GPU Cryptocurrency Mining Threats – Porters 5 Forces

mcminer | March 29, 2018 | 2 | Latest News

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Porters 5 forces is a framework for determining the competitiveness of an industry. When we classify cryptocurrency mining as an industry, we identified the following breakdown in which we then plotted in a radar plot for the as-is and potential competitiveness of the industry today and potentially 1 year from now.

GPU Cryptocurrency Mining Industry – Today

High Competitive Rivalry

The Cryptocurrency market is currency saturated with miners, from gamers looking to make a bit of revenue on the side to large scale companies with thousands of graphics cards. Each miner competing against rising difficulty rates and higher network speeds for, lesser rewards over time.

High Threat of Substitutes

GPU mining has extremely high threat of substitutes as manufacturers such as bitmain, seek to find newer products to make available to miners. A prime example of this is FPGA (Field-programmable gate array) and ASIC (Application-specific integrated circuit) miners which are generally designed specific to a particular cryptocurrency achieving much higher performance than graphics cards.

High Supplier Power

At present suppliers of graphics cards have complete control of the market due to an extreme surge in demand since December 2017. Graphics card prices have since doubled making it difficult for miners to buy new graphics cards and equipment. Many suppliers have also implemented a 1 graphics card policy, whereby users can only buy one graphics card at a time to allow gamers to still buy GPUs for their gaming PCs.

Low Buyer Power

Buyers at the moment have virtually no power in determining price as demand is so high for graphics cards and supply is so short. Walk into your nearest computer hardware store and browse the graphics cards available and you will find only a handful, if any left on the shelves. Bidding wars for second hand cards have erupted on eBay with sellers making a profit on second hand graphics cards as both gamers and miners search out the best cards available.

Medium Threat of New Entrants

There are still a very high number of new entrants to the market however due to the recent decline in cryptocurrency prices, new small scale miners should decrease whilst large scale miners may increase.

Porters 5 Forces Radar Plot - GPU Mining Industry
Porters 5 Forces Radar Plot – GPU Mining Industry

GPU Cryptocurrency Mining Industry – 1 year from now

High Competitive Rivalry

It is anticipated that in 1 year from now the competitive rivalry in the industry will remain the same as is the nature of the industry whereby GPU miners compete for block rewards which will reduce over time.

High Threat of Substitutes

ASIC miners have already wiped out GPU mining on bitcoin and may do the same for other cryptocurrencies which are GPU mined at present. Ethereum, the second largest cryptocurrency by market capitalisation is likely to adopt proof of stake which could wipe out GPU miners of this currency, along with other cryptocurrencies which also adopt this method. This creates a potential high threat of substitutes.

Medium Supplier Power

As the surge of new entrants should decrease it is likely that more graphics cards become accessible to miners, it is also particularly noticable that manufacturers including Nvidia and AMD dedicated mining graphics cards.

Medium Buyer Power

The number of graphics cards on the market should stabilise resulting in more power returned to the buyers. Although this power is not as low as it previously would have been in late 2016 early 2017, it is still relatively good in comparison to the previous 4 months.

Threat of New Entrants – Medium

With the hype phase of cryptocurrency over, it should reduce the number of new entrants to the market. This should result in a lower than previous threat of new entrants to the industry.

Disclaimer: This article is an opinion piece, it is not advice on investing in cryptocurrencies or in cryptocurrency mining. The article is written based on the writers understanding of the current GPU mining environment and speculation on future events which may have many other external factors not discussed in this article. Do not use this as financial advice.

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