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Author Topic: Forecast: What happens when block solve payouts get halved?  (Read 1155 times)
NetTecture
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June 05, 2011, 10:28:36 AM
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How do you incorporate this into your business model?

I jsut figured out it will be quite disrubpive - cashflows will at least half overnight.

Note this is not against the concept oflowering payouts, but halving it every 210.000 blocks means that between quite some time you have a VERY big change. It may have been better to put the change smaller into smaller increments that follow the same curve (for example 90% every x blocks - forgive me, not in the mood to try that out mathematically now).

This way miners get a hugh hit in bitcoins generated, and with a more stable value in cashflows. Running this as a business means it does not look good on balance sheet Wink
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KJaneway
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June 05, 2011, 11:18:40 AM
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Mathematically your scenario is easy:

Compare two situations:

Pete starts mining in a universe where after one month of his mining, the payouts gets halved. He starts with 1 Coin per Day and within the fist month, he earns 30Coins. In the Second he earns another 15 Points giving him a sum of 45 Coins (excluding all Difficulty increases, which, for the sake of comparability, are the same in both universes).

Jane does the same in a universe where after 2 weeks the payouts were reduced in a way resulting also in a halving of the payouts every month (which would be he squareroot of 0,5, so nearly 0,7)
She gains 15 Points in the first 15 days. Then from the 15th to the 30th day, she gains 10,5 Coins. After the 30th Day starting with month two she has collected 4,5 Coins less than Pete. That trend will continue. So it is better to make clear cuts after long time periods.



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NetTecture
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June 05, 2011, 11:38:26 AM
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Mathematically your scenario is easy:

Compare two situations:

Pete starts mining in a universe where after one month of his mining, the payouts gets halved. He starts with 1 Coin per Day and within the fist month, he earns 30Coins. In the Second he earns another 15 Points giving him a sum of 45 Coins (excluding all Difficulty increases, which, for the sake of comparability, are the same in both universes).

Jane does the same in a universe where after 2 weeks the payouts were reduced in a way resulting also in a halving of the payouts every month (which would be he squareroot of 0,5, so nearly 0,7)
She gains 15 Points in the first 15 days. Then from the 15th to the 30th day, she gains 10,5 Coins. After the 30th Day starting with month two she has collected 4,5 Coins less than Pete. That trend will continue. So it is better to make clear cuts after long time periods.


Ok, business wise the scenario is the following: Next day my cashflow halved, "permanently". Explain that decently to accountants which have enough problems justifying BCN to the tax department. Explain that to banks going over your balancesheet regularly due to some investments running on credits. Business here, not funny guy in his dorm.
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June 05, 2011, 11:58:03 AM
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It's the same with the difficulty increases: Lets say we have a run at mining systems now, because of many reports in public channels. What will hapen? Right, the difficulty will double surely within 2 month. That would also result in a halved cashflow. The point is: Bitcoins is no secure buisiness to print money. It's a speculative game. So talking about buisinessplans:
It is the same as investing leaned money in high risk shares. It works as long the share price increases, but collapses if the price do so.
I wouldn't invest leaned money into bitcoins, but i am willing to risk a few hundred dollars now buying mining hardware.
Scenario 1: Bitcoin value rises and rises: I am fine.
Scenario 2: Bitcoin value stagnates: Okay i made a bit money, but no good deal.
Scenario 3: Bitcoin fails: I lost a few Dollars when selling the used hardware for a lower price.


But with credits, you could loose your whole exisitence.

 

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June 05, 2011, 12:34:22 PM
 #5

How do you incorporate this into your business model?

I jsut figured out it will be quite disrubpive - cashflows will at least half overnight.

I am anticipating that by the next block bounty drop block bounty will be < 50% of block reward due to fees, which will mitigate this to some extent.

Because the pros run the numbers and anticipate the bounty drop, they will not over invest in hashing infrastructure, and we will not race ourselves past the point of hash level collapse. I expect that some overzealous miners will bankrupt themselves, but that most of us can use a spreadsheet, and understand bitcoin well enough to anticipate the change.

Right now I make 600% RIO, that's not shabby as an investment, but it's unrealistic to expect it to stay that high. People who got in too early and now have outsized expectations will probably drop out, but still makes good business sense to invest in this if you are not terribly risk adverse.

My business plan is pretty simple:

while RIO > 200% :put 1/2 of net into expanding hardware
when ROI < 200% & > 50% : just keep what you got running, invest in more stable assets
when ROI < 50% keep running the numbers to make sure that keeping the rigs on is not losing money, then move to providing some other GPGPU service.

In reality I expect the ROI to stabilize a little over 200% for the next 12 months, and then slowly, over the next two years, as trust in the market increases, to move to 50%. 50% is not great ROI for an uninsurable investment, but it is surely good enough for pros to keep the lights on.

For this calculation I really don't care what the generation rate or USD price are, except as they multiply to a good ROI. For Pros the ROI is what determines the size of the mining pool, nothing else, and while everybodies calculations will be different based on their hardware and overhead, most of the miners will be making the same assessments, and creating a feedback loop by dropping out/buying in tending towards the most cost effective investments.

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NetTecture
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June 05, 2011, 12:39:21 PM
 #6

It's the same with the difficulty increases: Lets say we have a run at mining systems now, because of many reports in public channels. What will hapen? Right, the difficulty will double surely within 2 month. That would also result in a halved cashflow. The point is: Bitcoins is no secure buisiness to print money. It's a speculative game. So talking about buisinessplans:
It is the same as investing leaned money in high risk shares. It works as long the share price increases, but collapses if the price do so.
I wouldn't invest leaned money into bitcoins, but i am willing to risk a few hundred dollars now buying mining hardware.
Scenario 1: Bitcoin value rises and rises: I am fine.
Scenario 2: Bitcoin value stagnates: Okay i made a bit money, but no good deal.
Scenario 3: Bitcoin fails: I lost a few Dollars when selling the used hardware for a lower price.


But with credits, you could loose your whole exisitence.

Yes, but then this would in my appear in my trading operations balance as high risk investment - right besides the brokerage accounts doing semi automated trading in futures Wink

It is not like I am risk averse, I jsut figure out the implication to prepare.
xenon481
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June 05, 2011, 12:53:56 PM
 #7

The 50->25 reduction is the equivalent (on an individual miner basis, not necessarily whole economy basis) of a 100% increase in difficulty.

This last difficulty increase was ~78%. Ask yourself what happened with that ~78% difficulty increase and you will have your answer as to what happens when something equivalent to a 100% increase happens.

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