Bitcoin, the growing peer-to-peer cryptocurrency, has been gaining popularity and their demand has been increasing at a dramatic rate. In order to obtain Bitcoin, the users must mine the coin using a powerful computer to solve algorithm and the mining process that most common for Bitcoin miners use have many disadvantages. The disadvantages of mining include the amount of electricity that Bitcoin miner use is plausible to equal the amount of energy used by Irish national energy consumption. In order to accomplish that much mining, the Bitcoin miners need computer hardware to run the computing on and the most accessible and efficient hardware for the miner is GPU, graphics processing unit.
The demands for GPU by miners had led to an insufficient amount of GPU on the market for general buyers so the manufacturing company has to ask the retailer to limit GPU sale to 2 per customers. The reason for the manufacture company have to come out and publicly announce that is because when GPU is used to mine for Bitcoin it put a lot of stress on the GPU that the lifespan of the GPU will be shortened and after the GPU is not sufficient enough to mine for coin that hardware will be dump out into gray or second-hand market.
This will cause inventory scale of GPU to be unstable to the point that company would not be able to sell more GPU due to the overstock of used GPU as happen before in 2014 during crypto market crashed . Bitcoin is a type of cryptocurrency that is based on using the Internet and the peer-to-peer network to function.
Bitcoin has been very popular lately due to the increase in values that lead to other currency with the same ideology such as Litecoin and other currency. Bitcoin is different from normal currency is because the user’s privacy is protected by the use of Bitcoin because it is not governed or controlled by any government but are created through the process of mining. In order for Bitcoin to achieve the user’s privacy, each member of the peer-to-peer network shares the list of transaction that is approved by the network in order to confirm that the transaction has taken place called the public key. When the users have the desire to use or transfer the coin to other users, the original user must sign the transaction that will be broadcast over the network so that list of the transaction can be known to the network that certain amount of coin has been transferred.
But these transactions can be approved only through the list of the transaction within the peer-to-peer network, the owner of the coin must sign and approve the transaction using their private key that is individualized among users. After multiple transactions are approved within the network it is collected into locks and after the blocks are later joined with the previous blocks to the blockchain. For the process of adding the block to the previous blockchain there required the nonce value with this equation H(B.N) < T where B is the recent transaction, N is the nonce value, ‘.’ Is concatenation operation, H is the hash function, and T is the value of the target. T value is the value that is being controlled by the Bitcoin Network to increase or decrease the difficulties of the rate where the coin is being mined because there is the only limited amount of coin that can be min within the network. T is being controlled by this equation D= T_max/T. D will be recalculated every 2016 blocks mined in order to keep an average of 1 block per 10 minutes mined.
Using the power consumption and hash rate per block we can calculate the amount of money it is required to mine each coin but the normal process of mining will soon run out of reward to the miners due to the limited amount of coin that can possibly be created in the network so the transaction fee which is reward given to user who finds the block that contains the transaction. These two rewards will continue to lessen due to the limited amount of supplies and higher demand from the miners. At the beginning of the mining era miners use normal CPU but as mining gain more popularity due to the profit it makes GPU become more suitable candidate due to the lower energy consumption. Trying to calculate the total amount of power is required for the whole Bitcoin mining industry is almost impossible due to the difference in hardware. With the mix of hardware, the paper uses the number for the hardware that is available but not as efficient and hardware that might not be available much but is very effective suggest that the total power used would be around 0.1 to 10GW and to put this into perspective the average of Irish energy consumption is estimated around 3GW. It is highly possible that the amount of electricity used by Bitcoin mining can match if not surpass a whole country worth of electricity.
Bitcoin has gained massive popularity due to the massive increase in the values per coin due to the hype that each user has and put value into them. The way Bitcoin gain their value is what makes Bitcoin so much different when compared to the other type of currencies is the owners of each coin can set their own sell and buy value like in stock market so, therefore, the value of the coin is very flexible. Bitcoin is also not control over governed by any country or any authorities. These are the two reasons why Bitcoin is unstable and can easily fluctuate. Back in December 2017, the value of 1 coin of Bitcoin cost around $20,000 but as for August of 2018, the price has dropped to $7370 per coin. At the current state of Bitcoin, it is too unstable to be used as sources of currency due to the fact that if the value increase and people believe that the value will increase so they try to get hold of more Bitcoin for themselves it will increase the demand where the supply stays the same. Bitcoin value is unreliable and only exist because how much owners put values in for each coin. Bitcoin can be earned through the process of mining which requires the computing power to solve a different algorithm that will increase the complexity, computing power, and the time required to solve each problem to get the coin.
The most efficient and are available for miners to use for the mining process is Graphics Processing Unit or GPU because GPU is designed to compute single task well when compare to Centralized Processing Unit or CPU which are design to do multiple tasks at the same time. This led to the price to a massive price increase in the GPU market because of the higher demand and the constant supply of GPU in the market. For example, GeForce GTX 1070 market price is around $380 but due to the high demand of GPU in the market by Bitcoin miners the price of GTX 1070 that is available cost around $700 which is an 80% increase compared to original prices. The increase in demand of GPU has an impact not only to just miners who have to pay more in order to obtain GPU but to gamers as well due to the requirement of GPU in order for the most game to properly function. This causes the market of GPU not just very high in price but in most cases not even available for purchases them. The lack of stock for GPU has been severe that NVIDIA, one of the 2 majority companies who manufacture the GPU, ask retailers to stop selling GPU to miners by limiting the amount of GPU purchase per person to 2 cards so that it can be available for purchases by gamers as well.
The reason why the GPU manufacture speaks out and try to control the amount of GPU sales is that Bitcoin mining cause the GPU to deteriorate at a much faster rate due to the intense continuous of the hardware. This is bad for the business because when the GPU is not usable for mining the miners dump all the used GPU into the gray market and cause the second-hand GPU market price and inventory to crash. This cause the company to not be able to sell their product due to massive inventory dump as it happened in 2014 when the other cryptocurrency crashes. Bitcoin has been gaining so much popularity due to the increase in the values, so people were trying to get their hands on it in order to gain some profit.
But even Bitcoin looking like a very interesting target to invest their money in, the value of Bitcoin is very unstable due to how the currency is design because the owners of the coins are the one who set the rate of which their coin go for and how much people are willing to pay so that lead to the market value of Bitcoin. With Bitcoin gaining the popularity people are trying to get more of it so more people to try to mine for coin which has many negative effects include the high power consumption that is may be close to a country worth of consumption, the increase in hardware cost use for the mining process in this case GPU, and the possibility that the market for Bitcoin can crash and cause a dump of used hardware into the grey market at dirt cheap prices so the company will not be able to sell their GPU. Bitcoin may look appealing to investor due to the amount of profit the investors can gain but with the other disadvantages and high risk of the market due to no government or authorities is in control there is no law and limit to the currency. I think that Bitcoin can be a good idea for the investor but only for short time not for long time investor.