BFL are expecting 100,000 chips...

[MrTeal]

My bad, I was doing it in my head and must have been biased by a previous response to someone claiming that ASICMINER could just print out a couple petahash/s for cheap. That one was almost 10MW.

You wouldn't even have to do it in China, if you think they would make enough equipment to actually try over a weekend to 51% the network. You could probably just cut a deal with someone that operates a large industrial facility to use it over the Christmas weekend or something. Still, what would that get you? A 51% attack doesn't let you just take all the coins. I find it hard to believe that they would be able to pull off any double spends large enough to justify the cost of the operation.

Why would you double-spend? It is idiotic. Double-spending would be profoundly disruptive and would not yield that much money. It is also pretty clearly illegal.

LukeJr 51%'d coiled coin for example. He did not double-spend. He merely mined 100% of the block reward and imposed larger fees on txns. That is potentially quite profitable. Once you have exhausted your opportunities to sell equipment, there is no reason not to do this. It is also not clearly illegal. At most it violates antitrust law, but good luck getting someone to prosecute.

The worst case scenario is if a new ASICs gets announced that is better than what BFL can offer. This would mean that BFL wouldn't have any reason to care about their reputation as a mining equipment vendor. In this case, assuming rationality, a 51% attack is guaranteed.

And Luke-Jr intentionally killed CLC. How is that more profitable than selling hardware?

[cunicula]

And Luke-Jr intentionally killed CLC. How is that more profitable than selling hardware?

Luke-Jr was a vandal. Companies seek profit.

It is not either/or. You would do both. Only suckers fail to take advantage.

If you are bold, tax users and expropriate miners.
If you are timid, simply expropriate miners openly.
If you are really timid, just create lots of hardware and mine. This is secret expropriation. How would we know that they only sold 10k out of 100k chips?

I think I'd go for really timid.

[nibor]

So nobody disagreed with my maths (only grammer - although I think it is Butterfly Labs - if that makes a difference)!

In that case I conclude that BFL and/or competitors will ship $16m of ASIC hardware at current prices, twice as much if/when they half the price etc.. till the point where we get to the Electicity Cost being significant (1billion difficulty).

Assuming price holds up at $12.

That is a nice bit of business...

[cunicula]

My bad, I was doing it in my head and must have been biased by a previous response to someone claiming that ASICMINER could just print out a couple petahash/s for cheap. That one was almost 10MW.

You wouldn't even have to do it in China, if you think they would make enough equipment to actually try over a weekend to 51% the network. You could probably just cut a deal with someone that operates a large industrial facility to use it over the Christmas weekend or something. Still, what would that get you? A 51% attack doesn't let you just take all the coins. I find it hard to believe that they would be able to pull off any double spends large enough to justify the cost of the operation.

Why would you double-spend? It is idiotic. Double-spending would be profoundly disruptive and would not yield that much money. It is also pretty clearly illegal.

LukeJr 51%'d coiled coin for example. He did not double-spend. He merely mined 100% of the block reward and imposed larger fees on txns. That is potentially quite profitable. Once you have exhausted your opportunities to sell equipment, there is no reason not to do this. It is also not clearly illegal. At most it violates antitrust law, but good luck getting someone to prosecute.

In this case, I'd say that BFL can do it as long as they can maintain it.  Good luck with that.

Right and afterwards they just mine like regular guys. Is there some way they lose from this?

I can see one, if they mine with those produts before they sell them, then they will drive up the difficulty in the meantime, and reduce their market value.  I don't know which path is more profitable, but if you are in the business of manufacturing pickaxes it's generally counterproductive to stake the gold claims yourslef.

No, this is wrong. You sell $x million of pick-axes at a 10-fold markup over marginal cost. Then you spend x/10 to expropriate all of your customers. Total profit 1.8x
versus playing it straight for a profit of 0.9x

I don't know about you but given an opportunity to double my money with negligible risk, i usually go for it. Maybe they can't do math though.

[MrTeal]

No, this is wrong. You sell $x million of pick-axes at a 10-fold markup over marginal cost. Then you spend x/10 to expropriate all of your customers. Total profit 1.8x
versus playing it straight for a profit of 0.9x

I don't know about you but given an opportunity to double my money with negligible risk, i usually go for it. Maybe they can't do math though.

You make a few large assumptions there. The biggest is that after they spend x/10 (probably more, since you'd want to have more than 51% if you were to attempt this) the value of bitcoin will not drastically change. Given the immature state of the bitcoin ecosystem, there's no reason to believe that if BFL took control of the network and rejected blocks of all other miners that the price wouldn't tank.

[Technomage]

You make a few large assumptions there. The biggest is that after they spend x/10 (probably more, since you'd want to have more than 51% if you were to attempt this) the value of bitcoin will not drastically change. Given the immature state of the bitcoin ecosystem, there's no reason to believe that if BFL took control of the network and rejected blocks of all other miners that the price wouldn't tank.

The price would crash to near nothingness if they were caught of even having over 50%, regardless of if they actually hamper others or not. This is mainly why nobody with an ounce of sanity would actually do it if they want to be profitable.

Satoshi knew all of this by the way. The model is fairly resistant if you think about direct profit motive. It doesn't count if someone is out there to simply destroy Bitcoin but that isn't easy or cheap to pull off either, and the idea of cryptocurrencies is going nowhere regardless. Bitcoin and others like it can adapt and will adapt if necessary.

I'm actually surprised how utterly clueless cunicula is on this particular subject. He is supposed to be an "economist" yet he is thinking in an extremely simplistic way, in a way that simply doesn't apply. I think he is just desperate to push proof of stake down our throats.

I would like to add that I'm not necessarily against having a proof of stake element in a cryptocurrency but I don't think that it's very relevant right now. Also it has more to do with the issue of block rewards and transaction fees than anything else.

[cunicula]

No, this is wrong. You sell $x million of pick-axes at a 10-fold markup over marginal cost. Then you spend x/10 to expropriate all of your customers. Total profit 1.8x
versus playing it straight for a profit of 0.9x

I don't know about you but given an opportunity to double my money with negligible risk, i usually go for it. Maybe they can't do math though.

You make a few large assumptions there. The biggest is that after they spend x/10 (probably more, since you'd want to have more than 51% if you were to attempt this) the value of bitcoin will not drastically change. Given the immature state of the bitcoin ecosystem, there's no reason to believe that if BFL took control of the network and rejected blocks of all other miners that the price wouldn't tank.

Perhaps. That is the greedy assumption. They could always keep control of 51% secret. This would give them 1.4x profit instead of 0.8x. Almost double. Still a network under 51% control. But no one would know.

[cunicula]

No, this is wrong. You sell $x million of pick-axes at a 10-fold markup over marginal cost. Then you spend x/10 to expropriate all of your customers. Total profit 1.8x
versus playing it straight for a profit of 0.9x

I don't know about you but given an opportunity to double my money with negligible risk, i usually go for it. Maybe they can't do math though.

You make a few large assumptions there. The biggest is that after they spend x/10 (probably more, since you'd want to have more than 51% if you were to attempt this) the value of bitcoin will not drastically change. Given the immature state of the bitcoin ecosystem, there's no reason to believe that if BFL took control of the network and rejected blocks of all other miners that the price wouldn't tank.

Perhaps. That is the greedy assumption. They could always keep control of 51% secret. This would give them 1.3x profit instead of 0.8x. Almost double. Still a network under 51% control. But no one would know.

Rergarding the other comment. They will already have 0.9x in the bank as USD. I am suggesting that they risk another 0.1x to get revenue of 0.5x. If they get caught, worst case they lose 0.1x. If they do npt get caught they gain 0.4x. Is the probability of detecting them higher than 80%? If not, the wise business decision is to go for it. (note this is based on accepting your claim that value drops to 0 if they are detected. I don't believe that, but it doesn't really matter.)

[MrTeal]

Rergarding the other comment. They will already have 0.9x in the bank as USD. I am suggesting that they risk another 0.1x to get revenue of 0.5x. If they get caught, worst case they lose 0.1x. If they do npt get caught they gain 0.4x. Is the probability of detecting them higher than 80%? If not, the wise business decision is to go for it. (note this is based on accepting your claim that value drops to 0 if they are detected. I don't believe that, but it doesn't really matter.)

I didn't claim it would drop to 0, but I think it would get pretty close. Even if they only maintained 40% or 50%, it would still be a massive red flag to anyone not only that one entity has such a large percentage of the network, but that they're also the (most likely) far and away largest provider of mining equipment.

Regardless, your assertion that it is worth gambling 0.1x to gain 0.4x is very shortsighted, as it ignores future earnings. BFL has an apparently not insignificant investment in infrastructure and training as well as brand recognition. They've spoken at length about the desire to make this a long term business and bring out new generations of hardware. They would essentially be throwing that away since eventually such a scheme would come out.

[cunicula]

Rergarding the other comment. They will already have 0.9x in the bank as USD. I am suggesting that they risk another 0.1x to get revenue of 0.5x. If they get caught, worst case they lose 0.1x. If they do npt get caught they gain 0.4x. Is the probability of detecting them higher than 80%? If not, the wise business decision is to go for it. (note this is based on accepting your claim that value drops to 0 if they are detected. I don't believe that, but it doesn't really matter.)

I didn't claim it would drop to 0, but I think it would get pretty close. Even if they only maintained 40% or 50%, it would still be a massive red flag to anyone not only that one entity has such a large percentage of the network, but that they're also the (most likely) far and away largest provider of mining equipment.

Where would the massive red flag come from? How do you know they aren't mining right now?

Regardless, your assertion that it is worth gambling 0.1x to gain 0.4x is very shortsighted, as it ignores future earnings. BFL has an apparently not insignificant investment in infrastructure and training as well as brand recognition. They've spoken at length about the desire to make this a long term business and bring out new generations of hardware. They would essentially be throwing that away since eventually such a scheme would come out.

If they are assured a permanent monopoly on hardware then I agree that we will be okay.

If not, then building up a huge stockpile of private equipment makes perfect sense. Such a stockpile drives down the returns to mining and discourages entry from competitors.

[Jutarul]

They're not going to actually have sold 750TH/s by the end of the year.

750TH/s is 12,500 Singles. At $1300 per unit, that's $16million USD in preorders. I don't think they have that many preorders, but I could be wrong.

They're going to get 100,000 chips in 2 waves, the first of those waves being stated previously as being ~20,000 chips. This will cover the first batch, which puts us right at about 150TH/s. That's about a 5-6x difficulty compared to where we are now.

Eventually we will get to 750TH/s, but not for another few months, at the earliest.

Help me out here. At current price levels, the yearly BTC reward is maxed at $17M (3600/day*365day*$13). So BFL has to decide:
a) keep >50% of the chips (worth $8M) and earn $8.5M through BTC mining (minus all the overhead)
b) sell them ASAP for $8M.

Why does option a) not make any sense to me?

Actually there is an option c):
c) premine with each chip, keep the most profitable fraction of the mining reward for the chip lifecycle and sell it at full price

[crazyates]

They're not going to actually have sold 750TH/s by the end of the year.

750TH/s is 12,500 Singles. At $1300 per unit, that's $16million USD in preorders. I don't think they have that many preorders, but I could be wrong.

They're going to get 100,000 chips in 2 waves, the first of those waves being stated previously as being ~20,000 chips. This will cover the first batch, which puts us right at about 150TH/s. That's about a 5-6x difficulty compared to where we are now.

Eventually we will get to 750TH/s, but not for another few months, at the earliest.

Help me out here. At current price levels, the yearly BTC reward is maxed at $17M (3600/day*365day*$13). So BFL has to decide:
a) keep >50% of the chips (worth $8M) and earn $8.5M through BTC mining (minus all the overhead)
b) sell them ASAP for $8M.

Why does option a) not make any sense to me?

Actually there is an option c):
c) premine with each chip, keep the most profitable fraction of the mining reward for the chip lifecycle and sell it at full price

Well that $16 million figure is only if they sell all 100,000 chips. if they only sell 20,000 chips like they said the first batch (and the sum of their pre-orders) is, then we're talking about $3.2 million. So that makes your 3 options as follows:

A) Ship $1.6M worth of preorders, and keep $1.6M worth of chips and earn 650,000BTC over 1 year (assuming no other ASICs get added to the market).
B) Ship all $3.2M worth of preorders now.
C) Pre-mine and then ship all $3.2M worth of preorders, and keep a nice bonus in Bitcoins.

Option A doesn't make sense, because 1) it would take them a year to mine all those coins. Selling hardware now gets them money now. And more importantly 2) Bitcoins are only worth what people are willing to pay for them. If the market realizes that >50% of the network is being mined by one source, the faith in Bitcoins vanishes. When no one trusts them anymore, no one wants to buy them, and people holding them want to sell. This makes for an instant market crash, and BFL would be left mining an utterly useless currency. It doesn't matter who they are, but one party controlling >51% of the network would crash the BTC market, regardless of whether they performed a malicious attack or not.

All major ASIC manufacturers have said that C) is not an option, so that only leaves option B). Or people have also been concerned about this one last one:

D) Advertise a fake ASIC and get loads of money from preorders. Disappear, with millions of $ of non-existent sales.

Bit I digress. I'm tired, and my ramblings probably don't make sense. Have fun sifting through all of it.

[bcpokey]

Since you guys brought it up, try this one on for size:

-Acquire VC funding to produce ASICs, sell "pre-orders" which are really zero-interest loans. Use VC money to begin production of ASICs, use loan money to begin artificially inflating bitcoin price, thereby increasing fervor for bitcoins and increasing pre-sales, which you can use to puff up bitcoin price more, rinse-repeat, stocking up on coins.
-Create "delays" and "improvements" to line extending time until shipment allowing more pre-orders to pile up and more coin collection / market manipulation, allow market to stabilize at new artificial price.
-At final breaking point, when competitors have product ready, and customers begin to balk and ask for refunds in sizable numbers, begin controlled (limited) shipment of product.
-When product reaches first wave of consumers, collect flood of new orders from people finally reassured that ASICs are real.
-Continue limited shipment until new orders begin to slow pace, ramp up "production" (read: shipping) to fill most orders in short span of time.
-Ship most/all orders (to deny returns), unload stockpile of bitcoin at artificially inflated price, crashing bitcoins price (after taking all the top level bids).

Close up shop, move to Aruba, live nice life.

Nothing illegal done, tons of cash made off pre-orders, tons of bitcoins turned into tons of fiat, miners left with worthless hardware they can't return.

How's THAT for a plan? Easier than supposedly running some 51% scheme, and fits nicely with current events (price rose *sharply* right after July '12).

[ursa]

Since you guys brought it up, try this one on for size:

Acquire VC funding to produce ASICs, sell "pre-orders" which are really zero-interest loans. Use VC money to begin production of ASICs, use loan money to begin artificially inflating bitcoin price, thereby increasing fervor for bitcoins and increasing pre-sales, which you can use to puff up bitcoin price more, rinse-repeat, stocking up on coins.
Create "delays" and "imrpovements" to line extending time until shipment allowing more pre-orders to pile up and more coin collection / market manipulation, allow market to stabilize at new artificial price.
At final breaking point, when competitors have product ready, and customers begin to balk and ask for refunds in sizable numbers, begin controlled (limited) shipment of product.
When product reaches first wave of consumers, collect flood of new orders from people finally reassured that ASICs are real.
Continue limited shipment until new orders begin to slow pace, ramp up "production" (read: shipping) to fill most orders in short span of time.
Ship most/all orders (to deny returns), unload stockpile of bitcoin at artificially inflated price, crashing bitcoins price (after taking all the top level bids).

Close up shop, move to Aruba, live nice life.

Nothing illegal done, tons of cash made off pre-orders, tons of bitcoins turned into tons of fiat, miners left with worthless hardware they can't return.

How's THAT for a plan? Easier than supposedly running some 51% scheme, and fits nicely with current events (price rose *sharply* right after July '12).

Sounds pretty real ....except for Aruba...maybe other country )

[Jutarul]

Since you guys brought it up, try this one on for size:

-Acquire VC funding to produce ASICs, sell "pre-orders" which are really zero-interest loans. Use VC money to begin production of ASICs, use loan money to begin artificially inflating bitcoin price, thereby increasing fervor for bitcoins and increasing pre-sales, which you can use to puff up bitcoin price more, rinse-repeat, stocking up on coins.
-Create "delays" and "improvements" to line extending time until shipment allowing more pre-orders to pile up and more coin collection / market manipulation, allow market to stabilize at new artificial price.
-At final breaking point, when competitors have product ready, and customers begin to balk and ask for refunds in sizable numbers, begin controlled (limited) shipment of product.
-When product reaches first wave of consumers, collect flood of new orders from people finally reassured that ASICs are real.
-Continue limited shipment until new orders begin to slow pace, ramp up "production" (read: shipping) to fill most orders in short span of time.
-Ship most/all orders (to deny returns), unload stockpile of bitcoin at artificially inflated price, crashing bitcoins price (after taking all the top level bids).

Close up shop, move to Aruba, live nice life.

Nothing illegal done, tons of cash made off pre-orders, tons of bitcoins turned into tons of fiat, miners left with worthless hardware they can't return.

How's THAT for a plan? Easier than supposedly running some 51% scheme, and fits nicely with current events (price rose *sharply* right after July '12).

Sounds like a solid pump&dump scam. So in effect, every pre-order is backed by the equivalent amount of bitcoins . But why the heck would they want to flash crash the market?

[MrTeal]

That only works if BFL was actually holding the bitcoins from preorder sales. They used BitPay to process BTC orders, and shortly after preorders opened BitPay was on the forum trying to sell large chunks of BTC from the BFL sales.

[cunicula]

There are only a couple smart ways of managing BFL.

Scam A

1) Sell to consumers.
2) After 1 is finished sell more to yourself.

Scam B

1) Sell to consumers.
2) Lower prices, sell to more consumers.
3) Lower prices, sell to more consumers.
...
n) After (1)-(n-1) are finished, sell more to yourself.

It can only end one way. Scam B is just a longer, long con.

[Jutarul]

There are only a couple smart ways of managing BFL.

Scam A

1) Sell to consumers.
2) After 1 is finished sell more to yourself.

Scam B

1) Sell to consumers.
2) Lower prices, sell to more consumers.
3) Lower prices, sell to more consumers.
...
n) After (1)-(n-1) are finished, sell more to yourself.

It can only end one way. Scam B is just a longer, long con.

That's why competition is so important. It forces BFL to show their hand eventually.

[creativex]

Indeed. BFL is already under pressure to lower prices.

[bcpokey]

That only works if BFL was actually holding the bitcoins from preorder sales. They used BitPay to process BTC orders, and shortly after preorders opened BitPay was on the forum trying to sell large chunks of BTC from the BFL sales.

Actually it wouldn't work at all if they were paid in Bitcoins. They need FIAT to dump onto the exchanges in order to artificially bump up the market price for the eventual dump.

My way is safer, cheaper, fears no competition, and less time-intensive than Cuniculas method, and far more reasonable from a scammers perspective, so I think in terms of the paranoia awards, the clear winner.