Bitcoin Forum

Hardware sales and pre-orders have reached a fevered pitch. New IPO's are being sold left and right. Everybody who knows anyone in chip or board manufacturing is getting into the game. But it is almost game over and no one appears to see it coming.

Here is an example from BFL. If you ordered a unit in April, 2013 you should have been aware that there were hundreds and hundreds and hundreds of Th/s ordered before you. They will all come online before you get yours plugged in. There was a large multiple of the entire global hash in April 2013 already ordered. There was already never any chance of getting your unit hashing at a profit. You need to have ordered no later than October 2012 to break even no matter when you got it. Even if they had delivered in a month the delivery of all of the units in the queue before you would have driven the difficulty level past a break-even ROI.

This is the problem facing all orders across all manufacturers. Everyone focuses on the other companies and forgets the damage to the difficulty inflicted by their own orders. If you did not order early enough all you can do is prevent other people from reaching expected ROI.

In the next year we will probably find ourselves in an unlikely environment where it is no longer cost effective to manufacture, sell, or buy ASIC miners. The only miners left will be those that have already paid for themselves and cost nearly zero to run. The days of buying a box, plugging it in, and watching $20 bills come flying out of it are just about over. No manufacturer will survive the difficulty levels we are creating. What good is 50Th/s for $1.00 if it only returns 50 cents over 50 years?

The golden age of bitcoin mining is coming to a close... but sadly few can see this. It is being destroyed by it's own success, another "Tragedy of the Commons" writ large. There is so much hashing power currently ordered and paid for that the difficulty will wipe out any possible earnings. There is a practical limit to current technology when it comes to chips, and baring some magical breakthrough, the hash rate will eventually plateau as it becomes uneconomical to create more. Any new offering will only be a drop in the ocean, or cost far too much to develop and produce.

Where the bitcoin experiment may lead no one today can say. But the future of mining bitcoins is pretty much set in stone. I am glad to have been a part of this unique and fleeting moment in history.

Well if you will order from BFL ....

The days of money-printing machines never last long. But that was never Satoshi's endgame for the mining side of bitcoin. ASIC developers will continue to make faster and more efficient machines. Miners will buy them hoping to turn a profit. But the larger goal is to keep the overall network hashrate so high that no organization, not even a coalition of governments, can overwhelm and break the system.

Even miners who are selfishly motivated to turn a profit for themselves are helping protect the entire bitcoin ecosystem as a side-effect of their profit chasing. It's a work of genius, and amazing to watch.

As an individual miner waiting on a delayed pre-order it can be very bad, from a security standpoint it is very good. 

The units once bought can only do one thing and their operating cost is very low.  Global hashing power would need to rise to something like 20PH/s before even the least efficient ASICs will no longer be cost effective (operating cost only).  The higher efficiency ones will require closer to 100 PH/s before they are operated at an loss (once again looking only at electrical operating cost).

So while we may see no new (or more likely less) units sold the network will be much much more secure and there is no financial incentive for a miner to take their already purchased rig offline.  Even if a miner sells their rig it almost certainly just miners another miner puts it right back online.

Sales will slow after that but the most efficient units will still be sold (at significantly reduced prices/margins) and slowly that will edge out the least efficient ASICs.  In time the network will be 200 PH/s or more.  If the price rises significantly we could even see the network hit an exahash.

Shouldn't this be under mining speculation and not economics?

You're saying bitcoin is going to be destroyed because of the collapse of this golden age of mining? Or you're just saying mining interest will wane from newbies because they can't make easy money?

While it could have gone under mining speculation, I felt it focused more on the economic impact as a whole. Much of the bitcoin economy currently is dedicated to hardware purchases and investments in mining securities. The effect of hardware sales and development cannot be understated in the bitcoin economy as it exists today.

I personally believe that should the hashrate plateau prior to widespread acceptance of bitcoin, the effect would be detrimental to the bitcoin economy. It is a bit of a race in my eyes. Although, from a security standpoint it would obviously be a good thing as stated by others.

It seems to me that hashrate plateau is a necessary but insufficient condition to widespread acceptance.

When I am telling people about investing in bitcoins, I have noticed that one the things that bugs them the most is mining.

These kind of people do not want to know about money printing machines.

They want to invest, but at the same time, they know their neighbors could be producing them like crazy.

I think once we hit 500+mill difficulty the price of of bitcoin will rise violently

It is evident to me mining difficulty has more impact than halving (or at least halving magnifies price in relation to difficulty)

More to the point how many GPU miners are still running?

For me I'd need to see a 50% drop in price today to make it unprofitable. I suspect at least 70% of GPU miners are still at it, and are waiting for the coming ASIC oversupply.

@ OP
In Q3 and Q4 of 2010 GPU mining had a bigger impact on difficulty than ASIC's today, (CPU mining was rendered useless) the result proponents of Bitcoin pushed the price up.  

While I agree with you. There are other variables like price that change the dynamic so no need to panic.

If short-term ROI is your goal, then you shouldn't be in the game.
 
If I mine one coin a day, or one coin a year, I'm still participating in the network, and I won't care.
 
Besides, my coin today (or in a year) will be worth a 1000 times what it is now in a few short years.  I'll be ahead :)
 
I'm the guy who used to participate in distributed.net, SETI@home, folding@home, etc. (for free)  I'm doing it for the value of the service, not necessarily the value of the currency.

That is a legitimate view.  Securing the network in a decentralized fashion even if it means low or no long term profit.  Nothing wrong with that.


This is a flawed way of looking at it.  Say you can buy a miner X for 1 BTC today.  If that miner doesn't produce >1 net BTC over its lifetime you are always behind.  The exchange rate is irrelevant.  Why?  You always have the option to just buy 1 BTC today and thus have 1 BTC in the future.

However note the prior statement as a non-economic reason to still mine.  Just don't confuse non-economic good with "profit" which is actually a loss.  Personally I see nothing wrong with it.  If 10,000 people buy relatively small rigs (say 10GH/s avg) thats 100 TH/s helping to keep the network decentralized.  Maybe someday someone will convince netgear or the like to add low powered SHA ASIC into their mainstream router and you could have tens of millions of people mining in a decentralized fashion.

Mining is all about short-term ROI. The return on the equipment drops rapidly.
Mining and speculation are separate businesses.  If you want to speculate, you can do that without mining.

The problem is that most miners ARE speculating, and see mining as a cheaper means to obtain coins then purchasing them on an exchange.  Most miners sell only enough coins to cover their operating costs, this is what is keeping the price afloat now after the bubble, very few coins actually reaching the market (especially with Gox being such a poor way to sell coins now).

As difficulty peaks and the glut of mining equipment really hits home miners will have no profit left after paying electric bills and will be forced to sell most of their coins or run their machines at a loss.  As more coins come onto the market prices will drop further reinforcing the trend.  As we saw in 2011 the peak of hashing comes after the peak exchange rates, and then the exchange rate bottoms out after the hash peak.  This time around I expect the same pattern with 3-6 months between the hash peak and the market bottom.

@DaeathAndTaxes:
I'm not sure ASICs are a boon to network security.  Higher hashrate does not translate into more security if *per-hash cost drops by the same amount.*  
In other words, if the total hashrate of the network increases tenfold, while hashes/sec costs drop tenfold, the network's security remains the same.

If we assume that security is improved through distributing the hashrate, we start to see that ASICs are concentrating hashpower (the "why sell what you make when you can mine it" argument, and empirical data).  Not sure how that could be seen as securing the network.

Finally, the highly specialized nature of ASICs, what you see as a good thing that guarantees that these miners will remain online, rather than turned into gamer boxen, i see as another centralization danger.  These miners, as they grow toward obsolescence & their profitability plummets, will get sold at that point to professional miners (who have lowest energy & location costs).

And ASICs have finally wiped out the last traces of hobbyshopping from bitcoin mining.  Yeah, there will be novelty USB miners, but...

@crumbs.  ASICs have always been possible, and they always will be possible.  Ignoring that doesn't make the network more secure.

The "good miners" making some kind of agreement to use inferior technology (i.e. 1/10th the hashrate @ 10x the cost) doesn't make the network stronger.  The attacker will simply bypass that and use the more efficient technology.  

Say at one time the network consisted of $20M in GPUs.  Was the network secure?  No not against any real threat.  An attacker with $20M in funding wouldn't build $20M worth of GPU just because that is what the idiot defenders are using.  I mean this isn't some kind of ritualized duel at sunrise.  No instead the attacker would just spend $1M on some low end (130nm or older ASICs) and have enough hashing power to 99% attack the network at 5% of the cost.

Now in the future yes an attacker can use ASICs (but they always could) however when the hashrate rises to say 20 PH/s it is going to cost a lot more than $1M to 51% that.  ASICs alone don't secure the network but they do prevent an attacker from "cheating" and doing a 51% on the cheap.


Unsupported and I really doubt that. I don't think that any "pro-miner" wants to manage 50,000 USB Block Eruptors, connected to 6000 USB hubs, and 200 host PCs. No most likely they will be heavily discounted and sold to other hobbyist.  The fact that you have a variety of sized hardware from a variety of manufacturers is a good thing.  Those looking for max hashpower with minimal overhead/complexity are going to use a manageable number of identical units.  Managing 10 TH/s using 20 identical BFL minirigs is a lot easier than doing it with 208 Jalpenos, 3,187 Block Eruptors,  a handful of various KNC offerings, etc.  

I realize ASICs were always possible, but an attack on the network by an ASIC designed *exclusively* for such an attack is a bit irrational, don't you think?  
Why not design & build it in the open, fund your efforts with pre-order money, and *then* play with the network?  Why Spy vs. Spy when miners will *pay* you to build the silly thing, and fight each other for the right to send you money?  


What "older ASICs"?  The attacker would design & manufacture enough '00 tech ASICs just to troll the network with a 51% attack?  I'm not even sure if the 1 mil figure makes any sense -- i suspect the investment needed is much higher.  What would be the finacial gain?  Bitcoin price would *zero out.*  Where's the profit?  That's one expensive prank.


You're forgetting that these ASICs are manufactured by ... a manufacturer.  Who may mine with them (this is one of sound business models), and, if successful, can easily have an instant 51% attack in *just his warehouse stock.*  Sure, there were the GPU manufacturers before, but they had bigger fish to fry. BTW, there is almost no difference in cost between making 10 or 10,000 ASICs -- so, why not?


Just how much hobby fun can you have with a Block Erupter?  Why would anyone buy, oh, 10 tinker-proof, mine-at-a-loss identical things instead of *one*?  Mind you, other than adding a *truly insignificant amount of hashrate to the network,* there's nothing to be done with them.  (remember, we're talking about the future, the things are really obsolete)
I, of course, am talking about modular gear, along the lines of Avalon & BFL big guns, stuff that feels at home in racks or could be simply reconfigured to be happy in data centers.

I don't think most miners are selling to cover their overhead. I suspect they are saving.

I don't think you can look at 2011 in isolation nor 2012 - looking at what put Bitcoin on the map in 2010 is an exponential increase in difficulty not yet seen as an overall increase when looking at difficulty in logarithmic scale. As we saw in 2010 the peak in exchange rates comes after the quantum shift in peak of hashing. 


http://www.jdidesign.com/files-in/Hash-Price.jpg


my thoughts referenced here (https://bitcointalk.org/index.php?topic=233184.msg2470175#msg2470175)

During the gold rush the people selling the mining equipment got rich instead of the actual miners.

My point exactly, they save as many coins as possible and sell only what they absolutely must, If some miners are not even covering their electricity costs and are effectively subsidizing their mining then my case is only stronger.


The graph clearly shows hash rates continues to climb for some time after the bubble bursts but then peaks and declines.  We are currently in the space between the two peaks, in 2011 that space was only about 2-3 months but it is clearly taking longer this time, also the hash rate growth is a considerably lower slope.  I suspect this is all to do with the fact that ASICs are not a commodity device like GPUs which anyone could buy off the shelf, thus the 2011 hash rate growth was limited only by willingness of people to invest in equipment, now their is a huge waiting list.

Also were likely to see a longer time period until hash peak because ASICs have a high capitol cost but a low electric cost, ware a GPU running constantly could consume electricity equal to its capitol cost in a year or two it will take an ASIC (at current prices) decades to do so.  This means ASIC mining is much more a race to recoup initial capitol in the face of rising difficulty, rather then a balancing act of ongoing costs vs ongoing coin generation.  The race is so tight that we may already be past the point were an ASIC ordered today would arrive in time to ever turn a profit, just one month delay in starting the machine up could wipe out it's whole profit margin.  But even then the machines marginal costs would be so low that it would not actually drop to unprofitable to run until the end of the year or roughly when difficulty passes 1 billion.  

But we might also speculate that hash rates growth has to level out at some point as the manufacturers hit their capacity, but at the same time they are all plowing forward full steam with expansion of their capacity and new players are entering the market with huge additional production.  Perhaps customers will rapidly dry up as people realize that the profitability window is or has already closed, if that's the case then I expect manufacturers to drop prices rapidly in the next few months, I wouldn't be surprised to see a monthly price decline in ASIC's that parallels the monthly rise in difficulty as only then can customers enjoy the kinds of returns that make people invest in mining equipment.

Yes, the Big Four:  Leland Stanford (groceries), Collis P. Huntington (hardware), Mark Hopkins (groceries) and Charles Crocker (hardware). As in Stanford University, Huntington, West Virginia, Mark Hopkins Hotel, and Crocker Bank.

Butterfly Labs is not going to be up there with those men.   

I think it is somewhat similar to Q3 2010 where an exponential increase in difficulty drove market participants to move the price 2 orders of magnitude higher. Only this time the reword is half and there are more participants. (Call it demand noise with fewer coins)

Already ACIC USB's have dropped from BTC2 to BTC0.17. If it is a repeat of 2011 then Bitcoin will look like a failed experiment when ASIC manufacturers stop producing for lack of demand and the difficulty stabilizers. (Not my most probable scenario but an option)

I think there are lots of ASIC investors who invested hundreds of Bitcoin for just a few GHs that will take over 5 years to earn back, and they will save every coin.

They are in all likelihood the ones with the hard learned lesson holding is the best long term strategy.

What I want to know is, are they buying XBT to cover the loss or are they waiting for it to drop while new market participants are holding up the price. There is still a lot of profit to be made if you can limit your XBT capital outlay.

This has nothing to do with ASICs, given 3600 coins a day and more and more miners join the game (I guess more than 40000 now), each person's average coin income should be less than 0.1 bitcoin per day if all of them have access to the same technology

That's an intended design from Satoshi. Manufacturing of money should be the same as any other business, when it is too difficult to manufacture money, people should work to provide goods/services in exchange for money, thus raise the value of money, but if too many people are producing goods/services to compete for a limited supply of money, the money's value will rise, thus make manufacturing of money profitable again. In this way, people either manufacturing money or manufacturing goods/services, they always have some thing to do, thus 100% employment is reached

So, until we see the exchangeable goods/services/even fiat money for bitcoin grow by a large extent, the bitcoin's mining profitability will keep dropping due to more and more people joining the mining industry

BFL is one case..

Indeed the ASIC scene is still pretty young.. We've just seen an intro..

I'm not sure what you mean by "more miners join[ing] the game."  There's more hashpower coming online, but that doesn't translate into more miners -- it's *fewer* miners with ASICs.  The gamerz hashing with their boxen are pretty much out of the bitcoin game already, and mining at a loss with a USB stick & Rpi is ... well, more fun than watching paint dry.  There is nothing to "hack" on those USB sticks -- the novelty wears off pretty quick, you'd have more fun hacking a thumb drive.

Mining is becoming a real business, with *scores* of ASIC chip manufacturers *with no product to their name* offering pre-orders, lulzy IPOs & bizarre hybrid mining/ASIC manufacture offerings (i have nothing but respect for the guys on the tech side).

Why do people buy into these IPOs?  Because profit. 
They're buying into the second-highest tier of a pyramid scheme.  As long as they keep their mouths shut, and let the IPO issuers manage the hype machine, they will profit. 
It's morning, wake up. 
 

The difficulty rally has not really started yet, you will see the real rally in a few months. Most of the miners will eventually upgrade their gaming GPUs to ASIC devices. Some of them did it long time ago when BFL announced their plan last year, that's all those mini-rigs that coming online now. But I think most of the miners start to purchase ASICs from BFL since Avalon delivered their first rig and the bitcoin price skyrocketed, the order number at BFL is now estimated to be at least 30000

Can the difficulty reach such a high level that current tech is unable to produce a decent number of coins? I mean what's the point of having expensive equipment like ASICs and be able to produce only 1 coin a month for example? What would this scenario result in.

It'll result in: Distribution and an increase in demand, = currently undervalued.

It has nothing to do with technology, 3600 coins per day fixed. It means that you better buy coins instead of mining if there are too many people in the mining camp

Today, you spend $1000 to buy 10 coins. With mining, at 20% difficulty increase for each period, you get maximum 5X income of your first preriod income, for a BFL 25G you get 4 coins for current difficulty period. If you start to run it from current difficulty, you get 20 coins maximum, but if you start to run it in September, you will get maximum 10 coins, any time after that will be less than 10 coins total

Return for each difficulty period at 25Gh/s
4
3.2
2.56

2.05
1.64
1.31

1.05
0.84
0.67

0.54
0.43
0.34

0.27
.
.
.

If more people are switching from mining to purchasing, that will lift the price for some degree, which will also help improve the USD investment return, but for those who invest with bitcoin, it will almost never ROI

The biggest thing to note is this...

Value is not increasing proportionally to the money spent to mine with advanced mining costs. That, and the fact that the volume of trades is reaching the points where BTC was, when it was selling for $10 and lower... is an indicator that eventually the trade-volume will simply die, because at these "worthless to mine prices", the coins still are not trading. No-one wants to pay for them, no-one can afford to mine them, and asking price from those holding, will never become "realized" in the future.

Those who saw this coming, months ago, left with minimal loss. Those still in denial, will take the brunt of the fall.

BTC has turned from gold, into tin-foil. It will eventually turn into paper, as worthless as any other "in game currency" that is generated from nothing, and requires zero effort to create.

Sorry, but that is just a fact. The complexity and poor design, along with greed, is what killed the coin. Welcome to Zimbabwe!

Totally upside down, it is the fiat money requires zero effort to create, you need electricity/hardware/software to mine bitcoin. Fiat money's value is a very complex plot, in theory it should worth nothing, but it does worth something, why? no one knows, because they have no other choice when they were born into such a system

Let's factor out fiat, fiat's an entirely irrelevant can of worms.  Fiat's welfare is irrelevant to ASICs, other than a few tangential lulfests where disappointed buyers are jumping on CC & PayPal to charge back their purchases from BFL.  Let's assume the mining gear is being bought with BTC.

Let's look at the present scenario, where a whole bunch of ASIC hopefuls are are promising outrageous amounts of hashpower, each funding production (and, likely, R&D) with pre-orders & IPOs.

Considering the legal clusterfuck of Belize-registered US exchanges trading shares of Belize-registered US-based companies issuing illegal-in-US and otherwise lulzy financial instruments, what do you predict the outcome of all of this to be, taking into account the current sentiment re: BFL & Avalon, the companies currently delivering on the ASIC promise?

Fiat requires zero effort to create! What!

You know printers that do micro-printing for free, do auditing and serialization for free, and handle tracking and counterfeit detection for free, places that do quality-control and distribution for free... Let me in on your "free money printers". (Not to mention insurance for "held bills". Which no coin offers.)

But I digress... lol.

I believe it costs over $3 to print a $1 bill, and over $0.05 to make a penny. (But that penny earns more than $3.00 in taxes as it passes through multiple peoples hands. Yet is is worth less than a penny, physically, in value.)

The point still is...

Trading/use of BTC is lower than what it was, when people could afford to pay for it, to use it. Thus, they are no longer giving-up $$$ for BTC. Thus, places are no longer accepting it, because they can't exchange it for $$$. Turning BTC into a coin that has everyone holding it, and less and less having the ability to use it for anything. If it was not for mining, "coins from nothing", then there would be no value. That "loss" from investment and electricity is no longer rewarding anyone with gains... Thanks to ASIC's.

Remember, the people making the ASIC's are also mining with them. They used your money to build themselves the golden-goose, and gave you the black-swans. Even if they loose, they win. In the end, they will stop mining and making them, selling you the golden-goose, when the goose stops laying eggs... leaving you with the old crippled goose.

This coin is now worse than any fiat. No fiat is worth converting to a coin that is constantly falling in value. Not rising to adjust for losses is the same as falling. If BTC flat-lined, that is falling. No-one gains, it is all losses. Even to those getting the THs machines.

Notice that no matter what the hash-rate of the network, everyone still holds the same volume, as a percentage, of the network. EG, they just got more debt from buying more miners, and that yields zero more coins. Increased debt, and no-one willing to pay for it, by buying BTC for $$$ from them. We were the ones paying, (the GPU miners), and we all left, because we were pushed out. Now, the ASIC owners, the few that exist, have to trade among themselves.

There is no more "economy" in BTC... just banks buying each others debt. ASIC banks buying loan-debts from one another.

Do you have any evidence to support your assertion that merchants no longer accept BTC? Because I have not seen that. Adoption is slowing a bit, but that's because it's not in the news anymore.

I just extended the registration on 30+ domain names.  namecheap still took my "worthless" BTC.  Interestingly they credited my account instantly (6 months ago when I paid w/ BTC it required 6 confirmations).

ASICs are disruptive so I expect the amount of doom & gloom, FUD, and hyperbole to ramp up as fast as difficulty over the next 3-6 months.  When the FUD bubble reaches its peak and breaks we can expect that people have gone through the stages of grief (for the loss of their easy money printers) and can move forward.

Many vendors are figuring out that zero-confirmation transactions are just fine... for order flows where the actual product delivery takes longer than an hour or so.  i.e.  "accept" the zero-conf transaction, then check it again at a later time when product delivery starts.  For places such as BitcoinStore.com, this works because a bitcoin transaction will have many confirmations by the time they are putting an order in the mail.  Similarly, namecheap can just yank the domain control away from you, if the bitcoin transaction gets double-spent, making "accepting" zero-conf transactions just fine.


Indeed.

Lol... you know that FED is creating 48 Billion dollar per month. Based on this reasoning, the FED must be paying 144 Billion dollar to mint factory, and the mint factory is paying 96 Billion dollar to its suppliers, 2x amount of QE3 money went to printing money. Wait, since there are only 48 Billion dollars added to economy each month, where are those 96 Billion dollar come from  :D

I believe he is saying the cost of printing money (http://www.federalreserve.gov/faqs/currency_12771.htm) is detached from the economic value so it is almost free, and whatever it costs its utility value is similar to that of the junk mail you may occasionally get in the mail, which you tend to think of as free.   

I thought i'll not hear this anymore.

Now people realized that simple mining rigs were good.

The technology was overvalued but they got their money.

The Fed doesn't actually print money. The QE program is implemented by changing values in accounts electronically, not actually printing bills. People call it "printing money" because it can have similar effects.

This is not true. If you didn't steal electricity GPU mining were as much a gamble as ASIC mining now. Most people (newbies) doesn't understand this and complain constantly.

On the other hand, we have the biggest peer to peer network which ever existed. :)

ASIC mining is the way forward and is very good for bitcoin. Only the fools who bought hardware for the wrong price and at the wrong time have regrets.

Also, don't think that the "fruits" of badly timed purchases will rot in a drawer. People will buy them up from the "losers" of the game.

If most of the hashrate comes from a handful of ASIC mega-mines, gauging network size by hashrate alone is silly.  Look at the trends:  Solo mining to pooled mining to hosted/commercial mining to ASIC manufacturer mining. 

70% still mining btc? NO WAY! More like 5%

Yes, Yes, in Chinese board, you can see ASIC post everywhere and pertinent IPO.

Are people in other country do the same thing?

I have some serious concerns about the future of ASICs as stated in the OP. I think that difficulty increases will destroy the ASIC manufacturers. Even the most efficient ASICs imaginable will stop production when their cost to produce is greater than the expected positive ROI. Eventually no one will buy them, or at least no one who has had third-grade math classes.

Those who own them after production stops will run them at a small profit until they fail. Perhaps someday there may be fiat to be made producing them again, and I am sure people will try from time to time to make new ones. They will probably make enough to replace the ones that eventually burn up, and then go bankrupt like all of their predecessors. And new farm schemes will be floated in front of investors and bring in some btc to fund new production, but these will also likely fail.

Eventually, I expect if BTC succeeds we will see small hashing chips added to things like cellphones that will bring in a slow trickle of satoshis to billions worldwide, bringing a close to the age of ASICs, and the fulfillment of a fully distributed system concept.

At least that's how I see it.

In response to a PM, it works like this:

There may be a glut of strip-stores in a particular area. Suppose them to be at 50% occupancy. You might ask yourself why just a block away they are breaking ground on another strip store. The answer is rather bizarre. A developer grabs some paper and scribbles down some numbers. He runs them through a few other people who mix them all up, and when that paper is revised 20 times it becomes a prospectus. This prospectus is provided to an investment management firm who then sells the idea of profitability to some fund managers and investors. Individual investors in these funds find their nest eggs moved into securities that fund the construction of the new strip store. The strip store is built, and the following list of people profit:

The property owner
The developer
The construction team
The contrators
The municipality
The fund managers
The investment management firm
The listing /rental agent

Then the space is put up for rent to retailers. Those who move into the nice clean new spaces pay huge premiums for leases, and usually go bankrupt. Then the leasing agent lowers the lease prices, but is still unable to keep 50% occupancy like all of the rest.

Who loses? The individual investors who were moved into the securities that promised big fat returns.

This is the fate of ASIC manufacturing. They will overproduce even when it is completely unprofitable because IT IS NOT THEIR MONEY! They get paid whether an ASIC hits ROI or not.

The concept is that eventually you run out of stupid money, or at least the level of stupid money required to continue producing things that will be worthless to the end user.

When you see this has happened, you can know it is a good time to look at ways of getting into ASIC mining. 

It'll be hard, because there are many players not to mention the technologies and other productive uses for the heat will be evolving too, so it may not be a clean identifiable moment. 

I don't see it as a problem for Bitcoin; I see it as an opportunity to invest should it ever become a problem for some players. 

I think this is how the many successful corporations today accumulated there opportunities in the of the 1930's

It will eventually balance out. The lack of profitability of ASICS will make the bitcoin supply go down, making its value go up.

The saving grace in all of this is the deflationary nature of Bitcoin. 

Way back when, when coins were easily mined even with a CPU, and marketplace demand for BTC was all but non-existent, the coins were cheap.  As hashrates rise (especially with the all the ASICs coming on line), it becomes a lot harder to mine.  So, as a commodity (this word is something of a misnomer, but lots of people treat BTC as such), Bitcoin goes up in value, at least as measured in fiat currecies. 

That to say nothing of the reductions in payouts every four years or so.  We are down to 25 BTC at a time now, with 12.5 only some three years away.  Again, as the coins become harder to create because payouts are reduced, prices are very likely to rise. 

But that is really to say nothing as to one key term: critical masss.  Today, in 2013, it appears as though Bitcoin is on the cusp of really being in widespread use.  Earlier this year, i read an article by a gal who lived for one week on only Bitcoin.  A year ago, it would have been impossible for her to do; now, many, many businesses are starting to accept Bitcoin.  The trend appears to be wider and wider acceptance of BTC as a legitimate monetary unit, at least as far as the marketplace is concerned (Governments are another matter, but it seems unlikely that a government could do much to stop it, or that all governements in the world would try).  The point is: there are likely to be a lot more users of Bitcoin in the very near future.  That said, supply and demand dictate that again, prices are likely to rise. 

All that said, it seems likely that Bitcoin is poised to really go up in value as measured in fiat currency. And therein is the key with all this newfound hashing power.... the hashing power helps contribute to the value and security of Bitcoin, which in turn makes development of even more powerful ASIC units viable.  There will eventually be a natural cap on the value of Bitcoin, as only so many transactions worldwide will be conducted in Bitcoin.  But even if it's only one tenth of one percent of all transactions... wow. 

One more thing: I think when the person mentioned "it costs nothing to create fiat currency" their meaning was fiat can be created out of thin air, unlike Bitcoin.  There is physically nothing to drop the u.S. Government from creating, say, a trilion dollar bill.  A paper bill of this nature could be produced for a dollar or less.  So in that regard, creating fiat currency still "costs":, but only as much as it does to create a physical representation of such currency.  You can't simply create 54 billion bitcoins the same way Fiat money gets created, and I think that was the point.   

By the way, for the curious, the $1 bill costs about three cents to make.  A penny costs the U.S. mint 2.4 cents to make; even though the cost of the materials is slightly less than one cent, there are overhead/administrative costs on all coins produced by the Mint.  Even if the Mint could get the materials for penny making for free, they would still very likely lose money producing them. 

Sorry if this was addressed, but OP's arguments are "noob arguments" (no offense intended), in the sense that he probably was not a miner/bitcoiner in 2011 and 2012, and didn't see the evolution and cycles of mining, which are pretty much repeating themselves.

Mining has always been (and always will be) an only marginally profitable business. Market adjust itself, and only the most efficient miners do a marginal profit. During a) exponential rise in price (as in 2011 or 2013) and b) a change to a new, very efficient technology there are small windows of time in which mining is wildly profitable, triggering a "mining gold rush", but these windows close extremely fast. It happened in 2011 (GPU introduction lead to exponential network rise until the hashrate reached plateau and started to decline) and it will happen now. The "wildly profitable" window of 2013 was really wild because a third factor was added to the equation, which is the extremely limited supply of ASIC during the first semester of 2013. The few lucky ASIC owners made a killing for a few months, and the newcomers have been blinded by the impossible returns of the lucky few, and rushed to pre-order units like theres no tomorrow.

At the end of the day, nothing will change much - some miners will mine at a loss for the added benefit of receiving "clean, fresh-minted" coins, some others will gradually shut their miners off (or upgrade), and some others will keep mining at a marginal profit thanks to very competitive fixed and variable costs.

IMO ASIC will be the endgame for the amateur miner looking for profits. CPU or GPU are commodity items, custom made ASICs are not - they are custom-made "money printing machines", and normally the ones having the means and the funds to produce their own "money printing machines" have no incentive in selling those machines for less money than they will print in their lifetime. Making a long story short, ASIC manufacturers currently have two ways to maximize their profit:

a) they use customer's money to do projects much bigger than their own funds would allow, they risk nothing, but in exchange they have to promise a good return to customers

b) they use and risk their own money to design their own chip, cover NRE costs and then they just deploy themselves as many chips as possible, cutting out of the equation the consumers.

In my opinion we are in phase a), and soon enough we will see phase b), which basically means that mining is getting "pro", and amateurs will be gradually cut out. This is something we have seen in the past in many "industries" - a blatant example is gold extraction. A similar process is in action here. Customers will buy bonds, contracts and such, but most of the hash rate will coming from mining operations handled by companies, not from individuals hashing in their basement.

The long-term problem would be to have "too big" pro-miners, whose fall could endanger Bitcoin, taking the network to a halt. But I wouldn't be to worried about this problem, market should be efficient and regulate itself in order for this not to happen.

b) is not practical for manufacturers due to fast rising difficulty and higher probability of never seeing a return

a) will raise the mining cost very quickly and indirectly reduce the coin supply, raise the coin price

http://bflfraud.com/ you guys need to see this :)

If it's not profitable for the manufacturers to mine with their own gear, which they get at cost, how in the world would their customers, who pay a markup, make monyz?


The coin supply stays the same, the only question here is who gets the coins -- you or the other guy.  Risking other people's money simply means that you don't risk your own.  Success?  You win.  Failure?  You win too (you paid yourself while developing the chippery).

there can be exeptions: when i was ready to invest into mining gear the price for one btc was at exactly 100,- €. i tried to figure out what was the better investment: pre-order hardware or coins. i decided to go for the hardware. right after i paid, the price of btc went down. if i would have invested in coins it would still be a loss, since the price for btc so far did not make back to 100,- €.
i am very curious to see if the miners mine more btc then i would have been able to buy on that day i paid the miners.

If the price of coins doesn't go back up then any future coins (bought or mined) share the same lower value.  Mining isn't better (or worse) in that respect.
All that matters is value of miner in BTC vs amount of net BTC mined (gross BTC mined - electrical costs) over the lifetime of the rig.

If you buy a 10 BTC rig and it generates a lifetime revenue of <10 BTC you are worse off than if you just bought coins.  As others pointed out in the thread there are non-ecnonical reasons why some may choose to mine at a small loss (anonymity, help decentralize the network, hobbyist/experimentation, etc) but that doesn't change the black and white of a loss vs profit.

agree

No, they won't. I can guarantee that many of those ASIC pre-order customers don't even understand the daily coin supply is fixed, most of them are holding a traditional investment wisdom of "more equipment will bring more coins"

This is also true for some mining equipment manufacturers, they only understand that ASIC devices will sell like crazy, they don't understand that the market will be fully saturated when they deliver

Sooner or later the customers will realize that buying the coin is always the best investment approach, and the price of ASIC devices will plunge


When mining cost rise, the number of coins to be sold on market will reduce. Anyway, ASIC manufaturers bypass the risk to their customers, but if they had financed through other means like a bank loan, they might get into trouble too

I think you are underestimating the understanding of the average miner.
The only traditional investment wisdom is use Fiat to buy an ASIC and earn XBT, and if XBT goes up you profit. When the gamble comes in, is it better to buy XBT with Fiat or ASIC's, and if you hang around here it's clear you should buy XBT.

But ASIC's clearly aren't going away.

Most ASICs are priced in USD,  if the price of BTC/USD doubles one day, and I use that peak to purchase an ASIC miner, then the price drops back to half the next week, I might only have to mine half the BTC to make ROI than people that bought a week either side of that peak. eg. If I ordered a $274 BFL Jalapeno when BTC/USD was $266 on April 10th, I only need to mine just over 1BTC for ROI compared to people that ordered at $54 on April 12th. who now have to make 5BTC for ROI. The cost of the rig is not always a constant BTC figure.

Secondly, the people that mined their BTC back in 2011, were able to purchase rigs that were priced in BTC like the Batch#2 Avalon, with BTC that were dirt cheap to mine.  I use to get well over a BTC a week from a single HD5770 card I pulled out of the trash can and stuck into a linux box.

So the point I am making is the concept of ROI is different for each person.


 

A.  I bought 5 BTC@$54 to purchase a Jalapeno and it will never make back 5 BTC after I receive it
B.  I bought 5 BTC@$54 and hold on to them

C. I mined 5 BTC with GPU and bought 1 Jalapeno with 1 coin when bitcoin price was at top, it barely made back 1 BTC I invested (ASIC devices ROI calculation is based on BTC investment)
D. I mined 5 BTC and hold on to them

Either case, A or C is worse, C has a hope of getting more coins if the difficulty drop, but when ASIC devices' income are still much higher than electricity cost, the difficulty rally won't stop

If I bought a miner for 100btc with btc at $100 each I would spend $10,000. 

Scenario #1: I mine 50btc in 1 year. The price of btc has fallen to $50 per coin. I have lost $7500. I would lose $5000 just leaving them in coins

Scenario #2: I mine 50btc in 1 year. The price of btc rises to $200 per coin. I break even. I would make $10,000 just leaving them in coins.

Scenario #3: I mine 100btc in 1 year. The price of btc has fallen to $50 per coin. I have lost $5000. I would lose $5000 just leaving them in coins.

Scenario #4: I mine 100btc in 1 year. The price of btc has increased to $200 per coin. I make $10,000. I would make $10,000 just leaving them in coins.

Scenario #5: I mine 200btc in 1 year. The price of btc has fallen to $50 per coin. I break even. I would lose $5000 just leaving them in coins.

Scenario #6 I mine 200btc in 1 year. The price of btc increases to $200 per coin. I make $30,000. I would make $10,000 just leaving them in coins.


Conclusion #1: Any asic that cannot break even in btc terms will produce lower profits than buying and holding coins regardless of market fluctuations.

Conclusion #2: Any asic that can break even in btc terms will produce identical results as buying and holding coins regardless of market fluctuations.

Conclusion #3: Any asic that produces more in btc terms than it cost in btc terms will produce higher profits than buying and holding coins regardless of market fluctuations.

Conclusion #4: It is possible to profit in fiat terms from a miner that cannot break even in btc terms by increased valuations of btc, but buying and holding btc would be more profitable.