Why will GPU mining be useless? Difficulty/Price relations?

[kendog77]

A lot of people purchased Avalon chips hoping that they'd be able to do something with them when they arrive.

I suspect a lot of these folks are going to be disappointed to learn that there are very few legitimate options to turn their chips into a mining machine, and the ones that do exist will either be very expensive or have a huge backlog.

Designing and manufacturing circuit boards is not a walk in the park, and requires some serious technical know-how combined with very expensive machinery.

We'll see...

[FloridaBear]

A lot of people purchased Avalon chips hoping that they'd be able to do something with them when they arrive.

I suspect a lot of these folks are going to be disappointed to learn that there are very few legitimate options to turn their chips into a mining machine, and the ones that do exist will either be very expensive or have a huge backlog.

Designing and manufacturing circuit boards is not a walk in the park, and requires some serious technical know-how combined with very expensive machinery.

We'll see...

Yes, it requires some knowledge, but Avalon is basically providing the circuit specs, it's just the layout that needs to be done. There are plenty of companies that will run your board design to whatever quantity of boards you want (the more, the cheaper). That's definitely a non-issue. I'm certain there will be at least two competing designs ready in time for the chips. Populating the boards might a bit more problematic--SMT parts are not exactly DIY-friendly.

[bcpokey]

GPU's will be good for a while still. New GPUs can still be paid for in 4-8 months.

After that, it will depend on your utility prices and the BTC exchange rate.

Contrary to what was said earlier, there is (currently) a very good correlation between difficulty and BTC exchange rate. That means that, even though GPU's will mine a lot less BTC, the BTC will be worth more in fiat terms and this will probably offset the dip in BTC mined (so you can still pay your bills and keep your GPUs running).

This is of course an educated guess, as everything is in flux...

New gpus can be paid for in 6 months at CURRENT difficulty, which will not last. Contrary to your contrary there is no correlation between price and difficulty, there is a correlation between difficulty and price ( in this case order matters ). This means that if difficulty goes up price doesn't change.  GPU will be run out by ASIC. The only question is how long til then.

[FCTaiChi]

Bitcoin price has no correlation to mining difficulty whatsoever.

Bitcoin will not become more scarce. There still will be 3,600 coins mined a day for the next 3+ years until the block reward halves again.

I think this derailed the conversation.  It looked like he was arguing that GPU's would still be quite valid in the future as the price of a BTC rises.  If we were still at last years prices with today's difficulty GPU's wouldn't be worth it.  We never would have gotten this many people putting their processing power in without the rise in BTC, and couldn't have gotten to this difficulty.  The price has a lot to do with total network hashrate.  As ASIC's come in, the future of the GPU will be determined by the price of a bitcoin, like he said in the first post.  There are a lot of people with a lot of bitcoin who want it to succeed, the price will rise.  GPU's future look fairly rosy.  

[odolvlobo]

Contrary to your contrary there is no correlation between price and difficulty, there is a correlation between difficulty and price ( in this case order matters ).

You are confused. The word you are looking for is "causation". You want to say that correlation does not imply causation. In other words, the fact that A and B are correlated does not imply that A causes B or that B causes A.

Price and difficulty are highly correlated. Just look at the graphs. It is pretty obvious. Keep in mind that totally unrelated things can be correlated (that's called a coincidence).

Anyway, it is easy to make the case that price influences difficulty: If the price goes up, more people mine and the difficulty goes up. If the price goes down, less people mine, and difficulty goes down.

It is not so easy to make the case that difficulty influences price, though you could make this case: difficulty and price are both influenced by interest in bitcoin.

[odolvlobo]

Now, for the future of GPU mining...

The point was made that even though GPUs will be able to mine fewer and fewer bitcoins, the rise in the price of bitcoins will continue to enable profitable GPU mining. Unfortunately, that is probably not true because of the economics of the mining market. The mining market is (will be) nearly perfectly competitive (http://en.wikipedia.org/wiki/Perfect_competition). That means that operating margins will be very small. As a result, only the most cost-efficient mining will be able to compete, and GPU mining is much less cost efficient than ASIC mining. I could do the math, but I think it is pretty clear, and I am lazy.

On the other hand, GPU mining will remain feasible where electricity is cheap or free. Also, people might continue to mine with GPUs for fun or for some other reason even if they are losing money.

[FCTaiChi]

Unless BTC keeps rising.  An investment in mining this year that doesn't cover electricity cost could make a very good return in a couple years.  At some point we could be looking back wishing we were doing processor mining up to the point ASIC's came out, much less GPU's.

[odolvlobo]

Unless BTC keeps rising.  An investment in mining this year that doesn't cover electricity cost could make a very good return in a couple years.  At some point we could be looking back wishing we were doing processor mining up to the point ASIC's came out, much less GPU's.

Simply buying the bitcoins instead of mining them would give you a better return in this case.

[FCTaiChi]

Erg ya got me!

True, but I can't find anyone to buy from   damn regulators..  was just about to gox some money to bits

[Gamah]

Contrary to your contrary there is no correlation between price and difficulty, there is a correlation between difficulty and price ( in this case order matters ).

You are confused. The word you are looking for is "causation". You want to say that correlation does not imply causation. In other words, the fact that A and B are correlated does not imply that A causes B or that B causes A.

Price and difficulty are highly correlated. Just look at the graphs. It is pretty obvious. Keep in mind that totally unrelated things can be correlated (that's called a coincidence).

Anyway, it is easy to make the case that price influences difficulty: If the price goes up, more people mine and the difficulty goes up. If the price goes down, less people mine, and difficulty goes down.

It is not so easy to make the case that difficulty influences price, though you could make this case: difficulty and price are both influenced by interest in bitcoin.

Can you list any other coincidences that have been going on for 4+ years with predictable results?


I'm not trying to say that network hashrate specifically dictates BTC trade price (last month's bubble is an obvious example) but to say they aren't related is just bogus.

[pro]

difficulty follows price and not the other way around. people will start mining because of the price increase, afterwards difficulty will adjust.

same way if the price decrease--> people will stop mining--> difficulty goes down

[odolvlobo]

Contrary to your contrary there is no correlation between price and difficulty, there is a correlation between difficulty and price ( in this case order matters ).

You are confused. The word you are looking for is "causation". You want to say that correlation does not imply causation. In other words, the fact that A and B are correlated does not imply that A causes B or that B causes A.

Price and difficulty are highly correlated. Just look at the graphs. It is pretty obvious. Keep in mind that totally unrelated things can be correlated (that's called a coincidence).

Anyway, it is easy to make the case that price influences difficulty: If the price goes up, more people mine and the difficulty goes up. If the price goes down, less people mine, and difficulty goes down.

It is not so easy to make the case that difficulty influences price, though you could make this case: difficulty and price are both influenced by interest in bitcoin.

Can you list any other coincidences that have been going on for 4+ years with predictable results?


I'm not trying to say that network hashrate specifically dictates BTC trade price (last month's bubble is an obvious example) but to say they aren't related is just bogus.

I think you stopped reading when I mentioned that unrelated correlation is the definition of the word "coincidence".

 I also think it is possible that hash rate and price influence each other (in other words, the causal relationship goes both ways), but I haven't seen a good case made for hash rate influencing price.

[Gamah]

Contrary to your contrary there is no correlation between price and difficulty, there is a correlation between difficulty and price ( in this case order matters ).

You are confused. The word you are looking for is "causation". You want to say that correlation does not imply causation. In other words, the fact that A and B are correlated does not imply that A causes B or that B causes A.

Price and difficulty are highly correlated. Just look at the graphs. It is pretty obvious. Keep in mind that totally unrelated things can be correlated (that's called a coincidence).

Anyway, it is easy to make the case that price influences difficulty: If the price goes up, more people mine and the difficulty goes up. If the price goes down, less people mine, and difficulty goes down.

It is not so easy to make the case that difficulty influences price, though you could make this case: difficulty and price are both influenced by interest in bitcoin.

Can you list any other coincidences that have been going on for 4+ years with predictable results?


I'm not trying to say that network hashrate specifically dictates BTC trade price (last month's bubble is an obvious example) but to say they aren't related is just bogus.

I think you stopped reading when I mentioned that unrelated correlation is the definition of the word "coincidence".

 I also think it is possible that hash rate and price influence each other (in other words, the causal relationship goes both ways), but I haven't seen a good case made for hash rate influencing price.

I believe they are correlated, perhaps even to the point of codependent.... a bit of the chicken/egg conundrum... price is affected by difficulty, and difficulty is affected by price. Discerning difficulty from hash rate is just ignorant, difficulty is defined by hash rate, I just took the extra step out of the equation in the OP.

As for them being a coincidence, no I do not think so.. Coincidences are things that happen to occur simultaneously whilst having no codependency or correlation.

A coincidence (often stated as a mere coincidence) is a collection of two or more events or conditions, closely related by time, space, form, or other associations which appear unlikely to bear a relationship as either cause to effect or effects of a shared cause, within the observer's or observers' understanding of what cause can produce what effects.

EDIT:

I realize that systematically, that price and hash rate have no relation... a price is not explicitly set by how much power is on the network.. that's obviously implied

[FloridaBear]

Price, as with any market, is determined by supply and demand at the combined market venues. I cannot support the argument that demand is increased based on increases in hashrate. It's not like people would look at the hashrate chart and say "Wow, hashrate has gone up! I need to buy some coins!" It's much more likely that buyers and sellers watch price and react to news, price movements, etc.--exactly the same forces that move stock prices every day. There is herd behavior, buying and selling panics, etc., just like any other speculative market.

Miners are not really a market force--they react to the profitability and turn on miners when profitable and turn them off when not. There is some feedback here; turning miners off and on influences hash rate and difficulty directly. As far as the coins mined...some miners hold, some sell...some mine AND even buy more (like me). So they are part of the market...or not, depending on their goals.

I just can't buy the argument that difficulty increases cause price to rise. Look at May 1 to now. Price has gone up and down post-bubble; difficulty went from <10,000,000 to over 18,000,000 (in a few days), an 80% gain. Price has essentially stayed unchanged--not reacting at all to 1.5% average daily increases in difficulty for 6 weeks.

ASICs will be profitable at nearly any price for a long time; there will be NO stagnation or decline in difficulty for the next year or so--it will simply keep rising, barring BTC price dropping under $10 or so. I can't see how that is going to influence price. On the contrary--all of the ASIC vendors accepting bitcoin for payment will be cashing them out (yes, buyers will be buying BTC to pay for hardware--but I'm betting that many ASIC buyers are putting existing BTC to use), which is downward pressure on price.

Supply and demand...that determines price, like any other market.

[ewitte]

Or you can buy discrete Avalon chips for about $9.50 for 282 Mh/s. That is $2200 per 65 GH/s. Even taking into account cost of the PCB and power supply, that is still in the same range.

Or you could have ordered BFL for about $1300 / 60GHs.

ASICMiner is more expensive, but it's only for the people who have missed out. Their prices will come down when the Avalon chips ship and you see DIY Avalon machines anywhere.

The big thing with Avalon chips is your in the ASIC game for $150ish per 4.5GH/s you don't have to put down a ton of money.