Parity watch -> Who's next?

[checkers6676]

Lulz, I think someone at Fox saw this thread: http://www.foxnews.com/tech/2013/03/29/digital-currency-bitcoin-surpasses-20-national-currencies-in-value

The whole article is pretty much one huge dump about everything bitcoin and only the first paragraph being relevant to the national currency thing, but funny none the less.

A journalist will pull a lead out of a monkey's bum if it gets them a paycheck at the end of the week.

[1714154731]

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[mestar]

1 BTC should get closer to 1000$, for parity with Mark Zuckenberg

If bitcoin gets to $1000, soon, all the miners together will burn trough $2 to $3 million in electricity every day, so you would need $2 or more millions in fresh money every day, just to keep the price of Bitcoin at the same level.  Who will put that kind of money on the exchanges every day, Zuckenberg himself?

[BTC Books]

Lulz, I think someone at Fox saw this thread: http://www.foxnews.com/tech/2013/03/29/digital-currency-bitcoin-surpasses-20-national-currencies-in-value

The whole article is pretty much one huge dump about everything bitcoin and only the first paragraph being relevant to the national currency thing, but funny none the less.

Excellent news!

If Faux News is dumping on bitcoin, then I know we're on the right side of history.

[molecular]

1 BTC should get closer to 1000$, for parity with Mark Zuckenberg

If bitcoin gets to $1000, soon, all the miners together will burn trough $2 to $3 million in electricity every day, so you would need $2 or more millions in fresh money every day, just to keep the price of Bitcoin at the same level.  Who will put that kind of money on the exchanges every day, Zuckenberg himself?

how did you arrive at that figure?

[Le Happy Merchant]

Lulz, I think someone at Fox saw this thread: http://www.foxnews.com/tech/2013/03/29/digital-currency-bitcoin-surpasses-20-national-currencies-in-value

The whole article is pretty much one huge dump about everything bitcoin and only the first paragraph being relevant to the national currency thing, but funny none the less.

Excellent news!

If Faux News is dumping on bitcoin, then I know we're on the right side of history.

No dude, a dump about Bitcoins, not on them.

[mestar]

how did you arrive at that figure?

I explained it here.  Just substitute $90 with $1000.

https://bitcointalk.org/index.php?topic=161496.msg1707405#msg1707405

[molecular]

how did you arrive at that figure?

I explained it here.  Just substitute $90 with $1000.

https://bitcointalk.org/index.php?topic=161496.msg1707405#msg1707405

Read your linked post. I think you're disregarding one-time cost of the asic miner unit. With asic the one-time cost is the large factor, energy cost less so. At least for now.

So I'm guessing energy used for mining should be considerably less than $2 to $3 million when rate is at $1000/BTC.

[mestar]

Read your linked post. I think you're disregarding one-time cost of the asic miner unit. With asic the one-time cost is the large factor, energy cost less so. At least for now.

So I'm guessing energy used for mining should be considerably less than $2 to $3 million when rate is at $1000/BTC.

Difficulty grows with total hash rate, it doesn't care about power efficiency per hash.

Once you have the hardware, it makes economic sense to keep mining as long as your costs per one Bitcoin mined are less then one Bitcoin.

And if your cost is, for example 0.3 coins per coin, it makes sense to expand (in a sense of buying new hardware).  And buying new hardware will increase difficulty up to the point, perhaps at 0.5, perhaps higher, where you stop expanding.

Those two incentives create a situation where you will always have some miners that are close to zero profit, and not very many of those that are spending 0.1 BTC to mine 1 BTC.

We can never know the true efficiency distribution of all miners, but if you take a straight line from zero to one, on a chart where you display efficiency of all miners, sorted by efficiency, you would get total surface of 0.5,  and if you start from an assumption that the most efficient miner is at 0.5, you would get total of 0.75 under the curve.  Thus my assumption for total miner efficiency of 0.5 to 0.75.   In practice, it could be higher,  but if it is lower, it would be a temporary situation.

[Le Happy Merchant]

We can never know the true efficiency distribution of all miners, but if you take a straight line from zero to one, on a chart where you display efficiency of all miners, sorted by efficiency, you would get total surface of 0.5,  and if you start from an assumption that the most efficient miner is at 0.5, you would get total of 0.75 under the curve.  Thus my assumption for total miner efficiency of 0.5 to 0.75.   In practice, it could be higher,  but if it is lower, it would be a temporary situation.

I think you forget, many people are willing to mine at a loss due to the prospect of long term Bitcoin ownership.

[dree12]

Read your linked post. I think you're disregarding one-time cost of the asic miner unit. With asic the one-time cost is the large factor, energy cost less so. At least for now.

So I'm guessing energy used for mining should be considerably less than $2 to $3 million when rate is at $1000/BTC.

Difficulty grows with total hash rate, it doesn't care about power efficiency per hash.

Once you have the hardware, it makes economic sense to keep mining as long as your costs per one Bitcoin mined are less then one Bitcoin.

And if your cost is, for example 0.3 coins per coin, it makes sense to expand (in a sense of buying new hardware).  And buying new hardware will increase difficulty up to the point, perhaps at 0.5, perhaps higher, where you stop expanding.

Those two incentives create a situation where you will always have some miners that are close to zero profit, and not very many of those that are spending 0.1 BTC to mine 1 BTC.

We can never know the true efficiency distribution of all miners, but if you take a straight line from zero to one, on a chart where you display efficiency of all miners, sorted by efficiency, you would get total surface of 0.5,  and if you start from an assumption that the most efficient miner is at 0.5, you would get total of 0.75 under the curve.  Thus my assumption for total miner efficiency of 0.5 to 0.75.   In practice, it could be higher,  but if it is lower, it would be a temporary situation.

Unfortunately electricity is not the only cost of mining. There are many costs associated with it. Some of these are minor (pun not intended), for example:

• Storage
• Tax
• Maintenance

However, you are ignoring what is easily the second-greatest cost to mining: hardware depreciation. ASICs are useful for mining and only mining. With the current arms race, which is likely to continue, an ASIC unit becomes obsolete as soon as it can no longer mine efficiently enough to beat its own electrical (& storage and maintenance) costs. Over an ASIC's lifetime, its value shrinks until it reaches zero as soon as it starts losing money.

If miners behaved as you stated, the lifetime of an ASIC will be very short. Even assuming a conservative estimate of ASIC speed growth, the cost per coin should double every few months. How much an ASIC unit makes could be modelled with the equation:

Code:

Profit = 0.5 × (C−e) × d − $
 (C = initial gross earnings per day
  e = daily operation costs
  d = number of days until ASIC worthless
  $ = initial cost of the ASIC)

Miners, as a whole, will always get more ASICs as long as the profit is positive. Assume that we reach an equilibrium state, with buying a new ASIC equally likely to be profitable or unprofitable. Assuming the a conservative rate of growth (let's use 200 days because it's a nice round number), we can simplify this model thus:

Code:

0 = 0.5 × C × d − $
0 = 0.5 × C × 200 (log C − log e) − $
0 = 100C × (log C − log e) − $
$ = 100C × (log C − log e)
 (log represents to the base of 2)

Your number, "efficiency", is given as e/C. As C and $ should in theory be related proportionally, we can introduce a new constant Q = $/C. Our equation is then thus:

Code:

Q = 100 × [log (C/e)]
2^Q = (C/e)^100
(1/2^Q)^(1/100) = e/C
(1/2)^(Q/100) = e/C
 (log represents to the base of 2)

This equation points out that the efficiency constant will decrease with an increase in one-time cost of the ASIC. An Avalon ASIC costs ~120 BTC at market price and earns approximately 4 BTC every day, so the experimental value for Q is 30 days (note that the formula has units of 2^{x days} on both sides; the right side has the value hidden after the substitution of d). Therefore:

Code:

e/C = (1/2)^(Q/100)
    = (1/2)^(30/100)
    = (1/2)^(3/10)
    ≈ 0.8

Therefore, miners will actually use significantly less electricity than they generate in BTC—and that's with a zero margin.

[SgtSpike]

We can never know the true efficiency distribution of all miners, but if you take a straight line from zero to one, on a chart where you display efficiency of all miners, sorted by efficiency, you would get total surface of 0.5,  and if you start from an assumption that the most efficient miner is at 0.5, you would get total of 0.75 under the curve.  Thus my assumption for total miner efficiency of 0.5 to 0.75.   In practice, it could be higher,  but if it is lower, it would be a temporary situation.

I think you forget, many people are willing to mine at a loss due to the prospect of long term Bitcoin ownership.

Which is still a dumb idea.

Spend $100 in electricity and get 0.5 BTC, or spend $100 on Bitcoins and get 1.0 BTC.  The choice should be obvious.  Mining at a loss is never a good (financial) idea.

[mestar]

I think you forget, many people are willing to mine at a loss due to the prospect of long term Bitcoin ownership.

Sure, but their effect on the price is exactly the same as if they bought those bitcoins on the exchange, plus some security.

In other words, they do not change the feedback loop where the rising prices of bitcoins cause the price of bitcons to fall.

[BTC Books]

However, you are ignoring what is easily the second-greatest cost to mining: hardware depreciation. ASICs are useful for mining and only mining.

A great and overlooked truth, that.  It's why I quit mining in August, and went to straight buying.

I sold off my mining equipment by putting together a few awesome gaming machines at very competitive prices, for some people I know who are into that.

Can't do that with ASICs... so I'll let the people who want to go pure pro deal with mining.  I'll pick up some little ASIC miner one of these days, when you can actually buy one and get it in a few days - just to support the network - and solo mine for the hell of it.  I could get lucky.

[notme]

However, you are ignoring what is easily the second-greatest cost to mining: hardware depreciation. ASICs are useful for mining and only mining.

A great and overlooked truth, that.  It's why I quit mining in August, and went to straight buying.

I sold off my mining equipment by putting together a few awesome gaming machines at very competitive prices, for some people I know who are into that.

Can't do that with ASICs... so I'll let the people who want to go pure pro deal with mining.  I'll pick up some little ASIC miner one of these days, when you can actually buy one and get it in a few days - just to support the network - and solo mine for the hell of it.  I could get lucky.

This.  When ASICS are $1/TH (or whatever they get to when they are on the same process size as top of then line CPUs) I'll be cashing out a few BTC for mining hardware.  Until then, I'll run some GPUs in the winter to keep warm and hold any satoshis I can eek out.

[mestar]

Unfortunately electricity is not the only cost of mining. There are many costs associated with it. Some of these are minor (pun not intended), for example:

• Storage
• Tax
• Maintenance

I was just keeping it simple.

However, you are ignoring what is easily the second-greatest cost to mining: hardware depreciation. ASICs are useful for mining and only mining.

I think you misunderstood the main point of my argument, and that is that there is a feedback between bitcoin price and the running cost of all the miners, and that this running cost will tend to a non trivial part of the amount of USD you get when you multiply the price of bitcoin with the awards.  I estimated this to be 0.5 to 0.75 of the awards.  And this amount of money has to be balanced with the new speculative investments for the price to be stable.


Modeling a lifetime of a single ASIC is a more complicated way to do it, simply because your less and less efficient miner starts its life with less competition, and then ends it with more.  But I am looking only one point in time, and the distribution of costs (electricity and all) of all miners.

And that distribution is the only thing you need for the argument to work.  The initial cost of miners, if bought with USD does not effect the price of BTC simply because it does not go trough the exchanges.  (If you bought it with BTC, I'm sure a large part of that will get out of BTC at some point)

This is how you construct the picture.  Take the cost of running each miner in BTC per BTC mined,  sort them, lower to higher.   The area under that curve is the number we are interested in.

We might get something like this:

Code:

1       x
      xxx
    xxxxx 
 xxxxxxxx
0xxxxxxxx

And the idea is that the real distribution tends to something with the properties:

-no miner is free of running costs -> the curve does not start at (0,0), but at (0,x) where x > 0
-the last miner will be marginally profitabile, -> the curve ends at (n,1)

If the price jumps, the curve could temporary look like this:

Code:

1       
      
     
 
0xxxxxxxx

But this means that mining is hugely profitable, and market forces will push it in this direction:

Code:

1       
      
     
 
0xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

and then the difficulty will adjust:

Code:

1                       xxxxxxxxxx
 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
0xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

(I took my estimates as lines  (0,0.5 to n, 1) -> 0.75, and (0,0 to n,1) -> 0.5.)

[oakpacific]

Guys, please let us stay on topic.

[Le Happy Merchant]

We can never know the true efficiency distribution of all miners, but if you take a straight line from zero to one, on a chart where you display efficiency of all miners, sorted by efficiency, you would get total surface of 0.5,  and if you start from an assumption that the most efficient miner is at 0.5, you would get total of 0.75 under the curve.  Thus my assumption for total miner efficiency of 0.5 to 0.75.   In practice, it could be higher,  but if it is lower, it would be a temporary situation.

I think you forget, many people are willing to mine at a loss due to the prospect of long term Bitcoin ownership.

Which is still a dumb idea.

Spend $100 in electricity and get 0.5 BTC, or spend $100 on Bitcoins and get 1.0 BTC.  The choice should be obvious.  Mining at a loss is never a good (financial) idea.

I should have been more clear. I meant a loss after the cost of the rig was subtracted.

[molecular]

haha: http://rt.com/news/bitcoin-challenge-dollar-currency-121/

this "idea" of comparing bitcoin "market cap" to money floating around in various currencies is making the round.

[Mageant]

What about the idea of comparing transaction volume to other payment processors?

Paypal has a transaction volume of about 16 billion US$ per year.

Bitcoin's current transaction volume is about 300,000 BTC per day. If we assume a market price of 90$ that would add up to about 10 billion US$ per year.

So if Bitcoin usage and price stays at least at the current level then it is already 62% of Paypal.


The parity price for Paypal (assuming transactions stay at least the same) would be:
147$

Of course a significant amount of usage for Bitcoin is exchanging for Fiat currency while Paypal is almost all for goods and services.

[damnek]

What about the idea of comparing transaction volume to other payment processors?

Paypal has a transaction volume of about 16 billion US$ per year.

Bitcoin's current transaction volume is about 300,000 BTC per day. If we assume a market price of 90$ that would add up to about 10 billion US$ per year.

So if Bitcoin usage and price stays at least at the current level then it is already 62% of Paypal.


The parity price for Paypal (assuming transactions stay at least the same) would be:
147$

Of course a significant amount of usage for Bitcoin is exchanging for Fiat currency while Paypal is almost all for goods and services.

A lot of those BTC are change too.