The implications of blockchain in the chip shortage

The implications of blockchain in the chip shortage
The implications of blockchain in the chip shortage

The global chip shortage has had a major effect on IT and data centers everywhere. At least one contributor to the shortage is the growing use of blockchain technology, which consumes a significant proportion of chip production as a result of its data-intensive nature.

How important the chip shortage may be and how long it may last are among the questions both when it comes to IT practitioners and industry observers.

Chip supply and demand

“Blockchain should be thought of as an application that runs on servers. And servers, in turn, run operating systems using microprocessor chips to provide processing power,” said Ron Howell, software-defined WAN and Secure Access Service Edge architect for Capgemini America. There are only so many microprocessor chips available, and they go to the highest bidder. Blockchain requires a large number of distributed processing engines to function efficiently.

“The popularity of cryptocurrency contributes to the high demand for tokens and contributes to the shortage we see today,” Howell said.

While demand for semiconductors increased by 17% from 2019 to 2021, there was no corresponding increase in chip supply.

The vast majority of semiconductor fabs are already operating at about 90% capacity to produce chips, meaning they have little immediate ability to ramp up production, according to recent studies.

The need for chips is expected to increase, as technologies that use large amounts of semiconductors, such as blockchain processing, cryptocurrency growth, 5G and electric vehicles, become more widespread.

Ron HowellSD-WAN and SASE Architect, Capgemini America

“It’s getting worse, and the effect is a slowdown in the economy overall,” Howell said. “The need for chips is expected to increase, as technologies that use large amounts of semiconductors, such as blockchain processing, cryptocurrency growth, 5G and electric vehicles, become more widespread.”

It boils down to supply and demand: There is currently more demand than supply for specific microprocessor chips. Some companies are now making chips to build their products for the market.

Supply chain issues

Some estimate that general supply chain constraints and shortages will last another two years, until all the additional manufacturing capacity comes online, said Greg Schulz, founder and consulting analyst at Server StorageIO.

“Suddenly we needed more chips, but increasing production was dependent on expanding the factory, and that takes time to build,” Schulz said.

The slow response ripples up the supply chain, with the equipment that produces the chips now in short supply — equipment that itself often requires chips, producing a chicken-and-egg situation.

Some of the disruption can be directly attributed to the covid-19 pandemic, but Schulz also believes there was too little investment in the sector to prepare to meet demand.

“The increase in all these things, whether it’s memory chips or general purpose chips or GPUs or RISC or Arm chips — it’s easy to point the blame at COVID, but COVID only made the situation worse,” Schulz said. “You suddenly had more people needing smart devices and computers, and on the manufacturing side you had workers who couldn’t go to work.”

Although much chip production is automated, human involvement is still important.

Use cases for GPUs

For Chris Mattmann, chief of technology and innovation at NASA’s Jet Propulsion Laboratory, the biggest part of blockchain’s impact on chip shortages is actually the widespread use of GPUs. In the past, GPUs have typically been reserved for complex mathematical operations and AI processing.

“As it turns out,” Mattmann said, “these pieces are also quite useful in blockchain, since part of the design of the blockchain requires dynamic new blocks to be written by linking the new blocks of transactions to previous blocks.”

The act of creating new blocks involves hashing and competition to find the best, fastest and most resilient hash code. Hash code is data code that acts as a compact representation of a piece of data that can represent the new block. Nodes that find the new hash code the fastest are rewarded with cryptocurrency, such as Bitcoin or Ether.

Now, blockchain nodes, which power non-fungible tokens, media and other widespread applications, are increasingly using these chips, leading to chip consumption issues along with demand from AI and deep learning.

“Cryptocurrency mining is based on proof of work which is highly computationally intensive and power intensive, but mining chip design is much less complex compared to the microprocessor MPU, GPU or [Associative Processing Unit]”, said Samuel Wang, research director at Gartner.

Wafer demand for cryptocurrency application-specific integrated circuit chips is “completely manageable,” with less than 30,000 300-millimeter wafers per month globally, Wang said. It is something that was undoubtedly “never in short supply”.

Similarly, on a macro level, Wang said blockchain operations tend to be separate from mainstream IT.

“On blockchain, there are companies that specialize in operating blockchain management data centers for clients,” Wang said. Because both PCs and data centers can run blockchain, blockchain business slows down when chip shortages hit both.

“But I doubt blockchain was the reason for the lack of PCs or data centers,” Wang said.

Blockchain design

Blockchain can be designed by one of two algorithms: proof of work (POW), which requires power, or proof of stake (POS), which has a lower power requirement.

“POS is a newer method of blockchain as it is faster, cheaper and more energy efficient than the traditional POW used by cryptocurrency,” Wang said. “My assessment is that more blockchains are moving towards POS; therefore, power consumption and chip demand can be minimized.”

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