On the Clothing of Emperors: A Rant about 21.co and the Future of Bitcoin Mining

[icside]

I wrote up some of my thoughts about what 21 is doing and the future state of bitcoin mining in general:

https://medium.com/@BernieRihn/on-the-clothing-of-emperors-a-rant-about-21-co-and-the-future-of-bitcoin-mining-a96d2647ccca

I would love for it to help start some discussions. Let me know what you think.

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[s1gs3gv]

The electricity meter has to be the most ubiquitous powered gadget in the world with a network interface.

[OgNasty]

My guess for what they could be up to is a TOR enabled router.  I think if they could squeeze 300GH/s @ <90 watts out of it, the devices would pay for themselves quickly (your assumed revenue seems low).  It could be marketed as some sort of security and privacy device, where the owner would think of the extra electricity costs they will be required to pay as a service charge of sorts.  Depending on the setup of the node, TOR users could get behind it in a big way, especially if 10% of the mined coins were donated to the TOR Project.  This would be much more likely to be adopted than a new water heater in my opinion.

[philipma1957]

I wrote up some of my thoughts about what 21 is doing and the future state of bitcoin mining in general:

https://medium.com/@BernieRihn/on-the-clothing-of-emperors-a-rant-about-21-co-and-the-future-of-bitcoin-mining-a96d2647ccca

I would love for it to help start some discussions. Let me know what you think.

I really disagree with this statement:

Reading all the speculation is painful for me as a participant in the bitcoin ecosystem. 21 wants to bring mining back to all home users by “giving” them internet-connected devices that pay for themselves by mining. Home mining is dead. For good. There’s no bringing it back, and no proof-of-work that uses electricity will ever make sense to run out of your house. It’s just too expensive.

I quoted it from your blog.

Look below at this idea:

My guess for what they could be up to is a TOR enabled router.  I think if they could squeeze 300GH/s @ <90 watts out of it, the devices would pay for themselves quickly (your assumed revenue seems low).  It could be marketed as some sort of security and privacy device, where the owner would think of the extra electricity costs they will be required to pay as a service charge of sorts.  Depending on the setup of the node, TOR users could get behind it in a big way, especially if 10% of the mined coins were donated to the TOR Project.  This would be much more likely to be adopted than a new water heater in my opinion.

Combine it with an electric hot water heater and what have you got  a :

1)hot water heater
2) a router------like OgNasty mentions_with Tor or without it.
3) a water leaking alarm system  so that if you spring a leak you auto shut the water to the home. and sending your cell phone a text.
 Kind of merging OgNasty's Idea with mine

That would have buyers.   and since we use hot water every day all the mining is on free power.  and has anyone ever had a leaking pipe in their home.

This would sell.

Downside is about 10% of hot water tanks are electric  still this is a lot of customers.

[icside]

The electricity meter has to be the most ubiquitous powered gadget in the world with a network interface.

Right, but the price of common household electricity doesn't yield profitability for any mining equipment in the future.

[icside]

My guess for what they could be up to is a TOR enabled router.  I think if they could squeeze 300GH/s @ <90 watts out of it, the devices would pay for themselves quickly (your assumed revenue seems low).  It could be marketed as some sort of security and privacy device, where the owner would think of the extra electricity costs they will be required to pay as a service charge of sorts.  Depending on the setup of the node, TOR users could get behind it in a big way, especially if 10% of the mined coins were donated to the TOR Project.  This would be much more likely to be adopted than a new water heater in my opinion.

With a broadly available power cost of $0.02 / kw-hr, why do you think that the revenue would be higher (than what I speculate) in the long-run?

Re: hot water heater, yeah, I agree.

[icside]

I really disagree with this statement:

you think that home-mining can be profitable in the long-run?

[alh]

Combine it with an electric hot water heater and what have you got  a :

1)hot water heater
2) a router------like OgNasty mentions_with Tor or without it.
3) a water leaking alarm system  so that if you spring a leak you auto shut the water to the home. and sending your cell phone a text.
 Kind of merging OgNasty's Idea with mine

That would have buyers.   and since we use hot water every day all the mining is on free power.  and has anyone ever had a leaking pipe in their home.

This would sell.

Downside is about 10% of hot water tanks are electric  still this is a lot of customers.

With all due respect, I think it's silly to merge a miner/router/water-heater into a single entity. Consider:

- Water heaters don't actually run full tilt in terms of their power draw. The better the water heater, the less often it actually draws power. It can't run full power, lest the pressure relief valve will pop. The mining hardware will have to be very high power to meet hot water demands, and then cycle down and up. At 4AM local time it will essentially be idle.

- The time scales on equipment turnover don't mesh at all. My current water heater was installed 5 YEARS before I ever heard of Bitcoin. Let's assume I installed this massively priced gadget tomorrow. One year from now the mining function will be a way overpriced heating element that if it needed to be replaced, would be silly compared to a $40 heating element.

- My current water heater  can really only fit in one place in my house. Not surprisingly, I have no networking infrastructure anywhere near it, nor would I be interested in running Ethernet and cable to my water heater, and hope the WiFi works well from the utility room.

- When any aspect of this combined gadget fails, what do you do?

I completely understand the desire to capitalize on the waste heat from a miner. It needs to be some kind of "add on" not a replacement for the water hear.

Oh, and I am one of those Natural Gas for household heat and hot water, so I am not a customer.

[OgNasty]

My guess for what they could be up to is a TOR enabled router.  I think if they could squeeze 300GH/s @ <90 watts out of it, the devices would pay for themselves quickly (your assumed revenue seems low).  It could be marketed as some sort of security and privacy device, where the owner would think of the extra electricity costs they will be required to pay as a service charge of sorts.  Depending on the setup of the node, TOR users could get behind it in a big way, especially if 10% of the mined coins were donated to the TOR Project.  This would be much more likely to be adopted than a new water heater in my opinion.

With a broadly available power cost of $0.02 / kw-hr, why do you think that the revenue would be higher (than what I speculate) in the long-run?

Re: hot water heater, yeah, I agree.

The power cost is irrelevant.  The company manufacturing the devices wouldn't be paying the power, so as long as the product is worth it to run for the customer providing the power, it is a non-factor.  Your revenue expectation is way below anything we've seen historically.

I thought your arguments were good, but your numbers are way off.

[icside]

The power cost is irrelevant.  The company manufacturing the devices wouldn't be paying the power, so as long as the product is worth it to run for the customer providing the power, it is a non-factor.  Your revenue expectation is way below anything we've seen historically.

I thought your arguments were good, but your numbers are way off.

Why is the power cost irrelevant? The total cost of all outstanding bitcoin mining equipment is purchasable for around $150M (it's still tiny in comparison with the $3-5B market cap of BTC). If I'm an investor, why wouldn't I continue to buy mining equipment until the margins are similar to other markets? I could buy real estate and make 7% a year or buy mining equipment and make 150% a year. Why wouldn't I continue to buy mining equipment until it approaches the return of real estate? Do my numbers make a bit more sense now?

If we make that assumption (that the market will efficiently approach the margins of all other markets on the planet), do you agree that the customer will not want to provide the power (when they could pay 1/5th to 1/20 of the cost of one year's worth of power for a device that serves the same functionality for them--block verification, chain storage, wallet storage, maybe other IOT / tor node / mesh networking stuff)?

[s1gs3gv]

The electricity meter has to be the most ubiquitous powered gadget in the world with a network interface.

Right, but the price of common household electricity doesn't yield profitability for any mining equipment in the future.

well, maybe yes, maybe no at the retail level. but if 21 did a deal with the big electricity companies and got their meters in every new house in the western world (and every upgrade) and got industrial rates on electricity through the partnership it could be big..

[teek]

Qualcomm being involved says to me,  it's all of the above.

A TON of diverse devices have qualcomm chips in them.  116 million investment,  first round, largest ever in the space?   What could they be up to?  How about putting mining asics in any damn thing you can think of.. 

Building the framework for integrators to do so and a few implementations straight out of the gate..

[icside]

The electricity meter has to be the most ubiquitous powered gadget in the world with a network interface.

Right, but the price of common household electricity doesn't yield profitability for any mining equipment in the future.

well, maybe yes, maybe no at the retail level. but if 21 did a deal with the big electricity companies and got their meters in every new house in the western world (and every upgrade) and got industrial rates on electricity through the partnership it could be big..

Why would the power company want to give them power at any cheaper rate? They could, for example, give them slightly cheaper power during off-peak times, but now you have the duty-cycle + amortization rate problem discussed in the post. And my guess is they'd give them something like as-cheap-as metropolitan industrial rates (which are still at least 2.5-5x the prices of the cheapest power in the developed world).

[icside]

Qualcomm being involved says to me,  it's all of the above.

A TON of diverse devices have qualcomm chips in them.  116 million investment,  first round, largest ever in the space?   What could they be up to?  How about putting mining asics in any damn thing you can think of..  

Building the framework for integrators to do so and a few implementations straight out of the gate..

Yeah, I think I agree--the idea of building a framework for integrators (and a reference "hero" integration that they would build) would have been the biggest way to win in the space.

[Biodom]

Bottom line is nobody questions if their router, heater, TV box, cable box, etc is PROFITABLE, because they are clearly looked at as home-related expenses, nothing else.
The ad would simply mention the fact that you would get MONTHLY cash (or bitcoin, preferably) when you use this device vs regular device while downplaying an increased power consumption, price of which could be mitigated or completely eliminated by per kw discounts applied (as previous poster amply noted).

[s1gs3gv]

The electricity meter has to be the most ubiquitous powered gadget in the world with a network interface.

Right, but the price of common household electricity doesn't yield profitability for any mining equipment in the future.

well, maybe yes, maybe no at the retail level. but if 21 did a deal with the big electricity companies and got their meters in every new house in the western world (and every upgrade) and got industrial rates on electricity through the partnership it could be big..

Why would the power company want to give them power at any cheaper rate? They could, for example, give them slightly cheaper power during off-peak times, but now you have the duty-cycle + amortization rate problem discussed in the post. And my guess is they'd give them something like as-cheap-as metropolitan industrial rates (which are still at least 2.5-5x the prices of the cheapest power in the developed world).

Because the power company owns the meters and gets the BTC revenue. This would not be a retail product, it would become part of the electrical utility infrastructure. See my reply to a similar topic in this thread https://bitcointalk.org/index.php?topic=1053412.msg11324501#msg11324501 for the big picture.

[Amph]

Bottom line is nobody questions if their router, heater, TV box, cable box, etc is PROFITABLE, because they are clearly looked at as home-related expenses, nothing else.
The ad would simply mention the fact that you would get MONTHLY cash (or bitcoin, preferably) when you use this device vs regular device while downplaying an increased power consumption, price of which could be mitigated or completely eliminated by per kw discounts applied (as previous poster amply noted).

you would not get anything because of the electricity increase that it is needed to run those device, basically your profit will go in the higher power consumed...useless

[jimmothy]

Why do you assert so many things as fact which are clearly speculation/rumors/guesses?

I don't buy the ft.com article that this whole speculation-fest is based off of. There's no way that 21 inc will be putting ASICs in toasters. Anyone who thought of the idea for 10 seconds would realize that that's ridiculous. According to google, toasters work at 150+ degrees which is far above what ASIC's can handle. And how often do people toast? I toast maybe once a day at most for ~5-10 minutes. Putting an ASIC in a device that mines for 5-10 minutes every day will ensure that 21 inc never reaches 1% ROI before EOL.

The only plausible device to put a miner in would be a router and as OGNasty and Philip pointed out, it could easily be worth it for 21 inc and the consumer.

It deprecates entire industries — banking, identity, and escrow to name a few — freeing people to learn new things and solve new problems. But, it only works with mass participation (I would argue, through services like Bitmain, Spondoolies, HashPlex, and Blockchain.info, but I’m pretty biased).

Where to start.

First of all, BTC doesn't deprecate any of those industries, it complements them. If you think you can go without escrow/identities/banking, well then I take it you haven't been in bitcoinland for long, because if you had you'd have be scammed repeatedly with that line of thinking.

Second, mining does not ONLY work with mass participation. Mining can, in theory, work with only a single participant.

Third, how do those 4 companies have anything to do with solving this "problem" of centralization? Bitmain/Spondoolies are primarily focused on large scale customers/deployment, Hashplex appears to be overpriced hosting, and blockchain.info is just a shitty blockchain explorer with an unsecure wallet that is compromised every week or two.

The most canonical example of how a large group of miners would protest a decision of the core-devs is to

    fork the chain with their own rule-set
    apply hashrate to the original chain and publish empty blocks or blocks filled with spam transactions (ramping up the difficulty in the process)
    (if they have more than half the hashrate) re-write recent portions of the chain (stealing the coins published in those portions)
    after the next difficulty adjustment, pull their mining power off the chain back onto their own chain, and let the hashrate that remains on the original chain work against a disproportionately high difficulty (dramatically slowing confirmation rates)

It doesn't work that way. Having 51% of the hashrate does not allow them to steal coins. They can only exclude transactions up to the last checkpoint.

The path of bitcoin mining is paved with the (still warm) graves of companies that have failed to do (1) successfully. See HashFast, Alydian, Cointerra, Aquifer, Biostar, BTC-Digger, BTC Garden, CLAM, DigBig, Hashra, iCoinTech, Land ASIC, TMR, and many, MANY more. To watch fires in progress see Butterfly Labs, Bitmine/Innosilicon, KNC Miner, ASICMiner, Black Arrow.

Seems you haven't done your research here. BTCgarden wasn't a failure. They delivered every miner they sold, had practically zero customer complaints, and scammed nobody.

Bitmine and Innosilicon are not the same company. Bitmine contracted Innosilicon to make the a1 chip. Once they made the chip Bitmine failed at getting it working in a miner for several months. Eventually the exclusivity agreement expired and competent Chinese manufacturers took over production of a1 based miners and put Bitmine out of business.

Innosilicon if far from a "fire in progress". They were hugely successful with the a1, hugely successful with the a2, and are now working with LKETC to create the first 14nm ASIC.

Profit = 3 kw * $0.06 x 24 hours x 30 days = $129.60 / month

This is not actually the equation for mining profitability. There is no equation that will tell you how much you could earn using hardware with unknown specs, but if they made hardware that was 0.1 w/gh it would currently earn $0.94/hr/kw profit. (at $0.12/kwh)

21's model and why it doesn’t work

Yes, their model (which you think you know) is completely flawed and they just happened to fool big time investors like Qualcomm into giving them $100+ million. /s

How to not suck at bitcoin mining (an aside & shameless plug)

For the foreseeable future, it makes a lot more sense to host our mining equipment. (https://hashplex.com/)

Very shameless indeed.

You go on about how it doesn't make sense to mine at home due to expensive power costs, then recommend we ship our miners to a collocation company which charges ABOVE the average electricity rate in the US. (average is ~$0.12/kwh vs hashplex $0.1375/kwh)

/rant

[notlist3d]

So they want to change mining.... yet offer current data centers?

Not only that they want to offer at 1 or 2 year's locked into contract.   I cant imagine signing up for 1 year, you want to test center.  Also a good center can go bad if to many machines.... so you want option to move if needed.   

And a 2 year contract?  Miners are not efficient for 2 years, in 2 years miners will have changed much on efficiency so this would be stupid.