Custom Chips Could Be the Shovels in a Bitcoin Gold Rush

[Eugen Leitl]

http://www.technologyreview.com/news/508061/custom-chips-could-be-the-shovels-in-a-bitcoin-gold-rush/

Custom Chips Could Be the Shovels in a Bitcoin Gold Rush

Devotees of the digital currency are ratcheting up their technology in a race
to generate new coins.

By Tom Simonite on December 5, 2012

Why It Matters

Though Bitcoin has fallen from the public eye, the emergence of chips
designed specifically to bmineb the virtual currency suggests it may have
some staying power.

The digital bcrypto-currencyb Bitcoin surged into the public eye last year,
tantalizing enthusiasts with the promise of money unfettered by any
government before falling victim to digital heists (see bCrypto-currency
Security under Scrutinyb) and short media attention spans.

But $130 million worth of bitcoins are still out there, tended by a dedicated
community working to expand their use. More are still being bminedb in a
process that rewards digital gold-diggers when their software solves
mathematical puzzles involved in verifying transactions and regulating how
the currency is used (see bWhat Bitcoin Is, and Why It Mattersb). Now some in
that community are taking the expensive step of creating custom silicon chips
dedicated to running the software that carries out that process.

bItbs a business opportunity, and also because we believe in Bitcoin and what
it can do,b says Josh Zerlan, COO of Butterfly Labs, a Kansas City company
that is waiting for its first batch of custom chips to come back from an
Asian manufacturer. These chips will be resold to Bitcoin enthusiasts in a
line of products that plug into a computer via USB and supercharge its
efforts to mine the currency. They range in price from $149 to $29,899, and
in early 2013 they will start shipping to over a thousand customers who
placed advance orders.

Butterfly has competition from several other companies working on
application-specific integrated circuits, or ASICsbthe industry term for such
specialized chips. The stiffest competition seems likely to come from another
U.S. company, New Yorkbbased BTCFPGA, and two based in China, Avalon and
ASICMiner. All three promise to send out products based on their custom chips
early next year.

Having an ASIC fabricated is a highly technical and expensive proposition,
typically beginning at the low hundreds of thousands of dollars. Thatbs
primarily because contractorsbalmost always overseasbcharge high prices to
operate facilities containing the complex equipment needed to carve chips out
of silicon wafers. ASICs are etched from blocks of silicon with microscopic
precision. Butterfly Labs says it has paid for chips with features as small
as 65 nanometers; BTCFPGA and some others say they have opted for a cheaper
90-nanometer production process.

Butterfly Labs occupies a large facility in Overland Park, Kansas, where it
has bought equipment to manufacture products based on its chip, says Zerlan.
That includes a pick-and-place machine to solder the 7.5-millimeter-square
chips onto circuit boards and three production lines to assemble the final
products. Zerlan wonbt say how much it all cost, but he says the company paid
for the project with profits from previous products and funds from unnamed
venture capitalists.

The public voice of ASICMiner, who goes by the name Friedcat online, says
that no leading-edge technology is required to speed up the mining process
significantly, making the challenge baffordableb for relatively small teams.

bMost people consider ASICs to be a highly capital-intensive industry,b he
wrote in a message. bIt is not for Bitcoin-mining devices, because even
[chip] technology 10 years old is much better than current mining devices.b
Engineers who worked on the ASICMiner design have experience creating
significantly more complex chips at national labs and startups, says
Friedcat.

The emergence of bitcoin-mining ASICs is part of a computational arms race
rooted in the complex cryptographic scheme designed by Bitcoinbs anonymous
inventor, known only by the online name Satoshi Nakamoto. Under Nakamotobs
rules, which are what allow the currency to function without control by a
central bank, miners run free software that communicates over the Internet to
maintain a distributed global log of all Bitcoin transactions.

That process is also a competition, with the miner whose software completes
the next section of the logbknown as a blockbbeing rewarded with newly minted
bitcoins. The reward is now 25 bitcoins, currently worth $316. Completing a
block requires solving a cryptographic puzzle through brute force, so the
faster the software can run, the more likely the miner is to win rewards.
Nakamotobs rules also state that only 21 million bitcoins will ever be
released, and at an ever-decreasing rate. That schedule is enforced by making
the work of mining bitcoins harder and periodically halving the reward for
completing a new block.

As Bitcoin gained popularity, some people began spending thousands on heavily
customized bmining rigsb capable of performing mining calculations faster
than ordinary PCs. Initially relying on high-powered processors, they soon
began making use of GPUs, speedy graphics processors that are also popular
with the builders of supercomputers. Small businesses popped up to sell
mining rigs and the latest GPUs to other miners.

This spring, that arms race took a more serious turn when Butterfly Labs and
some other suppliers moved on to FPGAs, chips with a reconfigurable design.
Programming FPGAs to perform mining calculations resulted in significant
speed increases. But ASICs, with their fixed design, promise to be at least
100 times faster than FPGAs, and thousands of times faster than GPU-based
mining rigs.

bASICs run faster, consume lower power, and offer better area efficiency over
FPGAs,b says Simha Sethumadhavan, an assistant professor of computer science
at Columbia University, who challenged students in his hardware class to
design their own mining chips. One reason ASICs run so fast is that the same
circuits can be fitted into smaller spaces than is possible with an FPGA, he
says.

Sethumadhavan notes that the profitability of mining is also determined by
Bitcoin exchange rates, electricity costs, and the up-front cost of hardware.
However, using ballpark figures makes it possible to illustrate how much more
a miner could make using an ASIC. An FPGA-based product that Butterfly Labs
sells for $599 could pull in $1.50 worth of Bitcoins a day based on todaybs
exchange rate, excluding electricity costs. A product with one of its new
ASICs inside, priced at $649, is expected to work fast enough to earn $55 a
day based on the same criteria.

When ASICs do arrive, they could force many bitcoin miners to give up. Since
Nakamotobs system adjusts the difficulty of mining to keep the rate of
production constant, it will become significantly more difficult once the new
chips go online. Many small-time miners will find that their outmoded
equipment will no longer be able to pay for its own electricity bills. bIt
will become more of a business,b says Butterfly Labsb Zerlan. He believes
that will help strengthen the Bitcoin economy and enable it to be taken more
seriously.

But none of that can happen until Zerlan and his competitors deliver their
chips. All the most credible-looking ASIC projects have experienced delays
and retreated from initial promises that their products would ship in late
2012, citing technical difficulties.

If the products do make it to customers, the competitors may find themselves
caught up in a race to release newer, faster versions. Columbiabs
Sethumadhavan says custom ASICs may soon face a challenge from chips for
mobile devices with circuits dedicated to performing encryption operations.
These chips, expected next year, will probably be designed to a standard
higher than the miners can reach and could be used to build powerful mining
rigs without ASICs.

Meanwhile, the Bitcoin economy is still based more on speculation than on
actual business transactions. Blog host Wordpress became the closest thing to
a major brand that accepts bitcoins this month, but although anything from
alpaca socks to e-mail hosting can be bought using the currency, most such
products are offered by enthusiasts inside the Bitcoin community. Unlike real
gold, the bitcoins pursued by those building ASICs may not always glitter.