
Bitcoin Miners Fried in Game of Chicken - adventured
https://www.bloomberg.com/gadfly/articles/2018-02-06/bitcoin-crash-sees-miners-fried-in-this-game-of-chicken
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dantillberg
It's a little bit simpler than the psychological drama described.

If your marginal/flexible operating costs (i.e. electricity, temp staff, etc)
are higher than your expected revenue, then you shut off your miners
temporarily. It's a simple rational decision: if you want bitcoins, they're
cheaper to buy on an exchange.

If your total operating operating costs (building rent, etc) are higher than
your expected revenue, then you lose money due to paying down liabilities. You
might try to trim long-term operating costs (laying off staff, move to smaller
building, move to place with cheaper electricity), or you might try to exit
(sell mining hardware).

There's very little psychological drama in all this: the market for hashing
power is very predictable, and it will adjust over time to provide narrow
profit margins to the most efficient operations. The profitable periods were
only ever going to be temporary aberrations in response to cryptocoin price
fluctuations.

If your operation is not efficient, your own balance sheet will tell you when
it's time to pack up.

~~~
maxerickson
The market for hashing power is only as predictable as the price of bitcoin.

(it's really the aggregate profitability of mining all cybercurrencies that
have competitive rewards, but the price of bitcoin is close enough)

~~~
dantillberg
This is true, but only in the short term.

When prices go up, mining becomes very profitable. Given a little time
(measured in hour/days/weeks or a couple months at most) people build out
mining operations, and the mining returns adjust to the previous baseline.
When prices go down, it's largely the same in reverse.

All that is to say: if one were to build out mining operations in expectation
of a future increase in coin price, be forewarned that your market advantage
will be short-lived and will only last as long as it takes others to fill in
the gap.

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shawabawa3
Bitcoin is approaching the next difficulty retarget (in approximately 10
hours) and the difficulty will _increase_ by around 10%.

If bitcoin price collapses to say ~$3000 we could see a significant portion of
miners give up. This would increase the block time, which in turn increases
the adjustment period (which happens every 2016 blocks, ~2 weeks at
10min/block).

An extended period of time with very long block times could cause the price to
collapse even further, causing even more miners to leave...

I think there will be some determined miners willing to mine at a huge loss
(due to having large bitcoin reserves) so the difficulty will eventually drop
down, but there could be months of barely moving bitcoin which on top of the
huge crash in the market right now could kill off bitcoin for good

~~~
Filligree
I can only hope.

I don't care about Bitcoin, but they've been preventing me from finishing this
system build. If it had been useful, I wouldn't mind so much.

~~~
pcr0
This chicken game won't do anything to dampen GPU prices. All Bitcoin mining
is done on ASICs.

~~~
ElCapitanMarkla
Bitcoin not so much, a drop in Ethereum miners etc will have an effect.

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donquichotte
I just cannot trust bloomberg on cryptocurrency reporting. They conveniently
cut off the price graph (just below "The Big Dip") in Nov 28. Why? Because at
the beginning of October 9 2017, the price would have been at 4500$ - then an
all-time high, and yet below the current price! It would have destroyed their
narrative.

~~~
the_mitsuhiko
Not sure how that would have destroyed the narrative? The narrative seems to
be pretty irrelevant to whatever happened to the price before november? The
hashrate is consistently climbing ignoring the actual USD price with very few
dips.

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empath75
If the price drops too precipitously, and too many miners drop off at once,
bitcoin enters a death spiral as the hashrate drops, and it takes so long to
confirm blocks that the difficulty adjustment downwards just never happens,
freezing the whole network.

~~~
spuz
Can you elaborate on why the difficulty would not adjust downwards as
transaction rates slow? That seems like quite a flaw in the design.

~~~
pwinnski
The difficulty would adjust down, but only when the next milestone is reached.
The argument seems to be that if _enough_ miners drop out, the next milestone
might never be reached.

That seems unlikely to me.

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thisisit
Let's see how the analysis was derived:

> Note: Assumes China wholesale price ($0.06/KWh), using listed specifications
> for Antminer S9 (13.50 TH/s), adds 30% cooling & operational costs, _assumes
> retail is 30% markup from wholesale hardware price_ , 52-week depreciation
> schedule (Bitmain offers 180-day warranty). No transaction fee or pool fee.
> Hash rate and computational difficulty as of Feb. 6, 2018.

The biggest sunk cost is on the hardware price. Assuming 30% markup that too
in China on a China build product seems too high for me.

Anyone based in China can confirm the retail markup on Antminer S9?

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philliphaydon
If a miner does not make money then they wont mine, if there's no miners cos
no one can make money... who verifies transactions then? Or am I just really
stupid and don't understand this stuff...

~~~
im3w1l
A variable number of miners are competing for a fixed reward. So everytime a
miner calls it quits, all other miners become a tiny bit more profitable.

~~~
pliny
Isn't the BTC / hash fixed until the difficulty changes? Like, for a given
difficulty you should expect N hashes calculated until a block is mined, so if
you kill off half the miners (in terms of hash rate) the time until block
mined just becomes twice as long (so now there are half as many miners chasing
half as much reward).

~~~
Retric
BTC Miners make most of their money from transaction fees not block rewards.
Fewer blocks = reduced supply = increased costs to get into blocks = higher
reward for the same hash power.

~~~
philliphaydon
Ahhhh, this is good to know!

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rottyguy
Are there mining algos that also help to solve real world problems (say gene
mapping)? It seems that you could leverage some of the gamification happening
here to better some social facet of society.

~~~
lozenge
No. The problem in that suggestion is, who is going to provide the problems?
It would be a central actor who can opt to pre-work on the problems and use
those solutions to issue themselves "money".

~~~
votepaunchy
No, it would simply require solving a function dependent on the previous
solution. Preferably more complex than double SHA.

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wintom
Mining this stuff is a funny thing, that is a devisive feature even in the
crypto space.

That being said, this isn’t the first time where mining has plummeted in
profitability. Early last year similar articles started popping up and in fact
GPUs on eBay we’re being sold at dirt cheap prices because crypto was
“plummeting”.

I wouldn’t bet on crypto going anywhere, not in this crazy world we live in.

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dmichulke
"Fried" as in

> If the price doesn't rise, then the average miner is set to lose $3 per week
> at current levels.

(Per week and rig I assume though.)

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pcnix
Props for the title.

This is not a very big problem for all the big name miners though, as they're
all betting on prices rising soon. This has happened before, and will happen
again until either everyone adapts some alternative to proof of work.

Everyone seems to just be mining altcoins and hodling for a rise.

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patrickaljord
According to this web site, all you need is 11th/s to not lose money, that's
an investiment of $2.5k in mining hardware
[https://www.cryptocompare.com/mining/calculator/btc?HashingP...](https://www.cryptocompare.com/mining/calculator/btc?HashingPower=11&HashingUnit=TH%2Fs&PowerConsumption=1293&CostPerkWh=0.2&MiningPoolFee=1)

How can any miner lose money unless prices reach ~$3k?

Edit: why am I being downvoted? Let me know if I'm mistaken.

~~~
spuz
The calculation you did on that website shows an annual profit of $413.25
which is still a lot less than the initial investment of $2.5k. At today's
price ($ 6,976.14), you'd have to be mining for over _5 years_ before getting
that investment back again. I'm not sure how you come to the conclusion "how
can any miner lose money".

~~~
patrickaljord
For $2.5k you can get 13th/s, that's $935 annually, that's a 40% gain
annually. If you know of any investment that can give you a passive 40% yearly
return, I'm all ears. And that's only if bitcoin doesn't go up. Again, I fail
to see how this is a bad investment. Plus, with the latest all time high, most
existing miners already paid for their hardware and are just all profits now.

[https://www.cryptocompare.com/mining/calculator/btc?HashingP...](https://www.cryptocompare.com/mining/calculator/btc?HashingPower=13&HashingUnit=TH%2Fs&PowerConsumption=1293&CostPerkWh=0.2&MiningPoolFee=1)

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prostoalex
At ~$7,500 we're roughly back to mid-November price levels, so it seems like
it would affect only newish entrants.

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singularity2001
Looking forward to the first deep learning framework that puts all these
energy-burning-machines to good use.

~~~
slig
Miners use specialised hardware (ASIC - application-specific integrated
circuit) to mine. They are only useful to calculate hashs efficiently.

~~~
singularity2001
is there no way to make 'good' use of them? whoever comes up with an idea
might become a billionair.

~~~
Isomatik
Proof of work is intentionally useless to the miner to increase the cost of
attacking the network. There are initiatives like curecoin and foldingcoin
which integrate folding@home into their proof of work, but the output of that
is still "useless" to the miner and relies on the folding@home team not
manipulating the process, which becomes a bigger risk once hard rewards for
folding are introduced.

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fiiyi
Thousands of companies go bust every day in our "great" economy; retailers,
startups, etc.. Now the price of crypto-currencies has dropped and it's called
a "Game of Chicken".

There seems to be a tendency to laugh and write bad about miners, almost like
bullying. Why is this? Mining is business as usual, nothing different than
many other businesses. There is investment, risk, profit and loss.

~~~
contrarian_
Investment in mining hardware whose value is tied to a speculative asset
without fundamental value beyond utility.

None of the current implementations can scale, so even their utility is
questionable. There is a way to make a scalable trust-less digital currency by
using a mutable leder, but none of the current coins that I know of are
heading that way. The main difficulty will be how to distribute ledger space
in a way that cannot be monopolized by the richest. That is a simple technical
problem to solve though, because storage capacity will eventually surpass the
ratio of richest to average wealth. Then you can allocate ledger space in
exchange for an affordable deposit, redeemable when the balance is emptied.

~~~
mavhc
Does anything have fundamental value beyond utility?

