Bitcoin Forum

IMHO none of the anti solo mining myths are correct except one: pooled mining generates a steadier flow of income (at a price).

Myth 1: Mining in a modern pool produces less stale shares due to long polling, which the regular Bitcoin client doesn't provide for solo miners.

Fact: You don't need long polling for solo mining at all. Just set the askrate to something as 1 second. For solo setups the added overhead is below noise. You loose 0.5 seconds worth of work on average per freshly found block, but even the best pools with LP support cannot beat that in practice, since you seldomly get less than 0.5-1% stale shares (often more). This nonsense is even part of the wiki! There is no 1-2% benefit due to LP, in fact local fast polling is more reliable. Can anyone remove it?

Myth 2: Because difficulty constantly increases, joining a pool improves your chance to get any payback before the next difficulty increase, thus pooled mining has a higher profitability.

Fact: The premise is true, but not the conclusion. Solo mining has a low probability to get a large payout before the next difficulty increase. Pooled mining has a large probability to get a low payout before the next difficulty increase. It sums up to zero. Pooled mining does not increase your chances in a scenario of steeply increasing difficulty.

I think all other myths are self-explanatory nonsense.

There is not one benefit of pooled mining except less variance. You pay for this comfort with pool fees, missed transaction fees, stale shares, generally higher network downtime exposure, the risk of getting ripped off by a pool operator, implicit costs of sophisticated pool hopping (if you aren't the hopper). These costs are real, the costs of solo mining are purely psychological (not for the faint of heart).

This is possibly the most confusing topic title i've read to date:

Anti- meaning against, myth meaning fictional story, and debunked to disprove. A triple negative if you will. So if solo mining is the subject, a triple negative would indicate a negative, or be a post against solo mining.


Anywho, that's just a bit of an aside. On the main topic, variance is a cruel cruel cruel mistress. in roughly the last 2 months (2 month anniversary in a week! Better buy some roses!) of mining i have solved... 0 blocks. Clearly i'm a ridiculously unlucky person, but it still stands that i'm probably not alone, and that as difficulty increases the lottery you play becomes that much chancier. The fact is that probability isn't as nice and neat as some people like to make it out to be. Sure if you looked over the course of 10 years of mining my variance might average out to the statistical norm, but in an acceleratingly competitive climate, can one really afford to wait that long?

The fact is that difficulty changes, and with it your chances for hitting a block, you have a "low probability to get a large payout", but it also keeps gettng lower. You can keep missing and missing and missing and so on. Really unless you can put out some serious hash power or have great faith in your luck, anti-solo isnt much of a myth.

bcpokey: In other words, reduced variance is the only advantage of pooled mining.

That makes no sense. Think of it this way: "Myths against solo mining debunked". There is no triple negative.

No.  Its quite possible for someone to never mine a block solo mining.  Unless I am mistaken, its purely chance and there is nothing that guarantees that if you mine for a certain period of time you are GOING to get a block.  A person with 655Mhash/s like myself could mine a block within the first 10 minutes of solo mining (luck), or it could more likely take a year(or never).  Its much better to just use a pool, get 20 bitcoins in 2 weeks and be done with it.  

Within a few weeks the difficulty is going to be absolutely massive (3million at least by mid july) and I seriously don't think that is going to help anyone in my situation with mining solo.

Why do you say "no" and then agree with me?

It's also quite possible for a pool to never mine a block (or to mine far under the expectation), it's just less like just as it is less likely for the pool to do superbly well.  Worse, because of downtime, fees, cheating, etc. the pool is expected to average less overall. The the reduced variance is a real and useful result, but don't exaggerate the contrast.

This thread seems to be full of people using negatives when they mean positives.

@Joel if you say reduced variance is the only benefit that makes it sound like a trivial thing, try turning it around, what are the benefits of solo mining? No fee pools, pools that have been around for a long period of time (why would they scam YOU?), etc. Stale shares isn't even a real thing, as every share that does not complete a block is worthless in solo mining, so there is no comparison. Basically every "benefit" of solo mining is either addressed or purely hypothetical.

@Everyone telling me you can not mine blocks, hey thanks for telling me exactly what i said already. Now on the other hand, statistical probability makes it entirely improbable for you to NEVER mine a block with certain amounts of hashing power (i have had > 5GHash for some time now). if you want to quibble with probability you probably don't want to learn that that is what makes our universe run more or less. But you can run a ridiculous bad streak while difficulty mounts making it less and less likely for you to outgain what you would have gotten in pooled mining.

And that's just it, the real benefit of pools. There is a real tangible benefit to returns NOW rather than possible returns later. The two are not equal in an accelerating growth model.

That's a bit rhetorical. Just as gmaxwell wrote: there is no sure return "NOW" in a pool vs. an uncertain return in a distant future for solo mining. There is just a trade-off between probability and payout. There indeed is a risk to never see a block before difficulty hits the space age. But there is also a chance to find multiple blocks during the current difficulty and get a large payout. A pool doesn't pay you better in the latter case, solo mining does.

Having instant benefits now instead of later might be a huge benefit during accelerated growth of a whole economy. But Bitcoin is a currency and does not earn you interest. Getting 50 BTC now or later is of no difference if it is BTC's value itself that is growing. If mining would return another currency, say Batcoin, and your goal was to participate in Bitcoin's growth, instant payout of Batcoins would be important, so that you can convert them to Bitcoins before the price (Batcoin/Bitcoin) increases. But the payout is denoted in Bitcoin already, you participate in the growth of its value, even if you aren't cashed out immediately, because the return is always a nominal 50 BTC.

It would be different if the price of Bitcoin was falling and you always sell your coins immediately to earn interest in another currency. Then an instant payout would be a benefit.

Aren't the blocks some time next year going to be 25 BTC from then on?

Pools are the tax authorities, which levy tax on ignorance and lack of knowledge of elementary theory of probability. Kind of like weird reverse lotteries.

How is it rhetorical if no one seems to accept it. There is a sure return now because pools of a certain size do not go full difficulties without block solving. There *is* no sure return of any kind with solo mining. if difficulty were constant perhaps, but as it jumps up up up your time to hash keeps increasing. Getting 50 BTC now or later does not make a difference except that the longer it takes you to actually GET that 50BTC the less likely you are to command similar returns to pool payout. This is why its not rhetorical?

The idea that the lottery will reward you more handsomely in the future is just wishful thinking. Yeah you could find like 20 blocks in a row at 20mil difficulty with 500MHash/sec, but you really aren't going to.

This isn't rocket science. You have a probability curve that models your expected time to solve a block that keeps getting shifted away from where you are as time passes and difficulty increases. This is what bugs me about people saying "oh anyone CAN find a block at any time!" Yes, and anyone can win the lottery, it is still a stupid investment if the odds are stacked against you. Spread your timeline out, and you will see the advantages that grabbing as much as possible for yourself as soon as possible will yield. it's simple.

Again, i will use myself as an example to make this less abstract for you:

i have been mining for 2 months more or less. in that time i have solved 0 blocks. i have earned roughly 350BTC in that time. this means going forward i would need to solve > 7 blocks just to catch up to myself. the next difficulty (occuring in about 2 hours) will be about 1.4mil. The average time to find a block at this difficulty is 14 days at my current hash rate (> 1 difficulty change). Coin toss @ 9.75 days. The chances of me dropping 7 blocks in a row in this time period are astronomical against. Obviously i'm an unlucky case, but i'm also a real case. Again increasing difficulty isn't just some boogeyman, it's a real consideration and why you need to consider the coinage you can gather now as superior to ones you imagine getting in the future.

Difficulty has increased.
http://www.btcserv.net/bitcoin-calculator/

LOL!!!!!!!!!!!!!!!!

After my last post my lonely HD5870 (940/300) has just generated a block! Can't see, which one it is, yet. It includes 0.0715 BTC fees and has only 23 confirmations so far.

:D

Compare that to a measily 0.4 BTC a day, is that really worth your time? All or nothing!  8)

No. Stale work has no chance of producing a block. Current work has a non-zero chance of producing a big reward.

I have 3M+ shares mined on btcguild, yet Blocks Found: 0

So if it were not for pools, my 4 GH/s would have produced nothing for me so far if I mined solo.

Solo mining is undoubtedly better mathematically, but you could mine for years without ever finding a block and I just can't see that sitting well with most people.  This is a bit of a simplification because I am not taking difficulty increases into account and because I am assuming every day as an individual trial instead of every share, but the average time to solve a block with a hash rate of 1ghash is 68.5 days at the current difficulty.  If you convert that to a percentage you have a roughly 1.46% chance of generating a block in any given day, or a 98.54% of not solving a block today.  

Chances of solving at least one block, at constant difficulty and 1ghash/sec:

1 day : 1.460%
10 days : 13.676%
50 days : 52.064%
100 days : 77.022%
200 days : 94.720% (1 chance in 19 of having a run this bad with no blocks)
365 days : 99.534% (1 in 214)
500 days : 99.936% (1 in 1,561)
1000 days : 99.99996% (1 in 2,436,681)

The utility of money is concave, logarithmic is a good model. It's expected utility you need to maximize, not expected money.

This means that variance is not just "psychological", there is a real economic cost to variance. These days you might get away with saying that if you're a Vulcan you're better off mining solo, but in the future when mining will be one in a million chance to get $100M even that much won't be true.

And we're not Vulcans. Trying to mine solo caused me to lose sleep. Plus, some pools have convenience and monitoring features, and in the future end users won't be able to run a full network node.

Only if you think mathematics is about extremely oversimplified models completely detached from reality.

The alternative is heating and noising up your house for a wimpy 0.72 BTC a day on the same assumptions. That's really not worth the hassle.

On the other hand, I have switched 1 week ago from pooled to solo mining, after earning 3 BTC in total, the hard way. Today I have 53 BTC in my account, that's really worth the effort. The big profits make you smile. IMHO, a trickle profit of <1 BTC really isn't much more satisfying than 0 payback and the chance for big cash. That might be interesting for kids converting their parents' electricity to cash, but not for me.

Would you rather:

1) Pay me $1,000. I generate a random number from 1 to 1,000. If that number is 523, I will pay you $1,000,000,000. You can keep playing as many times as you want, but after you play a few times the reward drops from $1,000,000,000 to $500,000,000

2) Take $1,000 I give you for free right now.

See the problem? If you are unlucky before it drops to 25BTC/block, you CAN NOT expect things to average back out in the long run. You COULD get lucky in the short term too, but then your EV is the same as (not better than) solo mining. It's a question of whether you think the implicit fees you mentioned are worth the fact that you might make losses that will not be smoothed out by the law of large numbers after block payout changes.

EDIT: Wait, or would the probability rise to 1 in 500 at the same time (in situation 1)? In that case, nevermind, but:

The logical extension of your mentality about this is that you shouldn't buy health insurance because you would pay more per month on health insurance than you would on average spend every month on paying for your own healthcare when you get badly injured.

That's incorrect. Even at insane difficulties solo mining pays more on the bottom line. The chance to find a block solo decreases as much as the average payout of a pool, the relationship between both stays invariant.

Did you even read what I said? The expected money for solo mining is higher, but its variance is insanely higher and it's bad.

I think you need to read up on utility (http://en.wikipedia.org/wiki/Utility).

They were just saying that the utility of money does not scale linearly.  To a dirt poor person $1,000 guaranteed is better than a 51% chance of $2,000, or a 25% chance of $5,000, or even a .1% chance of $2,000,000, while the math would tell you to just take the odds x the value to get your expected value.

I think that's still a little far fetched at the moment, since a block is only worth about $750 today, hardly life changing money to most.  

The term you were looking for is "extrapolation" ;) and it's still incorrect. I am a big fan of health insurance. The costs of keeping enough liquidity to be prepared for the worst cases covered by health insurance is higher than paying health insurance. The required liquidity for the latter is much lower, because there is enough inflow of money every month.

My point is, if you have multi-GH/s power you can afford solo mining with its better average returns without too much risk of never finding anything. If you have less hashing power, the return of pooled mining is too wimpy to be worth the hassle (if you aren't a kid) and possibly risk of investment (even tighter increases of difficulty or price drops). Mining solo is fun on the other hand. You either write it off after a while (0.5 BTC/day wouldn't have changed much) or you jump in circles over $750 in you wallet after waking up.

If the difficulty keeps going high at average 4% each day, there is, for smaller hashrates, a very good "chance" that you will NOT mine ANY block at all, regardless of how long you will try.

Like with 200 MHash GPU you will never get 50 BTC mined using the pool, there is a very high probability that this GPU will never find a block.

So, it is better to earn 10 BTC with 100% probability, than to earn 50 BTC block with 20% probability, hence 80% probability you will not get anything. I would not take the risk.

0.5 BTC a day doesn't have any utility for me compared to the effort.

Finding 50.0715 BTC in my wallet this morning had great utility in contrast.  ;D


What about Myth 1, BTW?

Why is this nonsense still in the wiki?

So 0.5 BTC is bad, but 1% chance of finding 50 BTC is good?

Then this isn't at all about pool fees decreasing your expected payout... It's just that you're among the few people that actually enjoy the rush of having high variance. Good for you. (And consider the lottery for satisfying your variance cravings.)

I guess you're right about this one (though I don't know a lot about this myself). Wikipedia has a "be bold" policy which I guess applies here too, feel free to change this.

You, sir, like to gamble. And might I say, congratulations on mining a block solo on your 5870!
I have the same card and I wonder how long it took you. If I'd only get a Bitcent from pool mining on a single card I might just as well keep it running for a couple more days to find the "jackpot".

I see your point about myth 1, though. Stale shares and pool outages is what really gets on my nerves. Not only does the yield decrease dramatically each and every week, I also have to combat connection problems, hardware errors on my part (freezes), hardware errors on a pool server, invalid pool blocks after 12 hours of work... This oughta be much better when you can poll the network yourself.

Getting a little OT here, but for people solo mining how are you checking if you have any downtime?  

The thing I like most about pools is I'm able to see instantly if any of my computers are down without any extra software.  I just have one worker per computer and can see whether or not it completed any shares in the past two minutes, and if not I know exactly what computer has the problem.  For me, this utility itself is worth more than the 3% fee charged by the pool.

That should be as simple as setting up another Nagios task from a remote server. Of course, if you do not already have such a setup, it might be more convenient.

There are only two reasons we need health insurance and neither of them apply to pooled mining. If not for those two reasons, health insurance would be a bad deal because you would pay more for insurance than you'd pay for care. Those reasons are the small risk that we will unexpectedly incur major health care expenses that we cannot afford and desperately need and the fact that insurance companies can use their market leverage to extract lower prices from providers. Because neither of those things apply to, for example, pet health insurance, it is pretty silly to buy pet health insurance. It's like a lottery in reverse where the odds are still against you.

A regular lottery within a regulated environment returns about 50% of its players' investment on average. Playing that is idiotic. The Bitcoin lottery returns more than 100% of my investment on average on the current conditions (basically only 240 watts of electricity). The chance is there, that I could never find a block (which luckily didn't happen), but if I find a block, its return is high enough to justify buying the ticket (on average more than 100%). So playing the Bitcoin lottery has both good returns, moderate risk, and it is fun. Beats Las Vegas in 2/3 aspects. Pooled mining would also return more than 100% right now, but with zero fun and much time wasted for a wimpy return (or considerable risk if you scale).

PS Does anyone know, how I can find out which block my miner has exactly found? The Bitcoin client only shows time, amount, and pending confirmations.

Well done. You got lucky today. I will stick to pooled mining. Only a 2% penalty - really not a big deal.

The poclbm console output still logs RPC errors and "client not connected" messages for solo mining.


I agree, 2% really isn't a big deal. But the wiki and many forum posts suggest the opposite: that solo mining is less profitable on average, which isn't true IMHO.

So you ignore the equally as likely case (more likely based on available anecdotal evidence) as "myth" because you personally found a block? i suppose that's easier than debating it.

Anyway, kudos to you for enjoying high risk activities, regardless of whether or not they will truly yield better results, might also look into las vegas and play some games of chance, as well as a lady of the evening (a different game of chance).

Myself though i'm not living at home sucking off mommies teat, and so the cost of running a miner is real, and i need to make a showing for doing so, not just sit at the slots and pull the lever until a little bit of change falls out and makes a big noise.

Just a note, the "average" time to find a block with a single 5870 at the current difficulty is now 152 days, 8 hours, 40 minutes. in that time there will be between 11 and 22 difficulty changes, almost all of them upwards, the ones in the near future will be large. You think that statistically speaking you are really likely to find another "big fat payout" in that time? Does .5 BTC per day seem less appealing than 50 btc per who knows how much time (likely a year)?

Anyway, it's good to see soloers, that's what the system was all about, but don't pretend that pools are just for lazy ignorant masses, they're for people who don't get off on rolling the dice because often the dice don't come up well.

I haven't referred to that as an argrument once. I have also opened the thread before I knew of the block.


Why do you need to make a showing for a business no one is forcing you to undertake?


What many of you guys seem to forget, when using projections like this, is that the payout of pooled mining is also going to sink into a bottomless pit with these figures and won't be the "sure .5 BTC alternative" but rather something like the "wimpy .000005 BTC alternative". Is that going to be worth your time? Speculating that BTC/US will skyrocket until then, just because difficulty has increased is wishful thinking and and a large risk in itself.


I don't and just try to correct the incorrect representation that pooled mining is statistically more profitable. If at all, it is the opposite. I concurred with the "less variance" fact in my first post. I don't neglect, that there might be a need for that for some people.

Statistically if you had enough hashing power to more or less assure yourself a solved block before difficulty change then you could potentially come out even or ahead. Otherwise in an accelerating difficulty frame solo mining will fall behind pooled mining for most people. Luck is, of course, luck.

This is a bogus argument.

Consider: You give me a dollar. I roll a six-sided die. If it comes up '1', I give you $1,000. You only get to play once.

Is this a good deal? By your reasoning, it's not. Most people who take the deal will come out behind $1.

That's a stupid comparison as it is completely unrelated and has nothing to do with my reasoning.

Congrats! :)

The two cases are precisely the same, it's just more obvious in my example. With solo mining, just like in my deal, most people will come out behind. However, with solo mining, just like in my deal, the expected return is greater.

The difficulty change is irrelevant noise. It's based on the mistaken notion that you need time to allow the law of averages to even things out. That is not true. Playing a slot machine one time has precisely 1/100th the expected loss of playing the slot machine 100 times. If playing once is a bad deal, playing 100 times is 100 times worse. If playing once is a good deal, playing 100 times is 100 times better.

I think you have the "Law of Averages" backwards.
Quite the opposite of what you are suggesting.

Anywho, the cases are not precisely the same. There is a difference in valuing what you already possess against what you can potentially gain, against what you can potentially gain vs. what you can definitely gain.

Furthermore going back to the original point, all statistical probability requires a large sample, in the case of mining bitcoins, this sampling is time.  If I flip a coin one time I have a 50/50 chance of either result. If I flip it twice, same thing. By your logic no matter how many times I flip it, betting on heads will yield the same results, which is completely untrue. Given a large enough pool of flipping it will come out 50/50. But on a small scale betting heads every time can yield profit, or loss. Large numbers and small numbers are not equivalent.

I don't really want to get into the mathematics because while I have a decent handle on it, it's not a current enough aspect of my life that I can whip out equations off the top of my head. But rest assured that while statistically independent events are not the same as mutually exclusive events.  Events that are independent can in theory either never or always occur, so why does this not actually happen given Big samples? Something to think about.

You just cite economic tenets, which do not really apply here. No interest is paid on the actual possession of Bitcoins, so early crediting does not improve profits. Maybe you understand it, when you look at an opposite projection: falling USD/BTC and difficulty. By your logic solo mining would become more profitable, because your probability to find a block would be shifted into the future into lower difficulty territory (just as the higher difficulty territory in your projection). Both projections are false. Solo and pooled mining have identical returns on average with a slight advantage due to fees and less stale shares for solo mining.


This really shows the barricade in your mind pretty nicely. On a small scale the average return is 50/50, just as in the large scale. The chances for loss and profit balance each other out exactly. Variance is variance, limiting it may have value to some, but it hasn't anything to do with average return.

all this topic is about people who want to get rich fast

i mined around 1000 btc since february 27th in deepbit, which is 20 blocks, while in settings i'm informed that my miners generated 18 blocks

it can't be compared directly to solo mining, but even if we assume that i would be lucky enough to generate two blocks more in solo mining (as i would not be affected by any deepbit technical difficulties) i would still missed some of pools features ie. detailed informations about my miners downtime, notification about them going down etc.

for average miner there is no difference between solo and pool mining in log run, period.

googlebot1: Nope. The ideal 50:50 state can only be reached with an infinite number of samples. The actual occurences converge to the statistical value of "50% chance" on a coin toss. However, at any point before infinity (and I dare you try to reach infinity ;D) there's also always the possibility (however small - or not) that there's a deviation from the ideal statistical ratio.

How else would a pool be able to say "oh, we're +20% on luck over the last 24 hours" or "-2% (= unluckier) during the last difficulty"? Although all events are unrelated and have the same probability, the real occurences will be much closer to average the bigger the sample gets. So although the theoretical average is 50/50, the actual average might be completely different. Think 10-times heads in a row. It's unlikely, but if your sample happens to be those 10 events, your average is not 50/50.

Real world example: My miner was offline for a couple of hours this night. Those were quite "lucky" hours, meaning the occurences of blocks were more than expected if you just use "ah, yeah, current difficulty - you should come up with a block per Gigahash every 16.5 hours". Now, being reconnected, the "luck" is below average so it would have been - in hindsight - advantageous to mine during the hours I was offline and have it offline now (although 24/7 operation would of course be superior to both).

tl;dr: So, yeah, the average is always the average but that does not mean you (or a pool) cannot perform above or below average. That's exactly why you got your block.

The difference between actual and theoretical doesn't matter for the average profit as long as the risk to fall below average is exactly as high as the chance to end up above it, which is the case here. The only difference is the variance in particular case, which might be much higher for solo miners, but not their average return. When the risk to never find a block increases (increasing difficulty), the average payout of pools decreases by the same magnitude. A particular miner might never find a block or win the lottery, but on average all solo miners together have a higher return than all pool miners together (if you exclude the pool operators).

For the record: after cashing out, I could identify the block I have mined, it is http://blockexplorer.com/b/133035 (http://blockexplorer.com/b/133035).

and that is exactly why pools exists

@googlebot :

I assume you are mining just for fun or shits n giggles. You mention you only have one HD5870 and solomine, good for you.

Alot of us do not try and achieve the gambling man orgasm while mining for bitcoins, alot of us have legit reasons for running their miners as a business with realistic daily/weekly and monthly income projections. It would be a self destructive decision for alot of users on a big pool to move into solo mining.

Most important part about solomining that seems to be overlooked regarding the higher variance is the fact that the higher variance isnt on a scale of 1-10 with pooled mining at 2 and solomining on 8. As the difficulty increase, the variance gap between pooled and solo increases even further thus the statistical variance being discussed here would reset at every difficulty increase and the gap between pooled mining and solomining just keeps widening. This wouldnt be the case if every difficulty increase also came with higher payout per block but that is obviously not the case cause it would be counter intiative with regards to difficulty increase. Also it variance wouldnt increase if you increase your solomining hardware to counter the difficulty increases, then you could keep adding the probabilities of variance from one difficulty to the other.

Pooled mining takes mostly care of this on the bigger pools, at every difficulty increase the mining pools see an increase in hashing power. Solo miners typically dont get more hashing power for every difficulty increase.

That said, if I had atleast 20% of deepbit's hashing power for myself then I might consider soloming, even then it would be riskier outcome than sticking with deepbit/btcguild or slushpool simply cause of the hashing numbers game available on these pools.

So my conclusion, solomining on a realistic timeframe will on average produce less BTC for miners than pooled mining and thats why I agree with the wiki's statement about this.

The poo doesn't get bigger due to magical pixie dust. It gets bigger due to hashpower being added, same way solomining gets biggerr.


By using the words "on average" you make your statement completely incorrect as many have pointed out here.

It's fine to say that there is increased risk of higher or lower payouts, and the low payouts matter more to you because they'll put you out of business (or the higher means less because you somehow don't need more coin(??))... and thus on average solo has lower utility for you, but that lower utility != less btc _on average_.

I'm sorry, but IMHO anyone who has invested anything into dedicated mining hardware, since the beginning of this month, "even" when he is mining pooled, is a much worse gambler than I am. There is real money at stake. I, in contrast, just don't switch my PC off at night as I would normally do and that's all. The "business" of recent rig buyers runs on the assumption that we won't reach 10.000.000 difficulty anytime soon (which won't even pay electricity for many and might be on the horizon within weeks) and that the current XXX/BTC rates aren't moon prices. Pooled mining doesn't hedge this risk. There is no market of considerable size for the exchange of real goods or services for Bitcoins. There is just one huge speculation bubble with thousands of people hoarding them in the hope to get rich and who might dump them any time, if they get cold feet. There is no necessary correlation between difficulty and exchange rate. A too high difficulty might also make many people loose interest and motivate to move on and cash in. I don't want to hold Bitcoins on the day when hoards of miners become scared when the long-term uptrend breaks on high volume one day (the recent break was just a short-term trend). We might very well see cent/BTC territory again, and if you ask me, that wouldn't even be a bad thing for Bitcoin as a currency. A couple of weeks ago it was still hot to tell friends of Bitcoin and they could all earn their share with a little effort. Even at the current difficulty this isn't true anymore and many couldn't justifiably care less for the returns you get with pooled mining ATM.

Pooled mining at the current difficulty is only "worth" the effort, if you leverage the current profit by buying extensive amounts of mining gear. This leverage in itself is very, very risky. Even the aftermarket value of the latter is severely threatened by a scenario when mining suddenly becomes unprofitable for many. Because of that I see people, who undertake pooled mining on a business-scale (anything else doesn't pay enough on a pool), as the real gamblers in this game. I couldn't be farther away from that with my solo mining HD5870.

the whole blockchain will be rebuildable with a desktop pc in an afternoon in less than a decade, driving btc prices down to 0 - if you're a long term investor skip ALL bitcoin mining and invest USD, stocks, or buy some sheep.

You fail to take in account that every day you don't find a block, you lose 0,55 BTC that would otherwise be in your bitcoin wallet. Those "wimpy" losses add up very fast.

So for every 100 days you find nothing, you are losing over 50BTC or a whole block because you're not in a pool.
Variance only evens out in the long term so it could be another 100 days or even 3 years before you find your next block.

Just because you win the lottery once doesn't mean it's going to happen again anytime soon. Just because you found a single block with a 5870 doesn't mean it's going to be a regular event.
However, a pool with 3000 ghash/s finds blocks in about 20 minutes average.

Your share of the current block doesn't necessarily even have a fee for variance reduction if you mine in a 0% pool like BTCguild.

It seems some people get overly enthusiastic about solo mining just because they got lucky once

This is getting tiring. Nothing seems to confuse homo oeconomicus more than applied statistics.

You model the solo case one-sided as if it was a rule that one will find nothing. There is equal probability to get a block on the first day of mining as there is to find one too late.

0% pools still keep the transaction fees and suffer from more stale shares than possible when you go solo. Again, I didn't claim that pools are considerably worse, they just don't have better returns on average.

Yes, pooled mining gives (some small %) less than solo mining in return for less variance.  Any argument stating otherwise is incorrect.  The only thing left to add is that variance is a bitch, and it may well be worth giving up a couple of % in expected value in order to reduce it.  

The majority of what is written in this thread is BS, either because it under or overstates the loss of EV due to pooled mining, or understates the benefit of pooled mining's reduced variance.

In my opinion anybody who thinks that lower variance has no value hasn't really experienced variance.  

If bitcoin continues on its current trend then eventually solo mining will have an extra cost, as the "average user" will no longer have the hardware and connectivity to run a full node.

Pools generate 100% guaranteed daily income, esp. if you opt in for a PPS scheme.

You are guaranteed nothing while solo mining and might not even find a block at all at 1-3m difficulty using a single gpu

Right, but that's neither better nor worse, it's simply different.

I've been concerned about this lately myself.  Right now ~ 3% of my hashes are stales.  I'm definitely thinking about getting out of the pool. ;-)

It is just as tiring hearing your side of things. You seem to be implying that you have a grasp on statistics, yet you fail to even consider the fact that a moving average might not be the same as a static average.

Hint: It's not.

For more information on statistics, see the thousands of papers showing you why the argument "A lottery ticket is just 1 dollar and I could win MILLIONS! So it's not a bad investment" is total crap (same argument as yours).

5,923,676,160,960,014 is not an irrelevant number.

Although statistics is no easy subject, this particular problem is by no means difficult  ;D

Pooled mining reduces variance, usually at a cost. The bigger the pool, the smoother the variance.
From a statistical point of view, there are no other differences.

If your business model/speculation strategy relies on reduced variance, go with a pool.
If not, don't. It's that easy...

Really it seems simple to me, if you don't have a high enough hash rate to reasonably expect to generate a block before the next difficulty increase (you can look at the mining calculators to see your odds based on your hash rate), then you will lose solo mining, because if you don't mine a block before that difficulty increase your odds of generating a block will go down, and got nothing at that lower difficulty.  If however you have a high enough hash rate that you can reasonably expect to generate a block before the difficulty increase then you can save yourself the fees, etc. of a pool and comfortably mine solo, as the odds would be the same (you would just have to put up with the variance but over a period of a couple of weeks you would likely come out ahead solo in this case).  Am I right or am I missing something?

More or less a reasonable concept. I wish that googlebot were still around, would be interesting to see if he still felt the same way about a month later on his idea about economics of solo mining at ~1.75million difficulty on lower hash rate.

That is an odd statement coming from someone who owns a pool  ???

If truthfulness is odd, than yes it is odd.

But I must also note that pools do provide reduced variance, which could be valuable.

Not really. Difficulty increases have very little to do with it (though when making projections of whether you can take the variance you may want to consider that the variance will increase in the future). It is always the case that solo mining has the same expectation (without fees) and higher variance. And, if it takes a week to find a block, it will take years until your payouts will be anywhere near the statistical average.

If you're mining at a higher difficulty then the odds of you finding a block at the same hash rate goes down, so I don't see how you can say difficulty has nothing to do with it.

... And your payouts from the pool will also go down at the exact same time (assuming it is hopping-proof). So this has no bearing on your expected payouts solo vs. pool.

My point really is this...  Let's say you started mining with a 1GH/s rig today.  At that hash rate you will find a block on average once every 3 months and 3 days according to the mining calculators.  Your expected return per day would be 0.53 bitcoins.  If you mined solo the odds are that you will not get anything before difficulty goes up again.  If you mined in a pool during that period you would get your 0.53 bitcoins a day, less fees, etc.  If however your hash rate was high enough that you would find a block before difficulty went up then you could take advantage of that lower difficulty and your higher rate of return during that lower difficulty period and save yourself the costs of pooled mining.

Actually after thinking about it some more I guess I see your point.  From a purely mathematical point of view your expected value, starting today, would be the same.  However if you did go the two weeks or so before difficulty increased without finding a block you would lose, and the odds of that happening are high.  Your overall odds and expected value, starting today, are the same either way, given that there is a chance you could find a block before difficulty increases.  I guess it's just about managing your risk really.

The flaw in the solo mining arguments is that they don't take into account the fixed and variable cost that all start at t0.  If you aren't making a dent in the cost and operation of your rig between difficulty increases you need to join a pool.  If you are still unprofitable you shouldn't mine, your throwing money out the window.  Another easy way to figure this out in practical terms is to look at the hashrate of the top users in the top pools (Slush, Deepbit, and BTCGuild).  Look at how often they are solving blocks.  There is usually a sharp falloff in hashing power in the big pools.  The top 2-10% usually have way over 2GH/s.  These power players are pulling the weight in terms of blocks discovered.  The other 90% operate as insurance to further smooth out variance.  It's the reason why if you have respectable hashing you can earn a little more at BTCGuild because there is less competition, but more variance. 

At the end of the day you have to be able to cover your cost.  Cash out your initial stash of BTC to cover the fiat used to buy the machines.  As long as there is a chance that Bitcoin could go to zero miners should sell some percentage of their yield.  Commerce is the only sustainable future for Bitcoin.

-btcbaby