Bitcoin Forum

I'm going to move this note up to a top level thread so I can refer to it from various other posts. When thinking about mining, the key point to consider is the "value" of your mining asset. That value is set by mathematics.  The only uncertainty in the equation is how rapidly the difficulty increases over the life of your investment in mining.

I have seen a number of online calculators trying to help you figure this out. All of them are wrong. The only way I have figured out how to get a good estimate of the future production of a mining asset is to model it in a spread sheet with the expected difficulty increase for each bump (increase in difficulty). I am happy to make this spreadsheet available to anyone who wants a good tool to calculate ROI. Just send me a PM with a real email address.

The key point here is for any difficulty increase projection, a miner has a well defined value in terms of BTC produced. One way the decrease in BTC value affects miners is each mining investment must be balanced against the BTC that can simply be purchased instead of the mining power. At $400 BTC price, a mining investment must be twice as efficient as a $800 BTC price. I see people saying things like the value of your mining rig will increase over time if BTC goes up. True for fiat value, but the BTC value of the rig is pretty much set the day you turn it on. If you can buy BTC for less than you can buy and operate the hashing power, then you should buy BTC instead of hashing power.

I load the spreadsheet with the current difficulty, expected difficulty increases and then it iterates to an answer with assumed difficulty increases. This result shows the payback in BTC of one terra-hash of mining power put into production on the date of the 9/25 bump. The spreadsheet assumes the specified difficulty increase occurs every 12 days. If you keep your miner (local or cloud) in production 100% of the time, you should be within a few one thousands of a BTC to these numbers. I put the end date when the miner is accumulating less than 1/1000 BTC every 12 days (bump period). Average difficulty increase has been about 13% for the last ten bumps.

What this table tells you is if you put a 1000 THS miner in production 9/25/2014 and difficulty increases are 13%, then it should produce roughly 1.510 BTC for you between now and 4/23/2016. Depending on your situation, you should certainly not pay more than 1.5 BTC for the miner (or in dollars, roughly $600 as of 9/25/2014). Instead, you can buy and hold the BTC and be at the same place today. Similarly, at 13%, a 480 GHS miner will produce 0.725 BTC in its productive life time.

If you think the difficulty increases will slow down to 10%, then your result for the 1 THS will be in between, but not more than 1.908 BTC/THS.

http://i61.tinypic.com/zx7hhi.jpg

p.s. On thinking about this some more, there might be a way to formulate this as a set of equations in N unknowns. The knowns would be current difficulty, difficulty increase rate and hashing power. The unknown would be number of bumps until the mining power is "worthless" and the number of BTC produced. I think the number of BTC produced can be interpolated from the starting BTC produced per bump and "0" BTC produced per bump. This is because BTC produced has a linear dependence on difficulty. Maybe I'll come up with something. I think one of you young technical guys who took discrete math more recently than me should work it out.

In this post, I talk about some of the economics of mining verses buying BTC when BTC is $350.

https://bitcointalk.org/index.php?topic=801250.msg9007844#msg9007844

The original post focused purely on the BTC value of a mining capacity independently of the other costs of operating that capacity. Most miners do have an operating cost and that cost should figure into whether you buy a miner or buy BTC. The problem with considering operating costs is we now have two time changing variables to consider: the expected increase in difficulty and the expected value of the BTC.

At 10% difficulty increase per bump and 13 days per bump (the OP used 12 days), one THS of mining capacity produces slightly more than 2 BTC. To get to that two BTC, if your operating costs are $1.26/day per the linked post, you have spend $573 to operate your miner. If you look at the S4 with 2 THS $1400, you are betting on lower than 10% difficulty increases to buy the miner rather than just buying the BTC. You also do not care about the operating cost to get the 4 BTC it will produce in its productive life.

you are disregarding the sale price for the miner.

For the sake of argument.  I purchased  2 s-3's in July batch 1.


Lets pretend the price  pricer was flat. 

My machines cost 1.35 btc they earned 1.32 btc  I spent .08 btc on power.


 so they netted 1.24 btc  while the buy and hold stayed at 1.35 btc       

We both know I can sell the 2 s-3's for 250-280 usd each on ebay.  or the pair os s-3's will sell here for .76 btc and buyer pays shipping.  so  the buy and

sell is 1.35btc and I am at 2 btc

My analysis applies to the purchase of miners or cloud mining today with the difficulty twice the July difficulty using a near term cost of BTC of $350..
In the specific example, the purchase price was $700/TSH for an S4. I think that is accurate. BitMain is not letting me put anything in my shopping cart. The target audience is new miners spending cash for their mining capacity.

The S4 barely makes back 4 BTC under these assumptions and at 0.05 power it goes negative on power in 8 months at 3.53 BTC and $415 in power.  With BTC at $350, the right investment is to buy BTC - it is not even close.

In your used S-3 example, they can be purchased to $300 and free shipping.  $300 is .857 BTC (at $350). It goes negative on power after producing .75 BTC (at 0.05 power) and $98 in power. Again, it is not even close. Spend the $300 on BTC.

BTC at $350 is a game changer for the mining pastime.

Alot of this depends on electicy cost.

Right. At 0 electricity cost and the other assumptions as stated, the S4 will produce 4 BTC.
Right. At 0 electricity cost and the other assumptions as stated, the S3 will produce .9 BTC.

Somebody paying fiat into mining at $350 BTC is depending on the average rate of difficulty increase dropping.

Here is where I agree with you buying an s-4 is dumb. Most likely it can not earn a profit.
  

Buying used  s-3's on ebay  are a fiat purchase  not a btc purchase.  Many ebayers get discounts.  
I can get a used s-3 for under 250  usd on ebay. In fact here is one I purchased for 280.  I got 10 percent = 28. I got 3 % more = 8.40

total  off = 36.40.  

 So the s-3 was 243.60.  If I  buy btc with that. I get about .638 on coinbase as I type.  this is a direct comparsion. to a thur night purchase which was 243.60 after discount.  it arrives  at my home on tues. diff will be  34661 when I get it.

next diff looks to be well under 38000 according to https://bitcoinwisdom.com/bitcoin/difficulty  

so the next 11 days plus up to  the next diff after that is about 22 days of diff at 34661 then 38000 that is about .121 btc in the first 24 days which may work out for that particular s-3.
so for an s-3 purchased on thur the 25th    I stand a  chance at a profit. I have other ideas for my s-3's.

    I am only saying spot s-3 purchases on ebay  under 250 usd net can work for those that buy them if they can get them.


 But I do agree s-4's don't work.   They may work if btc jumps to 750 usd. As they will cost 2 btc  but I am sure bitmaintech will raise the price.

FYI, I do like this online calculator. My spreadsheet still has an advantage or two, but this calculator at least incorporates difficulty increases in the right way.

https://bitcointalk.org/index.php?topic=805477.0