Tarnished image

[DeathAndTaxes]

If nobody is mining then the difficulty will be so low that I'll start solo mining and clean up.

Solo mining at 19m difficulty would likely take you many years just to find that first 25 BTC.

I think you missed the point.  OP seems to think mining will get so hard that all the miners will leave.  If a large amount of hashing power goes offline difficulty will fall.

That is what the OP seems to be missing.  Only a small % of users will be miners.  I mean there are 7 billion people of the planet, there aren't going to 7 billion bitcoin miners.   If there are "too many" miners the ROI will suck and some will drop out, if there are too few the profits will be very high for those who do mine so more will join.  The idea that everyone needs to mine or Bitcoin will fail is just silly.

[DeathAndTaxes]

Either you misunderstood me or vice-versa.  I'm not exaggerating, i quite literally mean "no miners."  If mining is not profitable, and we discount fetishists who enjoy spending huge sums of money on specialized silicon in hopes of eventually breaking even, we can assume there'll be no miners.  Don't you agree?    

No that is simplistic.

Higher difficulty = Less miners = less hashing power = longer block interval = lower difficulty
Lower difficulty = more miners = more hashing power = shorter block interval = higher difficulty

The idea that you would ever get to no miners as in literally 0.0000000 GH/s mining is just nonsense.  The first miners have sunk cost.  Once you have hardware your ongoing cost is just electricity.  So long before existing ASIC miners become unprofitable new miners will stop deploying additional ASIC rigs slowing the rise in difficulty.  Even if difficulty so overshoots to a point that some ASIC miners are unprofitable those with lower electrical costs will still be profitable. The highest cost miners will shut down their rigs, difficulty will fall, and the margins for remaining miners will rise.  It is likely this will also overshoot, difficulty will fall far enough that the profits for remaining miners is "excessive" this will encourage more miners to go online (possibly buying rigs second hand) raising difficulty and lowering profitability all over again.

Please describe this scenario where all miners simultaneously stop mining and network hashpower goes to 0.000 GH/s.

 

[Cyberdyne]

If nobody is mining then the difficulty will be so low that I'll start solo mining and clean up.

Solo mining at 19m difficulty would likely take you many years just to find that first 25 BTC.

I think you missed the point.  OP seems to think mining will get so hard that all the miners will leave.  If a large amount of hashing power goes offline difficulty will fall.

Oh gotcha - of course. And after it starts falling, more miners would probably come back again and we will get some kind of equilibrium.

[cryptoanarchist]

Stupid thread alert!!

Please check https://en.bitcoin.it/wiki/Mining_hardware_comparison and http://www.alloscomp.com/bitcoin/calculator

You can still make money with GPUs mining litecoins AND Bitcoins. Even if it takes you a whole year to break even, you're still doing better than most startup companies.

People who say that GPU mining is dead are either stupid or too noob to realize that the price increases in bitcoin will recoup their costs faster.

[MooC Tals]

Stupid thread alert!!

Please check https://en.bitcoin.it/wiki/Mining_hardware_comparison and http://www.alloscomp.com/bitcoin/calculator

You can still make money with GPUs mining litecoins AND Bitcoins. Even if it takes you a whole year to break even, you're still doing better than most startup companies.

People who say that GPU mining is dead are either stupid or too noob to realize that the price increases in bitcoin will recoup their costs faster.

OMG what is going on here?

What I meant was that the rate at which the difficulty was rising is the result of fewer miners with larger hashing power. Now that is not really the problem or the concern but a side effect of human nature according to competition.

My concern was the rate at which this is being allowed to go ahead at where the increments at which we are doling this new technology is causing negative effects. The effects I am concerned about was the ever shortening time spans in between the ROI of these miners.

GPU's are at a point now where you burn more electricity cost than you receive in BTC/LTC or what ever currency you mine. This was a regulator on BTC difficulty. When BTC rose in price from $13 to $120 the difficulty increased as more GPU's came into the fold.

Litecoin was GPU resistant until the mining software was adapted to GPU's and the difficulty began to rise when the price spiked from 0.06 cents to $6 dollars. However Litecoin dropped to $3 dollars for a while and stalled the difficulty rate. Now at $2 dollars GPU's will never generate enough to pay for its self UNLESS your a big enough of a farm to offset other smaller miners out of the game.

Bitcoin is a unique contender as ASIC's move in the price is not a limiting factor and the cost of electricity is not a limiting factor as well. This will just make the bitcoin miners with 1st gen asics the sole players with no limits. This will make the difficulty jump higher and faster.

Will there be less miners? Will they be trading in their 1st gen asics to get 2nd gen asics? or will they sell them second hand to other people even if they can get higher discounts trading them in to get their hands on 2nd gen asics? So was anyone able to buy a 2nd hand BFL FPGA in the last 6 months for a lower price than what they were being sold by BFL new? The values of used FPGA's were still too expensive because BFL was giving great trade in prices.

So don't expect to buy used asics for cheap now. If that trend continues......   

BTW true cost of electricity its the amount due / the kilowatts used. That includes the taxes and all the other bullshit they add on your bill. So don't give me that I pay only 0.06 / KWh.

In Toronto we have 4 tiered rate for different times the electricity is being used.

0.07
0.06
0.05
0.04
plus taxes
plus deliver
plus line loss factor
plus I'm just a stupid slave that accepts all kinds of bullshit on my bill and never complains cus I'm just and idiot....

You get it the picture.

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Either you misunderstood me or vice-versa.  I'm not exaggerating, i quite literally mean "no miners."  If mining is not profitable, and we discount fetishists who enjoy spending huge sums of money on specialized silicon in hopes of eventually breaking even, we can assume there'll be no miners.  Don't you agree?    

No that is simplistic.

Higher difficulty = Less miners = less hashing power = longer block interval = lower difficulty
Lower difficulty = more miners = more hashing power = shorter block interval = higher difficulty

The idea that you would ever get to no miners as in literally 0.0000000 GH/s mining is just nonsense.  The first miners have sunk cost.  Once you have hardware your ongoing cost is just electricity.  So long before existing ASIC miners become unprofitable new miners will stop deploying additional ASIC rigs slowing the rise in difficulty.  Even if difficulty so overshoots to a point that some ASIC miners are unprofitable those with lower electrical costs will still be profitable. The highest cost miners will shut down their rigs, difficulty will fall, and the margins for remaining miners will rise.  It is likely this will also overshoot, difficulty will fall far enough that the profits for remaining miners is "excessive" this will encourage more miners to go online (possibly buying rigs second hand) raising difficulty and lowering profitability all over again.

Please describe this scenario where all miners simultaneously stop mining and network hashpower goes to 0.000 GH/s.

 

You're absolutely right, above quote was a reply to a user who was arguing that if mining profitability tends toward zero, mining is a "zero-sum game."  My response is a hypothetical, highlighting the absurdity of that assumption.  By definition, a zero-sum game's profitability is provably 0,* which makes it as sound a business as tossing a coin & expecting to profit by betting heads. 

The miners/ASICs scenario you're describing is also not without flaws, though these flaws are rooted in different assumptions.
You assume the smooth negative feedback model.  At least that's the model that comes to my mind, the standard market self-regulation.  For me, that's similar to a feedback loop in an op-amp, or a centrifugal governor on a steam engine (Yeah, i know, but bear with me   I'm guessing you're familiar with at least one of the two, they both are straightforward examples of negative feedback, and really handy for modeling feedback systems).  IRL, both fail to stabilize unless all the conditions are just right ( otherwise the op-amp will oscillate, the steam engine will hunt).  For mining example, this implies a bunch of stuff.  The "corrections" in mining also won't necessarily mimic damped oscillations, the swings will increase in amplitude 'till the system self-destructs.*

TL;DR: There are sound models in which ASICs destabilize & crash Bitcoin value.  Being concerned by the impending flood of ASICs is not unreasonable.

*An aside: Any analog electronics guy will tell you that *everything* desperately wants to become an oscillator

[Explodicle]

TL;DR: There are sound models in which ASICs destabilize & crash Bitcoin value.  Being concerned by the impending flood of ASICs is not unreasonable.

Then please post your model. Use an equation to describe this behavior and claim something falsifiable with more numbers than zero and infinity.

It sounds unreasonable because the number of entities mining has never reached zero on any other commodity ever, but there have been times when the cost of equipment has gone up quickly.

Edit: bolded to highlight ignored important parts.

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TL;DR: There are sound models in which ASICs destabilize & crash Bitcoin value.  Being concerned by the impending flood of ASICs is not unreasonable.

Then please post your model. Use an equation to describe this behavior and claim something falsifiable with more numbers than zero and infinity.

It sounds unreasonable because the number of entities mining has never reached zero on any other commodity ever, but there have been times when the cost of equipment has gone up quickly.

Quote from a post you're replying to:

You're absolutely right, above quote was a reply to a user who was arguing that if mining profitability tends toward zero, mining is a "zero-sum game."  My response is a hypothetical, highlighting the absurdity of that assumption.  By definition, a zero-sum game's profitability is provably 0,* which makes it as sound a business as tossing a coin & expecting to profit by betting heads.  

Boldface added for emphasis.

Edit:  Not everything is summed up in TL;DR, that's why i type up the rest of the stuff

[Explodicle]

1) If you add up all the gains from mining, and subtract all the costs, you think this number will be greater than zero?

2) Do you or do you not think the number of miners will ever reach zero? If not, why are you describing what would happen when there are zero miners?

This isn't some electrical system, it's a real life economy with real scalability limits. No one cares about imaginary chalkboard economics - it's that same kind of thinking that predicts all rational actors will hoard a deflating currency.

[crumbs]

1) If you add up all the gains from mining, and subtract all the costs, you think this number will be greater than zero?

Yes, ffs!  Unless you think that the $1 billion market cap for Bitcoin is the cost of gear & electricity for the miners up to this point. (HINT:  Daddy, where do Bitcoin come from?  The miners make 'em, Explodicle, the miners.

2) Do you or do you not think the number of miners will ever reach zero? If not, why are you describing what would happen when there are zero miners?

No. First, see the red text above.  I am describing that scenario to show that your claim -- mining being a zero-sum game -- is patently stupid.  I'm hoping to accomplish that by generating a contradiction.  I fail.  I get bored of repeating myself.  I click the "Change Color" dropdown & choose red.  Did i do any better this time?

This isn't some electrical system, it's a real life economy with real scalability limits. No one cares about imaginary chalkboard economics - it's that same kind of thinking that predicts all rational actors will hoard a deflating currency.

Wrong.  People who understand "chalkboard economics," collectively referred to as "the rich," care very much about "chalkboard economics."  It's those who don't get "chalkboard economics," collectively referred to as "the poor," who do not.  It's sad, it seems somehow unfair, and yet it remains true.  These unfortunates often try to validate their simpleminded notions by wagering small amounts of newfangled money they don't quite understand.  More fail and heartache, but such is the nature of free enterprise

[Dekshuduph]

Yo OP, if you're still around, would you mind moving this thread to the Mining board? Thanks.

1) If you add up all the gains from mining, and subtract all the costs, you think this number will be greater than zero?

If the power efficiency of your rig is great enough to overcome the difficulty of the blocks and gain enough moneys' worth of bitcoins to cover the cost of the electricity to hurdle the variably-difficult block, and then some, the answer will in fact be yes. Obviously, the asic is power efficient enough to do this yet the GPU no longer is. The difficulty will keep rising the more asics people put to work, and therefore the money everyone gets out of the whole ordeal will keep going down until the difficulty is too high for the typical asic to get money out of it. The money that comes out of it has to do with the price of the bitcoin, which has to do with the popularity of bitcoin, which also affects the number of people trying to mine. Everything is interwoven to affect the difficulty of blocks and if you want to mine you will, in some way, have to predict how long your miner will be able to make money. The speed of your miner is completely irrelevant, mind you, that's only relevant to the amount of money you gain or lose, not if you gain or lose it.

TL;DR: It depends on your mining rig.

[DeathAndTaxes]

Mining isn't a zero sum game.  It is a fixed positive sum game.  Maybe that is why you are confused.

A zero sum mining game would be that all miners need to put a certain amount of Bitcoins into escrow.  Once 25 BTC have been escrowed a satoshi is randomly selected and the miner who owns it gets the entire escrow amount.

Zero sum =/= Fixed Positive Sum.

At the current exchange rate the mining "game" has a positive sum of 25*6*24*365*~$100 = $131,400,000 annually. 

[MooC Tals]

Yo OP, if you're still around, would you mind moving this thread to the Mining board? Thanks.

1) If you add up all the gains from mining, and subtract all the costs, you think this number will be greater than zero?

If the power efficiency of your rig is great enough to overcome the difficulty of the blocks and gain enough moneys' worth of bitcoins to cover the cost of the electricity to hurdle the variably-difficult block, and then some, the answer will in fact be yes. Obviously, the asic is power efficient enough to do this yet the GPU no longer is. The difficulty will keep rising the more asics people put to work, and therefore the money everyone gets out of the whole ordeal will keep going down until the difficulty is too high for the typical asic to get money out of it. The money that comes out of it has to do with the price of the bitcoin, which has to do with the popularity of bitcoin, which also affects the number of people trying to mine. Everything is interwoven to affect the difficulty of blocks and if you want to mine you will, in some way, have to predict how long your miner will be able to make money. The speed of your miner is completely irrelevant, mind you, that's only relevant to the amount of money you gain or lose, not if you gain or lose it.

TL;DR: It depends on your mining rig.

Well I guess I should as it would allow others to join in and enjoy MY THREAD!!! lol

Going to move it to mining.

[Explodicle]

1) If you add up all the gains from mining, and subtract all the costs, you think this number will be greater than zero?

Yes, ffs!  Unless you think that the $1 billion market cap for Bitcoin is the cost of gear & electricity for the miners up to this point. (HINT:  Daddy, where do Bitcoin come from?  The miners make 'em, Explodicle, the miners.

If you throw in the cost of labor, that's precisely what I think. That's why people are spending so much on hardware, because they're factoring in an expected increase in Bitcoin's price.

This isn't some electrical system, it's a real life economy with real scalability limits. No one cares about imaginary chalkboard economics - it's that same kind of thinking that predicts all rational actors will hoard a deflating currency.

Wrong.  People who understand "chalkboard economics," collectively referred to as "the rich," care very much about "chalkboard economics."  It's those who don't get "chalkboard economics," collectively referred to as "the poor," who do not.  It's sad, it seems somehow unfair, and yet it remains true.  These unfortunates often try to validate their simpleminded notions by wagering small amounts of newfangled money they don't quite understand.  More fail and heartache, but such is the nature of free enterprise

What makes you think I was only willing to wager small amounts, and that I'm not rich? The chalkboard is only halfway there - the other half is expressing confidence by taking chances. Bets can shed light on a situation when loaded with the flowery language of protips, hints, true scotsmen, and hypothetical scenarios.

Do you have any actual predictions that can be falsified?

At the current exchange rate the mining "game" has a positive sum of 25*6*24*365*~$100 = $131,400,000 annually.  

Where did you subtract the costs of hardware, electricity, and labor from that sum?

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1) If you add up all the gains from mining, and subtract all the costs, you think this number will be greater than zero?

Yes, ffs!  Unless you think that the $1 billion market cap for Bitcoin is the cost of gear & electricity for the miners up to this point. (HINT:  Daddy, where do Bitcoin come from?  The miners make 'em, Explodicle, the miners.

If you throw in the cost of labor, that's precisely what I think. That's why people are spending so much on hardware, because they're factoring in an expected increase in Bitcoin's price.

Logic obviously won't win you over, perhaps authority would?  Look at the reply by DeatAndTaxes, a few posts up.  He's a respected member with 10,000 posts to his name.

This isn't some electrical system, it's a real life economy with real scalability limits. No one cares about imaginary chalkboard economics - it's that same kind of thinking that predicts all rational actors will hoard a deflating currency.

Wrong.  People who understand "chalkboard economics," collectively referred to as "the rich," care very much about "chalkboard economics."  It's those who don't get "chalkboard economics," collectively referred to as "the poor," who do not.  It's sad, it seems somehow unfair, and yet it remains true.  These unfortunates often try to validate their simpleminded notions by wagering small amounts of newfangled money they don't quite understand.  More fail and heartache, but such is the nature of free enterprise

What makes you think I was only willing to wager small amounts, and that I'm not rich? The chalkboard is only halfway there - the other half is expressing confidence by taking chances. Bets can shed light on a situation when loaded with the flowery language of protips, hints, true scotsmen, and hypothetical scenarios.

Do you have any actual predictions that can be falsified?

At the current exchange rate the mining "game" has a positive sum of 25*6*24*365*~$100 = $131,400,000 annually.  

Where did you subtract the costs of hardware, electricity, and labor from that sum?

OMFG.  I give.  You win.

[Xyver]

@Mooc

I don't see the ASIC's kicking everyone out of the market yet.  When I started mining, the difficulty was about 10 million, and with my dinky little GPU (6870) I could make 0.0167 coins per day.  Now, with the difficulty spikes, I'm down to 0.0072 coins per day (once its below 0.006, its not worth the power...)

So, if we look at all the ASICs coming out, there is about 900 Terahashes of hardware being built.  The difficulty before ASICs was about 100 Terahashes, perhaps lower.  So, Once the ASICs are all out, we'll be sitting at 1000 terahashes (A whole petahash!).  10x network increase gives a 10x difficulty increase.

Say you get a little Jalapeno (300$, similar to my 6870 being ~300$), with the 10x difficulty, that jalapeno will make about 0.02 BTC per day.  That's pretty much equivalent to the current GPU standard...

I don't believe that the massive difficulty spikes will continue forever, I think they will just continue until all the ASIC preorders are filled, then they will level off, and it will be back to the ~10% difficulty jumps.  And that will bring us back to where we are with GPUs.

TL,DR, ASICs coming out are not impending doom, it's just the next step from GPUs.  It should be equally profitable to continue in the future.

[MooC Tals]

@Mooc

I don't see the ASIC's kicking everyone out of the market yet.  When I started mining, the difficulty was about 10 million, and with my dinky little GPU (6870) I could make 0.0167 coins per day.  Now, with the difficulty spikes, I'm down to 0.0072 coins per day (once its below 0.006, its not worth the power...)

So, if we look at all the ASICs coming out, there is about 900 Terahashes of hardware being built.  The difficulty before ASICs was about 100 Terahashes, perhaps lower.  So, Once the ASICs are all out, we'll be sitting at 1000 terahashes (A whole petahash!).  10x network increase gives a 10x difficulty increase.

Say you get a little Jalapeno (300$, similar to my 6870 being ~300$), with the 10x difficulty, that jalapeno will make about 0.02 BTC per day.  That's pretty much equivalent to the current GPU standard...

I don't believe that the massive difficulty spikes will continue forever, I think they will just continue until all the ASIC preorders are filled, then they will level off, and it will be back to the ~10% difficulty jumps.  And that will bring us back to where we are with GPUs.

TL,DR, ASICs coming out are not impending doom, it's just the next step from GPUs.  It should be equally profitable to continue in the future.

Do me a favor and take a picture of your electric bill and block all your personal information and post it here and lets see what you pay for electricity.

This is how I calculate my power costs. I take the amount due / KWh used on the bill or from your killawatt. That gives me my cost.

I will post mine after yours to show you how much I pay.

As for the OP I was stating a trend that the jumps between technology spurts are making ROI difficult due to a shorter time spans between jumps of difficulty.

Most 1st gen asics will not pay for them selves if you buy them now.

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[Xyver]

Do me a favor and take a picture of your electric bill and block all your personal information and post it here and lets see what you pay for electricity.

This is how I calculate my power costs. I take the amount due / KWh used on the bill or from your killawatt. That gives me my cost.

I will post mine after yours to show you how much I pay.

As for the OP I was stating a trend that the jumps between technology spurts are making ROI difficult due to a shorter time spans between jumps of difficulty.

Most 1st gen asics will not pay for them selves if you buy them now.

I live at home, so technically my power costs are 0.  But, I get power for 0.08$ a kwh, and my computer uses 350 watts. So, 0.35kw*24hours*0.08$ = 0.67$ of power per day.  I haven't checked out my rig with a killawatt, I've just estimated the 350 watts, seeing as the GPU takes 100 watts running at 100%

EDIT:: You may ask where I get 0.08$ for power.... Canada!
EDIT EDIT:: I ran these initial calculations with the coin price at 120$... So I guess once I get below 0.007 BTC/day its not worth the power...
EDIT EDIT EDIT:: Also, you can run a Jalapeno off of a Rasberry Pi... So that power consumption is tiny, less then 50 watts, which for me is less then 0.10$ a day for power.  I'm waiting to see if BFL ever ships, and once they start catching up with orders, and as long as the difficulty is less then 200 million by then, I'm buying a Jalapeno to continue my small mining efforts.

[tinus42]

Let's use an analogy to see clearly what's going on.

Imagine a large gold vein is discovered in a nearby mountainside.  At first the gold is so plentiful that anyone can get in with nothing more than a pie pan and pan for gold (CPU mining for BTC), and make a profit doing so.  People see these other people mining the cheap and easy gold and jump in, but the cheap and easy gold starts to go away, and mining becomes more difficult.  Mining with a cheap pie pan isn't worth it anymore, so some people quit, while others buy more expensive equipment, say a sluice or dredge and get to work obtaining the more-difficult-to-mine gold (GPU mining for BTC).  As more and more gold is mined, eventually even this equipment doesn't get you much, and now folks either have to buy more expensive equipment to mine the gold, or quit.  Some people invest in large scale mining plants to get the difficult-to-mine gold (ASIC mining for BTC), while those with pie pans complain that it's too hostile for new miners to make any profit.  They have no right to complain, the time of easy pickings is gone.  Does this mean that gold will cease being a valuable currency?  No, it just means you either have to invest real money into machines that can mine profitably, or don't mine at all and just buy BTC outright.

And then JP Morgan and HSBC started manipulating the gold price and supressing it so all gold holders lose value. In the case of Bitcoin that would be big investors like Peter Thiel and the Winklevii. Common people will always lose.