Crypto wallet maker Trezor recently opted to produce its own hardware wallet chips, in order to satisfy the sudden increase in demand sparked by events such as the collapse of FTX.
On Feb. 27, Trezor announced the launch of its chip wrapper — a key component of the Trezor Model T — which will shorten the supply chain cycle from two years to a few months and reduce the delivery time of finished products. The move is also anticipated to protect customers from price fluctuations resulting from supply and demand changes. After the FTX crash in November 2022, demand for Trezor wallets skyrocketed by over 300%.
Štěpán Uherík, chief financial officer at Trezor, informed Cointelegraph that the chip scarcity in the last few years was a driving factor behind the decision:
“Trezor decided to take control of part of the chip manufacturing process in response to the global chip shortage at the turn of 2021 and 2022. This decision was made to ensure the continuous production of our devices, despite the prolonged delivery time from the usual 12 weeks to 90 weeks.”
The semiconductor shortage has been a challenge for the world over the past few years. These intricate electronics are vital in the modern world, as they carry electricity between metals and isolates. Silicon-based semiconductors are found in almost all contemporary gadgets — from smartphones to computers to vehicles.
Semiconductor sales reached a worldwide high in 2021 as people stayed home during the COVID-19 pandemic and purchased more consumer electronics. Major GPU manufacturers like Nvidia experienced record-breaking production as the number of GPUs produced skyrocketed. The cost of electronics soared, and semiconductors were hard to come by for makers of related goods.
Additional demand was attributed to crypto miners utilizing GPUs for mining proof-of-work (PoW) based cryptocurrencies. Over 10% of Taiwan semiconductor sales in 2018 came from cryptocurrency-focused buyers. The struggle to keep up with demand in 2021 led Nvidia to restrict the use of its gaming chip for crypto mining — citing the industry-wide shortage.
Demand for semiconductors from the crypto market further decreased with the arrival of the prolonged bear market in 2022 and Ethereum’s switch from the PoW consensus mechanism to proof-of-stake (PoS). The transition to PoS cut a significant chunk of crypto miners from the market, which has had knock-on effects on semiconductor demand.
Chip production isn’t for everyone
While Trezor believes that producing its own chips is the right move, not every crypto firm is willing or able to become its own semiconductor supplier. Veronica Wong, the CEO and co-founder of SafePal — a crypto hardware wallet maker backed by Binance — told Cointelegraph that her firm hadn’t faced a shortage that would necessitate an in-house chip-making unit.
She added that the supply chain issues in the semiconductor industry caused by the pandemic are virtually over, and they don’t foresee any supply problems in the foreseeable future.
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Wong stated that fabricating chips is incredibly complex and can “pose an incredibly high technical barrier requiring the right expertise and investment in infrastructure,” adding that “without proper management, it may impact production costs without necessarily delivering additional value or security to consumers, which is a net negative.”
“For crypto wallets, user security should always be a top priority, and we would only be compelled to produce our own chips if none of the existing chips satisfies our security requirement levels.”
During the pandemic, small businesses were hit harder as larger orders requiring semiconductors were prioritized, resulting in an uneven distribution of resources and lead time. Solving international shortages of such magnitude requires collaboration between suppliers, manufacturers and distributors.
Wong noted that while in-house production reduces the reliance on third-party manufacturers, “proper supply chain management can also help counteract this issue in the first place. The additional operational costs might also have to be borne by end users or consumers, which isn’t ideal.”
Trezor’s Uherík said the most effective option combines both practices — using mass-produced chips and making in-house solutions. He added that taking control of part of the chip process offers the firm greater flexibility and ensures stable prices and the continuous availability of products.
“Contrary to mass-produced chips, prices and delivery times may vary depending on market demand. Which also means the price can significantly decrease. A combination of both mass-produced chips and Trezor’s own solution provides optimal flexibility to ensure stable prices and continuous product availability,” Uherík said.
Jonathan Zeppettin, strategy lead at the blockchain-based cryptocurrency ecosystem, Decred, told Cointelegraph that the move makes sense for Trezor, as Tropic Square — a startup backed by SatoshiLabs, the company behind Trezor — designed its own secure chip, the TROPIC01.
Manufacturing proprietary hardware in-house mitigates supply chain issues plagued by various external factors such as shipment delays, product quality and shipment damage. This potentially reduces their exposure to the types of shortages that have plagued producers over the last few years.
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Nevertheless, the same approach might not work for each other crypto-related company, particularly crypto mining companies. Zeppettin cited the example of
