10 Nov 2021 · 5 min read

The World is Running Out of Chips. What Does That Mean for Crypto?

Disclaimer: The text below is an advertorial article that was not written by Cryptonews.com journalists.

Chips are an indispensable part of our lives in today's world. Recently, supply has struggled to keep up with demand. With our computers, phones, cars, fridges, and even toasters dependent on the heavily centralized chip manufacturing industry, it’s not hard to imagine production issues across industries will be coming. In cryptocurrency, miners, hardware wallets, and other producers are affected. This could down innovation for bitcoin and the crypto industry as a whole as producers won’t be able to meet the growing demand brought by all-time highs and ever-larger waves of bitcoinization. With the Covid-19 crisis undermining the stability of the notoriously rigid chip industry, this situation may not see a quick fix, but the future is not all that dark. 

Why does the chip shortage affect crypto?

Cryptocurrency is digital and everything takes place virtually as code on networks. Bitcoin’s infrastructure comprises tangible real-world hardware that includes many types of chips. It’s not just servers, either; other hardware like ASIC miners, hardware wallets, standalone nodes and more all depend on semiconductors which are becoming more expensive and difficult to get.

Scaling Bitcoin means dealing with production bottlenecks. While most people already have smartphones, which can be used to store crypto, that isn’t sufficient to match the criteria of secure self-custody in the same way a hardware wallet does. As it becomes more popular, more people begin to understand the need for dedicated security and privacy solutions that give them control over their own Bitcoin keys. 

 

The industry is booming at a time when even packaging is becoming harder to source. And it’s not just the chips - every aspect of Bitcoin’s presence in the physical world is affected. 

Merchandise, boxes, printed materials, mechanical parts and more are all in higher demand than can be met with global supply chains so badly impacted as they are now. 

The demand for hardware wallets usually increases following an all-time high as funds are moved off exchanges or hot wallets in favor of long-term security. Mining hashrate also trends upwards, with the growth of both industries closely mimicking that of bitcoin, expanding in waves that tend to retain many newcomers once hype settles.

With critical components such as microchips now experiencing year-long waitlists, it becomes difficult to plan for how much demand there will be following the next big wave of interest in self-custody. Keeping supplies balanced is the only way to ensure proper access to security as shortages continue.

The chip shortage was to be expected based on the technology adoption curve. Crypto is a particularly extreme case due to how quickly innovations are taking hold. Everyone wants to be part of the revolution, whether that’s by mining on GPUs or ASICs, running nodes, or using hardware wallets. Without access to this critical infrastructure, network growth would begin to stagnate, and more coins would be lost.

How the shortage affects hardware wallets. 

The logistical effects of the pandemic already saw deliveries disrupted with significant delay. Wait times for hardware wallets should be expected to increase as stock starts to need more frequent top-ups. Most manufacturers will work to predictions, but as we all know bitcoin is incredibly difficult to predict and chip orders made many months ago might not meet today’s needs. 

For those without a hardware wallet to protect their coins, it may make sense to make their order in advance to preempt disruption. There’s no need to panic, so placing pre-orders wherever possible will ensure you receive a device without straining supplies.

Why chips matter with hardware wallets

While costs to produce chips will impact the companies who sell crypto hardware, price is not the only factor that affects this situation. Demand for chips increases significantly each year, but only a few companies produce them. Orders must be placed in bulk a long time in advance. Due to the shortages of raw materials and other supply chain issues have led times to grow longer still, meaning production must be planned years in the future.

Chip production has long followed a trend known as Moore’s Law, where double the amount of transistors can be produced every two years. This means that prices should fall over time, but recently that has not been the case: average costs are up 15% in 2021 due to the supply chain issues covered above. This makes it even more difficult to decide how much stock to order, and the shortage causes panic-buyers to place larger orders which further strain the market and cause new bottlenecks long after the source of the crisis is resolved. 

What’s the way out of this situation? 

If the shortage grows worse, there is still hope for those who desperately need a hardware wallet. Many producers have different approaches to choosing the chip for their device. Trezor for instance was designed to be truly open source, so that anyone could build it themselves with off-the-shelf parts. This means that the chips used are easy to source and, usually, in plenty supply.

From the Trezor GitHub repository, for example, one can download the schematics for both the Trezor Model One and Trezor Model T hardware wallet. The benefit to using an off-the-shelf chip is that anyone with an electronics background can build a Trezor of their own, keeping access to security open.

Even though it’s hard to predict when there will be enough supply to meet the rate at which the industry’s scaling, this is expected to be a temporary shortage. New projects like Tropic Square’s auditable secure chip, TASSIC, are moving forward with development despite the shortage. The transparent security chip is still in early development and the supply of engineering samples will be sufficient to keep the project moving forward. 

Demand for a transparent secure chips is still dependent on the incumbent chip foundries, and smaller producers must compete with huge orders from mobile phones and other consumer electronics producers. New initiatives to bring more chipmaking to Europe could see more robust protection for the industry in face of future crises. In the meantime, make sure you’re ready for the next phase of adoption, and don’t wait too long to get your coins secured in secure self-custody.