Bitcoin Forum

Mining is the process of converting energy into proof-of-work
for the purpose of establishing a tamper-resistant historical
record in Bitcoin.

While mining rewards miners with transaction fees and freshly
created coins, mining is not a magical money making process.
In theory, Mining exists in perfect competition, so mining
profitably can be difficult or even impossible.

Currently the Bitcoin system releases ~3600 BTC per day and
these coins are shared proportionally by the miners according
to their relative hashpowers. As overall hashpower increases
the return per hashpower decreases. In recent times hashpower
has been doubling every month or so.

Many mining companies engage in a practice of selling
"pre-orders" thereby shifting the substantial risks of hardware
development entirely onto their customers. The practice of
preorders also exploits ignorance about the future income
mining will yield: People compute their income as if they
had the hardware today, when it's not scheduled for delivery
until months later...

And then almost every hardware maker has missed their
scheduled deadlines. Because of the rapid growth of hashrate
a weeks delay can mean the difference between a nice profit
and a loss. Many makers have also delivered devices substantially
under spec, many others have been outright scams which have
failed to deliver anything at all.

Some of the most experienced people in Bitcoin have lost out
in these offerings, don't just assume you won't be taken.

Companies which have cost people thousands of coins that
they'll never recover are still operating with impunity,
fueled by a seemingly never ending wave of people eager
to get involved who think that mining is a lower risk
way of obtaining coins.

Hosted mining companies with immediately available hashpower
often sell it at greater than it's expected value and themselves
represent enormous consolidation risks to the Bitcoin ecosystem.

In reality, mining is risky: It's riskier than holding
bitcoins because it's comparatively illiquid, and current
mining hardware is not really useful for any other applications.
These risks are multiplied by the unreliability of hardware companies
and the uncertainty of future mining income. Keep in mind: few
companies disclose how much hardware they are selling to other
people, and many of them roll their profits into buying their
own gear at cost and mining in competition with their investor-customers.

That said— I enjoy mining and I would not discourage people
joining in. Mining is essential to the security of Bitcoin.
It's important that mining be widely distributed and especially when people
mine using P2Pool it contributes to keeping Bitcoin decentralized and secure.

Just don't rush in thinking you are going to make a ton of riskless
money. At current retail prices I doubt most hardware available will
break even unless the growth rate slows substantially, which seems
unlikely in the near term. I think the exuberance of miners has
fueled the irresponsibility in hardware companies and driven more
competent and cautious parties out of the market.

It's all our our responsibility to behave sensibly if we want bitcoin
to flourish.

Purchasing pre-orders basically is financing a company that may use your money to "steal" from you in the end.   The temptations are too big for many companies.   If they just delay your delivery until the next wafer lot (and ignore you for a month or so), they can sell your pre-order to someone else that steps in later (after proof of concept) and offers more money.
There are laws against this but many in bitcoin take years to realize that laws apply to them.   A good law to become familiar with is tortuous interference.  Many states offer treble damages as the MINIMUM judgment.  
What does that mean to miners?   I will give an example.   Let's say someone familiar with the way ASICs are pre-ordered, did not pre-order but now has collected a lot of money from other people and wants some machines in the worst way.   He knows that the manufacturer has a contract for most of their preorders.  But instead of just buying the "cushion" units from the early batches (better yields or the units held back to be safe), he wants more.   If that person, enters into an agreement with the manufacturer that damages someone with an existing contract, it is tortuous interference and the damaged party has a claim against both parties.  An example of this would be the diversion of a large portion of a sold out batch to a customer that recently came to the manufacturer with cash (instead of waiting in the established queue).
I believe this has happened many times.   I believe it will happen again.   Avalon batch II seems very suspicious to anyone who was a customer at the time and saw the pictures of their machines months before they were delivered.   But, it makes the stakes VERY HIGH for anyone whose lawyer gets to discovery and finds behavior like this.   That lawyer should post here because the clients will be a plenty.
Please do not pre-order.   I like to mine.   I mine in a serious way, beyond being able to call it a hobby.   BUT, I will never buy a pre-order again.   If companies have not risked their own capital (or profits they have made from the free capital given in early batches) and do not have units ready to ship same day, I will not buy them.
I hope others start behaving this way also.   Several manufacturers will go bankrupt (some from greed and misuse of customers' funds) as the market becomes saturated and demand dries up.   If you have a pre-order with that company, you will lose 100% of your money.

One possible way to address the head of line behavior is for us to put our funds in escrow (doesn't require risking the funds to a third party, see bitrated.com) only to be released if the product is delivered on-time, with clear pro-rating for late delivery.

The problem is that so long as there is an excess demand for mining hardware at any cost— including paying prices that can probably never make a profit— it will be harder for the community to get vendors to accept terms like that.  Why sell to the guy who armors himself against fraud when you can sell to a sucker?

I worry that the end result is that most sane people will sit back and not mine, most who do mine will lose their shirts and not continue, and more hashrate will end up consolidated with major private facilities that did have the leverage to secure preferential treatment to the ultimate detriment of Bitcoin.

Worry that could be the end result?  You are behind the curve, core developer.  The process of transition is already well underway. To wit, KnC (which, ironically, largely made good on preorders).  

The pre-order saga demonstrates that it's time to discard quaint notions of fair play and civil discourse on this issue, gmaxwell, because the cesspool ethics of a number of people that have been attracted to offering Bitcoin pre-order sales - I need not mention two particularly bad US-based companies, based in California and Kansas, by name - have amply shown that they simply are not responsive to ethical considerations and rational discourse.  

Please stop hesitating to acknowledge this simple reality, as your failure to do so ultimately only serves to enable the same behavior that has lost both you and me value, and which is an ongoing discredit to this community.  And stop shooting the messenger.

Made good, but go compute the returns on their hardware— :(

At the moment the only ASIC hardware sales I know have broken even (or better) vs just sitting on your Bitcoin (or buying coin if you didn't already have it) are B1 Avalon, and  early Bitmain Antminers (jury is still out on ones being sold now).  There may be some of the bitfury devices included in that club depending on timing, but I'm not actually sure of that since the prices changed a bunch of times.

Might be interesting to build up a table of "device/when/cost in btc/yielded btc to date" to highlight how screwed up the situation is.

I don't know what you're saying I'm failing to acknowledge. The purpose of this thread is to raise awareness for other people about things I already know. I think that some of the problems will be diminished if the pool of potential victims is more savvy and refuses to accept the sketchy or outright dishonest behavior.

No, KnC didn't "largely make good." At all. Their customers can only pretend they made ROI because bitcoin price rose unpredictably high.

Sure they did. They delivered what they promised in a reasonable time frame. They are not responsible for you getting all your BTC/money back or otherwise, that risk is yours to take.

I think it's more productive to speak concretely— People spent X coins, returned X*.8 coins or whatever, than to try to debate the fine details of "make good".

The hardware vendors have an enormous informational and control advantage over their customers: They know what the pre-order queue and delivery pacing will look like, they know and control how much of their own hardware they intend to buy with, they control how much hardware they sell to other people.  As such, I do think it's a little disingenuous to say "risk is yours to take". If it was pure uncertainty unknown the the buyer and seller then that would be the case, it's not so simple where the informational/control advantage exists.

In this rather peculiar and specialised marketplace, normal rules don't apply. If you do away with all companies that start up with pre-order money, then you'll be left with a few that have past revenues to sustain their future development.

That would dilute any notions of competition - if there were, say, three left then there would be no real incentive to compete against each other, not when there would be such rich pickings, and like it or not, miners would end up paying a lot more for their hardware.

Just remember that buying is a choice, no one is forced to do it but they do because, as gmaxwell has pointed out, they have grand visions of making millions through mining. For most, that's simply never going to happen - you need too much money to start with to buy enough equipment, etc. That's not to say you can't make a reasonable return from a reasonable investment, especially if the chip/rig vendors stop being so greedy.

It will be very interesting to see what happens with the little ASICMiner chip - it's a nice, elegant idea but I'm sure it'll end up being hijacked by the middlemen and that end customers will never get anything anywhere near 1$/Gh let alone the headline $0.5/GH.

Thats not so. You can use clear terms and investment rather than pre-order nonsense. With transparency and equity in the business things would be much better off.

Right and I hope with this thread to advance people's understanding and thereby improve the whole market place. If miner hardware charlatans cannot exist without miner buyer rubes.  I've never bought mining hardware with grand plans of making a lot of money, I've bought hardware with the intention of supporting the network— and hopefully not losing (a bunch) on the process, maybe make enough to pay for the effort.  I'm a little irritated that it's become hard to do that and to sort out all the fraud because too many people are willing victims.

Just want to say thanks for this sticky.

While there is some truth to what you are saying, no one knows what the landscape will look like in a few months and that's why I believe the risk is still largely on the buyer's side. The risks the manufacturers face are multiple as well, however they have been paid for taking said risks. The buyer (miner) is taking a huge risk gambling on a future that's virtually unknown to anyone. Also, while one company can control what they do and they should be held responsible for their actions they can't control what others are doing or predict the future, therefore I will argue that ultimately the risk is yours to take.

Investment is a good thing, but many times it also equates to a substantial risk of losing your money. Experienced investors understand this, miners would have great difficulty in parting with their money for the promise of a potential future return. If company X says to you, "put $1000 into my company and I'll give you 1 share of the 10,000 the company will offer" the first question most miners will ask is "and what do I get for it?". The range of potential answers are mostly not what miners want to hear - they want a return, and in as short a period as possible. A conventional investment model simply won't work for most miners.


I'm sure that forum members appreciate what you're trying to do, and your philanthropic nature - I certainly do - but greed is always going to make people take more risks. Any experienced asic engineer looking at the Hashfast or Cointerra initial offerings would be alarmed at their underlying arrogance and lack of hard technical detail in their pitch. But many other simply see $ signs and the chance to get one up on their competitors, so take the risk. You'll never stop them, but I agree that it's worth the effort.

You can add Avalon minis to that short list, they ended up being cheap enough due to the low interest for the tradehill auction to turn out fairly profitable.

Stats for my 10 avalon minis until they were sold off http://eligius.st/~wizkid057/newstats/userstats.php/17zSH1nmnY1wHoJST95hReALa9ecfSFsEw (http://eligius.st/~wizkid057/newstats/userstats.php/17zSH1nmnY1wHoJST95hReALa9ecfSFsEw)

many thanks  for this  thread.

this is idea to good invest in mining bitcoin hardware
check using mining profit calculator before buy mining hardware. check you'll get ROI in one or two months or not. If ROI more three months, you'll get big get risk your invest may  be will not return. caused difficulty in mining bitcoin.
don't pre-order for miner hardware. buy miner from manufacturer that  can ship mining hardware in one or two days.

Should this not be a sticky on all mining forums?

Good post sir!

One little thing to sudo factor in is the possibility of achieving ROI by dumping used hardware on ebay etc which was the reason I made profit on my BFL jalapeno.

Assuming "the greater fool theory" will work into your favor is only good for so long.    Not an easy exit for someone ordering now and not getting the miner for 2 months or 3 or 6?

Well that and a little "One mans trash is another mans treasure" and sure the hell not talking about selling it for the full cost.

And I guess it would also greatly depend on the hardware in question. Personally, after my own experience with BFL (and I was a lucky one who actually got my jala in a 'reasonable' amount of time) I sure wont preorder any miners ever again. I would rather not mine then to go through that again and my jala only cost 260... can't imagine dumping 10k... those bastards are lucky they have not been lynched.

I made good $ on my BFL equipment

I like to think of all the things I do for bitcoin promote it and a healthy bitcoin ecosystem in the most fundamental of ways.  Some of the things that are most important to me are:

1)  Mining at a fair price, with gear from a fair company.  Buying Bitmain equipment the last few weeks would be a good example of this.  Not supporting pre-orders and potential fakers.

2)  Buying bitcoin when the panic is high.  I am no trader, but other than mining I try to keep my buying of bitcoin very low and stable.  However, when there is a huge panic or flash crash, I will regularly pull up my boot straps and rush in.  A) Because I believe in it, and B) It shows support in the most desperate of times.

3)  Getting friends excited about bitcoin, getting small businesses to accept it (even if they don't hold it) and being a positive figure.  I often will buy mining equipment and sell it to local folks for almost no markup at all (usually enough to cover my gas and hour of my time) rather than trying to rip people off.  Be a positive figure in the bitcoin community, and people will think of you when they think of bitcoin and say "this guy is a good guy, so bitcoin can't be that bad".  There seems to be a culture of people trying to sell outdated equipment to people for very large amounts of money, thankfully, a lot of that has stopped now, but the "suckers" who bought old BFL equipment at the end of last year for thousands of dollars are probably feeling a little burned by miners who seek profit above all else.  If people/miners keep trying to rip people off like this, society at large will see bitcoiners as just a bunch of scammer assholes.

Anyway, that's just my 2 cents.... as the OP said, PLEASE don't buy cloudhashing, community hosting services are OK, but these conglomerate mining factories are disgusting.

Stay away from known problem companies.

BFL
HashFast
Avalon

Specifically and check out reputable threads that steer people in the right directly like Dogie's thread: https://bitcointalk.org/index.php?topic=456691.0 which should be stickied here as well.

Or check out my thread here which cuts through all the BS and just gives you a Thumbs Up or Thumbs Down on the various sellers of mining equipment.

https://bitcointalk.org/index.php?topic=734027.msg8291788#msg8291788

add KNC to that list.. their greed is in overdrive

Not sure on that one, they haven't failed to deliver on any pre-orders yet. I'm not saying thier datorhall mine isn't more commercial that their earlier NPP commitment led us to believe but then, for me the doors not shut on them quite yet.

I'm not sitting around twiddling my thumbs waiting for a neptune to appear, hell no, if your a miner then you shoulda been out getting bitmain's S1 and maybe S2 kit way before now, and even looking closely at the Chinese 1TH dragon kit. The spondoolie stuff is a bit overpriced and too colo centric for my needs right now but if they came out with a quieter slightly slower cheaper version then I think they could take the market, of course they would need an international presence and start to build up some stock rather than pre-ordering.

might want to take off any KNC glasses you might still be looking through...  they did fail on their promise to sell more hardware to their customers who instead of buying ants, thought KNC would stand by their word

their word is mud

LOL you know I don't wear KnC glasses, I am hardware agnostic. I just don't think that you can call them a scam for not shipping more than one batch of upgrades. I don't think they are saints, just a business whos job is to make as much money for themselves as possible. But they haven't scammed the vast majority of their customers like Hashfast or Blackarrow or Bitmine or AMT or BFL by missing delivery by 4,5,6,12 months.

the bar has been set so low

remember that KNC delivered prototypes in Oct and used early customers as both QA and techincal/customer support reps while everyone was just so happy that they actually got something delivered in a timely fashion

I could go on and on but if this is the standard of excellence, then run away from mining as fast as you can

First of all gmaxwell, thank you for your post, its awesome.

I have been trying (unsuccessfully) to explain mining to family and friends and now I have a place I can send people to help them understand!

Your first paragraph is strong, and might I suggest elaborating slightly on proof-of-work, for a newb that could mean close to nothing...

As for my experience mining:

I started out to just "test the waters" in February after having recently discovered Bitcoin and its wondrous variety of avenues to explore.

I read about the pre-order nightmares here and thankfully decided to steer clear.

That lead me to my desire to find people with miners in hand ready to ship....

I bought 2 Ant S1's from a seller on Amazon and was badly beat up on the price. All in, after PSUs and additional cooling, those first 2 ants cost me close to 3k, I'm almost embarrassed to admit it, but maybe it will help someone else down the line. To date they have mined 1.7766 BTC (overclocked), less then 1/3 of their cost. Will they break even before they are consuming more $s as energy then they produce? I'm still optimistic, but prepared to take a loss for what I have learned.

I now have five more Ants on the way, purchased from Bitmain at their lowest price offered yet. As I write this behind me sits a shelf with PSUs wired up and waiting for their Ants, they were to arrive today and I was excited to get them mining before the next difficulty increase.

Unfortunately UPS is having some weather issues and they are stuck in Alaska right now...

Will I make my investment back or would I have been better off waiting for the 3rd round of S2's? Only time will tell.

What I do know is that I have been bitten by the Bitcoin bug, and that's not going to change....

Whatever happens, this forum has been a great place to learn, and I thank you all (well most of you) for your participation in my education!

I continue to maintain that thinking of mining in terms of ROI on equipment costs is only one way of thinking about mining for money. As I have said elsewhere mining rigs are tools like mechanic, plumbing, electrician tools. In order to do your job and EARN money you need certain tools. Mechanics, plumbers, electricians, etc. need their tools upfront in order to work and earn income. The cost of tools is simply the cost of doing their particular job and they do not think in terms of ROI on a wrench or a pair of plyers (unless the tool is some major capital asset). They will, of course, for tax purposes, "write" the tools off as an expense but that is purely a tax issue.

Every BTC I earn mining is converted to $$ and is spendable income. I am not interested in "investing" per se except in the broadest sense of investing in the BTC economy. The only mining expense I care about is the cost of electricity which is a fixed utility cost for living. My miners are not really either depreciated or appreciated in their initial value although in truth the value of my mining equipment may go up as BTC prices rise but that is only if I sell my rigs. Additionally, as BTC drops in value relative to $$, my mining equipment (viewed as replacement cost) can, and has, gone down. I buy my rigs when that happens.

I have noticed that in some of the BTC mining calculators that the cost of the mining rigs is used relative to expected BTC earnings over x time. Yet, those calculators never amortize the cost of the machines and that is a flaw. If one is concerned about ROI, then the rigs must be amortized over time, the value simply should not stay the same over x amount of time. That is just a normal "business" accounting practice. But, then again, since I have a different philosophical approach to mining, I could not care less about ROI or amortizing the cost of the machines. As long as they continue to work as a tool, they are are earning.

I make/create between $800-$1500 a month mining. That is money I did not have before and all I do is sit on my butt and check that the units are running properly 2-3 times a day. My machines are paid for out of disposable cash I chose to spend on them. If earning money is your goal, money you did not have before, and all you do is sit there then do it and don't worry about ROI. If you are interested in thinking of mining as an investment, then knock your socks off but you are better off buying stocks and earning dividends. In the mean time I am spending my easily-earned money and I have long ago considered the money spent on the rigs as gone.   

Well measured way to look at mining but what is your take on DeathandTaxes post on Break even difficulty by hardware efficiency (power cost = value of BTC)?

https://bitcointalk.org/index.php?topic=281279.0

or thoughts on BurtW's Projected Minimum Cost per BTC over the next year?

https://bitcointalk.org/index.php?topic=518111.0

TL;DR

Pre-orders are bad. Companies that sell pre-orders should feel bad.

 How to Spot a Liar. (http://embed.ted.com/talks/pamela_meyer_how_to_spot_a_liar.html)

Not technically a scam company but you might want to add CoinTerra to your list. Not only were they considerably late on delivery. Their units were 25% below advertised hashrate and used 25% more electricity.

To top it of anyone who requested a refund has been left hanging in the wind. I've personally been waiting 5 weeks for my refund ($25k) and they they have stopped replying to my emails. Definitely buyer beware.

I'm almost at the point where I'm done with mining altogether. The whole marketplace seems to be teeming with unscrupulous scumbags only out to make a quick buck.

  :(Yes, what you said is very right!

A most excellent original post. Gmaxwell is to be congratulated.

I am in completely in line with your line of thinking, albeit on a smaller scale. 

However, hardware seems to depreciate at an accelerated rate in the face of ASIC's.  My rig of 1.98 mh/s (couldn't hit the 2k hurdle with one 7970 ($300 ebay, 11/28/13 ), one 7950 ($332, don't ask...01/24/14) and two 5850's ($125, 01/10/14 and $99, 12/26/13) draws around 800 watts.  I bought a gridseed 5 chip ($130, 04/29/14) which brings me to 2300ish kh/s and have been mining with a handful of 5850's (@ 20~ kh/s_) since I figured out the train was already doing 100 mph by the time I got on board.

My cost of electricity is .098 cents/kw/h. Any idiot not sitting next to a screaming rig wondering how to keep it from melting down in the summer heat knows ASIC miners are the future and the demise of the hobby.  $20/day?  LOL!  Try $2/day.  If you're lucky.  Got an extra $1,000 floating around for a scrypt blade?  I know I don't. Sell the cards I have?  Nah.  I'll game with them.  Then probably relegate them to the green board pile in the spare room.

Just like Nascar, the little people get run out by the money.

Hello everybody,
I'm very new to this world... as of BFL, I've read a lot of bad and sad stories about the pre-ordering and late delivery. However, I've found the BUTTERFLY LABS BFL 50 GH/s , which is almost every on the web.

Please give me advices of whether one of you guys used it or no.

Also, could some one direct me to the right place on how to do calculations?

Any advice is appreciated.

They are so old and obsolete by the next difficulty jimp theu are worhless for mining.   But you can use as a space heater.

Thank you so much for the advice, what do you suggest, what do you think I could get as a start up point?

I want to start with something small and simple so I can understand everything before I can get a more complicated system.

Small and simple: why not try a USB stick miner?

Thank you so much for all of your advices guys... Happy Mining..

"It's all our responsibility to behave sensibly if we want bitcoin
to flourish."------Can't agree more, thank you so much for the contribution.

Put the funds to escow is good. :)

Remember never buy anything from Black Arrow.

One problem. It doesn't matter anymore. Companies like KNC and BITMAIN are so far established right now. These are likely multi-million dollar companies who could give a s*** less what we think.

I was told by KNC they don't even plan on selling hardware at a consumer level anymore. They are designing new hardware and not release it to the public. Read about their new 3D chip that promises to drop electricity cost by 1000%. They don't plan on releasing that to the public. If they release a chip that is that power efficient... they will be the only name in mining.

I have bought many bitmain S3 antminers off of ebay and have made 2.5 times what I have put in them So I disagree with mining not been profitable. Just buy used hardware that has already payed for its self.

I've done the same thing with success but I'm wondering now if it is too late because these things are getting old and new technology is coming around the corner as well as the halving.  Anyone have an opinion on this?  Thanks.

That trend won't continue mate,
When the halving comes, all NON-MEGA miners are DOOMED!

I made good $ on my BITMAIN equipment

I lost money on my Bitmain and BFL gear...

Yes, I agree. Bitcoin and Mining goes hand in hand but investing and flourishing in one does not equate to flourishing in the other should one think of also investing in the same. It can go both ways, and it still highly depends on the supply and demand of Bitcoins vis-a-vis Miners. It is just so wrong to equate one after the other in all aspects. Both have their own individual risks.