Nvidia Corp. (NVDA, Financial), a leading American semiconductor company best known for its graphics processing units and other gaming hardware, has finally reached a settlement with the Securities and Exchanges Commission over failing to let investors know how cryptocurrency mining was stoking demand for its graphics cards.
The company will pay a $5.5 million fine for the misstep, which mainly affected revenues in 2017 and 2018. At that time, demand for Nvidia’s GPUs saw unexpected growth as crypto miners (particularly ethereum miners) snapped them up, yet revenue from this source continued to be reported as part of gaming revenue. Since then, however, crypto mining demand for Nvidia’s products has fallen off and been dramatically outpaced by demand for those same products’ intended uses in gaming and artificial intelligence.
In order to increase visibility into how much mining was affecting demand, Nvidia did release new cards intended specifically for mining in 2021, at the same time adding software to its graphics cards to prevent them being used for mining. However, demand for these crypto mining cards has fallen off sharply, dropping from $266 million in the August 2021 quarter to just $24 million in the most recent quarter. The bottom line is, crypto mining has always been a side thing to Nvidia.
However, another U.S.-based semiconductor company could soon provide the biggest challenge yet to the dominance of established crypto hardware giants Bitmain and MicroBT. Due to proprietary technology, these China-based manufacturers have held the lion’s share of the bitcoin mining industry for years, but with bitcoin now banned in China, the U.S. has become the crypto mining capital of the world – and Intel Corp. (INTC, Financial) is thus looking to take over the title of the top mining chip provider.
Intel’s challenge
This past January, Intel revealed its crypto mining initiative along with its first generation BonanzaMine chip. Block Inc. (SQ, Financial), Griid Infrastructure and Argo Blockchain are slated to receive the first batch of the chips later on in 2022.
The BonanzaMine chips reportedly use a 7 nanometer process node, though it’s not clear whether this is Intel’s own Intel 4 node or that of Taiwan Semiconductor Manufacturing (TSM, Financial), from which Intel has already purchased supply for its upcoming Arc GPUs and other products.
“Having a U.S.-based manufacturer with the size, scale and credibility like Intel is fantastic for the entire crypto industry,” said Dave Perrill, the CEO of Minnesota-based Compute North, a company that provides bitcoin miners with data centers. “Competition is a good thing.”
In April, Intel also announced Blockscale, a mining chip that promises to be more energy-efficient at SHA-256 hashing. Whereas BonanzaMine is more of a prototype, Blockscale is likely the unit that Intel will attempt to produce at scale. The company has yet to confirm which process node Blockscale will use, but it is suspected to be Taiwan Semiconductor’s 5nm process node.
Importantly, Intel can produce these mining chips “without compromising the supply of new CPUs or GPUs” due to the "nature of the silicon powering this technology," presumably due to using a different process node than Intel’s CPUs and GPUs.
Price competition
While Intel’s mining chips are not yet proven at market scale, the company does have several advantages it could leverage aside from the quality of the chips, such as its existing production scale, industry reputation, lack of import tax for U.S. customers, the capability to provide good support services and a more favorable pricing model.
Intel plans to offer units for a fixed price, which could be a game-changer. The current pricing model and purchasing terms set by the top mining hardware manufacturers are expensive and complicated.
Currently, manufacturers accept pre-orders to be fulfilled once they have the available inventory, but buyers don’t know the price until the units are shipped. Pre-order prices are updated daily with a range based on internal pricing models, which include factors such as the price of bitcoin and the payback period.
Takeaway
While Nvidia’s efforts to capture crypto mining market share have fallen off a cliff after initial success, Intel is just beginning to ramp up its own initiatives in this space. The company plans to focus on taking market share from bitcoin equipment giants Bitmain and MicroBT, which it could be well-positioned to do as the U.S. has become the new bitcoin capital of the world.
If Intel’s chips for this purpose prove to be popular among miners, it could prove a valuable source of growth for a company that has been struggling to regain momentum.
