[BTC-TC] Deprived Mining Speculation (DMS)

[Deprived]

Note also that his argument is that DMS.MINING can never win.

Which is strange - and obviously false.  Both MINING and SELLING can ONLY 'win' the combined cost of them.  With SELLING trading at a higher price it's rather obvious that SELLING's max profit is actually lower than MINING's (both in absolute terms and as a percentage).

SELLING can only 'win' the whole pot if difficulty immediately rises to near infinity.
MINING can 'win' the whole remaining pot if, at any time, difficulty stops rising by more than about 2-4% per change (precise value depends on the performance of investments).

Whilst MINING can't ever gain more than the value of SELLING in profit (plus investment gains) that's still well over a 100% profit all the time MINING is cheaper than SELLING and it would ALL be given in a very short time-span compared to PMBs.  SELLING can't possibly make a 100% profit at current prices - yet his focus is on how MINING can't make a profit.  Very strange - or it would be were he not trying to sell a PMB.

And it's the fast nature of the final profit that is the other element he fails to address.  Whilst it's true that MINING's max profit is capped and PMBs isn't (provided the issuer has provision to continue paying out after the hardware backing it fails and needs replacing - which few have) there are definite advantages to getting a final payment fast rather than having to get slightly more over a period of years.  You no longer have the CP risk and can reinvest the profits to end up with more.

Obviously that doesn't work if godzilla gos around stamping on all mining hardware that doesn't belong to PMBs - but outside furuknap's article that seems unlikely.

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[BTCThousandaire]

I'm trying to figure out how this works and which one I might want to invest in. One thing I can't figure out is why MINING has had lower dividends but the price is the same, while the other funds are dropping in price with higher dividends?

In the short-term the drops in price SHOULD occur on the securities that actually get the dividends.  The value of ANY security immediately after it receives a dividend IS lower than the value immediately before the dividend by precisely the amount of the dividend (ignoring any minor adjustment for CP-related reasons).

In the longer term the rational explanation for it would be if those buying MINING believe dividends to SELLING will slow down to a near halt before they exceed the excess NAV over the value of MINING (i.e. difficulty will stop rising rapidly in the not too distant future).  They then make a decent profit quickly when DMS closes and they get a lump sum - or more slowly if SELLING choose not to close quickly and hope difficulty starts rising fast again.

A less rational reason is that the price of MINING is linked to the price of PMBs (in conditions of fast-rising difficulty it has very similar expectation and value to them) so its price tends to get maintained by people buying it because it's cheaper.  People who don't have any particular view of likely medium to long-term scenarios for mining difficulty can buy MINING knowing that at least in the short-term it will be better value than PMBs (costing less for the same dividends) and that acts to stabilise its price a bit.  They don't guarantee themselves a profit doing that but DO ensure that in most (NOT all) scenarios they end up better off than if they'd invested same amount in more expensive PMBs.  And in the scenarios where PMBs perform better in any reasonable time-scale (years not decades) they're pretty much guaranteed a profit from MINING (those scenarios are ones where difficulty stops rising quickly and DMS closes with MINING getting nearly all the funds and SELLING very little).  This is a less rational reason because those buying in this manner are doing so BECAUSE they haven't attempted to work out likely future behaviour - which is irrational (as they haven't considered the possibility that even at the price of MINING, PMBs aren't going to give a worthwhile return).

Different people buy for different reasons - the market price reflects a sort of average of their expectations/beliefs/guesses.  It isn't possible to give an exact reason why the price is at a specific point.  The drops, however, are completely expected if the initial market valuation before them was 'correct'.

Specifically, difficulty continues to rise, and dividends on MINING has dropped to about half. Other PMBs decrease in value as dividends fall, but for some reason not MINING. Could this be because compared to other PMBs MINING was undervalued? Or are there other explanations?

[furuknap]

Very strange - or it would be were he not trying to sell a PMB.

I am not, as you very well know. With that argument, I am trying to show that DMS.Mining is not a mining asset and, unlike what your statements would have us believe, do not work as one except in situations where the bet against it is leading the race. In a rational market, a slowing of rise or drop in difficulty would cause mining assets to rise rapidly in value whereas DMS.Mining would at best rise slightly and at worse drop to below pending dividends and payout.

Let's simulate this with an example, and I'm being extreme again for the sake of this example. This is a silly scenario for anyone that doesn't understand it.

If I announced today that BFMines would be expanded to retain its current network share indefinitely and thus pay around 200% ROI per year based on current selling prices, how do you think the price would behave compared to DMS.Mining?

This would be the exact effect of a stop in mining difficult rise local to BFMines only, and I'm wildly guessing that BFMines would shoot through the roof because it would now effectively act like an expanding mining company (like Cognitive or BASIC) where price per mhs is currently 8-10x higher.

Would 400 days of dividends from DMS.Mining cover the increase in price of BFMines? I highly doubt that. I doubt that even if DMS.Selling voted to close right now and DMS.Mining would get 3x the current selling price that this would be enough to get a BFMines equivalent of hash power.

.b

[baloo_kiev]

Specifically, difficulty continues to rise, and dividends on MINING has dropped to about half. Other PMBs decrease in value as dividends fall, but for some reason not MINING. Could this be because compared to other PMBs MINING was undervalued? Or are there other explanations?

I think that's most probably because other PMBs were overvalued. One can speculate about current MINING price, but who are those crazy people who were buying TAT and other PMBs at 4 BTC/GHps last week?! 

[Deprived]

As such, I've refrained from speculations about difficulty completely, as I usually do.

.b

If that were true that would be fine.  But in fact you HAVE speculated about difficulty - but only on the scenario that most suits your targetted conclusion - that mining difficulty FALLS by 50%.

And your other point, that the example shows MINING doesn't behave like PMBs is NOT proven by your example (at least not in the way you hoped it would).  Had you compared the behaviour of MINING to the average of a pool of PMBs - half of which lost their hardware and defaulted and half of which flourished then the conclusion would be rather different.

Comparing MINING to PMBs in more realistic scenarios is, indeed, tricky.  In general terms where MINING ceases to behave like PMBs is when difficulty stops rises fast.  The problem is that, as we saw last time that happened, PMBs also stop behaving like PMBs then - and a significant portion of them default as the operators can no longer make a profit operating them.  Difficulty stopping rising happens BECAUSE it isn't profitable enough to mine for more people to want to do so (and the new ones that there are get balanced by existing ones dropping out).  A lot of PMB operators (most) have no disclosed assets able to continue supporting their obligations if mining becomes unprofitable.

And that's where furuknap's article flirts with outright lying.  He attempts to conflate "Mining being profitable" with "PMBs being profitable" when in fact the two things are in no way linked.  PMBs are at their best (if the contract is honoured) when mining is UNPROFITABLE - as that's what leads to difficulty stopping rising or even falling.  Any time mining makes any significant profit people will continue buying more hardware and difficulty will rise.

Furuknap's argument is in essence that when mining STOPs being profitable MINING will close.  And he's right about that.  But so in all likelihood will his own PMB.  It's one of the specific defined situations in which he'd close it :

"2. The overhead of operating the contracts becomes greater than its profits"

Furuknap appears to be claiming there's some mythical scenario in which difficulty isn't rising AND mining is profitable.  That doesn't exist - if difficulty isn't rising and mining is profitable then people WILL buy more hardware and more mining companies WILL start - and by doing so they break the condition.  In practice difficulty will stablise when it's not profitable to buy new hardware to mine with - at that point mining with existing gear may well still make more than it costs for many people (but not by a lot) but it actually isn't profitable when taking into account capital costs.

The lack of understanding of this is shown best in the following paragraph:

"However, the situation that may make mining profitable is a stop in the rise of mining difficulty. If that happens, all mining assets suddenly becomes vastly more profitable and thus prices will rise rapidly."

What scenario does he envisage where difficulty stops rising whilst mining is "vastly more" profitable?  Why is noone buying more hardware if it's "vastly more" profitable?  If the profit from mining repays capital costs in a short period of time then why aren't people buying more hardware?  If it doesn't repay capital costs then it isn't profitable at all - let alone "vastly more" so.

It's as though he just hasn't looked at what the situation was when that precise situation actually happened.  Did PMB prices rise massively?  Of course not - as by then the dividends were miniscule compared to the prices paid for them.  And most mining itself wasn't making money as fast as the value of hardware was being lost - which led to PMBs in particular being unable to continue operations.  Luckily (for PMBs) ASICs then arrived and bailed them out.

History WILL at some point repeat itself in that respect.  At that point DMS WILL close (precisely when depends on SELLING's judgement).  Some PMBs will buy out, some will continue paying, some will default.  But that time is still some while off - and the dividends before it's reached will be many years of the dividends after it's reached - so the difference between the expectation for MINING and PMBs is only a small percentage of actual long-term returns.

I'd just like to hear how furuknap believes mining can be profitable AND difficulty not rising - yet there's no significant interest in buying more mining gear.  Because somehow that's a scenario he bases part of his case on - and it doesn't exist.  Difficulty stops rising when mining is UNPROFITABLE if capital costs are taken into account (those with ASICs already continue mining as the capital cost is sunk and resale value becomes low).

[FloatesMcgoates]

Was any progress ever made on the automated transfer bot mentioned several pages back?

[Deprived]

Specifically, difficulty continues to rise, and dividends on MINING has dropped to about half. Other PMBs decrease in value as dividends fall, but for some reason not MINING. Could this be because compared to other PMBs MINING was undervalued? Or are there other explanations?

MINING had its drop earlier - PMBs are just losing price now to achieve similar value.  The impact of difficulty changes is far more obvious in DMS so has been priced in much earlier.  And MINING's price was initially depressed (relative to PMBs) because those liking SELLING could ALL sell MINING and push the price down.  With PMBs noone can sell the price down (other than operator) without realising a loss (and investors in general are reluctant to realise a loss even when they wouldn't buy at or slightly below the price they refuse to sell at).

[Deprived]

Was any progress ever made on the automated transfer bot mentioned several pages back?

It's not possible at present - API feed from BTC.TC doesn't show the identity of who transferred so there's no way to find who to send back to.  In theory it could be done by screen-scraping or by running a logged-in session and parsing the returned page data.  But it's just not worth that much hassle.  Once the API gets updated will look at it again.

[FloatesMcgoates]

Was any progress ever made on the automated transfer bot mentioned several pages back?

It's not possible at present - API feed from BTC.TC doesn't show the identity of who transferred so there's no way to find who to send back to.  In theory it could be done by screen-scraping or by running a logged-in session and parsing the returned page data.  But it's just not worth that much hassle.  Once the API gets updated will look at it again.

Ahh damn, that's disappointing.

Maybe instead of randomly checking for transfers you could set up a daily schedule like once every eight hours so purchasers of DMS.Purchase would be able to time their trades with maximum efficiency. This would probably end up being both more convenient for yourself as well as for those buying the security.

[furuknap]

I'd just like to hear how furuknap believes mining can be profitable AND difficulty not rising - yet there's no significant interest in buying more mining gear.  Because somehow that's a scenario he bases part of his case on - and it doesn't exist.  Difficulty stops rising when mining is UNPROFITABLE if capital costs are taken into account (those with ASICs already continue mining as the capital cost is sunk and resale value becomes low).

I believe mining is designed to balance profitability in a way that makes it, over a long enough time, marginally profitable. Right now we are in a position where new mining operations are not profitable if the current situation continues. Thus, by the same argument you are making, difficulty will cease to rise until such a time where mining operations again are profitable.

However, like with mining investments now, this change isn't sudden. There is a significant lag in the market's perception of long-term mining viability and investments turning into real mining efforts. During this time, as we see now, mining is incredibly profitable thus driving future investments further up.

Even now, long before the full force of the previous months of mining investments have started operating, we see a rapidly rising skepticism of any mining investment (not just assets). Just look at how skeptical people are of PMB style assets or ASICMiner hardware and how slow the new Bitfury and KnC miners are selling.

Thus, when mining becomes barely profitable or even factually unprofitable, hardware prices may drop rapidly to make mining profitable again. This assumes that hardware vendors have large markups now or can continue to sell current generation hardware indefinitely to avoid NRE.

However, unless hardware vendors stockpile huge amounts of ASICs, we'll see the same lag in turning investments into mining operations, perhaps as long as we've been waiting on ASICs to make mining unprofitable now. This lag will cause mining to be very profitable for a long time before new hardware arrives.

In short: For every day of vastly unprofitable mining we'll see (or have seen) one day of vastly profitable mining. Over time, it is designed to balance out and the question is not if this will happen (because if it doesn't, Bitcoin is doomed) but when.

.b

[Deprived]

I'd just like to hear how furuknap believes mining can be profitable AND difficulty not rising - yet there's no significant interest in buying more mining gear.  Because somehow that's a scenario he bases part of his case on - and it doesn't exist.  Difficulty stops rising when mining is UNPROFITABLE if capital costs are taken into account (those with ASICs already continue mining as the capital cost is sunk and resale value becomes low).

I believe mining is designed to balance profitability in a way that makes it, over a long enough time, marginally profitable. Right now we are in a position where new mining operations are not profitable if the current situation continues. Thus, by the same argument you are making, difficulty will cease to rise until such a time where mining operations again are profitable.

However, like with mining investments now, this change isn't sudden. There is a significant lag in the market's perception of long-term mining viability and investments turning into real mining efforts. During this time, as we see now, mining is incredibly profitable thus driving future investments further up.

Even now, long before the full force of the previous months of mining investments have started operating, we see a rapidly rising skepticism of any mining investment (not just assets). Just look at how skeptical people are of PMB style assets or ASICMiner hardware and how slow the new Bitfury and KnC miners are selling.

Thus, when mining becomes barely profitable or even factually unprofitable, hardware prices may drop rapidly to make mining profitable again. This assumes that hardware vendors have large markups now or can continue to sell current generation hardware indefinitely to avoid NRE.

However, unless hardware vendors stockpile huge amounts of ASICs, we'll see the same lag in turning investments into mining operations, perhaps as long as we've been waiting on ASICs to make mining unprofitable now. This lag will cause mining to be very profitable for a long time before new hardware arrives.

In short: For every day of vastly unprofitable mining we'll see (or have seen) one day of vastly profitable mining. Over time, it is designed to balance out and the question is not if this will happen (because if it doesn't, Bitcoin is doomed) but when.

.b

Mining isn't "designed" with any sort of consideration of profitability at all - any more than gold is "designed" with profitability in mind or any other commodity is "designed" with profitability in mind.  Mining exists - and profitability or otherwise depends on how it is used, not on any other aspect of its design.

Mining IS designed to produce fairly stable coin generation.  That DOES impact on profitability - but isn't why it was designed in that fashion.

You say :

"Thus, by the same argument you are making, difficulty will cease to rise until such a time where mining operations again are profitable. "

No.  At no stage have I ever argued that mining needs to be profitable.  My belief, in fact, is that if technological advances didn't occur it would cease to ever be profitable at all (and would end up sat at a level of difficulty that didn't move much at all).  That's because there ARE various classes of people who will mine even if doesn't make a profit:

1.  Those doing it for fun or to support the bitcoin network, where profitability isn't a factor of importance to them.
2.  Those with 'free' electricity - where although the mining isn't making a profit overall it IS making a profit for them.
3.  Those who fail at math.
4.  Those who buy mining hardware then sell shares in it to others who fail at math/common-sense.

Add that to those locked into hardware already - whose loss is already mostly fixed - and difficulty will happily stay above the level where mining is at all profitable.

Technological advances break that - and mean that, for short periods, mining is decently profitable (but with ASICs that decent profit isn't reaching the general public).  And ongoing advances on a smaller scale (decreasing cost of unchanged hardware) can keep it marginally profitable.

And even if it's not profitable at all, you only need to find some suckers willing to pay 5,10 or 20 times the cost of hardware plus add a favourable buy-back clause for issuers to make a profit from mining (even though the profit doesn't actually come from mining - but from giving back investors a lot less than they invested).

And there's one HUGE way in which DMS.Mining isn't like PMBs/mining contracts (ones which pay out on PPS or similar).  Even if mining becomes unprofitable DMS.Mining still has proven backing in place to meet its contract.  If mining output falls such that cost of operation eats up a large chunk of mined coins then most PMBs have no established backing from which dividends will be paid - they just have to rely on the operator digging into his pocket for funds he may or may not have (history suggests quite a few won't have it or will be unwilling to part with it).

[Rannasha]

Difficulty-adjustment will happen today, in a few hours. So SELLING will get its dividend tomorrow.

The size of the dividend is looking to be just a bit north of 5 mBTC, but that can still fluctuate depending on return from investments and new PURCHASE sales.

[Deprived]

Sold   822
Swapped   0
Total   822
Price   0.039477
Total   32.450094
Less Fee   32.38519381
Man Fee   0.971555814

BTC Balance (BTC-TC)    1,413.11867946
11293 LTC-ATF.B1    112.93000000
Coinlenders CD 29/7    203.05744413
Coinlenders CD 13/8    100.53928541
Just-Dice Balance    159.03998806
TOTAL ASSETS    1,988.68539706
   
Outstanding MINING   50854
Outstanding SELLING   50854
Outstanding PURCHASE   1979
Effective Units   52833
   
Block reward   25
Difficulty   26,162,876
Hashes per MINING   5000000
   
Daily Dividend    0.00009611
50 days (Min Liquid)    0.00480554
100 days (Forced Close)    0.00961107
365 days (Buyback)    0.03508041
405 days (IPO)    0.03892484
400 days (Post SELLING div)    0.03844428
410 days (Pre SELLING div)    0.03940539
   
NAV Post MINING Div    1,983.60757993
NAV/U Post MINING Div    0.03754486
Days Dividend Post Div   390.64
SELLING Dividend    -         
NAV Post SELLING Div    1,983.60757993
NAV/U Post Selling Div    0.03754486
PURCHASE selling price    0.03942210
PURCHASE buy-back price    0.03679396
   
J-D House profit at report   -286

[eltopo]

New Difficulty 31,256,961 (+19,5%)

Seems those big jumps are going to become perpetual... 

[carnitastaco]

sorry if I missed it, but Deprived, did we get an answer to how we've put in to JD total?  House profit/loss is useful, but I don't know how much our % of the house stake is.

Furuknap- I'm hesitant to get into this with you, but I'm curious- what are your thoughts on the following statement? (in general, not specifically as regarding this security)

"In the long run, the marginal cost of bitcoin mining will approach and eventually become equal to or less than the marginal reward from bitcoin mining."  Agree? Disagree? Rephrase in a way you agree?

[furuknap]

Furuknap- I'm hesitant to get into this with you, but I'm curious- what are your thoughts on the following statement? (in general, not specifically as regarding this security)

"In the long run, the marginal cost of bitcoin mining will approach and eventually become equal to or less than the marginal reward from bitcoin mining."  Agree? Disagree? Rephrase in a way you agree?

My belief, as I have stated before, is that in the long run (and given a rational market) Bitcoin mining will tend to be marginally profitable. New technologies will create volatiilty but not cancel out the long-term profitability.

The big killer in any of this is the halving effect because it is a fixed reduction in all mining profitability that is completely independent on difficulty, profitability, or adoption.

.b

[odolvlobo]

My belief, as I have stated before, is that in the long run (and given a rational market) Bitcoin mining will tend to be marginally profitable. New technologies will create volatiilty but not cancel out the long-term profitability.

Because there are, and probably will always be, people that are willing to mine at a loss, you can't assume that mining will be profitable in the long run.

[furuknap]

My belief, as I have stated before, is that in the long run (and given a rational market) Bitcoin mining will tend to be marginally profitable. New technologies will create volatiilty but not cancel out the long-term profitability.

Because there are, and probably will always be, people that are willing to mine at a loss, you can't assume that mining will be profitable in the long run.

That is true only as long as those willing to take a loss outperform those that would not.

Miner A will stop mining at 10% profit
Miner B will stop mining at 0% profit
Miner C will stop mining at -10% profit

All miners have the same capacity.

In a perfectly balanced world, mining would drop 30% when profits drop below 10% and 50% when mining drops below 0%. This will increase profitability again (~67% after the first drop and 100% after the last drop).

Only if you have more miners C than miners A will the difficulty stay low when profit demanding miners drop out. In other words, the more profit-demanding miners are, the more it will take for mining to not remain profitable over time. 

.b

[vandinn]

furuknap, I have to ask several questions. Why do you write articles about stuff you don't understand? Why do you talk about economic principles if you have no idea about them? And finally, why do you contribute to Deprived's threads with the only intention to confuse people who already have hard time understanding Deprived's securities?

I am assuming Deprived cannot answer my PM as he doesn't have time because of ignorants who are trying to dissuade people from investing into his securities, stating blatantly inaccurate claims and writing articles full of errors. That is a big shame as there are few sources about Bitcoin economy in my country (I am pretty much the only one that writes on a regular basis) and our community could really use answers from Deprived as he is one of a few people around who understands it.

I suggest you delete your article altogether as the majority of it is simply wrong. Go over the DMS contract again, read more carefully and write something that makes sense. I am not saying it is easy to understand; English is not my native language and it took me two hours to get it, but your conclusions are so off it is hard for anyone to select seperate parts that are wrong as most of it is. Deprived was quick with a very nice explanation why, I won't bother repeating it.

"In the long run, the marginal cost of bitcoin mining will approach and eventually become equal to or less than the marginal reward from bitcoin mining."  Agree? Disagree? Rephrase in a way you agree?

On a more positive note, in competitive markets that is precisely what would happen. Marginal costs equal marginal revenue in the long run. Bitcoin mining was a nearly perfect example of a competitive market, however, Asics have some barriers to entry (high costs, know-how), so that might have changed a bit. In the short run, mining will be experiencing losses because of people who fail at math. In the long run, it may become a kind of oligopoly where all participants do make some profit (similar to laptop processors manufacturers for example). Mining is specific enough though that there will probably still be some minor miners whose profit is close to zero, effectively making your statement true.

[FloatesMcgoates]

furuknap, I have to ask several questions. Why do you write articles about stuff you don't understand? Why do you talk about economic principles if you have no idea about them? And finally, why do you contribute to Deprived's threads with the only intention to confuse people who already have hard time understanding Deprived's securities?

I am assuming Deprived cannot answer my PM as he doesn't have time because of ignorants who are trying to dissuade people from investing into his securities, stating blatantly inaccurate claims and writing articles full of errors. That is a big shame as there are few sources about Bitcoin economy in my country (I am pretty much the only one that writes on a regular basis) and our community could really use answers from Deprived as he is one of a few people around who understands it.

I suggest you delete your article altogether as the majority of it is simply wrong. Go over the DMS contract again, read more carefully and write something that makes sense. I am not saying it is easy to understand; English is not my native language and it took me two hours to get it, but your conclusions are so off it is hard for anyone to select seperate parts that are wrong as most of it is. Deprived was quick with a very nice explanation why, I won't bother repeating it.

He wants to promote his own stock which is sitting at no volume after a failed IPO.