Corporation Self Mining

[meowmeowbrowncow]

Re:
https://bitcointalk.org/index.php?topic=130386.msg1395048#msg1395048


So, I interpret the announcement from Yohan at Enterpoint to mean that they intend to self mine bitcoin.  They are pinging the community's possible interest in investing in to their operation.  Of course, once they bring on investors it would no longer be a purely private self mining operation.

Enterpoint claims to have highly sensitive proprietary technology, competitive with ASIC (but not ASIC), that completely precludes the option of selling boards to consumers.  This would be to avoid any reverse engineering risk.

It's unclear how large of an operation Enterpoint would have by self-mining without any outside investment.  Enterpoint states they would grow their public self-mining operation to meet outside investment levels. 


How do you feel about this?  Do you believe companies, e.g. ASICMiner, Enterpoint, pose any kind of threat by self mining?

What is Enterpoint's motivation to seek out 'loan note' or offer equity shares to the community? 

With Enterpoint possibly going public with the mining operation who holds the most risk?  What is Enterpoint's margin in good times and in cases where competing technologies become favorable.  Is community investment a hedge?

[DeathAndTaxes]

Assumming Enterpoint is legit and the tech is solid I don't see an issue as long as their share of total hashrate is relatively low (say 10%).  Now if they reach a point where they are >50% of even close (say 38% of network hashrate) that is bearish IMHO.

If Bitcoin grows large enough and mainstream enough it is inevitable that there will be first privately held and then publicly traded professional mining companies.  By professional I mean a registered and licensed business operating very large operations in company owned warehouse with low energy and cooling costs.  Professional as in full time staff, security, insurance, fire supression gear, etc.

Will it be Enterpoint or next year?  Who knows but it will happen eventually.

[meowmeowbrowncow]

...
If Bitcoin grows large enough and mainstream enough it is inevitable that there will be first privately held and then publicly traded professional mining companies. 
...

I agree that it is probably inevitable.


However, do you feel that this might be a 'bad money driving out good,' situation?  What I mean to say is what would happen if a bloc of large, private mining operations appear.  Each operation taking advantage of a) at cost hardware and b) economies of scale.

Keeping in mind such large entities would be so invested that their debt would influence them to keep mining at razor thin margins would a bloc of these entities force less efficient miners (i.e. pretty much all independent miners) out?


What I feel differentiates this type of situation from the idea of 'professional, efficient operations,' is that these self mining operations by definition are producing their own hardware.  The playing field is no where near balanced.

[bcpokey]

...
If Bitcoin grows large enough and mainstream enough it is inevitable that there will be first privately held and then publicly traded professional mining companies. 
...

I agree that it is probably inevitable.


However, do you feel that this might be a 'bad money driving out good,' situation?  What I mean to say is what would happen if a bloc of large, private mining operations appear.  Each operation taking advantage of a) at cost hardware and b) economies of scale.

Keeping in mind such large entities would be so invested that their debt would influence them to keep mining at razor thin margins would a bloc of these entities force less efficient miners (i.e. pretty much all independent miners) out?


What I feel differentiates this type of situation from the idea of 'professional, efficient operations,' is that these self mining operations by definition are producing their own hardware.  The playing field is no where near balanced.

That's kind of a nightmare scenario that would require bitcoin to grow a lot larger and more stable than it is now. The current total valuation of bitcoin is something like $100M USD? And mining today is worth $17M USD / yr? People already speculate that > $17M will be spent on ASIC hardware in the first year alone, by regular ol' joe-consumer. And to knock out those with the sunk cost (if just that 17M sticks around), requires maybe 10x more investment than that due to high efficiency. For manufacturers to potentially load out 17M for hardware, coloc, staff, to get 8.5M / yr, seems unlikely, especially given the wide swings in valuation of bitcoin (could be worth $100, could be worth $1 2 years from now, and you might be coming up on the halving soonish).

In the long-run, years down the road, if bitcoin were looking at Billions of USD for market cap, and coins value was much higher, perhaps TX fees playing a larger role as well, you could see serious large scale business push out the casuals, certainly. I suppose part of it depends on the profit-margins for these machines (cost vs selling point), demand, and whatnot as well.

[greyhawk]

What I feel differentiates this type of situation from the idea of 'professional, efficient operations,' is that these self mining operations by definition are producing their own hardware.  The playing field is no where near balanced.

Of course the playing field is not balanced. It's an unregulated free market. This is exactly what you all have been clamoring for for years. Now eat the soup.

[cunicula]

Of course the playing field is not balanced. It's an unregulated free market. This is exactly what you all have been clamoring for for years. Now eat the soup.

Hats off to you sir. This is the best post I've seen in a long time.

[Endgame]

It's inevitable that this is going to happen, so whether you like it or not I think its best to get used to it. As long as no one company comes to dominate the mining sphere, I don't see any harm to it. It is merely a sign that bitcoin is being taken seriously.

[Gatorhex]

If anyone corners the bitcoin market with a dedicated hardware solution you could make a small change to the bitcoin protocol to bring them down and return it to the people.

In the past when anyone corners the market in anything the price collapses anyway because people seek an alternative.

[AngelusWebDesign]

If anyone corners the bitcoin market with a dedicated hardware solution you could make a small change to the bitcoin protocol to bring them down and return it to the people.

In the past when anyone corners the market in anything the price collapses anyway because people seek an alternative.

Exactly.

That's when your Litecoin (etc.) would take off. We're not forced to stick with Bitcoin. As long as it's the best thing out there, people will by and large stick with it.

[ATC777]

Of course the playing field is not balanced. It's an unregulated free market. This is exactly what you all have been clamoring for for years. Now eat the soup.

Bravo! Let the market run its course! 

What's ultimately going to happen with Bitcoin will be a repeat of history... what history? The California gold rush of 1849... When the gold rush started, tons of individuals poured into California to get at the gold. They were spooning and panning it out of dirt and rivers and finding it lying around on the ground... it seemed anyone could get rich there with relative ease -- you just had to get to California and you were all set! Those days were much like the early days of Bitcoin when mining was a breeze (boy, do I wish I was around then). But eventually, all of the easily accessible gold began to disappear. Many people traveled to Cali risking life and limb only to be sorely disappointed and/or losing the money they sunk into it. What was left was gold that was very difficult to mine because it was in veins inside of mountains and sealed tightly in huge rocks and boulders -- or buried hundreds of feet underground. The difficulty of the work (like the mining difficulty of Bitcoin) was too much for individuals or small teams to handle. It was simply too much work for too little reward. So what ended up happening is that well-financed companies moved in and claimed the turf... They could afford the equipment and hundreds of laborers they needed to make mining profitable. And that's how the gold mining industry is today.

The same thing will happen with Bitcoin someday, but these ASIC chips are only a small first-step... To my knowledge, the "best" chip will be the SC Mini Rig which retails for $30k. That's still cheap enough for small groups of people to afford and start private mining operations. So the "little guy" still has some time in the game...on that I'm willing to bet. But we all have to accept the fact that, as this is a free market, bigger and more-organized players will eventually chase the rest away from mining. But does that mean the gig is up? Not at all... When we get to that point there should be such a vibrant Bitcoin economy that there will be plenty of other ways to make money! In the end it is for the "common good" of all...

In any case, professional mining operations will have to compete with the likes of me... and I am their worst nightmare! 

[bitboyben]

Didn't name coin die because most of it was controlled by too few?

[bcpokey]

namecoin isn't dead, but it fell out of favor when merged mining hit, and the bitcoin hashpower overwhelmed dedicated namecoin mining.

[DeathAndTaxes]

namecoin isn't dead, but it fell out of favor when merged mining hit, and the bitcoin hashpower overwhelmed dedicated namecoin mining.

Well namecoin is far more secure and the hashing rate far more stable now than it was prior to merged mining.  Namecoin fell out of favor simply because there was no use for it. It is a good idea but an idea without execution has no value.  So it became useful only for squatting on domains, speculating, and to boost the profits of miners.   kinda hard to built a functional economy if those are your cornerstones.

[meowmeowbrowncow]

How does the 'common good' of free market support the goals of Proof of Work in the context of hashing power economics?


This is what I'm getting at.  I believe under certain conditions free market behavior can contradict the goals of PoW.


I believe inefficient market, i.e. commanding >50% profit margin on commodity hardware, is the root of the problem.  Even if it's a temporary problem there's a temporary window of time where blocs of large, private hashing entities can establish a beach head.  Considering self preservation would any one private entity approach 50% network capacity?  Not if they are rational actors.  However, a bloc of private entities can degrade the integrity of PoW in such a way that imposes more risk than large mining pools since there is no ready recourse.  Will a bloc of such entities be considered sufficient risk when/if that time comes to seriously consider a protocol change?  

Do we trust such a bloc providing bitcoin network security?  Why?  What if such a bloc would not yield their influence and refuse to participate in changes that would negatively impact their collective interests?  Would we have replaced one master for another?


Free market?  Yes.  But I'm not a free market fundamentalist that believes that free market is compatible with every noble goal.

[meowmeowbrowncow]

I needed a relevant thread in which to plop these graphs and reference in other places.


These are rudimentary estimates of manufacturer profitability for those that self mine vs. a model of complete consumer sales.

Considerations

1.  Maximum aggregate manufacturer output of 4.5 TH per day.
2.  Self mining manufacturer output / re-investment at a constant rate of .75 TH / day.
3.  Manufacturer ramp-up/loading period at accelerated output through end of 2/2013.
4.  Consumer sensitivity to a 7 month maximum ROI period.  Resistance to purchases/output increases above 7 months with retail unit price break near 10 months.

And the important ones

5.  Does not account for unit price resets and capacity gains due to new, better hashing gear.
6.  USD/BTC constant.

And finally

7.  The point in time ROI vs. real ROI chart is an example of a worst case scenario.  When both the majority of consumers base their decisions on point in time profitability thereby underestimating future growth and vendors deliver at maximum output.  I believe miners will be smarter than to purchase at the rate shown, but we'll see.

This chart contrasts point-in-time ROI (based on forecasted network difficulty of a point in time) with real ROI.
Real ROI is the sum of profitability per difficulty period from purchase date forward to pay-off. 
The more consumers consider future difficulty increases in their purchase decisions the less accurate this chart will be.
If majority of consumers base their purchase decisions on fairly accurate difficulty projections a more slow, steady (linear) ROI will manifest and as a result asic retail price breaks will be delayed



This chart compares revenues of sales models of bitcoin asic manufacturers with the total daily mining subsidy.
The purpose is to examine robustness of each model and attempt to discover how much of Bitcoin's mining subsidy is effectively transferred to mining equipment makers.
The sawtooth pattern seen with consumer sales reflects profitability/PIT ROI as difficulty adjusts.
The large spikes in consumer sales revenue reflects mining equipment retail price drops as max ROI/market saturation is reached.