Analysis Much has been written about how Bitcoin will affect libertarian society, banks, money and government, but there are some other effects that bear consideration: what it will do to the IT industry.
Imagine you've always lusted after the highest of high end graphics cards. Why pay £500 for something that's only for improving the pixels on mutant alien Nazi zombies? Justifying it to your other half might prove difficult, unless he or she also wants to zap baddies.
If, however, that graphics card is a money-making machine it ís a perfectly legitimate expense. And graphics cards are being sold in huge quantities for mining virtual currency.
While processor development moves along at a good rate, graphics processors are a much more competitive market. As people want more textures and polygons in their increasingly lifelike games we've long had a situation where the graphics card is much more powerful than its host PC.
Mining bitcoins is now beyond the processor power of even the fastest of consumer graphics cards but there are plenty of wannabe currencies that can be created thanks to the super-fast processing of high-end graphics cards. Graphics processing units (GPUs) may have been designed for pixel manipulation but since they are so much faster than the CPU of the host computer there is a lot of custom-written software out there which harnesses this power to make money.
Not surprisingly, demand for the highest of high-end graphics cards has soared. Availability is poor and they are selling at a premium. This means graphics card vendors will ramp up production to meet demand and design ever more powerful – and faster – graphics chips.
But as time goes on and alt currencies either die out, or go the way of Bitcoin and require dedicated hardware, demand for cards will slump. Just as the graphics card manufacturers ramped up to meet the demand that was no longer there. A demand magnified by some customers ordering from multiple suppliers.
People buy them with the justification that even if the market moves on, they will still have a great graphics card. They reason that cards have a high residual value because they are being sold at a premium on eBay, so if mining becomes untenable they can always sell them on as graphics cards. But that premium only exists because of the alt currency mining industry. If that tails off, then so does the premium, so as people who've bought ten cards for mining try to sell on eight of them in one go, their value crashes.
Stack 'em high, sell 'em cheap
A market flooded with cards that months ago were selling for thousands of pounds will see prices drop to barely hundreds of pounds. This will happen just as the card manufacturers have ramped up to meet the demands which saw graphics cards on back order. But no-one will buy a new card when an almost-new one is so cheap.
Of course, mining is niche and gaming is mainstream: many more people buy graphics cards for gaming than mining, but it only needs a small percentage swing from miners buying cards to selling them to radically shift their value.
Just as the Hoover promotion saw people buying vacuum cleaners just for the free ticket to New York, flooding the second-hand market and sucking up sales from new ones, we can expect a similar period of hiatus for new graphics cards.
In the short term, game-playing consumers and the graphics-hungry games will feel the benefit. It might have a minor repercussion for the new generation consoles as the hardcore gamers stick to their PCs, now equipped with cheap cards.
In the longer term those graphics card manufacturers who survive the blood-bath will emerge stronger. Some will, no doubt, cash in on the alt-coins craze with dedicated hardware for script miners, but ultimately the benefit comes from the huge number of people who've learned ASIC (application-specific integrated circuit) development as a result of the gold-rush. They are now used to an incredibly short time to market.
While a graphics card developer might expect it to take a few months to design a next generation GPU, and then several months from tape-out to packaged chips, the Bitcoin market has got all these stages down to weeks. Similarly, testing, building and shipping boards with the finished chips might take a graphics card company weeks while a Bitcoin company will do it in days.
Cointerra went from “hey, let's build a Bitcoin mining company”, through processor development, test and build to shipped product in customer's rack in under nine months. Traditional wisdom would have that cycle take two to three years.
While the gulf between the speed of CPU and GPU development is what got the GPU market into this situation in the first place, it will become even more substantial as a result. Ultimately this is a good thing: not only will it reduce the time-to-market for graphics cards, but for everything which uses an ASIC. The whole embedded controller industry will see the benefits of their fabs becoming sleeker and faster.
Bitcoin is a security threat - but not in the way you're thinking
One of the ASIC applications which will benefit is custom chips used to crack passwords. Mining is essentially a brute-force attack on the generating algorithm. We are in an arms race where dozens of companies are designing chips aimed at generating as many codes as possible. The combined Bitcoin world is generating over 14,000,000,000,000,000 codes a second. Devices which can generate 10,000,000,000 hashes a second now fit on a USB stick.
Bitcoin, and all the other alt-coins, is training a skillset for building password-cracking hardware that is both powerful and portable. These devices are effectively an infinite number of monkeys at an infinite number of keyboards. The implications for the security industry are significant. Suddenly, just keeping a device isolated from the internet isn't good enough.
An intruder with only limited time at a machine with an available USB socket can break into it. As long as you have a little bit of memory available on the USB key, a malware injection can be achieved before you can say Stuxnet. Intrusion which was the province of government agencies goes mainstream.
The opposite side of this is that equipment for hardware-level data encryption also becomes cheap and plentiful. Expect password-encoding ASICs to become a norm. We'll move away from simple, memorable passwords to using devices which generate a secure password for you and then use that to password to guard a number of additional passwords for individual applications. While current software is starting to make inroads into this, it will soon evolve into super-secure dedicated hardware.
We're all doomed
So, what does all this mean for a Register reader? If you are looking at buying graphics cards for mining you need to remember they will not have a resale value. Factor that into your return on investment calculations. If you are a graphics card manufacturer, start working out how you would survive months of almost no sales.
If you are a reseller who deals in graphics cards you should eye those massive advance orders with caution and keep stock turnover as high as possible. You don't want to be left with all the cards at the end of the game.
And if you are a security professional, you should be very afraid. ®