Imagine you're a bank that sells value-added Bitcoin services - you're probably willing to mine at breakeven or a slight loss because it's a loss leader and you make your money off of the services. Any miners running at a loss very slowly squeeze the miners willing to run at a profit out of business.
First if you don't mind I'll group your loss-leader scenario with the idea of mining equipment manufacturers large-scale mining themselves and call them 'party spoilers'. I am more persuaded having discussed the latter with bcpokey and others further up the thread that it is not entirely unfeasible that this should occur. I can also see circumstances much further down the line being such that the loss-leader scenario comes to be. There are probably other 'party spoilers' to add to these two too that could come along and change the dynamics that have been driving the market to date and will do so again after the introduction of ASICs
1I think there is some value though in looking at what is likely to happen in the absence of the rulebook being thrown out of the window by game-changers. Is the trend more likely to drive towards smaller numbers of large mining operations or larger numbers of small mining operations?
Anyway, the discussions in this thread have all been warmed over many times by economists before. Bitcoin mining is a textbook example of a perfectly competitive market. In the long run margins are razor-thin to not existant and the thousands of miners we have today will be driven down to a few.
I'm not finding it hard to accept, given the discussions I've read and participated in so far, that Bitcoin mining is pretty much a 'perfectly competitive market' - even though I acknowledge this is by no means accepted comprehensively across the boards. But as you say, the 'perfect market' thing is about profit margins heading close to and staying at near zero. It may be historically (in the history of economics, not in the history of Bitcoin) that where this is the case the number of players almost always diminishes seriously too but nobody proclaiming this as a probable outcome has yet given me a reason to believe this is a likely fate for Bitcoin mining.
The key difference I see is the lack of economies of scale. Mining gear manufacturers have a serious disincentive to be selling at volume discounts because of the peculiar aspect of mining that each unit sold diminishes potential sales value of future sales indefinitely. We don't have to imagine this because it is evident today in the price of pre-order ASICs. I'd like someone to give me another example of a 'production line tool' where someone spending $60,000 is paying virtually the same 'per output unit capacity' as someone paying $600. Where is the advantage of the big player here? There's also a level playing field in sales price of Bitcoin; there's no potential for 'exclusive deals' with customers to prevent them from buying from the competition. On top of that, any discounts in electricity prices that may be enjoyed by massive operations is counterbalanced by the lack of other overheads for the hobbyist or 'homesteader' miner. Please tell me what force you foresee playing the role of pushing the little man out of the game? I still can't see it. The 'perfect market' pushes out the less efficient but if breakeven point and longer-term ROI are virtually the same regardless of scale what has size got to do with who wins?
bcpokey gives an example of someone earning so little from their small rig that they can't be bothered to leave it switched on. But if ROI is the same, isn't it just as likely that someone with half a millinon's worth of gear will also take their attention and money to something more attractive? But due to the 'perfect market' ever driving towards efficiency, for every person making what is in the pure sense an 'illogical' decision (though personal circumstances may make it a good decision for them) there'll be someone else taking advantage of it and driving margins back to near zero.
Unless a 'party spoiler' comes along which would make both biggest and smallest miners also-rans, the current circumstance is likely to be around for at least some time. This leaves me still lacking reason to believe that there's something within the model that is going to drive out the small guy - just for being small - nor that there's something that's going to make success easier for the big guy - by virtue of being big.
Thoughts?
1 Right now we are sort-of in limbo in that whilst ASICs are being invested in they're not (directly) affecting difficulty and indicators such as difficulty following price are out of the window for the time being.
