** Warning to New customers of Butterfly Labs Inc (BFL) **
"Any pre-orders placed now for any of Butterfly Lab’s units are not expected to ship until early 2014."
The above warning is from an article of June 5th on Butterfly Labs by Bitcoin commentator, Phil, in Mining News of the leading Bitcoin website, the Genesis Block.
This warning is intended for new customers thinking of placing an order in the near future with butterfly labs Inc (BFL) for mining equipment. It is not intended to be of concern to existing customers with pre-orders, and also it relates to ASIC mining equipment only as opposed to ASIC chips for whic BFL may have a different promised delivery schedule.
Butterfly Labs claims they have shipped all Jalapeno 5 GH/s ASIC bitcoin miners ordered through July 3rd, 2012 have been shipped. ASIC miners are customized hardware used for bitcoin mining. Although Butterfly labs was one of the first companies to take pre-orders for ASIC hardware, Avalon and ASICMiner have been shipping for several months now.
Butterfly Labs has been plagued with power issues for months, perpetually telling miners they are two weeks away from delivery. They missed their power target, forcing them to forfeit 1,000 bitcoins to charity after a failed wager. The size of these 5 GH/s miners is over twice as big as originally forecast to accommodate the redesigned boards.
There is no word yet on expected deliveries of their 30 GH/s, 60 GH/s or 1,500 GH/s miners shipping yet. These units are expected to have similar size issues as the 5 GH/s miners and there are rumors that Butterfly Labs will ship multiple units to customers in order to achieve the expected hashing rate. Certainly, after a year of waiting, most customers will be happy to just start mining. Any pre-orders placed now for any of Butterfly Lab’s units are not expected to ship until early 2014.
New customers for BFL rigs should be aware that Butterfly Labs have a history of long delayed shipment orders and may wish to further inform themselves about the risks they face if they were to place an order with BFL.
It is likely that by early 2014 the existing ASIC product line will be redundant. The reason is that the difficulty levels will be so high by this time that it is extremely unlikely that you will be able to cover the costs of your investment. Because new orders may not be delivered until 2014 the only way that it could be profitable ordering a unit from BFL today is if your expectation was that Bitcoin prices were going to skyrocket, in which case you should consider the alternative investment choice which is a direct investment in Bitcoins themselves.
The product pages of the BFL website are fraudulent in that they state information which the directors of butterfly labs knowingly are aware cannot be met. Their product pages state:
"Pre-order Terms: Bitforce SC (ASIC) products are shipped according to placement in the order queue, and delivery may take 2 months or more after order. All sales are final."
The directors of BFL may argue if taken to court that the words "or more" allow them to make deliveries as they wish. If BFL were taken to court they would lose the argument and a judge would likely decree that they have broken their terms of contract as they have surpassed the expected delivery date and therefore ordered to give a refund and any costs to a customer. In most cases this becomes expensive for small orders other than those living in or nearby the state of Kansas who could take BFL to the Small Claims Court in Kansas City. For large orders where the amount exceeds USD 20,000 it may be cost effective for a court case in a regular court.
Normally a safe course of action would be to use PayPal or a credit card as these institutions generally will refund customers in case of delayed delivery, however because the delay is so long it will be way past the 45 day limit for PayPal and a six-month limit on credit cards. If your credit company will cover purchases for a year then definitely make use of that form of payment.
On the positive side BFL presently is refunding customers who wish to have their money returned. This is expected to continue for the foreseeable future. The reason is quite simple and that is because BFL are taking in tens of millions of dollars in pre-order money which they receive interest-free. They are using part of this pre-order money to buy stock and equipment but the balance they are not using it simply sitting earning high rates of interest to cover future projects. So for them to refund portion of the tens of millions of dollars is not too much of an issue. At present BFL has delivered a certain portion of customers orders or given away free samples in order to obtain goodwill from the press. The early adopters on the forum including some moderators are likely to receive their orders quite soon and may therefore be unlikely to understand the full implication for new customers, although it is hoped they will still be motivated to help everyone including new persons making decisions about Butterfly Labs mining equipment.
The current state of orders can be seen a very helpful website:
http://bfl.ptz.ro/You can check how far BFL is with deliveries if you wish to place a gamble on purchase of equipment from them. Pre-orders started June 2012. At the time of writing only orders to 3rd July 2012 have so far have been shipped.
There is a current argument on the Bitcoin Forum as to whether BFL should receive a SCAM tag or not. According to the balance of moderators BFL is not a scam and therefore does not get a scam tag, while many people who ordered these almost a year ago believe that they should be given this tag to warn others. BFL conduct business which is borderline illegal as they knowingly mislead customers. However as for practical purposes this is not proved illegal until a court order is made against them, moderators are therefore erring on the side of caution. Perhaps one should consider that BFL is engaged in sharp practices and is showing an extreme disregard for business ethics. Even the if they don't get a "scam" or "warning" tag, at least newbies should get a warning about them as I hope this posting will serve.
The FAQ pages of the BFL website give out vague and obtuse information about delivery:
"Q: Where am I in line and when will my order ship?
A: We currently do not have the ability to easily disclose the number of orders we currently have. Shipping of new units is expected to begin soon. It is unknown at this time when we will complete the shipping of our pre-orders. Even though we should start shipping soon, orders placed now will be shipped at a later time. Our orders date back to June, 2012. All of those orders and those placed since then will be shipped before new orders."
http://www.butterflylabs.com/faq/To assist new customers, an explanation of difficulty levels may be useful. The Bitcoin system is based on mathematics and is designed to spread out the production of Bitcoins until 2040. Every 2016 blocks that are mined lead to an change in difficulty levels so that roughly each two weeks there is a new difficulty level.
Unlike the calculators used by the BFL and others which use only one level of difficulty the reality is that they increase dramatically throughout the year. A lot of people have been fooled by this and thought that they were on their way to retirement just by purchasing an order of mining equipment.
Wikipedia explains this stating difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes. As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down.
Here are difficulty levels for the past four months:
Date Increase % Difficulty level
05-Feb 10.33% 3,651,012
18-Feb 11.47% 4,367,876
01-Mar 19.63% 4,847,647
14-Mar 10.98% 6,695,826
24-Mar 38.13% 7,673,000
05-Apr 14.59% 8,974,296
17-Apr 12.28% 10,076,293
30-Apr 12.28% 11,187,257
12-May 11.03% 11,187,257
25-May 8.64% 12,153,412
05-Jun 28.41% 15,605,633
Shown graphically over the last twelve months (courtesy of bitcoin.sipa.be):
As you can see they have been increasing at different rates and frequencies but importantly they are not negative or close to zero.
If we are predicting future difficulty levels we have to take into account both the technology of mining equipment and also Bitcoin prices. There is a very close correlation between difficulty levels and the Bitcoin prices because as Bitcoin prices increase people around the world become interested to mine with graphics cards that they may already have in their computer. The Chinese now account for the greatest increase in Bitcoin users during the last month and there is a propensity for this to continue for some time. In addition to people using graphics cards to mine there are now various companies that are producing specific computer chips for mining use only called ASICs, which operate at about ten times the speed of fast graphic cards.
At present there are various companies producing ASIC chips. Because of the limited shelf life of equipment using ASIC chips, the companies are now selling chips direct to wholesalers and the lead time is about 100 days. BFL have a short time ago announced that they will also be selling chips directly to customers and their promised lead time is 100 days. As BFL is known to make promises they cannot keep it is unlikely that the hundred days will be kept by BFL, however companies like Avalon have proved that they keep to their schedules and so the market will soon be flooded with new mining equipment using these new ASIC chips.
The last difficulty level showed a 28.4% jump in difficulty. If difficulty levels were to continue at an 15% increase each two weeks thereafter the expected future difficulty levels would look as follows:
date change difficulty
----------------------------------
05-Jun 28.41% 15,605,633
16-Jun 15.00% 17,946,478
27-Jun 15.00% 20,638,450
08-Jul 15.00% 23,734,217
19-Jul 15.00% 27,294,350
30-Jul 15.00% 31,388,502
10-Aug 15.00% 36,096,777
21-Aug 15.00% 41,511,294
01-Sep 15.00% 47,737,988
12-Sep 15.00% 54,898,686
23-Sep 15.00% 63,133,489
04-Oct 15.00% 72,603,513
15-Oct 15.00% 83,494,040
26-Oct 15.00% 96,018,146
06-Nov 15.00% 110,420,867
17-Nov 15.00% 126,983,997
28-Nov 15.00% 146,031,597
09-Dec 15.00% 167,936,337
20-Dec 15.00% 193,126,787
31-Dec 15.00% 222,095,805
As an example using updated mining data with a Bitcoin price of $125 and the above difficulty levels a BFL Jalapeno rig (5GH/s) customer may break even if received by Mid-Oct.
Here are the same figures using a difficulty level increase of only 10%:
05-Jun 28.41% 15,605,633
16-Jun 10.00% 17,166,196
27-Jun 10.00% 18,882,816
08-Jul 10.00% 20,771,098
19-Jul 10.00% 22,848,207
30-Jul 10.00% 25,133,028
10-Aug 10.00% 27,646,331
21-Aug 10.00% 30,410,964
01-Sep 10.00% 33,452,060
12-Sep 10.00% 36,797,266
23-Sep 10.00% 40,476,993
04-Oct 10.00% 44,524,692
15-Oct 10.00% 48,977,161
26-Oct 10.00% 53,874,878
06-Nov 10.00% 59,262,365
17-Nov 10.00% 65,188,602
28-Nov 10.00% 71,707,462
09-Dec 10.00% 78,878,208
20-Dec 10.00% 86,766,029
31-Dec 10.00% 95,442,632
This shows the risk involved in ordering BFL equipment today. if you think that Bitcoin prices will skyrocket or that for some reason difficulty levels will continue at a low rate of say 10% then you should have no problem if you order equipment from BFL. At a Bitcoin price of $125 and and 10% increase rate of difficulty the breakeven point for BFL equipment is around Mid-Jan 2014.
You can make your own data and see on the many mining calculation websites what you would then for each period. Just don't forget to tap in the increasing difficulty for each two weeks of the time period your calculation.
The reason there is much aggravation amongst early adopters that placed orders for BFL equipment in 2012 is that a 5 GH/s machine would make around $2,000 profit, and a 50 GH/s machine around $20,000 profit, with Bitcoin prices at $120 if started today and mined 24/7 to end 2014, and a hell of a lot more had units shipped when promised.
New customers could be better off to wait and see whether BFL will ever become up-to-date with the deliveries of outstanding orders. If they do a new customers can make more sensible decisions based on the current difficulty levels and this would be an excellent and ideal situation.
New customers can also wait and see if later in the year faster and cheaper chips will be made by other companies like Avalon and ASICMiner in which case they may be able to purchase elsewhere products that consume less energy and will hash away faster at mining Bitcoins.
There is an ancient maxim "Caveat Emptor" meaning "Let the buyer beware". This certainly applies to BFL.
