Bitcoin Forum

Here is an analysis of a 3x5850 mining rig over the next year:

assumptions:
15%   bitcoin value increase per 10 days
50%   difficulty rate increase per 10 days
1050   hash rate
$2.02   power cost/day (700w @ 0.12/KWh)

As you can see even if the value of bitcoin increases to over $1200 in a year, you are not even going to make your money back on a dedicated rig, at 90 days you are going to start losing money!  This is using a 50% difficulty bump when it is currently around 70%.  If you use 70% you start losing money in 60 days.  Even at difficulty rate increase of 50% and bitcoins increase 30% per 10 days (putting them at a value of over $100,000 per coin in 1 year!) you will still lose money at day 160 with a maximum income of $976.  Subtracting your rig would be a profit of $300 or so, I think its definitive, the ship has sailed on buying rigs for mining.

So what if difficulty slows considerably to say 30% per 10 days (less than half of the current rate)?  Assuming a bitcoin increase of 15%/10 days (value of $1225 in 1 year), you will start losing money at day 190 with a total profit of $1124, hardly enough to be worth the risk.

If you're not doing a simple calculation such as this before buying a rig you should seriously reconsider buying one at all.

So what about more efficient rigs, free power, ASIC, and FFPGAs?  They don't matter, even assuming a power cost of $0 your returns on coins are so minimal after a few months due to the difficulty rating it won't be worth it.  Your cost to simply replace hardware will outweigh the returns.

And the nail in the coffin, "Every 210,000 blocks, the Bitcoin reward per block is cut in half. Right now, the payout is 50 Bitcoins per block. Sometime soon, the payout will halve to 25 Bitcoins per block."  None of this analysis takes this into consideration.

So in conclusion something has to give:
- people will go bankrupt with new rigs, dropping the difficulty rating
- bitcoin will fail altogether and crash
- the value of bitcoin will skyrocket

Hard to say which, maybe all of them a little, maybe one of the a lot.

https://i.imgur.com/Dbl46.jpg

why is the first difficulty increase at 81%?  is that the current prediction?

I assume you mean the 440,000?  That is happening in 2 hours, already a known fact.  The estimate is actually 434734 right now.

I think extrapolating the difficulty curve that far is specious.  the difficulty will taper off HEAVILY if profitability goes down that much.

No one is going to argue that difficulty will continue increasing once mining nears the point of being unprofitable.

But it doesn't matter, because at that point it will be unprofitable or minimally profitable.

Awesome work, but you're also assuming that the miner cashes their bitcoins into dollars the instant they get them. If bitcoins truly are increasing at 15%/10 days, then it would behoove the miner, if he's fine with the additional risk, to keep bitcoins for the duration.

In other words, compound interest needs to be in there, if it isn't already. That first week's money of $172 will become $528 in 80 days according to your own assumptions.

Yeah, your running total will still peak at the same time, but it'll be a lot higher.

if you believe BTC will increase at 15%/10 days then doing anything besides buying BTC directly is an awful idea

It doesn't matter, even at 30% difficulty increases it is still a bad investment.


If you aren't going to cash in your bitcoins then why mine at all, just simply buy bitcoins.  Also I assume cashing in all bitcoins because I think that is what most would do, cash in until at least your original rig was paid for.


Doing anything besides buying BTC directly is an awful idea no matter what the scenario: if the rate of increase for BTC is lower you are never going to recoup your rig cost, if its higher you should have bought BTC directly even more so.

Do you mind uploading this spreadsheet to googledocs or something similar? I'd love to use it and plug in my own numbers

is there somewhere i can post it to a public google doc?  or if you create an account for it ill post it there.

its pretty simple, here are the formulas for row of day 10, use the image to put in the starting values and your good to go

10   =B49*(1+$B$41)   =$B$42/B50*1000*$B$43   =D49*(1+$B$40)   =D50*C50   =E50-$B$44   =F50*10   =G50+H49

starting values
0.15   bitcoin value increase
0.3   difficulty rate increase
1.01   coins/difficulty
1050   hash rate
2.02   power cost/day

Sorry, I was referring to people who are justifying their unprofitable mining rigs by saying "but bitcoin is going to go up so high!"

Yeah with current difficulty increases even if bitcoin increases to $100,000 per coin you still are only going to make a few hundred dollars at most.  Along the lines of what JJG said, even if difficulty does taper off or even decrease, your profits are going to be so minimal its not going to be worth it.

The reason for the huge boom in the last month is GPU mining and news outlets, after that levels off there will be no other similar event, even if ASIC and FFPGA had 3 orders of magnitude better performance like the jump from CPU to GPU, because of 2 reasons: 1) the difficulty will be so high it won't matter, and 2) no one has a ASIC or FFPGA like they already have a CPU and GPU, using one of those is a 100% direct speculation on mining, whereas now everyone and their monkeys brother has a CPU or GPU to dunk into the mining pool.

I think there are two things that keep people from doing this:

1.) People are simply enamored with the idea that mining is creating money out of thin air.

2.) Mining is easy relative to trading. If everyone had the capacity to intelligently buy and sell BTC for profit they'd already be getting rich off traditional markets.

This again... I'm going to pick on a few things to start with:

"sometime soon the bitcoin reward will halve", yeah if you consider 2013 soon.
"$2.02 per day (700w @ .12/kWh" -- 3 5850s use absolutely nowhere near 700w. 3OCd 5870s use about 600W from the wall, 3 5850s will use closer 500W or less.
"You will start losing money on day xx" -- You stop mining when it is no longer profitable, no one put a gun to your head to keep going. You can also cash out of your rig if you really don't think you'll ever mine again and have no use for it, recouping even 60% of your initial investment (a VERY conservative estimate if you drop out 90/160 days after building) puts your profit back up > $1000. Not everyone is trying to replace their job with mining, that is a hefty ROI. Find a traditional investment schema that can offer 70 - 100% returns?

As has been mentioned no one needs to cash out immediately, power bills are delayed by 30 days, the minimum time for a forced cash out (or I suppose when the CC bill comes in, however if you purchase on the cusp of your billing date you have 30 days before the account closes, then 30 days to pay, so a 60 day window before any interest accrues on that bill).

Again, I'm not encouraging people to build mining rigs, I agree that the profit is really not there anymore, but your numbers are as flawed in this thread as they were in the previous one I responded to, skewed only to support your assertion that other people stay away, which I feel is somewhat disingenuous at worst, sloppy at best. A better analysis would be why investment and encouraging further investment will yield longer term gains, but that is a lot trickier I suppose.

The precision of this analysis isn't really important.  evidences the most important point which is basically "No, miners don't guarantee a static return. They are not money printers."

The people who understand depreciation, interest, borrowing and resale which your argument assumes aren't likely to be the same people trying to figure out how build their first miner.

Also, "You don't have to pay your power bill right away!" as an argument is laughable.

Your response would make sense if this was merely a post saying "You should be careful as mining is not a money machine" (as you put it) "here is why it is a risk". It does not, it clearly says you "will never pay off your rig" and "you will lose money" in no uncertain terms. Here is the very first line of this post after stating the theoretical rig specifications:
The rest is cloaked in numerical analysis which is the exact opposite of what you are trying to claim here. Seem to have contradicted yourself. I also stated that I was merely going to be picking on those points at the start, not that it was the utter defeat of the argument. Sloppy assumptions lead to faulty conclusions, rigor isn't an optional thing in an "analysis".

The concept of delayed payments vs accrued interest is laughable? Good luck to you in the real world then. If there is a significant gain to be made from sitting on a commodity rather than instantly liquidating it then you need to take that into account. To think any other way would be as you put it, laughable.

I generated some btc a while ago, then I ignored it for awhile. Credit to the early adopters for sticking with mining. That said, I feel like the current "wealth" in the btc economy is divided amongst those few early adopters, and in the blink of an eye mining became unfeasible. I'd like to get more involved by creating a client/exchange, along with a mining mini-farm, but at the same time I feel like I've missed the boat. This strawman analysis if taken at face-value confirms it - I think. In my pool I am generating about 1 btc / 40h with two 5870's on a rapid downward trend.

The main reason I am interested in btc is due to the mining tech/ distributed clients etc. Now that mining is moving out of reach of the individual, I wonder if the community will shift from tech-centric to business / investor centric.

you forget that difficulty only increases while there's expectation of making a profit on the miner hardware+ongoing costs - hardwareresale at the end.

difficulty increases will simply not happen, unless bitcoin price increases sufficiently in order to encourage new mining power to come in.

there's a feedback loop in operation here, things will level out eventually.

If you do not cash out immediately you are only speculating on bitcoin price, and if you are doing this simply buy bitcoins rather than mine them.


The numbers are all 100% real, and very conservative if you ask me, with difficulty increases from 30% to 50%, and bitcoin increases from 15%-50% per 10 days, how can you call that not conservative?  If anything I am try too hard to make it look like you will have a good return on a rig, not the other way around.


It is a lot trickier because it is impossible, there are simply no longer term gains to be had, and after about the 30-50day period out, no gains at all, only losses.

Judging from the forum traffic, people are already starting to sell their rigs.

Thank you for this thread.

I decided to go into mining yesterday and was just about to check out my shopping cart for two rigs with 6 GPUs. Your post let me re-think about this, because I havent thought of the difficulty development yet and just calculated with the current value. (Yeah.. i'm new :) ). The price per kWh is actually much higher here, so this business would start generating loss in only 30 days or so.

So looks like I missed the boat. Any other boat on the horizon?

if its not profitable, then by all means STOP YOUR MINING IMMEDIATELY.
And let us fools keep mining.

This is a key point to take away, it doesn't matter if difficulty increases 20% or 100%, if the bitcoin is worth $1200 or $100,000 in 1 year, you may make some money, but it will be minimal, and hardly worth the risk and time involved.  Remember this isn't set in stone!  The bottom could drop out tomorrow and difficulty could drop 100% next round, I don't know, its only an estimate.  But based on current trends, and the fact that there are millions of unused idle GPUs sitting in computers doing absolutely nothing 24/7 leads me to believe difficulty will continue to increase, and no amount of increase in the bitcoin value will lead to a significant return on a mining rig put into operation this moment.

You misunderstand, buying a rig specifically for mining is probably not profitable, buying a video card to do so may be profitable I haven't look at it, certainly there are profits to be made if you already own and paid for all of your gear, but the days of even that are numbered.

mineority don't take my word for it, simply create an excel spreadsheet and do your own analysis, using numbers you think to be correct, the analysis literally took me about 15 minutes, a small time to take before spending thousands you may never get back.

The numbers are all 100% real except for the ones that I specifically pointed out are plain wrong. The others are as much speculation as you are railing against in the same sentence, it makes no sense to create a projection of future trends almost a full year into the future then say "anyone who doesn't sell within the first second is speculating and therefore operating incorrectly." No one knows the future, everything is a speculation, trading is a different beast from mining, but that doesn't mean there is not some overlap.

Are your numbers conservative? In what way? You're assuming a 60% constant increase in difficulty because in the past few months there has been ~60% difficulty increase on each update. This totally ignores the > 1 year in which the difficulty barely increased at all. But anyway, if you are only going to look at the very recent past in which difficulty spiked like crazy, why are you then conveniently assuming a 10% increase in bitcoin value? In the past 2 months the value has gone from $0.89USD to $8.603USD, that is a 10x increase. Yet you choose to suggest only a fraction of that increase. Your numbers are basically tweaked to support your argument as I said, whether or not you call them conservative.

One last corollary, when I said investment I should have been more clear, I was referring to investment in bitcoins directly, rather than investment in hardware. It is clear that there needs to be a promotion into the bitcoin market, to encourage the adoption of bitcoin when people see that there is real interest in it, rather than in just making a profit off it. My apologies for not being clearer there.

I can relate.

For the last two years or I'd been looking on and off for some kind of interesting distributed computing project to contribute to. I just find the entire field fascinating. I'm a little sad that bitcoin flew right under my radar.

I don't worry about it though.

I fully expect that the network will get back to "normal" as the hype wears off over the next month or so and the big holders get antsy and crash the market a few times by profit taking.

Like anything else, bitcoin will die or become stronger.

The thing that really has me thinking now isn't the technology as much as wondering just how long this purely speculative economy can survive?

"anyone who doesn't sell within the first second is speculating and therefore operating incorrectly." where did that quote come from?  I never wrote that.  I don't care what you do, I'm simply stating that if you do not sell your bitcoins you are speculating on bitcoin price, there is no arguing with that, it is a fact, there is nothing wrong with being a speculator lol, do not take offense to it.  If you are going to speculate save yourself some time and just buy bitcoins directly.

They are conservative because I also analyzed a 30% difficulty increase and bitcoin increase to $100,000, that is over a 12000x increase, absolutely absurd if you ask me.  They are not tweaked to support my argument, lol argument, my statement was derived from the data.  If the data had shown it to be profitable then that's what I would have wrote.  You seem to think I have some alternative motive, I don't care what the value of bitcoin does, if you build a rig or not, it was an analysis others might find useful.  I was thinking of buying a rig a few days ago and this is useful information IMO.

Since you want to bring semantics into it, I will use the definitions most relevant to this discussion.

Statement: a single sentence or assertion.
Argument: a process of reasoning; series of reasons.

Sorry for trying to give you the benefit of the doubt by assuming you used reason to arrive at a conclusion.

You don't think your numbers are biased? You state that bitcoin value increases to $100,000 after 360 days, yet profitability falls out after 160 days. Why would people be mining at a loss and buying coins at that price? The only absurdity is presenting numbers that are bombastic to try to make a point. It is clear from your presentation that you are leaning in a specific direction regardless of your assertion that you are just some impartial observer following the irrefutable math.

Again, if you want to use ridiculous numbers, in the past TWO MONTHS, 60 days the value of bitcoin has increased 1000%, that is the only FACT that exists (none of your projections are facts as you seem to suggest) in this analysis, and it has been completely ignored. Am I saying that will continue? Of course not, but if you are going to be pulling out numbers why are you not using what exists?

If you argue that those numbers aren't realistic, which they of course are not, then you need to add more reasoning to your analysis. And as such it has been stated multiple times in this thread already as profitability decreases so will the increasing hashrate/difficulty. Projecting static increases without taking this into account is just a way to push an agenda.


Just so I don't sound like a negative nancy:

Here is a useful tool another member created to estimate profitability, this is not in relation to buying a new rig like the OP, but it gives you a sense of where you would stand in terms of the profitability regime. It's a little more complex, and thus a little more useful.

http://forum.bitcoin.org/index.php?topic=9111.0

So you honestly think that using the absurd value of $100,000 per bitcoin is biased to showing that a rig is not profitable?  This is absolute nonsense, if I wanted to bias the data I would use a value of say $10 or $50 one year into the future.  Yes it increased 1000x in the past, which is why I said if you are speculating on bitcoins value (and expecting it to increase 1000x in the next 60 days), then just buy bitcoins.  You are going to make a lot more than buying a rig.

A whole lot more!

I seriously don't understand why it is so difficult to comprehend. My point is that the numbers are completely baseless, hence they have no relevance of any kind. This is the opposite of what a reasoned analysis is.

Using $100,000 per bitcoin is absurd, but it is no more absurd than a difficulty that is so large it overflows the number column of the excel spreadsheet. The last difficulty his spreadsheet can even display is 7,407,009,366 on day 240. That's 7.4 Billion difficulty. What is unstated about using $100,000/bitcoin is that you are making a loss when the difficulty is 172,569,134,712.082024157046. A bitcoin rate of 100,000 dollar is unreasonable to you but a difficulty rate of 172.6 billion is reasonable? Why? Where is the reasoning to support that? Do you know how much hashing power that would represent? 434,000 difficulty represents ~4THash/sec, I don't know the calculation offhand so I could be wrong here, but if there is a 1:1 correlation then 172.6billion difficulty represents 1,590,498THash/sec. Perhaps someone will come out with super FPGA mining clusters but as it stands either bitcoin mining would have to explode into crazy realms of profitability to entice that much hashing power, or it would never ever ever happen. Perhaps the argument stems from an unspoken misunderstanding, so I will say this clearly. Difficulty is not arbitrary. It is directly related to hashing power such that it maintains roughly a bitcoin generation rate of 2016 blocks per 2 weeks.

People keep using terms like nonsense for their opposition, then they spit out nonsense. I apologize if this seems like I am merely attacking, but I am trying to get across a point here, that while return to zero profit is definitely a possibility, and something to be considered, this analysis is far from being anything factual.

probably. if EC -basecd crypto not considered unsecure in half-year or about.
which is debatable from EC introduction[late 90's XX]itself.

Well I switch from f@h to this. My 4 machines were running non stop on the f@h program. Now I am just running 2 machines doing this. And so far this is more profitable for me..

My spreadsheet using 50% difficulty increase every 14 days shows a very positive case for mining now.

i used http://forum.bitcoin.org/?topic=7427.0 to get an idea of the relationship between difficulty and price, and determine whether it was more profitable to buy or to mine.

Hi, I'm a confused newb here. This Analysis doesn't make sense to me. My understanding is that there is a fixed amount of BTC to be mined each week. The difficulty is used to keep that fixed amount in check. The difficulty is currently increasing because the amount of rigs are increasing. The reason the amount of rigs are increasing is because there is big profit in mining right now. However, if the difficulty was increased so much that it was clearly not profitable then wouldn't most people shut down their rigs bringing the difficulty down? By this analysis, it shows that even when the difficulty is so high that it's clearly not profitable people will still bring new rigs online. Why would anyone bring new rigs online when the difficulty is clearly to high to make a profit?
Like I mentioned before, I am a complete newb here so I'm sure I'm missing something important in my understanding about how this works. Thanks for any clarification.

The problem is you end up competing against people who:
- for some reason aren't paying for their power, or
- wouldn't normally enter because the profits are so low but already own the equipment so just keep it going
or both.

The long-term equilibrium difficulty will likely be below the break-even point for folks paying for both electricity and hardware depreciation. Even if it's above break-even, if you're only earning 10% that's pretty crappy for: tying up capital, spending your time, and taking on risk of loss.