Armed hostile conflicts between states or nations, in order to solve disputes are deeply ingrained in humanity. As we speak, Ukraine and Russia are involved in a tussle that entered its 498th day. Popularly termed as ‘War’, in pure literary context, it also reiterates different forms. The current situation brewing between the U.S. and China might be considered fairly similar, where blood isn’t shed but the power struggle is potentially more critical. ‘The Semiconductor War’ between the two dominant corridors is palpable, and the consequences might permeate into other rising sectors. In this article, we will take a look into the current conundrum and how this may affect a geologically specific activity and a revolutionary technology: Crypto Mining and AI.
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Firstly, How Did We Get Here?
President Xi Jinping has major plans for China’s People’s Liberation Army (PLA). With an objective to outclass the U.S. Military by 2049, Congressmen back in Washington are worried that the grand plan involves U.S. technology, and rightly so. China, by their own admission, believed that “there is still a gap between the reliability of the country’s manufacturing industry and the advanced level of foreign countries”.
The sectors involved- machinery, electronics, and automobiles. Hence, Chinese organizations have relied on semiconductor chips from the U.S. This did not sit well with Biden’s Administration, and in October 2022, they imposed export controls on US-origin semiconductor products. The U.S. went as far as to persuade Netherlands and Japan since both nations are home to advanced chip manufacturing units, including Dutch ASML. Last month, the Dutch confirmed its export controls, taking immediate effect from September 1.
Over to you, China
The Chinese are usually not the ones to play hardball with, and their recent announcement conveyed their intention. As reported, China is set to control the export of some metals that are widely used in the semiconductor industry. The sanction will apply to eight gallium-related products and six germanium products. Subtlely is completely out of the window, as Beijing also banned chips made by Micron, a US company, from being used in Chinese infrastructure projects. Wei Jianguo, former Vice Commerce Minister told the China Daily newspaper,
“If restrictions targeting China’s high-technology sector continue then countermeasures will escalate.”
At the moment, U.S. Treasury Secretary Janet Yellens’ Beijing visit carries significant importance as possible attempts will be taken to pacify the collective agitation at both ends.
Crypto Mining and Semiconductor: A domino effect?
Back in 2021, China introduced a blanket ban on crypto and bitcoin mining. Amidst a massive bull run, several people in the industry were dismissive of the ruling, since the nation had taken similar measures in 2018. However last year, the country completely shut down mining operations, which led to a seismic shift in mining dynamics. Miner migration started taking place, and the United States became the new hotbed for mining. In 2023, the U.S. is leading the Bitcoin mining industry with 35.4%. Kazakhstan and Russia are ranked 2nd and 3rd.
Now, GPU cards and semiconductors are essential components of a cryptocurrency mining rig. In 2021, a world record in terms of semiconductor sales was witnessed. GPU production reached exponential levels, and it is probably just a ‘coincidence’ that it was during a raging crypto bull run. Nvidia was one of the largest benefactors, registering all-time highs in terms of production. Now, it is impossible to detect the revenue generated by miners, since there isn’t a separate balance sheet for such purchases. However, AMD CEO, Lisa Su suggested that the crypto market possibly amassed only 5-10% of the demand.
Surprisingly, when queried about the crypto industry, Michael Kagan, Nvidia CTO, undermined the importance of the sector. According to him, processing power was better utilized in artificial intelligence i.e. ChatGPT. He said,
“I never believed that [crypto] is something that will do something good for humanity. You know, people do crazy things, but they buy your stuff, you sell them stuff. But you don’t redirect the company to support whatever it is.”
Will Crypto Mining Suffer From a Potential Decrease In Semiconductor Supply?
Maybe not. At the moment, most of the mining rigs are already established in the United States. Hence, the current Chinese export sanctions on rare metals are way down the line in terms of impacting the mining industry. Expansion might be impacted but overall operations will more or less remain dominant from the United States. However, it is a whole different ball game when it comes to the AI industry. In the following article, we will dive into the potential effect that the AI sector might face, and things are not looking pretty.
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