[BTCT][BFMINES] - Mining Contracts Now Available - Bonus Divs First Months

[stripykitteh]

So you bought a 120GH/s device from metabank.ru too.  

If you think you can sell more than 100,000 units are you going to buy more hardware (my understanding was that batch 1 was closed) or buy more hashing power from other device owners?

[carnitastaco]

Thanks, tradefortress. The pricing is intended to be competitive. I want to have a reasonably priced PMB and this should be around 30% lower than current PMBs trade. Add to that a rougly 15-20% bonus dividend the first six months and I hope to see some interest.

On a price/mhs, BFMines will be the lowest priced PMB on the market.

If you're going to do comparisons you need to do them based on what they'd be charging when your hardware arrives.

Either that - or compare your price to their price minus the dividends they'd have paid whilst you waited for delivery.

Also this needs clarification :

" To compensate for this, the first months of operation will give approximately 20% higher coupons/dividends."

How many months?
Replace approximately with an exact definition.  It's a contract not a vague statement of general intent.

Furuknap doesn't worry about semantics in contracts

[twentyseventy]

I'm not sure what's stopping anyone from setting up a 1 MH/s equivalent PMB with a price like BTC.002 and still making a killing. Even at 20% growth per period, the ROI for the next 9 months will only be around 65%...

Maybe I'm just on the bullish side for future difficulty increases, but nothing's come so far to make me think otherwise....

[ThickAsThieves]

I'm not sure what's stopping anyone from setting up a 1 MH/s equivalent PMB with a price like BTC.002 and still making a killing. Even at 20% growth per period, the ROI for the next 9 months will only be around 65%...

Maybe I'm just on the bullish side for future difficulty increases, but nothing's come so far to make me think otherwise....

Would be very dangerous. If difficulty stalled or slowed for a long enough period you could be hurting. You'd also get miners selling off their hardware to buy your PMB, self-fulfilling your worst nightmare of diff not increasing.

That's why I priced TAT.VM above the cost of the cheapest hardware on the market.

[twentyseventy]

I'm not sure what's stopping anyone from setting up a 1 MH/s equivalent PMB with a price like BTC.002 and still making a killing. Even at 20% growth per period, the ROI for the next 9 months will only be around 65%...

Maybe I'm just on the bullish side for future difficulty increases, but nothing's come so far to make me think otherwise....

Would be very dangerous. If difficulty stalled or slowed for a long enough period you could be hurting. You'd also get miners selling off their hardware to buy your PMB, self-fulfilling your worst nightmare of diff not increasing.

That's why I priced TAT.VM above the cost of the cheapest hardware on the market.

Thanks for the analysis TAT, I was wondering if that was what those on the other side of the coin (so to speak) were thinking.

Seeing AM's increase in hashing capability this past week plus BFL's actual shipping of hardware leads me to think that a 15% increase is conservative and 20% is more likely the minimum we'll see for readjustments, especially if even half of the mining HW from Avalon, KnC, etc. actually ships.

Looks like I'll just enjoy betting my side of the market 

[Deprived]

I'm not sure what's stopping anyone from setting up a 1 MH/s equivalent PMB with a price like BTC.002 and still making a killing. Even at 20% growth per period, the ROI for the next 9 months will only be around 65%...

Maybe I'm just on the bullish side for future difficulty increases, but nothing's come so far to make me think otherwise....

PMBs can't sell anywhere near what they believe to be the break-even point or they're no longer guaranteed that they'll make a profit.

Despite pretending to be a bond (where the issuer bears the vast majority of risk and investors don't) most PMBs are actually making sure to price themself so that the investor has all the risk (in some cases to where it's guaranteed investor will make a loss).

That's also why you don't see PMBs trying to actually be bonds and guaranteeing return of at least initial investment by a certain date.

There is also risk in relying on difficulty rising a lot for quite a while when pricing.  Most such assessments rely on assuming other manufacturers, with no hardware yet, will reach market.  It wouldn't take too much of a fall in the price of BTC for some of those to no longer get to production - as they'd no longer be able to recover initial production costs from mining or sales whilst competing with those (ASICMINER and Avalon, maybe BFL) who have already recovered their NRE so can sell at a much lower margin.  People also look at the recent massive rises and ignore the earlier long, much flatter periods - forgetting that once a certain saturation point is reached growth will slow down again.

It's as dangerous to overestimate difficulty changes as to underestimate it - but PMB issuers in general make sure to overestimate by a TON so whatever happens they do well and maybe there's a slim chance investors will get back most of what they paid.

I'm not commenting specifically on this one's pricing BTW - just on what's generally been the case.

[twentyseventy]

I'm not sure what's stopping anyone from setting up a 1 MH/s equivalent PMB with a price like BTC.002 and still making a killing. Even at 20% growth per period, the ROI for the next 9 months will only be around 65%...

Maybe I'm just on the bullish side for future difficulty increases, but nothing's come so far to make me think otherwise....

PMBs can't sell anywhere near what they believe to be the break-even point or they're no longer guaranteed that they'll make a profit.

Despite pretending to be a bond (where the issuer bears the vast majority of risk and investors don't) most PMBs are actually making sure to price themself so that the investor has all the risk (in some cases to where it's guaranteed investor will make a loss).

That's also why you don't see PMBs trying to actually be bonds and guaranteeing return of at least initial investment by a certain date.

There is also risk in relying on difficulty rising a lot for quite a while when pricing.  Most such assessments rely on assuming other manufacturers, with no hardware yet, will reach market.  It wouldn't take too much of a fall in the price of BTC for some of those to no longer get to production - as they'd no longer be able to recover initial production costs from mining or sales whilst competing with those (ASICMINER and Avalon, maybe BFL) who have already recovered their NRE so can sell at a much lower margin.  People also look at the recent massive rises and ignore the earlier long, much flatter periods - forgetting that once a certain saturation point is reached growth will slow down again.

It's as dangerous to overestimate difficulty changes as to underestimate it - but PMB issuers in general make sure to overestimate by a TON so whatever happens they do well and maybe there's a slim chance investors will get back most of what they paid.

I'm not commenting specifically on this one's pricing BTW - just on what's generally been the case.

Thanks for the analysis, Deprived. I hadn't considered the effect of a fall in the price of BTC when thinking about the upcoming to-be-released hardware.

I always like to get other's views and opinions on my thoughts, so I'm fortunate to have both you and TAT give your opinions on the matter.

[furuknap]

Still traveling, will respond to comments tonight Central America time.

.b

[furuknap]

You may want to consider NOT calling it a bond - if you call it a bond it'll definitely make it harder for you to get moderator approval.

That's because it is NOT a bond - nowhere is there mention of returning capital at the end.  A few moderators will vote NO on anything that isn't a bond but calls itself one - as it gives the misleading impression that capital is secure and will be returned ('real' bonds have a face vaue that doesn't change - and which in nearly all cases eventually gets repaid).  Yeah I've heard the arguments that it IS a bond but is denominated in hashes - which fails the smell test immediately when the selling price isn't defined in hashes.

I very much agree, I would like to call it something else, but bond is the closest thing available as a definition.

I believe the term PMB is beginning to take on a life of its own and its meaning becomes more clear as the marrket matures and understanding grows. This is also why I included a link to the article where I described how it worked in the contract and also added the bullet points for those too lazy to read that full article.

I would prefer something along the lines of 'mining contract' or something like that. It would be a clean break from the PMB moniker. Not sure how the market would categorize it, though, or if one would need to include 'contracts' as an asset option, for example on BTCT.

I'm staying out of the argument on price as, right now, I have no interest in defining, determining or arguing over what a fair price for PMBs is.  I AM pretty satisfied that furuknap isn't intending to scam.

Maybe a prediction of what you believe difficulty (and hence dividend) will be at expected delivery date would help make the value of this obvious?

That's another good point. However, like everyone else, I cannot predict accurately the difficulty.

What I do know, and have argued in a follow-up article (http://coin.furuknap.net/are-perpetual-mining-bonds-scams-not-really/), is that perpetual proportional growth isn't possible.

We see a meteoric rise now for the past few months of around 400% since February. If extrapolated, this would mean a quadrupling of difficulty every four months, and would mean network hashing power reaches 600 TH in September, 2.4 PH/s in December, and 9.6 PH/s in February.

To put that into perspective, the most powerful miner on the horizon now, the Jupiter from KnC, runs at 350GH/s and costs $8,000. KnC would need to sell 28,000 such devices to reach such a number, which would cost the market US$220 million. That's the absolute lowest number using current technology, and that number must be invested to get to a market which is US$131 million per year (at $100 per BTC). With equipment lifespan of 2 years tops, that means a massive investment with huge risks for a possible 8.5% yield per year, and even this assumes that difficulty rise stops in February, which is far kinder than a lot of the predictions the fear-mongerers claim. Go another four months with the doom-and-gloom predictions and you're at a point where you write June 2014 and the market would need to invest four times any possible return to keep the difficulty growth up.

Of course, technology can advance but we also know that the KnC miner is already at 28nm and it's limited how small you can go. Costs also rise massively when you reach those sizes and with a fairly limited market, you'll find fewer companies willing to risk investing with the fixed return that Bitcoin mining can give. Three years from now when block reward halves, that risk is doubled, so any company must invest now or effectively lose half their potential income.

In short, perpetual difficulty growth won't happen. It will slow down. When and by how much is what a bet on mining (hardware or PMB) currently is.

.b

[furuknap]

If you're going to do comparisons you need to do them based on what they'd be charging when your hardware arrives.

Either that - or compare your price to their price minus the dividends they'd have paid whilst you waited for delivery.

Valid point. I designed the post-release reward to compensate at least some of the lost income, conservatively one month, positively around 6 weeks, and at best (we know the miner delivers 120GH/s, but may like other ASIC hardware perform above that) perhaps as much as two months (of the miner can reach 132GH/s for example).

Of course, this depends on timing again. Dividends in two months will be lower than today. However, I believe that the rebate from current options combined with that bonus should compensate approximately for the lost dividends if the miner is delivered within August.

Also this needs clarification :

" To compensate for this, the first months of operation will give approximately 20% higher coupons/dividends."

How many months?
Replace approximately with an exact definition.  It's a contract not a vague statement of general intent.

The accurate number of months is defined in the contract in the pre-release terms:

Upon delivery, any excess capacity from the mining hardware will be used to pay bond holders additional dividends for six months. The additional dividends is intended to compensate bond holders for not receiving dividends until the mining hardware has been delivered.

Because the pre-release terms will be removed on release date, I left the 'first months' as undefined. However, I see that this will be relevant to investors in the bonus period too, so I will update the contract with the exact number of months everywhere.

The exact statement about percentage is uncertain because the performance of the miner is not determined. It is rated at 120GH/s and a certain power cost, but neither are known accurately.

.b

[furuknap]

If you think you can sell more than 100,000 units are you going to buy more hardware (my understanding was that batch 1 was closed) or buy more hashing power from other device owners?

I don't have any plans to expand this asset. It would complicate things for existing investors and effectively manipulate the market. I'll explain why, but if I decide to expand, I would likely add a second asset.

Two reasons make an expansion difficult. First, the market will price bonds/shares how they want. To launch new bonds, I would need to decide a price, which would limit the markets ability to decide that price. That would be similar to what tytus did with 100TH and let me just briefly summarize my rant on that with: "it just plain blows and sucks at the same time".

Second would be to correctly calculate the hash rates. The initial bonds receive a bonus for six months, but it may not be possible to yield the same bonus for new bonds. The situation would greatly depend on how the new hardware is acquired; would it be pre-order like now? Would it have a similar buffer as the initial hardware?

Based on these two caveats alone, expanding this particular asset would be very complicated to make fair. I'm leaving the option open in the contract, but I can't really see how it can be done fairly, at least not for many months.

.b

[Deprived]

You may want to consider NOT calling it a bond - if you call it a bond it'll definitely make it harder for you to get moderator approval.

That's because it is NOT a bond - nowhere is there mention of returning capital at the end.  A few moderators will vote NO on anything that isn't a bond but calls itself one - as it gives the misleading impression that capital is secure and will be returned ('real' bonds have a face vaue that doesn't change - and which in nearly all cases eventually gets repaid).  Yeah I've heard the arguments that it IS a bond but is denominated in hashes - which fails the smell test immediately when the selling price isn't defined in hashes.

I very much agree, I would like to call it something else, but bond is the closest thing available as a definition.

I don't think it is.  I'd say fund is the closest of the three available (I agree it isn't exactly any of them).

Bonds are debt - you certainly aren't selling debt.

You're selling equity in hashing power owned by the company.  If you consider the hashing power to be an asset then investors are buying it and being paid based on its performance (albeit an idealised performance rather than an actual one).

If you look at what the key elements of bonds are this (and other PMBs) don't match at all.  A fund is closer - as each share represents ownership of an (intangible) asset which will vary (usually downwards) in value over time and generate income.

It's by no means the only term being widely abused.  Just look at how ROI is being widely misused.  A few people use it incorrectly (apparently believing it means Return OF Investment), sheep trying to look clever parrot that use without any real knowledge and now it's widely used to mean the period it take for investment to be returned.  When of course it stands for Return ON investment and cannot be specified as a period of time.

[furuknap]

I very much agree, I would like to call it something else, but bond is the closest thing available as a definition.

I don't think it is.  I'd say fund is the closest of the three available (I agree it isn't exactly any of them).

Well, technically, the bond will be repaid at some point (following one of the clauses in the contract). However, the full principal will not be repaid.

Like I said, I would prefer mining contract or something along those lines. Effectively, what the person is buying is a contract for me to mine on their behalf until such a time as it is no longer profitable for them, at which point they will receive the remainder of value (which may or may not be zero) paid back.

Of course, theoretically, the full principal can be repaid too; if difficulty drops further and I die the day after release, the value of the bond will be higher than the principal paid. Assuming a fair market, that means 110% of average trading price will be higher than the principal paid. The difference being that this asset and others like it are not time limited.

The value will likely go down with and due to increasing difficulty, though, but it would still be wrong to say that it will go down as an absolute statement.

A new term is needed and I propose "Mining Contract". Not sure where to put it on BTCT, though.

.b

[Deprived]

What I do know, and have argued in a follow-up article (http://coin.furuknap.net/are-perpetual-mining-bonds-scams-not-really/), is that perpetual proportional growth isn't possible.

We see a meteoric rise now for the past few months of around 400% since February. If extrapolated, this would mean a quadrupling of difficulty every four months, and would mean network hashing power reaches 600 TH in September, 2.4 PH/s in December, and 9.6 PH/s in February.

To put that into perspective, the most powerful miner on the horizon now, the Jupiter from KnC, runs at 350GH/s and costs $8,000. KnC would need to sell 28,000 such devices to reach such a number, which would cost the market US$220 million. That's the absolute lowest number using current technology, and that number must be invested to get to a market which is US$131 million per year (at $100 per BTC). With equipment lifespan of 2 years tops, that means a massive investment with huge risks for a possible 8.5% yield per year, and even this assumes that difficulty rise stops in February, which is far kinder than a lot of the predictions the fear-mongerers claim. Go another four months with the doom-and-gloom predictions and you're at a point where you write June 2014 and the market would need to invest four times any possible return to keep the difficulty growth up.

I'd certainly agree that there's people who over-estimate the likely growth of difficulty as well as those who underestimate it.  Most of those argue based on a period of time starting when ASICs began arriving - and ignore the much flatter period before it.

I think it would be a mistake, however, to assume costs now reflect where prices will be in 6 months time or even in 3 months time.  Pricing now is set to try to cover NRE - and to try to milk as much cash as possible from the shortage of actual ASICs (as opposed to vapourware ones).  Once NRE is recovered, costs per unit after that are pretty tiny compared to current prices - so there's definitely scope of heavy price cuts.  And those who have recovered NREs are likely to make such cuts - in part to cripple any attempts from others to enter the market.

The argument that people would need to spend more than the value (in terms of output) of ASICs would warrant is meaningless.  Just look at what's happening right now - people are happily buying bonds, shares and hardware that will never pay for itself.  Don't underestimate the willingness of Bitcoiners to throw away coins in pursuit of the delusion that mining is automatically profitable.

And don't discount the possibility of a rise in price of BTC - which changes all the math.

But yes - there are overly pessimistic views as well as the (far more common) overly optimistic ones.

As you make no claims that investors will make a profit that isn't, in my view, an issue in assessing whether you can list or not.  Investors have to make their own decision on that.

One last point.  If you're listing now but escrowing until hardware arrives (and refunding if it doesn't arrive) then what benefit is there to investors in buying shares now rather than when the hardware arrives?  If you waited until then you could look at ACTUAL difficulty and adjust your price in either direction to compete with the market - and likely output - rather than having to guess now.  Plus avoid all the lost transaction fees on sales if the hardware never arrives.  And the investors would have the cash to use - with no CP risk - for that period rather than it sitting around idle earning noone anything.

[Deprived]

Well, technically, the bond will be repaid at some point (following one of the clauses in the contract). However, the full principal will not be repaid.

Nah it won't be repaid.  It'll be bought out.  Not the same thing.

[furuknap]

One last point.  If you're listing now but escrowing until hardware arrives (and refunding if it doesn't arrive) then what benefit is there to investors in buying shares now rather than when the hardware arrives?  If you waited until then you could look at ACTUAL difficulty and adjust your price in either direction to compete with the market - and likely output - rather than having to guess now.  Plus avoid all the lost transaction fees on sales if the hardware never arrives.  And the investors would have the cash to use - with no CP risk - for that period rather than it sitting around idle earning noone anything.

I've limited the risk with the escrow and attempted to compensate for a modest rise in difficulty by lowering the price. As such, investors do not earn nothing; they can buy bonds today at a higher price with immediate return or buy bonds from this asset with a 'guaranteed reward' (and I use that terms in the loosest sense) in terms of a lower price. I'll happily admit I targeted TAT.VM as a likely competitor, and compared to selling prices today, that would mean a ~40% reward, which is higher than the expected yield of TAT.VM during the same time.

I also wanted to offer an alternative to ASICMiner blades. AM blades are rated at 0.005/mhs with effective speed mostly being slightly lower, so going just under that will give miners who do not want to run their own equipment an equal playing field.

I realize that since I designed this and put it up for vote, DMS.Mining has dropped in price, but I believe that is a somewhat different asset as it effectively is a double-exposure asset because in difficulty drops, people will buy .Purchase to sell .Selling and keep .Mining and vice-versa. I find it an extremely fascinating combo, but one that carries additional risk and complexity that 'regular' investors may not easily understand.

.b

[Deprived]

I realize that since I designed this and put it up for vote, DMS.Mining has dropped in price, but I believe that is a somewhat different asset as it effectively is a double-exposure asset because in difficulty drops, people will buy .Purchase to sell .Selling and keep .Mining and vice-versa. I find it an extremely fascinating combo, but one that carries additional risk and complexity that 'regular' investors may not easily understand.

.b

I'm not sure it's correct to say DMS.MINING carries additional risk - it has risks other PMBs don't, but also misses lacks risks in PMBs with physical miners.  In all likely scenarios it will pay out the same as a PMB for a long time.  The single notable exception is if difficulty stays the same, drops or rises by only a  tiny amount for a protracted period of time - when after about a year it would close down with a final lump payment of 100 weeks.  But if that happens it would almost certainly mean you never got your hardware - as its hard to see a scenario in which your miner gets shipped but difficulty isn't rising much.

Anyway, good luck with the asset.  The contract's clear - and it's certainly better value than a lot of other 'PMBs' around.  I'm not a moderator but if I was I'd vote yes - but with a note that it is NOT a  loan and that capital will NOT be repaid (there's no guarantee of it ever being fully returned - just a definition of a buyout option).  Beyond that investors have to do their own valuations and comparison shopping.

[furuknap]

I'm not sure it's correct to say DMS.MINING carries additional risk - it has risks other PMBs don't, but also misses lacks risks in PMBs with physical miners.  In all likely scenarios it will pay out the same as a PMB for a long time.  The single notable exception is if difficulty stays the same, drops or rises by only a  tiny amount for a protracted period of time - when after about a year it would close down with a final lump payment of 100 weeks.  But if that happens it would almost certainly mean you never got your hardware - as its hard to see a scenario in which your miner gets shipped but difficulty isn't rising much.

Anyway, good luck with the asset.  The contract's clear - and it's certainly better value than a lot of other 'PMBs' around.  I'm not a moderator but if I was I'd vote yes - but with a note that it is NOT a  loan and that capital will NOT be repaid (there's no guarantee of it ever being fully returned - just a definition of a buyout option).  Beyond that investors have to do their own valuations and comparison shopping.

Thanks again for your valuable feedback and I'm sure potential investors find it equally valuable.

I'll leave the discussion on DMS.* for another thread :-)

.b

[furuknap]

I'm not sure what's stopping anyone from setting up a 1 MH/s equivalent PMB with a price like BTC.002 and still making a killing. Even at 20% growth per period, the ROI for the next 9 months will only be around 65%...

Maybe I'm just on the bullish side for future difficulty increases, but nothing's come so far to make me think otherwise....

Would be very dangerous. If difficulty stalled or slowed for a long enough period you could be hurting. You'd also get miners selling off their hardware to buy your PMB, self-fulfilling your worst nightmare of diff not increasing.

That's why I priced TAT.VM above the cost of the cheapest hardware on the market.

This is a valid point but effectively only applies in larger scales. A single PMB like BFMines will be responsible for around 100GH/s, which isn't enough to drive difficulty anywhere. Unless people start churning out similar assets at lower than hardware cost plus overhead, I don't see the difficulty being affected in any way.

The fact that this asset is priced cheaper than ASICMiner blades is only because it uses hardware that's cheaper than AM's but not widely available. AM still is the only widely available ASICMiner. Setting up an ASIC-backed PMB by buying AM hardware will not be profitable using today's prices, so I don't fear any widespread adoption until cheaper miners are widely available, if ever.

.b

[Gordon Bleu]

A Bond and you bet all on one Horse Bitfury, and only one Miner ?
what if Bitcoins mines you ?
No Expansion Strategy ?
first Photos from his Miner reminded me of an old Refrigerator with some old Electronics inside, but maybe i'm wrong.

and Pajaka pays now 3Mh/s as far as i understand.