Mining: Where's the catch?

[Rauno]

So from everything I've read, mining seems too good to be true. And in my experience, if something seems too good to be true, it is.

But I can't find the catch. I've been running my crappy laptop at about 60 Mhash/s for a while now with bitcoin.cz, and it seems I'm actually generating money. I'm generating less money than what I pay for electricity right now, but I'm literally making money out of goddamn thin air.

However, when I grab the stats from this bitcoin ASIC miner and put them in this simple calculator, I get a base income of nearly 10 bitcoins or 1000 USD per month. Which seems absurd, even before I've started factoring in the costs.

So when I looked at this thread, I expected to see some rather high costs that I didn't think of, but those don't seem to be there either. I can't find the wattage for that ASIC unit, but a 4,5 Ghash machine from the same company was marked at 4,5 W, so supposing the5 Gh machine grabs 5 W, I would spend... about 35 dollars if I run it for 10 000 hours. What. If I randomly grab percentages out of thin air and say that it will cost me 30% of my income for power, 20% will be lost on downtime, 10% will be lost on pool fees, conversion costs and other expenses and that the hash difficulty rises 10% per week, I would still earn enough to break even in the region of a month.

If I put my ASIC data into this calculator, it tells me I will break even in a week.

This can't be true, there would not be any point in selling the ASIC units if they break even in a week, you'd just make them and then use them yourself.

So where's the catch?

[DeathAndTaxes]

Well first you aren't making money out of thin air.  You can think of mining new coins as "buying them" using your hardware & electricity.  Currently you are buying them at a continual loss.  The second thing is the network has a concept called "difficulty" which adjusts.  More hashing power = higher difficulty = harder to solve a block.  You won't break even in a week because even if you bought one you would be at the end of the line.  Long before you received your unit difficulty likely would be 10x to 20x higher than it is now.  Redo your calculations with difficulty being 20x higher and use some realistic electrical costs.

[cairpre]

I guess the catch is that the value of cryptocurrency has no tangible basis, meaning its only worth what people will pay for it. So just because btc is worth a good figure today doesn't mean it always will. And if you think about it, who made the most money during the gold rush? The guys selling the mining equipment.

[anonymous_hero]

DeathAndTaxes is correct, of course.  A much more complicated estimate of the future difficulty is here.

There's also the fact that the price of Bitcoin itself is volatile -- no one knows for sure what the future price will be.

But, yes, especially if you started much earlier and even if you started now, if you play your cards right, it can be a pretty sweet gig.  But of course do not under any circumstances invest anything more than you can afford to lose.  Essentially there is a lot of risk with the potential for a great reward or a substantial loss.

[blazespinnaker]

Take a look at http://blockchain.info/charts/hash-rate

Notice how the hash rate is increasing rapidly.

Right now on a daily basis you are getting  (60 Mhs (your mining rate) / 60,000,000 Mhs) * bitcoins mined per day right now (~3600).  

Which is your idea of free money.

However, in a month or two, you'll probably be getting half that as the hash rate increases to twice what it is now.  

If you can find a way to get an ASIC miner very quickly, you'll be good to go, but if takes awhile.. it's a waste of money.

[Aahzman]

So from everything I've read, mining seems too good to be true. And in my experience, if something seems too good to be true, it is.

But I can't find the catch. I've been running my crappy laptop at about 60 Mhash/s for a while now with bitcoin.cz, and it seems I'm actually generating money. I'm generating less money than what I pay for electricity right now, but I'm literally making money out of goddamn thin air.

However, when I grab the stats from this bitcoin ASIC miner and put them in this simple calculator, I get a base income of nearly 10 bitcoins or 1000 USD per month. Which seems absurd, even before I've started factoring in the costs.

So when I looked at this thread, I expected to see some rather high costs that I didn't think of, but those don't seem to be there either. I can't find the wattage for that ASIC unit, but a 4,5 Ghash machine from the same company was marked at 4,5 W, so supposing the5 Gh machine grabs 5 W, I would spend... about 35 dollars if I run it for 10 000 hours. What. If I randomly grab percentages out of thin air and say that it will cost me 30% of my income for power, 20% will be lost on downtime, 10% will be lost on pool fees, conversion costs and other expenses and that the hash difficulty rises 10% per week, I would still earn enough to break even in the region of a month.

If I put my ASIC data into this calculator, it tells me I will break even in a week.

This can't be true, there would not be any point in selling the ASIC units if they break even in a week, you'd just make them and then use them yourself.

So where's the catch?

The "catch" is that you are grossly under-informed about how the bitcoin works, how they are generated, how the hashing network operates, and just about every other aspect. I suspect you have a few more hours of browsing the forums before you shed your newbie status. I suggest using that time to become more educated about bitcoin.

[blazespinnaker]

The "catch" is that you are grossly under-informed about how the bitcoin works, how they are generated, how the hashing network operates, and just about every other aspect. I suspect you have a few more hours of browsing the forums before you shed your newbie status. I suggest using that time to become more educated about bitcoin.

Now, I could be wrong.   I could be going out on a limb here.   I mean, just possibly .. don't quote me .. but do you think maybe, just maybe .. I mean just maybe that's why he posted in the Newbie forum and asked his question?

Naaah.   That'd be just too crazy.

[Aahzman]

Newb apologists. *sigh*

[Rauno]

Well first you aren't making money out of thin air.  You can think of mining new coins as "buying them" using your hardware & electricity.  Currently you are buying them at a continual loss.  The second thing is the network has a concept called "difficulty" which adjusts.  More hashing power = higher difficulty = harder to solve a block.  You won't break even in a week because even if you bought one you would be at the end of the line.  Long before you received your unit difficulty likely would be 10x to 20x higher than it is now.  Redo your calculations with difficulty being 20x higher and use some realistic electrical costs.

I'd rather think of it as making money out of running hash routines because that's what it is.

But yeah, I didn't think of the time it takes to arrive, that's a valid point, adding that to my calculations.

DeathAndTaxes is correct, of course.  A much more complicated estimate of the future difficulty is here.

There's also the fact that the price of Bitcoin itself is volatile -- no one knows for sure what the future price will be.

But, yes, especially if you started much earlier and even if you started now, if you play your cards right, it can be a pretty sweet gig.  But of course do not under any circumstances invest anything more than you can afford to lose.  Essentially there is a lot of risk with the potential for a great reward or a substantial loss.

That's and extremely useful link, thanks a bunch, it explains a lot and has plenty of things I didn't think about.

I definitely wasn't planning on spending more than I would lose; I just have a tiny bit of money put aside that I might use for an ASIC.

The "catch" is that you are grossly under-informed about how the bitcoin works, how they are generated, how the hashing network operates, and just about every other aspect. I suspect you have a few more hours of browsing the forums before you shed your newbie status. I suggest using that time to become more educated about bitcoin.

That's wildly unhelpful and you might as well have not made that post.

[Vigil]

The catch is that the difficulty keeps increasing. You are calculating at that difficulty for the whole month. Example, I calculated the profits a week ago for 2x7950s for Litecoin mining. It came out to be over $800/month. then the price dropped in half and the difficulty has gone up twice since then. The monthly profitability for the current difficulty is $200. So, initially I would be bringing in 200+ coins per month, it is now down to 130 at the current difficulty. So, I will be lucky to break even just on these two cards, and mine about 100 litecoins over the next 3 months. At current price that is $250 for 3 months - cards cost $600. Of course the coins could increase in value to say $10, but that is still only $1000.

[phk]

The catch is that the difficulty keeps increasing. You are calculating at that difficulty for the whole month. Example, I calculated the profits a week ago for 2x7950s for Litecoin mining. It came out to be over $800/month. then the price dropped in half and the difficulty has gone up twice since then. The monthly profitability for the current difficulty is $200. So, initially I would be bringing in 200+ coins per month, it is now down to 130 at the current difficulty. So, I will be lucky to break even just on these two cards, and mine about 100 litecoins over the next 3 months. At current price that is $250 for 3 months - cards cost $600. Of course the coins could increase in value to say $10, but that is still only $1000.

I'm new at this (duh!) but I am basically not seeing the point of making any special investment in "mining hardware".   It all seems like a big gamble.   If you play games, sure buy yourself a new graphics card.

However, similar to the original poster of this thread, if you've already got the hardware, the time, the electricity, ..... sure why not; it's better pay-out than Folding @ Home or SETI @ Home.

[Vigil]

If you already have the hardware... I didn't have the hardware. But at this point, unless you have had the hardware, like a 5GH/s rig for LTC, for a while and have it paid off it isn't really worth it. I didn't realize it wasn't worth it until I saw the difficulty jumping every two days.

[ymer]

You are getting "paid" for your computing resources and the electricity, also it's a gamble... coins can be worthless like any other fiat currency if somethings goes really wrong.

[Malawi]

It is a gamble, but it's less than a gamble than flipping a coin.

If you believe the prices will stay up or rise, it might be a good gamble.
Also, it seems like fun. :-)

[WuLabsWuTecH]

I think of it less as generating new money as it is being paid for performing a task.  As bitcoins get transferred from one person to another, they have to be logged somewhere.  Since there is no central bank, they are logged by miners.  When miners "mine" they are performing the task of recording these transactions.  Since this task takes resources (just not human resources) there is a cost, and you are compensated for performing this task.  It's like having your computer clock in to work everyday and getting a paycheck.

If you had to drive from Ney York to Chicago everyday to make minimum wage, you would be losing money.  So you wouldn't do it.  But get a college degree, and find a closer job, and otherwise invest in your ability to perform tasks, and now you can make money by going to work.  That's what the super efficient computers are doing!

Good analogy old-timers?  I'm also a newb myself!

[Vigil]

^ The point the OP is making is that it seems like easy money, he isn't asking what mining is or what it involves or any of that. OP is wondering what the catch is to this apparent guaranteed money.

[blackbox]

The "catch" is that you are grossly under-informed about how the bitcoin works, how they are generated, how the hashing network operates, and just about every other aspect. I suspect you have a few more hours of browsing the forums before you shed your newbie status. I suggest using that time to become more educated about bitcoin.

your avatar suits you