

Watch Wired Get Rich Quick With A Sleek Bitcoin Miner - cyphersanctus
http://www.wired.com/wiredenterprise/2013/05/butterfly_live/

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dangrossman
Spending real resources (electricity/CO2) to produce money, then destroying
the money, reducing the eventual money supply of this currency _permanently_ ,
doesn't seem like the best way to handle any worries of journalistic
integrity. They could've donated it just as easily.

~~~
hollerith
Destroying currency is not wasteful in the sense that destroying an equivalent
amount of food is wasteful because the total value of all the BTC is almost
completely independent of the number of BTC in existence: if there were half
as many BTC in existence, each one would cost twice as much. Consequently,
your destroying some BTC enriches everyone else holding BTC to almost exactly
the same degree that it impoverishes you.

I anticipate objections to the above on the grounds that "deflationary
currencies are bad". The most chartitable interpretation of, "deflationary
currencies are bad," is "the downward stickiness of the price of labor":
during a recession, unemployment tends to go up in part because most employees
are irrationally averse to taking a pay cut when times get rough, and
enlightened monetary policy can sometimes negate or ameliorate that particular
irrational reaction by employees by inflating the currency, which has the
effect of fooling the employees into thinking that their "real" compensation
has not decreased. But that is a minor effect compared to the basic
"invariant" described above -- especially since almost no employees are being
paid in BTC.

~~~
xymostech
But the bitcoins are still in existence. It is impossible to distinguish
between a bitcoin that can be spent and one that cannot. Unless you could
actively tell the bitcoin servers "I am destroying these coins", nobody can
determine which bitcoins are inaccessible. So won't they continue to maintain
the value they would if they were still accessible?

~~~
hollerith
Good question :)

There are basically two uses of bitcoin: a medium of exchange and a store of
value. My "invariant" above can be rephrased to say that the total value of
all bitcoin is approximately equal to the total amount of value people
("investors") want to store in it. (Entities, e.g., Silk Road, that use BTC as
a medium of exchange can immediately convert the BTC they receive from their
customers into dollars if they do not want to hold BTC.) So, if an investor
has $10,000 he wants to store in bitcoin, it is almost completely immaterial
to that investor whether he can buy 100 BTC or 10 BTC with that $10,000; all
he really cares about is how well his $10,000 investment will hold its value,
which is sort of independent of the current price, since for example the fact
that 1 BTC costs about $100 today is pretty good evidence that they will cost
about $100 a month from now -- and if 1 BTC cost $1000 today, that would be
pretty good evidence that they will cost about $1000 a month from now.

The point is that withholding BTC from sale increases the price of BTC whether
or not the reason for the withholding is so that one can sell them a month
from now or because one has destroyed them (i.e., destroyed the relevant
private key).

That is an example of the "Fundamental law of microeconomics," which says that
in an efficient market, the price is determined by supply and demand --
"supply" meaning the number of BTC for sale _today_ , not the total number of
BTC in existence.

Thought experiment: how would the price of BTC be determined if no one knew
how many BTC are in existence? Would people just give up on trying to buy or
sell BTC because that figure is unknown?

P.S. Comments like these where I answer a technical question tend to stay at
score 1. Since I am making an effort to increase my average comment score
(currently 2.0) I plan to stop answering technical questions in comment
threads _unless_ this comment gets upvoted at least to 2 or 3.

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NegativeK
I'd never considered that there would be journalistic ethics issues around
making money during the course of a story.

The solution of effectively destroying the earned money is pretty funny, given
that that's an occasionally expressed concern.

~~~
wmf
At least they're sensitive to the issue. BFL customers who paid in full 11
months ago are pissed to see Ars and Wired (aren't they the same company?)
getting free equipment before paying customers.

~~~
nobodysfool
I believe 11 months ago, the price for a Jalapeno was $150, and they increased
the cost to $270, while giving it just a slight jump in speed.

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jackmoore
Something about how the real people that get rich during a gold rush are the
ones selling the shovels.

~~~
adventured
Not exactly true.

More people made money selling shovels. The people that got the richest owned
the mines.

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ValentineC
How are people getting such huge variances in the wattage drawn for the 5GH/s
miners? Wired measured it to be 43W-44W, Ars measured it as 50W [1], while
David from Coding In My Sleep [2] measured it to be 30W.

[1] [http://arstechnica.com/gadgets/2013/05/weve-got-a-
butterfly-...](http://arstechnica.com/gadgets/2013/05/weve-got-a-butterfly-
labs-bitcoin-miner-and-its-pretty-darn-fast/)

[2] <http://codinginmysleep.com/bfl-jalapeno-unboxing-and-demo/> (see 7:33)

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Jach
Likely because they're using different revisions of the hardware. BFL didn't
meet their power usage promises and have been going through several design
changes over the past few weeks to try to get the power down more.

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consultutah
Uh, the bitcoin minor that they linked to costs $2,400. So, at the same rate
it will take more than 20 weeks for ROI.

[EDIT] They linked to the wrong one. The one they are using does cost $274.
Not bad ROI.

~~~
fixxer
The $2,499 miner is 10x the speed of the $274 dollar miner, so the ROI is
actually better.

~~~
lingben
lol yes but this is a product that has within itself the seed of its owners
undoing... the more they sell, the more bitcoins are mined and the harder the
next is to be mined

~~~
fixxer
the sustainable part of their business is not this product, but their process.

~~~
wmf
BFL actually moves very slowly (planned schedule: 4 months, actual schedule:
11 months); Avalon are the ones moving fast.

~~~
fixxer
agreed; edited

my point was that these businesses that produce products with short life
cycles are process oriented; can be very rewarding... VC won't come knocking,
but that isn't always a bad thing.

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stfu
Sorry for my ignorance, but can anybody explain what makes the Butterfly Labs
machine special?

What kind of propitiatory knowledge do they have that there are these long
waiting lines for the machine?

What is they key issue that makes these boxes so hard to replicate?

~~~
wmf
_what makes the Butterfly Labs machine special?_

Marketing (for example, BFL equipment is much prettier than Avalon).

 _What kind of proprietary knowledge do they have, that there are these long
waiting lines for the machine?_

None. But they do have capital, which they got by having a fairly good
reputation from making cheap FPGA miners which they could do because they
found a way to buy obsolete Altera FPGAs really cheap.

 _What is they key issue that makes these boxes so hard to replicate?_

People who know what they're doing don't design Bitcoin mining equipment.
There are probably a lot of different reasons why, mostly due to very high
financial risk. The only people designing this stuff are incompetent noobs,
with predictable results.

~~~
fnordfnordfnord
>But they do have capital, which they got by having a fairly good reputation
from making cheap FPGA miners

The capital they have is from taking pre-orders and not delivering. They've
also burned a lot of that capital spamming the internet with ads to sell more
pre-orders. If they ever had a good reputation they have squandered it by
letting their loud-mouthed-pompous-ass spokesperson loose on the forums.

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gregable
If I understand their graph, they are generating about 0.29 BTC / day with
this. Current BTC exchange is $118, so $34.22 revenue / day. At 44W, they'll
spend ~1kW/day on power so only around $0.10 or so depending on where their
power is coming from. So their break even point is somewhere around 8 days if
I have everything correct.

It seems that if these devices can be produced at scale, the marginal cost of
mining 1 BTC will be only about $0.30 for now, thereby possibly pushing down
the market price for BTC significantly.

~~~
maxerickson
Bitcoin are mined at a (relatively) fixed rate, around 3600 per day right now.
Mining has little impact on the market price (10,000s of bitcoin are crossing
Mt Gox each day).

What will happen is that the 0.29 BTC / day will go down as more people plug
in their asic miners.

~~~
nobodysfool
Yeah, that line from the story:

>So in just two weeks, those lucky enough to have snagged one of these rigs
will have paid off the initial investment. Everything after that is gravy.

That's the biggest joke ever. The difficulty will go up substantially once
thousands of people get their ASIC miners. It will take a lot longer than two
weeks to pay itself off.

~~~
mikeyouse
From the very next paragraph:

> Meanwhile, with more and more computers joining the network, mining
> difficulty is quickly getting harder. So the amount of money these machines
> can make per day is slowly declining.

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fixxer
Pretty awesome watching the technological innovation around Bitcoin. I
personally don't have any, but just from following the progress and learning,
I am starting to dabble with technologies (FPGAs, for example) in my research
that I completely did not anticipate getting familiar with. Great hardware
opportunities today for those traditionally limited to software (like me!).

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dclusin
This sort of thing has actually been pioneered by high frequency traders.
Utilizing FPGA's & ASIC's is pretty standard fare for high frequency trading
and algorithmic trading. What's novel about bitcoin is that it has been driven
largely by end consumers. Thus, it is easier to see the technical landscape
around it evolve.

~~~
fixxer
exactly my point... all this technology just got a lot closer to mainstream.

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grimtrigger
The economics of this makes 0 sense. Why wouldn't the company that built these
just plug them in and keep the money for themselves?

~~~
pr0zac
In a gold rush don't dig for gold, sell shovels.

~~~
fnordfnordfnord
After this thread, I'm down-voting commenters that repeat this comment. Enough
is enough already.

