Bitcoin may be at an all-time high, but not all is well for the king of cryptocurrency. In order for Bitcoin to function, it needs miners to control powerful computers. The growing demand has increased the load on the network. And now cryptocurrency miners are plagued by an acute shortage of chips that has wreaked havoc on other sectors such as the automotive industry. Why is this such a big problem for Bitcoin? What can be done about it?
One of the features of Bitcoin and many other blockchains is that they require miners to verify transactions. If you want to send BTC from one wallet to another, the transaction must be added to the block for verification. Verifying this block requires powerful computers, usually with powerful graphics cards, to execute complex transactions. These computers are rewarded for their efforts with newly minted bitcoins.
This usually works relatively well. But when the number of BTC transactions increases rapidly, the network becomes congested. This means that more computing power is required to run the blockchain efficiently. In addition, the complexity of transaction processing increases over time, which means that more efficient (or simply additional) computers are needed to remain competitive.
At the moment, most of the BTC mining is done by professional mining farms. These oddly named objects are essentially giant server rooms filled with specialized integrated circuits (ASICs). As their name suggests, these machines require highly specialized chipsets. If the prices of these chips rise, the cost of expanding the BTC mining operation could become insolvent.
The deficit seems to persist
The problem for crypto enthusiasts is that the chip shortage looks set to continue. One of the largest providers of Bitcoin mining hardware, Bitmain, is sold out until at least August 2021. This has led to a sharp increase in prices, with markups on some of the more popular devices exceeding 45 percent.
This issue is not unique to the bitcoin mining sector. Chip shortages have hit all sectors that depend on computers, with the automotive sector hitting particularly hard, the shortage of which could cost the industry more than $ 61 billion in 2021.
This problem will continue. Fitch Solutions, a data analytics company, predicts that chip shortages will continue to impact industries through 2023. If so, what could happen to Bitcoin?
One possibility is that BTC mining itself will become volatile. There are other cryptocurrencies like Ethereum and Cardano that are either flirting with Proof of Stake or have already implemented it. This consensus system is based on the fact that token holders lock some of their currency to process transactions, not the computers that perform transactions.
Ethereum is already starting to take it to the next level as Proof of Work (PoW) grapples with the popularity of the network. However, the process can take months or even years before it takes effect. The shortage of new ASICs could contribute to the urgency of the Ethereum project as transaction costs are already starting to take the network out of action for most users.
If Ethereum can successfully move from Proof of Work to Proof of Stake, it could give Bitcoin a plan to do the same. That being said, it will cause significant tension among miners and, at least in the short term, BTC traders and investors may be forced to admit that they will be stuck in slow and expensive transaction times for the foreseeable future.