Firms profit from bitcoin equipment sales boom

Market for the mining machines grows with the value of the virtual currency

PUBLISHED : Saturday, 04 January, 2014, 2:14am
UPDATED : Monday, 06 January, 2014, 2:34pm

Taiwan Semiconductor Manufacturing, Advanced Micro Devices and other companies saw more than US$200 million in sales last year for computing components used to create bitcoins, Wedbush Securities said.

The virtual currency, which exists as software, is created by solving complex tasks embedded in the program through a process called mining.

Bitcoins currently trade for about US$875 each on the Mt Gox exchange, up from about US$13 a year ago. As their value surged, digital prospectors have rushed to create more of the digital money, boosting the market for high-powered machines, some of which cost more than US$20,000 apiece. Taiwan Semiconductor, AMD and GlobalFoundries make many of the chips in these machines, according to Gil Luria, an analyst at Wedbush in Los Angeles.

[Bitcoin] mining machines now require powerful [specific components]

"Due to the growth of the bitcoin network, mining machines now require powerful application-specific integrated circuits [ASIC] that are designed specifically to mine bitcoins," Luria said in a report. "We believe the majority of these ASIC chips are fabricated at Taiwan Semiconductor and GlobalFoundries."

The report also flagged some potential beneficiaries of the digital boom, such as eBay's PayPal unit and IBM. PayPal could make bitcoin one of its payment options, along with credit cards, this year, and benefit from an influx of millions of new users, Luria said. IBM could provide software and hardware powering bitcoin and other new digital currencies, he added.

As more consumers adopt bitcoin and other digital currencies for purchases and money transfers, that could adversely affect established financial companies such as Western Union, Luria said.

"It's incredibly easy now to send money with bitcoin from one country to another," Luria said. "But now you need to know how to do it. I expect a flurry of money transmitters to emerge in the next one to three years, and they'll be able to do this for everybody at a fraction of the cost of Western Union and others."

A spokesman for GlobalFoundries said the manufacturer was working with several companies that design chips for bitcoin mining, such as Butterfly Labs.

Taiwan Semiconductor and IBM did not immediately respond to requests for comment.

Bitcoins are not controlled by any country or banking authority, so the fees on using the currency to make purchases or transfer money can be much lower.