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Selling shovels

Posted: Jon Peddie 01.25.18

During the California gold rush, the merchants selling shovels made the most money 

Dire Straits had a hit song in the late 1980s titled, Money for Nothing. I’m reminded of it every time I think about crypto-currency mining. If you already have a decent PC with a modern AIB, you’re ready to go get some somey for nothing. And you don’t have to do anything but turn on, and leave on, your PC. 


However, one PC and AIB may not be enough to bring in the big bucks, er bitcoins, you need a farm. That’s where the money is made. 


But how does one go about building a farm? Well, how does one go about creating a gold mine? First you start with a pick and a shovel. In allegoric terms, the pick might be the PC, and the shovel the AIB. And unlike the question of getting nine women pregnant to have a baby in one month, the more shovels you have and the people to man them, the faster you can get that gold mine dug. You can take the analogy even further, think of the shovels and picks as be the semiconductors.


TSMC, which is the world’s biggest semiconductor foundry business, recently proposed that estimated value of its 2018 sales growth to be between 10 and 15%. This value is higher than last year’s growth rate which was 9%. Why is the company proposing such high value in spite of weak demand for chips for mobile devices such as Smartphones? Increased demands for chips for mining cryptocurrency. 


“Demands for HPC (High Performance Computing) are very strong in order to implement blockchain including chips for mining cryptocurrency and AI (Artificial Intelligence).” said shovel handle maker CEO Mark Liu of TSMC.


Meanwhile, folks you have bought shovels in the past for home gardens and other pleasures, ae finding the cost of the shovels has gone up, and in some cases, they’re not available at all. Damn that supply and demand thing Adam Smith invented. 


And according to the webosphere-echo chamber, giant farms are making so much money they can’t find places to store it, because all the space is filled with racks and stacks of AIBs. And it must be true because everyone, simply everyone is saying it.

An employee at a Bitmain facility in Inner Mongolia, one of the biggest Bitcoin farms in the world. (Giulia Marchi for The New York Times)

But when you run a lot of PCs with even more AIBs you use power. A lot of power, meaning it’s not money for noting, its money (assuming you’re making some) in exchange for electricity, and the global warming consequences of that. China is supposed to be the home of the biggest cypto-currency miners, and China and nearly 80 percent of its electricity production come from coal. Good old carbon-rich coal. Power plants are the major producers of CO2. In allegory form, its as if the forests were being stripped to make shovel handles. 


But so what, when the miners got rich in the gold rush they polluted lakes and rivers to extinction in some cases, and poisoned the land around them. They brought down small mountains with gigantic dynamite explosions that could be heard as far away as San Francisco and Reno. And someone sold them that dynamite and the fuses.


The point is in a gold rush not every miner makes money, but every miner supplier does.