Siacoin community more than Bitmain itself, since the company does the vast majority of its business in other cryptocurrencies and all its ASICs are non-refundable (for what it’s worth, so are Obelisk’s). So, it seems like cooler heads will prevail.
“As much as I would like to punch Bitmain in the nose, I don’t think a [code change] achieves what we want,” Vorick wrote on Reddit.
Indeed, implementing code changes to block various ASICs could turn into a game of Whack-a-Mole—soon after Bitmain started selling their Siacoin ASIC miners on Tuesday afternoon, another Chinese company called Halong Mining announced it is also developing a Siacoin ASIC, although the company has yet to bring an ASIC to market. Vorick told me in a Reddit direct message that he has heard rumors that another company might also be developing a Siacoin ASIC in the coming months.
“That means Sia has 4 hardware companies competing and shipping product in Q1 and Q2 of 2018,” Vorick told me in a direct message over Reddit. “Our biggest fear was that one company would come in and control everything.” But, he admitted, “that seems very unlikely at this point.”
Still, depending on how many A3s Bitmain sells, there’s still a very real possibility that Vorick’s fears could be realized if Bitmain floods the market before the Obelisk and Halong ASICs are even shipped. Either way, Siacoin’s predicament is a fascinating look at a young cryptocurrency in the middle of tumultuous technological change.