incredibly important to the modern world. The GPU short for

graphics processing unit. GPU is bring digital worlds to life. In

the last few years, they've become v computer chip of choice

among certain crypto miners. They're also becoming

increasingly more important and cutting edge fields like self

driving cars and supercomputing. But like every other kind of

computer chip and 2021 GPUs remain in short supply. The

current

state of the chip market in terms of gamer perception is

utter Bedlam. If you are interested in doing anything in

PC gaming, that is anywhere near cutting edge, you're either

trolling through as many eBay listings as possible, lining up

at retailers the instant they might have availability for a

new card, or giving up.

GPUs are specifically designed computer chips that process

complex calculations alongside a CPU or a central processing

unit. All computers have CPUs, more and more. They also now

have GPUs either to play games handle complex visual software,

or to conduct parallel processing.

Now, why did we make that shift? because historically,

computation used to be serial, that let's say I give you a

certain workload, and you were able to divide that workload

into smaller pieces. And a CPU would be able to go through each

of those many workloads serially. So as an example, if

there is a picture, and I asked you to find the shape of an

animal in the picture, I can bear it that picture into a

grid. And I can go through those grid points one by one, which is

serial processing, or do you know what I can do is I can look

at every grid point with its individual processor all at the

same time. That's parallel processing. The Covid

19 pandemic wreaked havoc on the world supply chains,

semiconductors quickly became very hard to find. When COVID-19

first emerged, strict lockdowns caused demand to plummet across

entire industries. But when lockdowns lifted and vaccines

rolled out, demand came back in a big way helped, of course by

generous government stimulus programs. And since computer

chips and semiconductors are now used in virtually everything,

supply dried up as demand came roaring back. Now for GPUs

demand came from a few camps. You had your PC gamers, your

crypto miners and people who wanted to hoard graphic cards in

order to sell them later, GPUs became super hard to find retail

prices on the secondary market, they sold for several times

their MSRP.

Now, the tough part is that, you know, in semies, we are just

going through this tough period of supply shortages. So one way

or another, I think we would have gotten this issue whether

even if, and just crypto miners are exacerbating that problem

somewhat.

Historically, GPUs were used to power video game graphics from

the arcade rigs to the early home gaming consoles. And for

the most part, that's what they still do. The GPU business as we

know it, though, got started in the 1990s. Computer games were

advancing quickly and they needed more processing power.

Companies like 3d FX popped up to help PC gamers play the

latest games without having to buy entirely new computers. And

they did that by introducing video cards to help process

increasingly complex 3d graphics. In 1999, Nvidia

announced the GeForce 256 calling it the world's first GPU

that kicks off an arms race between Nvidia which ended up

buying 3d FX and a Canadian company called ATI which was

bought by Advanced Micro Devices in 2006. For $5.4 billion. That

arms race is still very much going on between Nvidia and AMD.

But yeah, I mean, like Nvidia and AMD are the two big retail

brands for gamers such that like they kind of divide themselves

into these tribal identities around like which brand of

chipmaker they support in video folks, LEED Green and the AMD

people are Team Red. Yeah, they really want to hold on to this

this core loyal customer base gamers.

GPU makers like Nvidia and AMD are known for making games look

more and more amazing. Each year. The companies hold flashy

events to launch new graphics cards. With the latest ray

tracing technologies. They sell GPUs to data center clients as

well. In fact Nvidia brought in about $2.4 billion last quarter

from its data center business a record number. Its gaming

business, though brought in $3.1 billion during the same quarter

also record At 5% higher than the year before, there's another

group of retail consumers who want the same GPUs as gamers,

crypto miners.

And if you go to a Best Buy, you cannot buy an ASIC. You cannot

buy, you know, programmable chip. So you can really buy a

graphics processor and you know, if you buy it and you're not

using it for ethereum a lot of the time, I mean, you can use it

for gaming also, the summary point is that right now GPUs are

offering that computation of flexibility and ease of

purchasing that matches well with where etereum is in its

lifecycle.

Covid also sparked a boom in gaming with everyone stuck

inside the supply chain crunch seen across all sorts of other

industries hate computer chips the hardest, and video remains

the leader and the GPU industry by a wide margin controlling

about 83% of the discrete GPU market and the most recent

quarter. AMD is market share rests in about 17% as of last

quarter, Nvidia needed to do something to ensure that gamers

had access to GPUs. First in early 2021 introduced hash

limiters to its latest line of graphics cards. crypto miners

quickly figured out a way to beat them.

Nvidia has essentially like just nuked its its own graphics cards

to try to weaken them in key ways to divide them between the

chips that are meant for the gamers and the chips that are

meant for the crypto miners. They are trying to keep this

core block of super dedicated customers happy. It's just like

the supply chain is so screwed up. Like none of this has worked

its way through the system yet to meet a demand from gamers for

the latest graphics cards.

The company also released what's called CMP chips or chips,

specifically designed for crypto mining to help ensure that GPU

supplies remain in stock for gamers sales for that chip pale

in comparison to gaming chips. And its most recent quarter and

video said CMP chips brought in $266 million in sales, which is

lower than the 400 million the company had predicted in May.

What's more in video CEO says the chip shortage will persist

into 2022.

They're kind of stuck in this very strange conundrum of having

a product that they cannot keep on store shelves, but also

having a reputation of game fans being furious about them not

being taken care of.

The Ethereum blockchain is supposed to undergo a massive

overhaul in 2022. Going from a proof of work protocol to proof

of stake. This has big implications for how ethereum

the world's second largest cryptocurrency gets mined, the

world's largest digital currency. Bitcoin has grown so

large in recent years that hardware companies now make

computer chips, specifically designed to mine Bitcoin.

They're called ASIC chips, which stands for application specific

integrated circuit.

But where we are today is that the ethereum still requires a

lot of complex calculations. But it is not at a point yet where

you can design those ASICs, right where the algorithms keep

on changing. So there is always that increasing complexity. And

to handle that increasing complexity, you need something

that can be programmed very quickly.

proof of work requires machines to complete increasingly complex

math equations to generate new coins. This requires more and

more computing power and requires more and more energy.

It's how Bitcoin gets mined and ether as well. The ethereum

community, though, plans to switch to a proof of stake model

that requires users to put up their existing cache of ether as

a way to verify transactions and create new coins that would

completely overhaul the way that ether gets mined today, and it

would cause demand for GPUs among ether miners to plummet.

The real interesting question to me is that if you are a miner,

and if you think that ethereum is indeed going to go to this

proof of stake, why are you still bidding up the price of

this card? Why, you know, 123 times above MSRP. So maybe that

market is implicitly trying to tell us that that don't be

fixated in terms of, Oh, this is Bitcoin, there's ethereum and

this is this coin or that coin, that people who are buying this,

maybe think that the need for complexity in this market will

never go away. So to them even paying up for this technology

today. It's still worth it

Nividia's doing great at selling out this very expensive thing.

But that doesn't mean that they're going to own an entire

market, an entire number of users, and they're interested in

things like cloud. They like Microsoft have a whole cloud

system and Google and Ubisoft and many other companies, even

Sony have these online streaming services where they have their

own server farms with their own giant graphics card slapped in

You just log in, and you use the internet's back and forth

latency to play the games you want. So there could be a future

in a few years where you're not hunting for a GPU, or a console

or a big box in your home, and you simply log in and pay per

month, and the idea of the millions and millions of people

who would pay per month and give you that recurring revenue.

That's, That, to me is arguably a more interesting future than

the big robust graphics card.