Personal computers are extremely complex machines. The intricacies of billions of individual circuit components working together and essentially upholding the foundation of the modern world are fascinating in itself, and it has been this way for the past few decades now. What’s newer though is the specialisation of labour that goes on within your computer. Since the 90s, computers are now operating with individual components, all connected to each other by the motherboard.
One specific component stands out, however, and that’s not because it’s extremely important for your computer’s day-to-day functioning.
The graphics processing unit (GPU) has a very straightforward and descriptive name, it… processes graphics. Essentially the component attempts to reduce the workload of the central processing unit (CPU) by taking over tasks that are related to making things show up on the screen. This leaves the CPU more time to do critical tasks, such as communicating with the Facebook servers in order to download the cat video you’re about to watch. The video data, in turn is taken over by the GPU, which processes it to make your viewing experience smoother and clearer.
GPUs aren’t used only to show videos though, nowadays pretty much all of the user interfaces you interact with (such as the web browser you use to read this article, and the article itself) are actually displayed by the GPU. Video game and tech-savvy readers also know that they are used to compute the individual frames of the game that they’re playing. The latest computer-generated animated movie you saw? Entirely done by GPUs!
In essence, if you can see it, it’s the GPU… or is it?
I’m going to be discussing a particularly interesting phenomenon today. Fundamentally, it’s more about asset pricing, if anything. For some odd reason, GPU prices have gone up significantly compared to their launch prices in the past few years. An example would be the NVIDIA GeForce GTX 1080, which is quite famous for being the strongest consumer-grade GPU (remember that companies like Disney use thousands of higher performance units, and movies still take weeks to be processed from beginning to the end) had its price come from $500 to $899 on Amazon (and only one left in stock at the time of writing).
Well, that’s really odd. Cost of raw materials or processing together has not increased nearly twofold over the past two years, and by any means the prices of these GPUs should have gone down given how newer components are entering the market. There’s something fishy going on, but in the end, it doesn’t get much more complex than your first-year microeconomics course: Supply and demand.
With all the talk about cryptocurrencies going on at peak level for the past few years, I can imagine that a lot of people share my sentiments about how tiring it has become to hear the word ‘crypto’ in the first place. Yet, the reason for the GPU price hike is actually entirely about cryptocurrencies.
The way most (not all) cryptocurrencies function is through a process called ‘mining.’ This term is used to describe the use of computing power to verify transactions. When someone mines a block, they are rewarded a significant amount of the cryptocurrency at hand. This economically incentivises people to mine, which sustains the network by having the transactions be verified reliably and quickly. The unfortunate issue is that the difficulty of mining is often artificially adjusted. In the case of bitcoin, every ‘block’ of transactions on average take 10 minutes to be mined. This means that when more people enter the network with more computing power, the blocks become more difficult to mine, and still take 10 minutes on average.
Funnily enough, someone found out that GPUs are actually pretty damn good at mining. Even though your CPU can do the job quickly, GPUs are specialised in performing mathematical operations instead of logic operations. Mining involves heavy use of the former. Although there’s hardware dedicated solely to mining, such chips are produced at very small scales by independent manufacturers, making them very expensive (and often cost ineffective). Because GPU manufacturers have been in the industry for so long, and are able to manufacture at global scales, miners started preferring GPUs over dedicated mining components.
Again, because more people entering the mining network doesn’t make mining any easier, there’s always space for a new miner to squeeze in and get some returns. This leads to insatiable demand for GPUs, but supply is still heavily constrained.
GPU sales are still skyrocketing, not because people want to watch videos in 4K or play games with higher system requirements, but because people want in on the cryptocurrency action. Manufacturers of these components, even though they had the means to keep up with the demand, are no longer able supply them directly. Exploiting this opportunity, people who already have GPUs (or have the scale to purchase them as soon as they are available through the manufacturers) can optimise their prices to match the highest bidder’s willingness and ability to pay.
The issue has gotten to such a stupid extent that the manufacturers, such as NVIDIA, are now attempting to impose sales restrictions on their own units and limiting the amount available for purchase per customer. It has gotten past the point of basic profit maximising, but actually trying to keep their customers loyal and happy. If your target audiences, which consist mostly of video game players, are unable to purchase your products at suggested prices, then all they left is the overpriced stock of third-party retailers. Unfortunately, the manufacturers’ attempts are in vain, and the prices are still nearly double what they should be.