Understanding ASIC-Resistant Cryptocurrencies
ASIC, or application-specific integrated circuit, refers to specialized hardware designed for specific tasks. While general-purpose computer hardware, like CPUs and GPUs, can perform a wide range of operations, ASICs are optimized for a single purpose, resulting in improved efficiency and performance. This concept also applies to cryptocurrencies.
Proof-of-work (PoW) consensus algorithms, which underpin many popular cryptocurrencies, including Bitcoin, require computers on a blockchain network to solve complex puzzles to validate new blocks. GPUs are often preferred for this task due to their superior parallel processing capabilities and energy efficiency compared to CPUs. However, when a mining algorithm becomes economically viable, chip manufacturers develop ASIC miners specifically designed for that algorithm. ASICs are highly efficient at performing the required hashing functions, making them superior to GPUs for mining ASIC-mineable PoW cryptocurrencies.
ASICs threats
Modern Bitcoin ASIC miners outperform desktop PCs by a factor of a million, rendering the latter ineffective for mining. Additionally, a significant portion of the network’s hashpower is concentrated in large mining pools in regions with favorable conditions, such as cheap electricity and favorable regulations. As a result, PC mining has become obsolete for most cryptocurrencies.
This situation threatens the fundamental principle of decentralization in the crypto space. For instance, a power outage in Northern China in early 2021 caused the Bitcoin network’s hashrate to drop by half for several days, and when China banned Bitcoin mining in 2022, we saw the same issue. This highlights the potential loss of independence in the first cryptocurrency.
Better decentralization
Herein lies the concept of ASIC resistance. An ASIC-resistant cryptocurrency aims to achieve a more equitable distribution of mining capabilities by allowing regular consumer PCs to participate in the mining process. This approach eliminates the ASIC arms race, preventing a concentration of mining power in the hands of a few entities and reducing the capital-intensive nature of mining. An ASIC-resistant network is more likely to be decentralized and geographically distributed, although it does not entirely prevent the emergence of large-scale mining farms near abundant energy sources.
ASIC-resistant solutions primarily focus on governance and the choice of an appropriate mining algorithm. These algorithms are designed to prevent or minimize ASICs’ advantage over consumer PC hardware. Specific techniques include algorithm variability for each mining block (e.g., x16r, although it was later ASIC’ed), increased memory requirements (e.g., Scrypt and Ethash), or even utilizing storage volume as a mining resource (e.g., Chia).