
Bitcoin Miner does the math, calls it quits - mef
http://www.bitcoin-board.com/index.php/Brand-new-Sapphire-5830-on-NewEgg-which-Im-passing-up
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tibbon
What's interesting, is that this is what should happen. Since Bitcoins are
generated at a constant rate (from my understanding) regardless of how many
people are working on them, the market should eventually even out so that its
a break-even at best. Likely it will be a little worse than break-even,
because there are always some people out there willing to attempt to generate
coins even if what they are doing doesn't financially make sense, breaking the
market.

Just because you've got a competitor in business, doesn't mean that they are
profitable or running good business. Trying to meet them can easily run you
into the ground. It just happens in bitcoin-world, everyone has the same
'product'.

~~~
sp332
In fact, it's worse than that, because the global rate of BTC production goes
_down_ over time. After 2025, hardly any new bitcoins will be generated.
[https://secure.wikimedia.org/wikipedia/en/wiki/Bitcoin#Monet...](https://secure.wikimedia.org/wikipedia/en/wiki/Bitcoin#Monetary_differences)

~~~
nextparadigms
That's the whole point. As the amount of Bitcoins gets closer to the maxim, it
will become harder and harder to mine them. But ideally, this should be
overcome by Bitcoin's increasing popularity and value.

This isn't happening right now, and it appears to have stagnated, but that's
not a problem for Bitcoin's future, because the continous mining of Bitcoin is
not necessary to ensure its success.

This simply means that there has to be a bigger real economy behind Bitcoin's
value, and once that economy is strong enough and catches up with Bitcoin's
inflated value, the value should start rising again, and miners will appear
again as it becomes profitable to mine them.

~~~
mikey_p
It doesn't matter how many people are mining, coins are generated at a fixed
rate. The difficulty to mine coins is varied automatically to assure this.

It's this difficulty that affects miners when more folks start mining. In
effect they are taking the known portion of the pie (coins to be mined in a
given time frame) and slicing it into many more pieces. This means that you
have to work for a much longer time to have a nice large piece of pie with
plenty of room for ice cream and whipped cream on top.

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encoderer
I'm a bitcoin speculator. So far, I've made a very good ROI on a relatively
small (4 figure) investment. It's been a lot of fun, really.

MtGox, and other exchanges (though I've got less experience with them) publish
raw market data. I've written some analysis tools using mongo and python, they
run on an Ec2 instance and buy/sell automatically. I send myself an SMS when I
make a trade.

It's been so much fun to build. It's like SimStockMarket (or SimForex) to me.
I've always been fascinated by the high frequency trading platforms. Obviously
mine isn't high frequency, but it was a chance to build a trading system that
had enough skin in the game to be interesting but little enough to be a hobby
and not a stressful investment.

I really don't see myself mining at all. That part has never interested me.

~~~
joe_the_user
Sure, sounds like fun...

I hope people understand that the success of bitcoin speculation in no way
demonstrates bitcoin's practicality as a _currency_. A currency doesn't
benefit from being the subject of speculation - it benefits from having a
stable value so you can just use it to buy and sell stuff.

~~~
mellis
Currencies (and other assets) benefit from liquidity: someone willing to buy
it when you want to sell and to sell when you want to buy. It can be difficult
to distinguish beneficial market-making activity (which still involves turning
a profit) from harmful speculation, regardless of the way it's described by
the person doing it.

------
wccrawford
This isn't really news. I did the math a month ago and came to the same
conclusion. That I could probably make a little money if I don't mind heating
up my house (costing more in AC costs) and dealing with the noise of the
computers running all the time.

The projected profits, at the prices that day, were pretty sad.

A week later I learned that the better the machines and programs get at
producing bitcoins, the harder it is to actually earn one, so the machine
works harder for the same output. (The whole market is in on this, not just 1
machine, so it's possible to be ahead of the pack... But they -will- catch on
eventually.)

At that point I realized that even if I built a perfect rig that paid for
itself every 3 months, I would have to continuously upgrade it to keep up with
the market.

It's simply not worth it.

~~~
MichaelApproved
Why buy a new machine after 3 months? Once it makes back it's cost, wouldn't
you still be able to earn money from it so long as it can cover the cost of
running and storing it?

~~~
podperson
Only if more performance/watt machines haven't driven the output of your
machines below the cost of electricity.

~~~
MichaelApproved
Wow. I know very little about mining and had no idea that the market moved
that fast.

~~~
wccrawford
Yeah, that's the bit I learned a week after doing the calculations. When
people first started, they were using CPUs. When GPU usage became available,
CPU-miners became so horribly inefficient that electricity cost alone killed
them.

Now, granted, I can't imagine anything being that much better than GPUs, but
new GPUs are usually much more efficient than old ones, and they come out all
the time. It could quickly became an arms race just to break even.

On top of that, apparently there's also a built-in cycle that makes it harder
even if the machines don't change. The linked article touches on that briefly
as part of his decision.

~~~
ahi
FPGAs and ASICs are in use by a few people/companies. They have the opposite
cost structure of GPUs. The two main measures are MegaHash per $ and MegaHash
per Watt, roughly analogous to fixed expenses and operating expenses though
the MH/Watt also influences investment in power and cooling infrastructure.
GPUs have a high MH/$, but a rather poor MH/W.

I own 2 Radeon 5830s, $110 each, that still spit out about $5 a day at current
prices making for a rather impressive rate of return in spite of high power
requirements. From what I have read, FPGAs require about an order of magnitude
higher capital investment with the benefit of a drastically reduced power
consumption. Last I checked about 6 weeks ago, a decent GPU rig could pay for
itself in a month or two, while an FPGA setup could pay for itself in about a
year. The tradeoff is that the GPU rig's payout may dip below power costs
before it pays itself out (likely the case for any rigs purchased in the past
month) essentially betting on the short term difficulty increases, while FPGAs
are betting on the long term health of the bitcoin system itself.

FWIW, the newer ATI GPUs aren't as good for mining as the older 5800 series.

I was a PoliSci/CompSci/Econ mega-nerd in Uni, so Bitcoin is my fantasy come
true.

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pavel_lishin
> The fact that every 2016 blocks (about 11 days), 100,800 new BTC are minted.
> That means that, to maintain the CURRENT price of $13.50, we'd need
> $1,360,000 of NEW MONEY entering the system every 11 days.

I don't know anything about economics - literally nothing - but that doesn't
seem right to me.

~~~
fr0sty
It isn't right. It would only be true if every miner was immediately
liquidating the bitcoins they were awarded. Such a massive oversupply would
likely overwhelm demand and push the price much lower.

In reality this is not what BTC miners are doing (from what I can see). They
are mining and hording BTC for later use meaning that the mined coins require
$0 to enter the system to maintain equilibrium.

~~~
ohashi
That doesn't mean the math is wrong. What he's saying is each day the total
value of bitcoins is going up by that amount because # of bitcoins * current
price. He's also saying that it doesn't make sense, he sees irrationality in
the behavior. If more bitcoins are added than value created, prices should go
down, but aren't, they are stable. Something seems to be out of whack, the
market isn't behaving rationally. Essentially bitcoins are becoming more
overvalued as more get unlocked because supply is increasing faster than
demand but the exchanges aren't reflecting that (yet).

~~~
wmf
This is just the market cap effect. You can't buy or sell a company for its
market cap; usually the real price is much higher or lower. Likewise just
because you can buy or sell 1 BTC for $15 does not mean that 6.7M BTC are
really worth $103M.

~~~
ohashi
With a market cap there is still a finite number of shares, there aren't new
ones being constantly created. We're also talking about a commodity, not
shares of a company which is a value creating entity.

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3pt14159
The Mtgox hack has kept BTC prices fairly depressed, but in my opinion that is
a good thing. There was never a good reason to _build_ something around the
BTC currency before because it was going up so fast that you were better off
billing a client _half_ your normal rate, convert it into bitcoins and end up
with 4x the money in a month or so.

Hopefully BTC will see some medium term stability around the 10 to 20 mark
while actual, usable clients get made, and actual stable markets get setup.

(Disclosure I own a nontrivial, although nonmassive amount of bitcoins, but
I've broken even by selling some while it was over 30)

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kragen
As a market approaches being perfectly competitive, risk-adjusted profits
approach zero. If I understand correctly, that's basic economics, and it's not
limited to just Bitcoin. If you want to make money in a market, you either
need a sustainable competitive advantage or non-average risk tolerance.

What could amount to a sustainable competitive advantage in Ⓑ? Reputation
isn't it: the whole point of Ⓑ is that Ⓑ100 is computationally infeasible to
counterfeit and equivalent to any other Ⓑ100. If you developed an especially
money-efficient SHA-256 chip, or for that matter a pure Ⓑ-mining chip, you
could perhaps remain profitable mining with it for a while, until the market
caught up with you. (Does that depend on whether you use the chip yourself or
sell it into the mining market where people compete with each other?)

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klhutchins
It seems like a shame that all that computational power is being wasted. I
mean other than generating some hashes, what good does that really do? I think
it'd be cool if somehow it tied into the folding@home type of stuff. Where the
computations solved something meaningful, but there could also be some
"monetary" incentive.

~~~
cabalamat
It seems a shame that all the effort that people put into making padlocks is
being wasted, what good does that really do?

Answer: padlocks, like bitcoin hashes, are a way of allowing people to
collaborate without having to trust each other.

~~~
kd0amg
The rate of padlock production doesn't stay approximately the same when people
double the amount of resources they put towards producing padlocks.

~~~
ent
But the security of the bitcoin network also increases as the amount of
computer resources put into mining increases.

------
sireat
I should point out that this is classic blogspam: You can see that the forum
linked is dead except this one link.

Original post where the text was copied from is this:
[https://forum.bitcoin.org/index.php?topic=26099.msg325505#ms...](https://forum.bitcoin.org/index.php?topic=26099.msg325505#msg325505)

Incidentally, the original poster is fairly infamous troll/critic in the
biggest bitcoin forum. (Sadly, I agree with most of his conclusions and
pessimism).

Pretty sure it is NOT original posters forum, someone just took his text to
stir up some traffic for his forum.

~~~
swishercutter
I thought I recognized this rant...same one that has been repeated for the
last 2 months in the BTC forums. Miners don't care...I should know, I am
one...and given my current power cost I may be one of the last. I will start
worrying about mining profitability when Vladimir starts shutting down one of
his 3 data centers...since he pays 7 times the power I do. At that point
folding@home or seti gets my GPU cycles...that is if nobody figures a better
way to profit from leasing these machines for other than bitcoin use (legal
ways that is).

------
teralaser
The bitcoin miner's experiences can also be found in the world of gold mining:
<http://www.economist.com/node/18774624>

------
stayjin
To be honest, when I read the original idea behind the bitcoin, I was
thrilled. I thought This Is It (TM).

The monetary system, as it exists today is based on debt as a lever for
growth. Banks can get a deposit of 1$ and God/King/Char/President/Whatever
gave them the right to lend 5$ with it, and hold the 5th person under
obligation of debt, to pay back that one dollar which the bank that gave it to
him DIDN'T HAVE in the first place. You have to give back that 1 dollar or you
will lose what you bought with it. Proponents of this practice call it "value"
of potential, they argue that banks can do this because if they lend 5$ for
every 1$ they have, people who borrow these 5$ will really work their asses
off and pay 5$ back, which means that banks valuate the "potential" of the
market to create 5$ out of 1$. Then come investors, speculating the value of
this "potential", buying the debt and selling it again for 12$ this time etc.

I thought that bitcoin was a chance to fight back the economy of debt. Every
coin is 1BTC, no bank would be able to get it and magically transform it to
5BTCs any more. Potential would once again be expressed as ability to produce
more or better of your products made for the same cost and EXCHANGE them for
more or better products made by someone else, REAL things as assets against
REAL things as liabilities exchanged through a non manipulatable medium.

Then, I woke up :) Bitcoin adopters and proponents are so unbelievably vested
in the current status quo that they managed to create a caricature of the
same, old monetary system replicated in the bitcoin world: exchanges that
don't exchange bitcoins but integers, speculators, market crashes... like Wall
Street No.2... and naturally "It is not profitable any more, sell"...

~~~
ww520
It's a nice thought but BitCoin doesn't change the debt-leveraged practice of
the banks. Sorry to rain on the parade.

The fractional reserve requirement allows the banks to lend multiples of their
incoming deposits no matter what the currency. BitCoin is just another
currency, like the dollars. M1/M2 in circulation is much smaller than the
actual money used in the economy. BitCoin will be the same way.

The banks can very well open BitCoin accounts, allowing people to deposit
actual BTC. The bank then lends the BitCoin out in multiple of deposit, like
5BTC lent out for 1BTC deposited. The BitCoin lent out are not delivered in
actual BTC, just some numbers in the borrowers' accounts. Only when the
borrowers withdraw that they get back BTC. Like the dollar accounts, most
people don't withdraw large amount of dollars; they just write checks or wire
transfer them. Same way for the BitCoin accounts. Thus the debt-leverage
economy with BitCoin will arrive.

If everyone withdraws from the BitCoin accounts, there would be a run on the
bank and the bank won't have enough BTC reserve to meet the demand and
collapses. Banks can put daily withdraw limit like ATM and tell people to
write BTC check. It's just as good as BTC.

The digital nature of BitCoin will probably allow people to withdraw more
easily and thus lower the possible leverage multiplier.

~~~
politician
It will be possible to audit BitCoin banks in a way that's not possible for
today's banks. Specifically, transactions are public, although anonymous. Even
so, it ought to be possible to perform a kind of traffic analysis against the
public block chain to determine whether a group of addresses are participating
in fraud (in the form of fractional reserve banking) given that initially a
customer has to send their BitCoins to some address owned by the bank.

------
iter8n
Now that the hype is dying down, maybe people will start thinking more about
how to make bitcoin easier and more available and less about how they can
profit off of mining and trading.

~~~
wladimir
Start? People have been thinking (and working) on that even before the hype
began (see for example the Android client now on the frontpage, or the new
client UI being developed, wallet encryption being tested now, and various web
payment services), it just gets drowned in all the trolling, mining related
talk and price speculation.

~~~
eropple
What you call "trolling," others call "pointing out the obvious flaws in an
unsustainable system."

~~~
wladimir
Replace "trolling" with anything you want, how you call it doesn't figure into
my argument at all.

------
btilly
No surpriseWhen you're competing against people who are doing bitcoin mining
using someone else's resources (eg [http://thenextweb.com/au/2011/06/23/abc-
employee-caught-mini...](http://thenextweb.com/au/2011/06/23/abc-employee-
caught-mining-for-bitcoins-on-company-servers/)) then bitcoin mining will not
be cost effective for you unless you are using someone else's resources as
well.

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JulianMorrison
Seems pretty obvious to me that "mining" is a loser's game, you are fighting
over what slice you get of a fixed size pie. By contrast, selling stuff for
BTC actually grows the "market cap" of coins, that seems a lot more sensible.

That said, I have a technical question. What happens to the BTC system if
people mostly quit mining?

~~~
stonemetal
The system contracts and it becomes easier to mine. As long as the number of
clients doesn't approach zero, transactions should be OK.

~~~
JulianMorrison
What about when the number of BTC has gotten close enough to 21 million that
mining nearly never returns any new ones? The number of miners could fall to
something approaching zero.

~~~
maaku
The hope is that miners will still make money off of transaction fees (a "tip"
to the miner which verifies the transaction). Each new block assigns 50 BTC to
the miner that found it, plus the accumulated fees of all transactions
included in that block. The idea is that as mining new bitcoins becomes
unprofitable, the transaction fees (set by the initiator of the transaction)
will make up the difference.

That theory has yet to be tested, though.

------
Synaesthesia
I also did the math - figured I was better off buying Bitcoins than mining
them. It's marginal though.

~~~
gravitronic
Out of interest - why did you buy bitcoins? For purchasing goods? Or for
speculation (to re-sell when, you hope, the price goes up)?

~~~
Synaesthesia
Well I mined about 10, bought another 10, it's just speculation right now.

------
inoop
This comes to mind:
[http://www.reddit.com/r/Bitcoin/comments/i0r4o/ready_for_a_l...](http://www.reddit.com/r/Bitcoin/comments/i0r4o/ready_for_a_little_casual_mining/)

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btclove
do you think the bitcoin mining chip will become a reality? Is this
<http://asicminer.net> a scam?

------
khafra
Power and wifi are free at many coffee shops and fast food joints. When I'm in
one, spending the time between my work and martial arts training group, I mine
on my laptop. If I were especially ambitious, I'd bring a tower with a bunch
of ATI cards in it; but the McDonalds manager might complain when the lights
dim.

~~~
hollerith
This is why we can't have nice things (e.g., free power in cafes and fast-food
places).

------
thesis
Wouldn't more people joining your pool increase your chances of more bitcoins?
I know your % in the pool will go down, but your pool has a better chance
overall.

~~~
prsimp
More people joining a pool doesn't increase your personal Bitcoin production
(in theory), it simply lowers your variance. That is, your payments will
become smaller but more steady.

------
iwwr
The hardware doesn't have to pay for itself, just the discount if you want to
resell it. So maybe 20-30% of the initial cost.

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Vitaly
I dont know... 79 days to return your investment is a nice deal in my book.

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lurkinggrue
I always did prefer tulips.

