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Author Topic: Inevitable development into mining elite?  (Read 2962 times)
Thraex
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June 11, 2011, 11:39:39 PM
 #1

Hello everyone.
Firstly I'm new to the BTC forums so this is my first topic, and I have this thought on mining.
It'd be nice if someone could enlighten me on how the Bitcoin system is going to prevent a development into what is basically a mining elite wherein it's a few people/groups who essentially compete with eachother for mining the most BTC, and the general public generating maybe a few % of the rest- subsequently rendering mining for them practically useless.
As I've understood the system so far, mining will inevitably become for the few groups/people with truly the most money spent on hardware.
I've thought it over and it sounds inevitable to me frankly, but if that's not a problem I'd appreciate a responce as to why.

Thanks Smiley
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Jack of Diamonds
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June 11, 2011, 11:45:30 PM
 #2

That wont happen before ~10 million difficulty, when mining with 1 or 2 gpus will produce under 2 bitcoins per month.

Even then there are a couple scenarios:

1. AMD 7000-series GPUs are extremely fast for OpenCL calculations (not a big chance since it's just a die shrink but it's out there)

2. Bitcoin ASICS become reality and affordable. There are plans on the forum for 8Mhz processors running 1 hash per clock, and using under 10 watts of power. That's 800mhash/s, if it costs $30-$40 eventually, they will become a cheap alternative to GPUs.

1f3gHNoBodYw1LLs3ndY0UanYB1tC0lnsBec4USeYoU9AREaCH34PBeGgAR67fx
Thraex
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June 12, 2011, 12:00:14 AM
 #3

Well, regardless of availability of cheap and increasingly more effective hardware- there will inevitably be better hardware, hence why miners invest in it.
I see three scenario's basically:

Bitcoin mining developing into
- A socialist-like system wherein one can produce (roughly?) as much BTC as everybody else regardless of hardware, therefore mining probably ceasing to exist.
- An elite system with a few strong miners competing each other and rendering others impractical.
- A system wherein one can only be "an elite miner" for a limited period of time or other principles that prevent strong elites.

In each scenario, the system will change. And it seems to me in a way not for the best for the general public unless there comes something that will prevent extreme elites, which I believe would be in conflict with how the system fundamentally works.

Enlighten me if I'm being ignorant. Smiley
Fakeman
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June 12, 2011, 12:15:33 AM
 #4

It's also possible that eventually mining will only really be feasible in a few places where electricity is the cheapest.

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andes
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June 12, 2011, 12:23:28 AM
 #5

Related topic


Bitcoin's kryptonite: The 51% attack.

http://forum.bitcoin.org/index.php?topic=12435.0
Thraex
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June 12, 2011, 12:30:44 AM
 #6

Thankes Andes, it doesn't take much to think the concept through- I'll read the topic for some insight.

I think the bottomline really is that miners and mining pools should work on "real spikes of elites" if you will, blocks or bans of some sort. I'll read the topic for some idea's now.
andes
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June 12, 2011, 12:40:33 AM
 #7

As I've understood the system so far, mining will inevitably become for the few groups/people with truly the most money spent on hardware.

In my opinion, if economies of scale kick in, and there are no built-in countermeasures in Bitcoin, what you describe is the inevitable outcome. The other option would be a social movement to defend democratic mining, instead of concentrated mining. Achieving social traction in the masses could be one or two orders of magnitude more difficult than a technical solution IMO.
Thraex
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June 12, 2011, 12:49:05 AM
 #8

As I've understood the system so far, mining will inevitably become for the few groups/people with truly the most money spent on hardware.

In my opinion, if economies of scale kick in, and there are no built-in countermeasures in Bitcoin, what you describe is the inevitable outcome. The other option would be a social movement to defend democratic mining, instead of concentrated mining. Achieving social traction in the masses could be one or two orders of magnitude more difficult than a technical solution IMO.

I suggest we come up with a sticky proposing possible solutions with their respective amount of votes before we get over-excited when the outcome is reality and people collectively cease mining.
Hope someone can in short tell me why a development into a mining elite should be of no concern or not possible, to keep the bottomline answer of this topic short and have people spend/waste less time reading.

As for economies in general, to me the most effective system one can have anyway is a resource-based one like we see in conspiracy documentaries such as Zeitgeist. It makes everything else look like a massive war of ego and greed.

Anyway, still reading. Smiley
andes
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June 12, 2011, 12:57:09 AM
 #9

Thraex, I have been quite a few days in this forum so far, and found out that most people dont want to think long term, or realistically. They just want short term gains, or dream about fame and riches. I am also invested in Bitcoin, but I am consious that this project needs a lot of fixing to overcome all the problems it has.

I dont know if we can post stikys, I guess only moderators can. But its a good idea.
Thraex
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June 12, 2011, 01:12:53 AM
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Thraex, I have been quite a few days in this forum so far, and found out that most people dont want to think long term, or realistically. They just want short term gains, or dream about fame and riches. I am also invested in Bitcoin, but I am consious that this project needs a lot of fixing to overcome all the problems it has.

I dont know if we can post stikys, I guess only moderators can. But its a good idea.

Ah, how surprising really. I wouldn't have ever thought people could not be concerned by the long term effects of our actions. Anyway, we can either hope that by at least announcing the problem we stimulated people "getting into the elite", if you will- it would however appear to me but a matter of time untill the spikes of absolute extreme miners appear who would ultimately compete amongst themselves.
Or a moderator can confirm the possible flaw and come up with a sticky list of plausible solutions linking to their respective topics.
Anyhow, thanks for saving my time.

If anybody more comes up with idea's and more insight I'd be happy to read.  Smiley
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June 12, 2011, 01:43:05 AM
 #11

It's exactly like the gold rush. First there were a crap ton of little prospectors. Then the ones that hit the mother load started buying up the little guys. Then the big guys started buying each other out and now we have a hand full of huge gold mining companies.  Large "elite" gold mining companies aren't bad for the gold industry. This is just the way things work.
Thraex
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June 12, 2011, 01:48:15 AM
 #12

It's exactly like the gold rush. First there were a crap ton of little prospectors. Then the ones that hit the mother load started buying up the little guys. Then the big guys started buying each other out and now we have a hand full of huge gold mining companies.  Large "elite" gold mining companies aren't bad for the gold industry. This is just the way things work.

It's not what I said- my scenario's theorized that most people will inevitably cease mining as soon as the extreme miner spikes show up.
Haven't said it's bad, there will still be miners around I suppose.

As with the gold mining companies, obviously there are still plentiful fortune-seekers around but their odds of finding gold (given they have properly studied geology and plentiful other fields) will be significantly bigger than the odds of being able to produce BTC effectively in the near future without major GPU farms on your own or within a mining pool.
Your 6.6 Ghash/s doesn't get you near the spikes that seem inevitable to me soon, hence the fact your rig performance stimulates other "developing elites" if you will- to invest more and more into their mining rigs.
andes
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June 12, 2011, 01:49:09 AM
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It's exactly like the gold rush. First there were a crap ton of little prospectors. Then the ones that hit the mother load started buying up the little guys. Then the big guys started buying each other out and now we have a hand full of huge gold mining companies.  Large "elite" gold mining companies aren't bad for the gold industry. This is just the way things work.

Your analogy is wrong. Once extracted and refined, the value of gold lies in the gold itself (gold atoms).  On the other hand, bitcoins value depends on having a mayority of honest miners 24/7. You dont need third parties to do a transaction with gold. But to do anything with your Bitcoins you depend on miners, forever. This is the fundamental difference between Bitcoin and gold.

If bitcoin mining gets concetrated in few hands, or outsiders can overwelm the Bitcoin mining power, Bitcoin is in danger by design.
Thraex
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June 12, 2011, 02:15:59 AM
 #14

It's exactly like the gold rush. First there were a crap ton of little prospectors. Then the ones that hit the mother load started buying up the little guys. Then the big guys started buying each other out and now we have a hand full of huge gold mining companies.  Large "elite" gold mining companies aren't bad for the gold industry. This is just the way things work.

Your analogy is wrong. Once extracted and refined, the value of gold lies in the gold itself (gold atoms).  On the other hand, bitcoins value depends on having a mayority of honest miners 24/7. You dont need third parties to do a transaction with gold. But to do anything with your Bitcoins you depend on miners, forever. This is the fundamental difference between Bitcoin and gold.

If bitcoin mining gets concetrated in few hands, or outsiders can overwelm the Bitcoin mining power, Bitcoin is in danger by design.

I think our paradox genuinely does not seem like a problem to most people. I debate religious people for a hobby so I'm used to it, seeing the cornerstone of human failure in action never really ceases to fascinate me.
Don't expect an answer against this theoretical flaw any soon so I'll check on this topic later on.

We have a nice saying in Holland that goes: "unable to look beyond your nose".
My second most favourite Dutch saying would be, "failing to see the forest due to the trees".
I guess we'll see what's going to happen. Smiley
andes
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June 12, 2011, 02:20:48 AM
 #15

I debate religious people for a hobby so I'm used to it,

Ha ha, yes, this forum looks like 80% blind faith to me!  Wink
NetTecture
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June 13, 2011, 07:58:29 AM
 #16

Yes, you will have a mining elite. Surely.

Why?

Because economics of scale demand so.

Put up a mining roig? have fun.

Here is a thing - not even cross national. I can put up a mining rig cheaper than what my neighor pays for electricity. Same rig. And mine will include electricity, admin, cooling.

How?

I am a business (no VAT / Sales tax) AND I will run 40+ computers, so I pay industrial prices for electricity, while my neighbor pays retail pricing.

This will lead to large specialised data center style operations with high density rigs.

Think ASIC are the solution? Au conraire. No normal user will dump thousands of usd into special gear for mining - mining operations will, again, do as a safe investment.

At a point normal users think it makes no sense to mine (5% per month profit) a busines may laugh and find things quite ok. Because a business profit is higher and 50 USD per gear per month in profit are a lot if you put up 400+ machines.

So, yes, concentration of some kind is inevitable.
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June 13, 2011, 08:37:17 AM
 #17

I am a business (no VAT / Sales tax) AND I will run 40+ computers, so I pay industrial prices for electricity, while my neighbor pays retail pricing.
But you do pay taxes on your profits don't you?

The other thing many forget is, that if a company invests into large-scale mining-equipment, this could very well be employed for other lucrative purposes in the industry as well. So the threshold when such a company stops mining Bitcoins is not when they pay more for electricity than they earn on BTC but whenever another computation-task is more profitable.

The average private miners on the other hand have not really an alternative to earn money with her hardware right now, so they might be willing to do so even if it's only marginally profitable.

Also, many people always buy the fastest (~ most efficient) GPUs for their gaming needs anyway and therefore have no additional hardware costs to recoup - a hardware upgrade to the next most efficient GPU generation for a large-scale mining-corporation might be a considerable investment which might not happen immediately (due to high prices of brand-new hardware) therefore reducing the advantage they have over private miners.

Don't forget that we are talking about a future in which Bitcoin is widely successful and therefore don't underestimate the power of a million new Bitcoin users with the most current GPU in their gaming computer (read: hypothetically Peta-hashes in about a year!).

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Think ASIC are the solution? Au conraire. No normal user will dump thousands of usd into special gear for mining - mining operations will, again, do as a safe investment.
Agreed - but also for a company this investment is much more risky (read: more unlikely) because of the reason stated above (ASICs are more or less single-purpose) and the additional risk that in the case of some future change to the hashing algorithm of Bitcoin, they will have lost everything.

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At a point normal users think it makes no sense to mine (5% per month profit) a busines may laugh and find things quite ok. Because a business profit is higher and 50 USD per gear per month in profit are a lot if you put up 400+ machines.
I'm not so sure about that - see reasoning above.

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So, yes, concentration of some kind is inevitable.
Probably, but only to some degree - I wouldn't count on private miners disappearing in the long run.
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June 13, 2011, 09:36:51 AM
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But you do pay taxes on your profits don't you?

Yes, I pay 19% capital gains tax on NET PROFIT. That is after all expenses and AFTER decpreciation. VAT return also means my gear is significantly cheaper than the private neighbots stuff.

Go figure Wink

And, btw. - private miner may pay taxes on profit too. I doubt someone with 4-5 computers mining would be counted as non-profit in an audit. More like tax fraud / tax evasion.

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The average private miners on the other hand have not really an alternative to earn money with her hardware right now, so they might be willing to do so even if it's only marginally profitable.

Yes, but again: For me it is a good business WHILE (!) the private minter puts money on the table in the same country - my whole operations including some profit margin is cheaper than the private guys electricity cost. Ouch.

When he realizes end of the month heot majorly fucked, and would have pucrhased the coins cheaper than his electricity invoice (and I assume some miners get shocked in a month or two, or up to a year in some countries) I make profit. Economy of scale here is brutal.

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Also, many people always buy the fastest (~ most efficient) GPUs for their gaming needs anyway and therefore have no additional hardware costs to recoup - a hardware upgrade to the next most efficient GPU generation for a large-scale mining-corporation might be a considerable investment which might not happen immediately (due to high prices of brand-new hardware) therefore reducing the advantage they have over private miners.

Yes, but, you are aware of the nontrivial price differences between "shop including VAT / Sales tax" and "distributor mass purchase price". Hint: It is about one third less for the large scale operation, which on top has access to credit lines that are not "ok, my credit card maxes out at 20% per annum". my lease costs for a 6990 is about 15 USD per month, including full depcreiation. A lot less than the electricity used Wink

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Don't forget that we are talking about a future in which Bitcoin is widely successful and therefore don't underestimate the power of a million new Bitcoin users with the most current GPU in their gaming computer (read: hypothetically Peta-hashes in about a year!).

That is until mum comes and reminds little basement miner that it is not his profit if he causes hugh costs in electricity for mom and dad Wink Plus - seriously .mining gear is not something I want to run at home. Some computers = LOTS of noise. And talk about the heat here Wink

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Agreed - but also for a company this investment is much more risky (read: more unlikely) because of the reason stated above (ASICs are more or less single-purpose) and the additional risk that in the case of some future change to the hashing algorithm of Bitcoin, they will have lost everything.

Tax deductable Wink Seriously Wink No, this is a risk, but I think one that is quite controllable. Business is about taking educated guesses. If anything I can dump the cards on the used market. VERY limited risk.

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Probably, but only to some degree - I wouldn't count on private miners disappearing in the long run.

No, plenty of idiots around. Seriously, in some countries i expect them to get hammered the moment the electriicity bill hits you. This can take a year (like in germany you only pay once per year, in the itnerim you make down payments on your estimated usage - unless someone checks the meter, some people wil lbe REALLY surprised. Hint: This is MAJOR. We talk about a gear using about 300 USD per month electricity at end user rates there Wink Mum and dad will scream when Bobby Idiot dumped his savings into 3x3 6990 and they have to pay what is a small car then. How would your family feel about a little higher (10.000 USD) electricity bill? Wink

Over the middle run people will realize the negatives. Like noise.

This is like web hosting. Yes, some people host from home. Most dont.

I think mid term we will see large scale mining.
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June 13, 2011, 10:42:32 AM
 #19

VAT return also means my gear is significantly cheaper than the private neighbots stuff.

Agreed - but I was talking about one of a million gamers who already has the hardware or will buy future hardware regardless of their Bitcoin potential. So no, your hardware is not necessarily cheaper.

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And, btw. - private miner may pay taxes on profit too. I doubt someone with 4-5 computers mining would be counted as non-profit in an audit. More like tax fraud / tax evasion.

Agreed, but if Bitcoins are widely successful he will probably be able to buy something he was going to buy with USD anyway so that's tax avoidance at most - which is perfectly legal. But since taxation of Bitcoins is still somewhat in the gray area we can only speculate anyway.

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The average private miners on the other hand have not really an alternative to earn money with her hardware right now, so they might be willing to do so even if it's only marginally profitable.
Yes, but again: For me it is a good business WHILE (!) the private minter puts money on the table in the same country - my whole operations including some profit margin is cheaper than the private guys electricity cost. Ouch.

No, you didn't understand my point: if difficulty is so high that you are earning money while the private miner is losing on electricity cost - you as a company with a large scale mining farm would probably gain more by taking the offer from some other company who has demand for HPC simulations (finance, automobile industry,...) and is willing to pay good money for it.

My point is, that your margin over the private miner is limited by the next most lucrative offer for your computing power - the private miner probably doesn't have alternative offers which makes him worse off in terms of total profit but he might be the one making more Bitcoins.

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When he realizes end of the month heot majorly fucked, and would have pucrhased the coins cheaper than his electricity invoice (and I assume some miners get shocked in a month or two, or up to a year in some countries) I make profit. Economy of scale here is brutal.

No, I never argued that a private miner will mine at a loss - how did you draw that conclusion?

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Don't forget that we are talking about a future in which Bitcoin is widely successful and therefore don't underestimate the power of a million new Bitcoin users with the most current GPU in their gaming computer (read: hypothetically Peta-hashes in about a year!).
That is until mum comes and reminds little basement miner that it is not his profit if he causes hugh costs in electricity for mom and dad Wink

Again - nobody needs to mine at a loss for my arguments to hold.

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Plus - seriously .mining gear is not something I want to run at home. Some computers = LOTS of noise. And talk about the heat here Wink

Some have their computer running 24/7 anyway and don't mind the noise then there are the watercooling enthusiasts and whatnot. I'm just saying that there are a _lot_ of private people worldwide who already have the hardware and can mine Bitcoins at a profit for as long as you as a business would rationally mine Bitcoin professionally.

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Agreed - but also for a company this investment is much more risky (read: more unlikely) because of the reason stated above (ASICs are more or less single-purpose) and the additional risk that in the case of some future change to the hashing algorithm of Bitcoin, they will have lost everything.
Tax deductable Wink Seriously Wink No, this is a risk, but I think one that is quite controllable. Business is about taking educated guesses. If anything I can dump the cards on the used market. VERY limited risk.

You probably won't get much for your Bitcoin-ASICs if everyone switches to SHA-3 or Bitcoin gets abandoned...

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Probably, but only to some degree - I wouldn't count on private miners disappearing in the long run.
No, plenty of idiots around. Seriously, in some countries i expect them to get hammered the moment the electriicity bill hits you. This can take a year (like in germany you only pay once per year, in the itnerim you make down payments on your estimated usage - unless someone checks the meter, some people wil lbe REALLY surprised. Hint: This is MAJOR. We talk about a gear using about 300 USD per month electricity at end user rates there Wink Mum and dad will scream when Bobby Idiot dumped his savings into 3x3 6990 and they have to pay what is a small car then. How would your family feel about a little higher (10.000 USD) electricity bill? Wink

No idiots needed for the scenario I depicted - don't know why you think private miners are not able to do a simple cost-volume-profit analysis for their mining activity. There are plenty of grown-ups that have gaming equipment and not every youngster is necessarily incapable of rational thought. Also no need to remind me of the electricity rates in Germany - I happen to have first-hand experience Wink

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Over the middle run people will realize the negatives. Like noise.

This is like web hosting. Yes, some people host from home. Most dont.

I think mid term we will see large scale mining.

Professional large scale mining will always be a part of the Bitcoin network but I doubt that they will drive private miners out of the market anytime soon. Just make some back-of-the-envelope calculations of a potential business wanting to outhash all the current mining pools combined. As a businessman you surely know that your real expenses to set up such an enterprise are much more than total_hashrate * cost_of_gpu / hashrate-per-gpu. Go ask Vladimir how come he dares to charge more than that. The higher your costs, the higher your risk - no matter how cheap your credit lines are.
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