

Making a loss on Bitcoin - zdw
http://www.eddology.com/2013/11/making-loss-on-bitcoin.html

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iak8god
I ordered one of these (5GH/s "Jalapeno") from BFL in March because it seemed
like a really good idea at the time. Received it in October, putzed around
with it for a couple of weeks, and sold it on eBay for a small profit last
week once I realized that it was not even going to pay for itself. Too bad,
I'd like to participate. The one time I bought a few bitcoins, I started by
transferring money from a bank account to a site that takes a cut, and then
from there to MtGox. The whole thing took way too long and tied my identity to
the transactions. It occurs to me that some people might be willing to mine at
a small loss in order to get BTC that's never been near their name.

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jerguismi
I don't understand why people seem to think that mining is a good way to
"participate". Mining is pretty much self-correcting problem - people have
incentives to mine, for profit. If you want bitcoin to be successful, there
are much better ways to promote it than with mining - for example, software
products, startups, implementing bitcoin for your business etc.

~~~
iak8god
I think cryptocurrencies are neat and I'd like to be a part of the bitcoin
economy if it's possible to do that without radically changing my life. One
way to do that without taking on much risk would be to buy a noisy little
machine that will produce about as much as it cost me and maybe a little
extra. That's the kind of participation a lot of people are interested in.

If other people want to radically change their lives to support bitcoin, then
more power to them. If it's hard for a moderately interested casual user to
get involved in the economy, then there's probably not much of a future for
bitcoin.

At the moment it is impossible to start mining for profit. No one is buying
new ASICs because they won't pay for themselves. Almost everyone who's mining
now is racing to earn back their initial investment.

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bobbygoodlatte
OP didn't make a loss on Bitcoin. He made a loss on Butterfly Labs.

Consumer mining these days is only profitable for narrow windows — you need to
take delivery of one of the first miners in a new ASIC generation to have a
chance.

It's much smarter to invest in Bitcoin directly.

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SeanDav
It is only "smart" to invest in Bitcoin with hindsight. Bitcoin is a pure
gamble, no one can predict what the price will do and if it will all crash
horribly tomorrow. There is very little difference between "investing" in
Bitcoin and pulling the lever on a slot machine. In either case you may make a
killing or lose everything you put in - so only put in what you don't mind
losing.

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Jach
If you take the economic theory behind bitcoin seriously, then it's easy to
see that its deflationary nature implies an increase in value over the long-
term regardless of ups and downs. Buy (or mine) and hold is then a good
strategy, the main concern you ought to have in your calculations is bitcoin
being killed by a government or a competing service that offers the same and
better benefits that using bitcoin does. Very different from SatoshiDice.

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XorNot
I like that in this version you ignore the problem of what happens to BitCoin
when no one spends it and everyone just hordes it.

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kybernetikos
That's a problem if it's your economys main currency. If the aim for BitCoin
is as the worlds second currency, then that's not so serious, as long as the
volatility is not so high that people are reluctant to take it in payment.

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snitko
It's not a problem even if your economy only has Bitcoin. Deflation is not a
problem.

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kybernetikos
I know you think that because I read your blog post, however the limited
amount of knowledge I have on the subject suggests that it can be a pretty bad
problem.

Deflation is regressive - it harms those who need to spend the most and leads
to concentration of capital at the expense of labour. It punishes those with
debt, which will make it difficult for normal people to ever acquire large
capital goods e.g. a house (by the way your argument that lenders won't mind
negative interest rates because their final value is worth more than what they
started with is wrong because it doesn't take into account opportunity cost -
lenders compare the returns not against the current value of their holdings,
but against their other options e.g. putting the money in a hole). It reduces
the velocity of money and therefore economic output. You say that at least it
redirects it to the areas that are most important, which may be true, but
nevertheless, it shrinks the pie from which we all partake, and reduces the
rate of growth, a problem in a world with a growing population. Bitcoin would
also suffer from similar problems to gold in that in bad economic times, all
the capital needed to recover would flee the regions suffering, making any
recovery much more difficult.

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snitko
With an inflationary currency all those wonderful things you describe that
allegedly help recovery are actually done at the expense of those who save.
When you say "deflation punishes those who are in debt" I raise you "inflation
punishes those, who save". Now why do you believe being in debt is somehow
more noble than saving? I beg to disagree. Also, remember, borrowers, if they
really need to borrow, may decide to only borrow from those who account for
estimated deflation, so that they would be able to pay back. It's just an
accounting trick really. Deflation only punishes unsmart people who mindlessly
seek for deals that don't account for the changes in the economy. Inflation
punishes people who didn't want any kind of deal and simply had their money
saved somewhere.

 _> It reduces the velocity of money and therefore economic output_

You would have to explain how exactly this happens. Output != value. If you
dig holes or build cars no one buys you increase output, but you don't add
value to the economy.

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kybernetikos
There's a lot that can be said on this topic (I'm even tempted to make the
argument that borrowing is indeed, in most cases, more noble than saving), but
I just want to pick you up on one point. When you say 'save', it's not clear
whether you're talking about hoarding (where the money is no longer doing
anything useful in the economy) or investing (where the money is still part of
the economy). Inflation doesn't punish those whose savings are invested, in
fact it rewards them, it does however punish those whose savings are hoarded.

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snitko
I talk about hoarding and there's nothing wrong with that. If you want a new
house or a new car, I think saving money until you have enough is a much
nobler way to do it. When you say that "money should work and do something
useful in the economy" what you're actually saying is that they should work
"now". Hoarder's money will work just the same when he decides to spend them.
Thus, what you have to discuss here is not hoarding, but rather "spending now"
vs "spending later". Why do you think the former is superior to the latter?

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fsckin
I got a refund from BFL well outside the 60 day window by using the 'nuclear
option': the PayPal executive escalations team. It's been months and they
still haven't gotten close to shipping orders around the time I put mine in.

I'm kinda sad that I won't be mining glorious coins. I guess it's a bullet
narrowly missed.

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Afforess
I know lots of people complain about Paypal being shitty for orders, but this
is why I still prefer to use them. They have great consumer protections.

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cstrat
I guess it was always to be expected that this was going to happen, I don't
think people realised just how quickly. Once the whole idea of bitcoin being a
money maker was popularised people jumped on board. I am wondering if, and
when, we will hit an point where people stop buying mining rigs because the
difficulty keeps rising and the payback just isn't there.

Even when we hit that point, there are thousands of devices out there fuelling
the rise in difficulty.

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trafficlight
That time has already passed. Mining rate isn't going to get any better than
the ASICs available now. I think the turning point was around August or
September. Though if the exchange rate is at least $400 or $500 per bitcoin,
that would change for a little while.

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cstrat
If the exchange rate does hit $400 or $500 imagine how many more people will
jump on board with the idea that only 3 months earlier bitcoins were $50...
further driving up the difficulty when those newcomers buy rigs trying to
strike it big.

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trafficlight
Moral of the story? Be the guy selling shovels.

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yason
Since the difficulty is periodically changed based on the hashing rate, it
makes an interesting case.

Everybody would generally be better off to throttle the rate because the
difficulty would tone down as well and you could still make the same money
with regular, much cheaper hardware. But there would be more people doing that
which would spread the gains more evenly. On the other hand, that's not how it
will ever work because everyone is locally optimizing for their own profit and
buying larger racks -- first big GPUs and now ASIC miners -- which ironically
doesn't result in profits proportionally equal to the larger investments.

In the end it shouldn't even matter: mining bitcoins is just a way to
distribute the 21 million coins to people and the cpu power required to do
that hasn't got anything to do with the final value of a single block. Your
cost to acquire one bitcoin just varies based on how much competition you
have.

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humbledrone
> _Everybody would generally be better off to throttle the rate [...]_

You're wrong about this. The Bitcoin network would be _much_ worse off
(verging on useless) if the global hashrate was throttled. The purpose of
mining is not, as you said, to distribute Bitcoins. The purpose is to make it
extremely difficult to append a forged block to the blockchain. The higher the
hashrate, the more difficult forgery is. The reason that so-called miners
receive Bitcoins is because the hashing takes resources (e.g. machines and
electricity), so there needs to be some incentive to perform this service. The
fact that it happens to distribute Bitcoins is convenient, but ancillary.
(There are other ways distribution could have been done.)

Read this link for further information on why you want the global hashrate to
be as high as possible. Basically, if a single attacker could match the
hashrate of the network, they could do very bad things:

[https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_...](https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power)

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yason
_You 're wrong about this. The Bitcoin network would be _much_ worse off
(verging on useless) if the global hashrate was throttled._

No, it doesn't make a difference because what matters is that the target
difficulty is relative to the current number-crunching capacity. A lower
hashrate is just fine if nobody is able to do better than that.

Suppose that Bitcoin happened in the mid-90's when Pentium would be the
fastest processor, running at 100MHz. The network would run 1000 or 1000000
times slower than today, the difficulty would basically adjust to that, nobody
could overtake the network no more than today, and everybody would be as happy
as today.

What keeps that from happening is the fact that the hashrate _can 't be
throttled_ because of the incentives that make it profitable to maximize
_your_ hashrate and _your_ number-crunching capacity. THus, the resulting
hashrate and, consequently, the required hashing difficulty follow the
bleeding edge of the technology.

The difficulty is an _arbitrary factor_ : it's just a community decision that
in order to find a good hash for a block, the hash must be lower than X, and
that decision is based on the current capacity of the network to prevent some
single party from "taking over the blockchain" and to keep the rate of new
blocks steady.

But from blocks-per-Joule perspective there's _no point_ requiring such a huge
computational capacity.

Bitcoin itself would work just as fine if the difficulty was so easy that a
Pentium I could find suitable hashes in a reasonable time: the problem is that
we have better hardware than Pentium I so we're _forced to raise_ the
difficulty to match the most computationally capable parties.

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Jach
> Seven months after purchase

Hahaha. Many people waited over a year.

> If Butterfly Labs had shipped their devices anything like on schedule, it
> would have been easier to make a small profit.

Only for the people who ordered pre-2013 (as they were supposed to ship Oct.
2012), and back when btc was $10. That would exclude you.

As others mention, bitcoin as a currency seems to have a better chance of ROI
(or at least quicker ROI), unless you can get in on the shipping and upcoming
28nm ASICs. I feel bad for the people who ordered from BFL using bitcoin back
in 2012.

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daemin
I wonder if BFL kept the bitcoins or changed them over to hard currency then?

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jerguismi
You mean soft currency? Bitcoin is the hardest currency to exist, you know...

[http://stakeventures.com/articles/2012/03/07/the-may-
scale-o...](http://stakeventures.com/articles/2012/03/07/the-may-scale-of-
money-hardness-and-bitcoin)

~~~
daemin
I'm a bit dubious of that scale. Like what can you buy in a shop for gold or
silver bullion? I know friends that trade in silver coins, but I don't see
them walking into a store to buy things with such coinage.

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DanBC
Those butterfly labs lumps are small. They're useful to people who want to
steal electricity because they can be easily hidden.

So, if you can buy them cheap second hand, and are okay with stealing
electricity and installing them in hidden locations, then you might make a bit
of money.

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MasterScrat
If electricity price is the main problem, why not go solar?

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shawabawa3
You'd probably make more selling the solar electricity then

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dustingetz
if all those ASICs were so profitable, wouldn't the company making them be
keeping them for themselves?

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wmf
Probably, although not necessarily. Managing 1 KW worth of ASICs is easy but 1
MW worth is considerably more expensive.

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cstrat
Also, I think it is in their best interests if the community buy into the
idea. Rather than if they mine everything and horde it all.

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s0rce
I refunded my BFL long outside the 60 day window with a simple e-mail. It was
clear they weren't shipping anywhere near on schedule and it wasn't going to
be profitable.

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ratsimihah
Got the same Jalapeño about two weeks ago, and I mined about $25 worth of BTC
so far. On my way to break even the initial $150 investment, lol.

