A word on profitability

[VinceSamios]

Friends,

We are generally all forgetting something very important when it comes to bitcoin mining profitability...

I was looking at ebay last night, considering buying some Block Eruptors... I was busily plugging away at the profitability calculator to establish realistically what the ROI might be with these things, but what follows applies to all mining hardware. For reference, I use the http://www.bitcoinx.com/profit/ profitability calculator because it allows me a few options to fiddle with.

In the "Profitability decline per year" section I put 0.05, because I think its rational to expect the network to grow by 20x within the next 12 months (to approx 10,000TH)

I also decided to use the least power efficient hardware for this exercise, both because this is the conservative approach, but also because I could have block eruptors delivered by friday. So we are talking about 7.4w/GH

So I entered a conservative 300MH and the corresponding 3w power consumption, with expensive 0.27c power costs. And about $65 cost for the Block Eruptors.

What I found is that with these numbers I mine $39 of BTC in the next 12 months, and I pay about $7 one electricity. At this point most argue, and based on the calculators figures too, it costs more in power than you earn in BTC to mine with this hardware. This means you don't get ROI ever.

However the key factor we are all forgetting is that the price of bitcoin will inevitably continue to rise. We are averaging 1000% every 12 months in BTC price rises.

If bitcoin goes up to $210 instead of $110, then even these devices get ROI in 262 days. If BTC goes up to $410, thats ROI in 72 days.

So - currently a single USB block eruptor will generate about $10/month with power costs of about 60 cents. I feel it's fair to assume that hardware will remain profitable for at least twice as long as a calculator using profitability decline per year of 0.05 suggests due specifically to BTC price increases.

And this, friends, makes all the difference.

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[S M I L Y]

Then just buy BTC directly and make more profit.

[VinceSamios]

Then just buy BTC directly and make more profit.

Some people prefer a slight hedging strategy with mining, and others are concerned about hardware pre-orders now being unprofitable. I guess this applies to those people.

For everyone else, yes, just buy BTC.

[bearsworth]

I think the argument is also what if bitcoins drop in value? i dont really see the block eruptor as hedging considering its hard to sell back if price of bitcoins drop and difficulty keeps increasing.

[jspielberg]

Then just buy BTC directly and make more profit.

You can't say it more clearly than that.

Its a waste of money to buy block eruptors if their cost in btc is greater than their return in btc (which they are). Just buy the btc directly and cut out the inefficient loss of mining.

[Xialla]

ohhh.) you missed the most important thing, at it is, how calculate ROI v bitcoin HW (miner). it is so simple:

you will buy miner for 10BTC and it will mine for you 8BTC during lifetime, your lost is 2BTC. and really doesn't matter, how much cost bitcoin when you buy your machine and how much cost when you stop mining. this is only the right way how to calculate HW ROI. it actually doesn't matter, what is exchange rate for BTC.

if you want speculate about BTC/$ exchange rate, just buy them instead of mining.

[SebastianJu]

I paid my miner completely in btc so it wouldnt help me when the btc price goes up.

Regarding your website... this one is my favorite since its more realistically: http://mining.thegenesisblock.com/

But even this website can account in that the difficulty isnt only rising exponentially at the moment. The percent its rising is rising exponentially too...

[Dalkore]

I believe the mining community is about to go through a real tough spot and once we get through it, we will overall have less miners but more hash-rate.   Basically we are going to see operating costs for miners get to a point where we will see miners that have higher operating costs get bumped out and new hardware will absorb their hashing.  This will produce more concentration of mining and people who have scale and low operating costs will win "at" the expense of others.  Zero-sum game.

[bearsworth]

I believe the mining community is about to go through a real tough spot and once we get through it, we will overall have less miners but more hash-rate.   Basically we are going to see operating costs for miners get to a point where we will see miners that have higher operating costs get bumped out and new hardware will absorb their hashing.  This will produce more concentration of mining and people who have scale and low operating costs will win "at" the expense of others.  Zero-sum game.

+1 right on.

[k9quaint]

I believe the mining community is about to go through a real tough spot and once we get through it, we will overall have less miners but more hash-rate.   Basically we are going to see operating costs for miners get to a point where we will see miners that have higher operating costs get bumped out and new hardware will absorb their hashing.  This will produce more concentration of mining and people who have scale and low operating costs will win "at" the expense of others.  Zero-sum game.

Bitcoin mining went through this sort of thing a while back when the price crashed down to $2.50. Certain GPU rigs were now costing more in electricity to run than they were generating in Bitcoin. However, the price rose again and there was new life (very long life as it turned out) for those GPU mining rigs.

Another rise in the exchange rate could buy more time for obsolete hardware.

[Dalkore]

I believe the mining community is about to go through a real tough spot and once we get through it, we will overall have less miners but more hash-rate.   Basically we are going to see operating costs for miners get to a point where we will see miners that have higher operating costs get bumped out and new hardware will absorb their hashing.  This will produce more concentration of mining and people who have scale and low operating costs will win "at" the expense of others.  Zero-sum game.

Bitcoin mining went through this sort of thing a while back when the price crashed down to $2.50. Certain GPU rigs were now costing more in electricity to run than they were generating in Bitcoin. However, the price rose again and there was new life (very long life as it turned out) for those GPU mining rigs.

Another rise in the exchange rate could buy more time for obsolete hardware.

Maybe, more likely is that new hardware will absorb it so quick you will not even notice. 

Ask yourself this, what would drive a major exchange rate increase at this point?  That is an important question.  If we have no driver that is real then it would just be speculation and that never ends well.

[k9quaint]

I believe the mining community is about to go through a real tough spot and once we get through it, we will overall have less miners but more hash-rate.   Basically we are going to see operating costs for miners get to a point where we will see miners that have higher operating costs get bumped out and new hardware will absorb their hashing.  This will produce more concentration of mining and people who have scale and low operating costs will win "at" the expense of others.  Zero-sum game.

Bitcoin mining went through this sort of thing a while back when the price crashed down to $2.50. Certain GPU rigs were now costing more in electricity to run than they were generating in Bitcoin. However, the price rose again and there was new life (very long life as it turned out) for those GPU mining rigs.

Another rise in the exchange rate could buy more time for obsolete hardware.

Maybe, more likely is that new hardware will absorb it so quick you will not even notice. 

Ask yourself this, what would drive a major exchange rate increase at this point?  That is an important question.  If we have no driver that is real then it would just be speculation and that never ends well.

I wasn't speaking of probabilities really. I was just describing the curve of exchange rate / cost to mine as the driver of obsolecence in the mining world.
Of course, one should not depend on an exchange rate rise in order to mine. But if one comes along, it would extend the life of existing products.