South Africa’s Ethereum miners are causing a nationwide GPU stock crisis

If you’ve been looking for one recently, you’ve probably already discovered that graphics cards like the AMD Radeon RX 580 and NVIDIA GeForce GTX 1060 are all out of stock, with no ETA on their return, and sky-high prices being asked for second-hand cards in local classifieds. People mining Ethereum, a new cryptocurrency, are responsible for this, and it’s not something that we’ll see slow down anytime soon. To help get a sense of what’s going on, as well as explain what the hell Ethereum is, I’ve written this article just for you. Sit down, grab some tea and an Ouma rusk – this is going to be a long one.

Ethereum and its profitability

In the last few months, the shortage of graphics cards worldwide slowly ramped up, and both AMD and NVIDIA were unable to keep up with demand from both the gaming and mining markets. While Altcoins were still profitable to mine, going against the grain of Litecoin (LTC) miners was a chore. Finding any blocks to mine took forever because ASIC (Application-Specific Integrated Circuit) miners kept on finding them first, and the only way to make money was to mine common coins and try trade them for a useful value in Bitcoin (BTC). On the horizon at the time was Ethereum (ETH), a block-chain technology with mining applications as well as uses for cryptography, data verification, and authentication purposes. It has the backing of several big companies who want to see it work for use in advanced cryptopgraphy and data verification. Ethereum launched on 15 June 2015 and gained followers bit by bit who used their hardware to mine ETH tokens, which were tradeable for Bitcoins.

Ethereum can’t be mined by ASICs by design. Bitcoin and Litecoin have a set mathematical method of solving a block, and finding ways to accelerate it is relatively easy if you know the workings of the technology. Mining Ethereum is a much more difficult task because the problems your hardware is tasked with changes on the fly. There’s no way to predict the end value, and no way to design a specific circuit to make it faster, because it is both randomised in nature and does not have a pattern to its operation. Therefore mining it with graphics cards, which adapt very well to changing workloads that have no relationship to the previous run, will always be a profitable venture, so long as the coin holds its value.

Ethereum’s other advantage is that it is dependent on memory bandwidth to run properly, as well as having more than 3GB of RAM for the calculations and results. ASICs don’t ship with a lot of on-board RAM, which makes them inefficient already for this purpose, and designing one specifically for Ethereum would be rather expensive. Everyone just uses GPUs instead.

Slowly, the market price for Ethereum increased and kept on building, partially aided by a surge in Bitcoin’s value increasing to over $2,600 per BTC. Over the last three months, mining ETH tokens and turning them into Bitcoin has became an insanely profitable venture all around the globe. Video after video of Youtubers setting up Ethereum mining rigs have popped up, and people are investing more and more money into the currency. It saw a dip this past week, dropping from a $400 asking price to $350 or so, but it’s climbing back up again.

This snowball has started gaining even more weight now that distributed mining operations support Ethereum. NiceHash, one of the more popular ones, now allows people to mine Ethereum tokens using the Dagger-Hashimoto algorithm in a group and get paid regularly according to how much computing power you added into the group. Some dedicated Ethereum mining software exists that can also give you higher hash rates. Because NiceHash allows people to purchase Bitcoins through the site, there are people placing orders for Bitcoin at the already-insane prices, and miners are being rewarded for their efforts and computing power to fulfill those orders.

That feeds into the cycle that will likely eat up our mid-range graphics cards for the next few months, perhaps the whole year! Even if Ethereum reaches the point where GPUs with 256-bit memory buses see performance drops, miners on Radeon and GeForce GPUs can simply move to another coin, or stay with NiceHash to automatically move to another coin that is becoming more popular and needs more orders. The fact that we’ve seen these shortages happen four times over the last five years means that the pattern will likely never go away. Smart mining operations that stay in the game despite difficulty increases will also be able to upgrade to the next generation of GPUs and see a net-zero increase in the difficulty, at least for ASIC-resistant coins.

“Contact for availability”

I spoke to a number of retailers and distributors last week, and people are rightly worried. The months of May and June saw incredible upswings in sales as miners bought out stock across all retailers, and there isn’t a Radeon RX 580 or a decently priced GeForce GTX 1070 left in the country. One distributor I spoke to said that they have back orders piled up, but no date for stock to come in at a reliable pace. Companies like Apple, Dell, and Lenovo are buying up what’s left of AMD’s Polaris stock in order to secure their orders, and Apple in particular has bought several thousand cards to bundle into their external GPU docks for developers to order.

All shops that I contacted in my area were out of stock. Even the mom-and-pop stores had been cleaned out, with people all across the country walking out with four to eight GPUs at a time. Across the ocean, Amazon had to institute one-per-household rules for GPU sales to avoid people from buying more than one card, but that hasn’t deterred miners from getting friends and family members to purchase cards.

Evetech‘s Kamran Sorathia told me that not only were they seeing GPU shortages, but also shortages in power supplies, especially high-wattage models designed for efficiency. “The stock comes and goes, we can’t keep up the back orders,” he said. “It’s really hard to say when the stock will get normalised.” Kamran told me their best estimates for the next shipment date was between 4-6 weeks from now.

Titan-Ice had similar horror stories. “As things are going the only options will be low end or high end GPUs. We are visited regularly by crypto miners wanting and inspecting every GPU we have.” I was told about mining hopefuls who had come into the store and cleared out a rack of GPUs in one go, and then placing back orders for more cards. I’ve personally seen people online putting in sales orders for twenty-four Radeon RX 580 graphics cards.

Wootware almost couldn’t keep up with the sheer sales volume either. Some of their listings for cards have confirmed stock arrival dates, but it’s almost certain that most of these will be picked up by bots created by miners. I asked Wootware owner Rory Magee about the brands that they import directly (including PowerColor), and was told that even the GPU manufacturers themselves are having a difficult time getting back orders from distributors fulfilled. Everyone got blindsided by the ramp-up in mining operations.

I even spoke to NAG’s Neo Sibeko, currently in Taiwan, and he’s seeing the same thing. Radeon RX 580 and GeForce GTX 1070 cards are out of stock everywhere, and small trickles from the GPU manufacturers make their way into stores. Unlike the US and European markets, prices have not increased in response to the demand. There are even some GPUs that would be good at mining, but the cards they’re put on are unpopular with miners, so there’re still options for gamers there.

As for the GPU manufacturers themselves, it’s a catch-22 situation. AMD and NVIDIA, along with their partners, would prefer that the GPUs make their way into the sales channel for gamers to pick up, because they want them to get stuck into their ecosystem and software. With miners buying up the cards, all their investments in software and partnering up with game developers won’t impact the markets they wanted to address. However, this isn’t a problem to the manufacturers because they’re not normally involved in those kinds of initiatives, they’re just there to sell the products.

You’re sitting on a gold mine!

The sheer volume of cards being sold on second-hand forums is also quite impressive. Anyone who has a Radeon RX 470, RX 480, RX 570, or RX 580 is sitting on a card worth almost twice its price when you bought it at retail, in some cases. Radeon RX 580 8GB graphics cards bought earlier this year at prices around R4,700 can now be seen selling for R6,500 without hesitation. Radeon RX 470 8GB cards from yesteryear can be sold at double their retail price. Gamers who are looking for a card second-hand will either have to accept these price swells, or hold out in the hopes that the difficulty scales up high enough to drop the price in good time while they sit with a new build.

Clearly, if you’re looking to make some money on your GPU from the mining craze, it’s far easier to sell it and hold the money until stocks improve so that you can afford a better card.

But what makes this doubly frustrating is that miners who are in the game with money to spare snap up the second-hand sales so quickly. In the case of miners selling their cards, they’re also benefiting from the price increases. They have not only paid for and profited on their GPU purchase once or twice over, they’re also downsizing their operations and earning more money from the inflated prices of the cards in the second-hand market. Then other miners pick up those cards in a flash, because at R6,500 for a Radeon RX 580 8GB you still make your money back, in Bitcoin, within five months.

There are also shortages in other components as well as other items you wouldn’t expect. Tiered wire shelves are being snapped up for mining operations. Motherboards with more than four PCI Express slots are in short supply. Cheap processors from Intel’s Skylake and Kaby Lake family are all out of stock. Power supplies and cheap 64GB and 128GB solid state drives are also being picked up. For one farm of 24 graphics cards, you’d need four motherboards, four processors, four power supplies, four 4GB sticks of RAM, and four SSDs. You can see how this scales up as the farm grows.

Three months of waiting

We have a global shortage of graphics cards on both the red and green teams, and it isn’t slowing down. Miners who want higher efficiency are snapping up AMD’s Radeon RX 460 and RX 560 graphics cards, while NVIDIA’s GeForce GTX 1050 Ti is seeing increasing sales because two cards are cheaper and faster at mining than one GTX 1070, depending on the hash rates of the coin that you’re targeting. South Africa, I’m told by sources, might not get a steady supply of cards again for the next three months. But wait, there’s more!

Because miners typically buy up all the graphics cards in stock, that means that gamers are left without options for their machines. Well, that will soon change with the launch of graphics cards built specifically for mining purposes.

These GPUs will be barebones designs, shipped without a custom cooler or video ports, and made to be built into racks that are customised for the cards specifically. Cooled by industrial fans, these mining setups will offer the same benefits that miners currently get with their custom, very ghetto setups, but with a much lower price. Sources speaking to other websites have hinted that these cards carry a much lower price point to encourage their adoption.

In addition, a local source revealed to me that there are also rumours of these cards shipping with very limited warranties of around three months, intended to cover manufacturing defaults out of the box, but not intended to support the replacement of cards under warranty once they’ve been mining for a year. That will help a bit, but it will also spur NVIDIA and AMD to first ramp up production to cover the needs of the miners with these new cards, and addressing the needs of gamers second. Once things settle down, I expect that we’ll see a steady, healthy supply of both products in the near future.

An Ethereum farm located in the United States. Source: Genesis Mining

As I wrap this up, you may be wondering why, or how, any of these mining operations will remain profitable on Ethereum in the future. Block chain technology has applications in data and record verification, and currencies like Litecoin and Bitcoin use the enormous pool of miners around the world to verify transactions from one wallet to another, and to verify mined blocks (verified transactions in bulk) that have been claimed by others. This makes block chain technologies exceptionally difficult to fool, and money bought or made in the market simply doesn’t up and disappear.

That’s essentially what people are “mining” today – they are verifying answers to mathematical equations to a block of solutions to problems that are claimed by someone else, which are being traded to someone else. These answers to the problems have a certain value, expressed in Bitcoins. Verifying these transactions results in people being paid out for doing so in Bitcoins. The more transactions there are, the higher the difficulty becomes.

In the future, GPU miners running their machines for Ethereum or similar coins will find themselves running in mining pools to cover their costs, and working together in communities for coins that have reached the Proof of Stake status. In a Proof of Stake system, miners are still verifying transactions, but they’re not additionally verifying the work done to own those Bitcoins, since that’s already been done. Instead, they’re only tracking the transactions and verifying their validity. The more Bitcoins involved, the easier the transaction is to verify.

That is why, I expect, we’ll see these record number of shortages every year, for two to three months at a time, as new cards are released and new currencies based on Ethereum or similar technology are created. Block chain technology is a useful tool for data integrity and verification, and it’s going to be around for a long, long time.

But in the meantime, we’re stuck without new graphics cards for gaming purpose for the next three months.

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