The Impending Stalemate on Mining Hardware and ROI

[BittBurger]

Mining difficulty will increase exponentially.

The hardware necessary to mine it substantially, already costs upwards of $22,000 USD.

That price, this early in the game.

For such insane "power" that I dare say it pushes the limits of our technology already.

You will need stronger, faster, better machines just to mine a few coins after that.

What if the price of Bitcoin stays at around $100 ... yet the difficulty skyrockets?


Everyone is going to need the $22,000 Mining Rig just to mine a few coins.  But nobody is going to pay $22,000 just to mine a few coins.

The difficulty will surpass the cost of the rigs necessary to mine it.

Won't we get to a point (fairly soon) where a $22,000 RIG won't be sufficient ?

Then what?   "They'll have to bring down the price of the Rig" right?   But they can't.  Because the cost to make the Rig itself will be too high.  Let alone including a retail markup.

So you are left with $50,000 machines that can only mine a handful of $100 coins.

How is this going to play out? 

Stalemate?

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[EvilLizardApparel]

People will mine with their machines as long as they are profitable, even if its much less profitable than they hoped for. When it becomes unprofitable, and costs money instead of makes money, people take their rigs offline. Once enough are taken offline, people make money again. Some people even mine at a loss, speculating price increase in the future. People will continue to mine...and the market will continue to change and react 

[Littleshop]

Mining difficulty will increase exponentially.

The hardware necessary to mine it substantially, already costs upwards of $22,000 USD.

That price, this early in the game.

For such insane "power" that I dare say it pushes the limits of our technology already.

You will need stronger, faster, better machines just to mine a few coins after that.

What if the price of Bitcoin stays at around $100 ... yet the difficulty skyrockets?

Difficulty will continue to rise, and people may hate that, but it is certainly not exponential.  The percentage rate of increase is actually less this week then last.  Once it gets to double what it is now, the increase will slow down even further.  

This should tell someone, don't invest in mining equipment with price ratios that would be unprofitable in two months of expected increases.  People do not often listen to this advice.  

[Peter Lambert]

Mining difficulty will increase exponentially.

Only if new mining power is added exponentially. If no new mining power is added to the network the difficulty will stop rising.

The hardware necessary to mine it substantially, already costs upwards of $22,000 USD.

What are you basing this number on? What does "substantially" mean? Are you saying that only large mining rigs are profitable? I think if you buy small hardware at the right price it can be profitable too. So the amount you mine is simply proportional to the amount you invest in. Small miners can actually be more efficient because they can be cooled more easily and do not need a dedicated space.

What if the price of Bitcoin stays at around $100 ... yet the difficulty skyrockets?

Then the less efficient miners will stop mining, and the difficulty will stabilize.

The difficulty will surpass the cost of the rigs necessary to mine it.

Then no new power will be added to the network and the difficulty will stop rising. The people with the most efficient miners will continue making money the longest. If mining is unprofitable, then the network will shrink until either it is profitable, or the people mining are willing to mine at a loss. Some people who want to continue using bitcoins will mine at a loss if their business is dependent on bitcoin continuing, and some people mine at a loss just because they are true believers in bitcoins.

[BittBurger]

Hi Peter -

Im definitely no expert.   I believe you guys refer lovingly to me as a "NEWB"  

Only if new mining power is added exponentially. If no new mining power is added to the network the difficulty will stop rising.

This!   Answers my question perfectly.  I think ...
So its not the difficulty which will inevitably rise forever and ever.  And the hardware chasing it.
Its the hardware which defines the difficulty.  When the hardware power doesn't increase anymore, a stalemate wont be reached.  In fact we will reach a "plateau".
Sure there will be companies out there fighting to have a bigger and bigger machine.
There will be some rich people who will have the fastest of the bunch.  
But unless they continue to increase their machine power, the difficulty wont budge.

Everyone will settle into a comfortable groove.  

I almost wonder how that will play out then.  
As human nature kicks in.  
What will the dynamic be in ... 2, 5, 10 years. 
Maybe difficulty begins to increase only every 6 months as new computer power is "invented"
As the computing industry has its natural progression of hardware improvement.
I wonder what shady things will begin happening by those wanting to own the bitcoin mining dominance...

So interesting.  Love this stuff...

Thanks guys/girls.

[ujka]

...
What if the price of Bitcoin stays at around $100 ... yet the difficulty skyrockets?

Everyone is going to need the $22,000 Mining Rig just to mine a few coins.  But nobody is going to pay $22,000 just to mine a few coins.

If nobody is going to pay for a '$22,000 mining rig', how will the difficulty skyrocket, exponentially?

[notme]

If difficulty rises too high people stop buying hardware and inefficient hardware drops out.  Difficulty corrects.  End of story until the next price bubble hits.

[k9quaint]

If difficulty rises too high people stop buying hardware and inefficient hardware drops out.  Difficulty corrects.  End of story until the next price bubble hits.

Unfortunately, several hundred TH/s were pre-ordered in the form of BFL, Avalon chips, KNCMiner, Bitfury, etc. So for the next 4 months at least, the difficulty will follow an exponential curve. There is a tremendous amount of head room in the difficulty rate for operation of mining equipment because the USD exchange rate moved from low double digits to low triple digits.

If the exchange rate continues to rise the hash rate growth will not slow. However, that does not make investment in mining equipment a good investment. If you stand to make more from buying BTC than buying equipment to mine BTC, then prices for equipment must correct eventually.

[Syke]

You will need stronger, faster, better machines just to mine a few coins after that.

What if the price of Bitcoin stays at around $100 ... yet the difficulty skyrockets?

Then the network is more secure against 51% attacks. That's a good thing.

[mvidetto]

The most unfortunate part is that there are many pre-orders that may or may not be shipped by BFL and KNC.  If all of those devices hit the market we could be looking at upwards of 500m difficulty ~3.3 petahashes.  I wouldn't be surprised if many people don't believe this however once the market becomes saturated with ASICs only the most efficient will win the battle (hint knc/bitfury).

[DPoS]

some people like to make fresh coins... freshens up their laundring

and miner makers can just keep making them for themselves

there is a lot of whining of people who want the easy button on a money tree to last forever..  where in the world does that ever last?

vultures, etc will always swooop in

[Amph]

...
What if the price of Bitcoin stays at around $100 ... yet the difficulty skyrockets?

Everyone is going to need the $22,000 Mining Rig just to mine a few coins.  But nobody is going to pay $22,000 just to mine a few coins.

If nobody is going to pay for a '$22,000 mining rig', how will the difficulty skyrocket, exponentially?

cuz they mine with your device

[ujka]

cuz they mine with your device

More then a few times I was just a click with a mouse away from paying for a BFL miner. And every time I stopped, thinking - why would they rush to ship me a device they can so easy use to mine for themself?

[notme]

If difficulty rises too high people stop buying hardware and inefficient hardware drops out.  Difficulty corrects.  End of story until the next price bubble hits.

Unfortunately, several hundred TH/s were pre-ordered in the form of BFL, Avalon chips, KNCMiner, Bitfury, etc. So for the next 4 months at least, the difficulty will follow an exponential curve. There is a tremendous amount of head room in the difficulty rate for operation of mining equipment because the USD exchange rate moved from low double digits to low triple digits.

If the exchange rate continues to rise the hash rate growth will not slow. However, that does not make investment in mining equipment a good investment. If you stand to make more from buying BTC than buying equipment to mine BTC, then prices for equipment must correct eventually.

Your thesis requires they fix the recurring problems with their production and shipping procedures.  ASICMiner is the only company shipping with reasonable lead times.  I think they will get there, but it might take 4 months before it starts to smooth out.

There are roughly 2000 TH/s of chips either produced or planned for production so far (roughly 1000 TH/s of which has already been paid for).  3000 TH/s of chips would take us to 20X current difficulty, which is about the upper limit on profitability for some of the lower end ASICs.  Where is all the money going to come from to produce the last 1000 TH/s of chips after the difficulty skyrockets and another 1000 TH/s worth of demand is soaked up by chips on the way?

And yes, if you are investing USD, you need to ensure your ROI is good at today's prices or potentially even lower.  You should not count profits in USD terms without a significant margin of error added.  Things are a bit simpler if you are investing BTC.

[Rampion]

Expect the same situation we had in 2011 and at the end of 2012, which is the normal situation.

Miners mining for peanuts, the profit is in having free electricity and free storage for your units. If your electricity is expensive, you will have to turn your rig off or mine at a loss.

Mining is by nature a marginally profitable business, as soon as the advantage of the ASIC early adopters goes away we will be back at the normal situation where miners fight for pennies.

BTW, the time in which mining with an ASIC meant "wild profit" is already over. Expect many people investing now in ASIC mining never recouping their investment. Especially those that buy "mining bonds" at inflated prices.

[ujka]

...
BTW, the time in which mining with an ASIC meant "wild profit" is already over. Expect many people investing now in ASIC mining never recouping their investment. Especially those that buy "mining bonds" at inflated prices.

Agree, that 'wild profit' is only possible at the very beginning of some new technology coming to Bitcoin mining.

[Operatr]

Miners are hurting bad today with BTC value plummeting all over the exchanges. The gold rush is already over, those with the first few Avalons were the only big winners to come out of it.

The rest still hoping to get their hardware soon will be faced with their units having a pretty low ROI unless Bitcoin rallys up hard. There is nothing saying we won't see another Cyprus that will pump Bitcoin and Litecoin back to a good ROI level, and I actually think there will be in time with more of these "bail ins" and people needing a fiat escape pod, but for now the mining scene is pretty grim 

[jhansen858]

Bitcoin mining is a waiting game.  Those who can wait the longest will benefit the most. 

[MagicMike523]

Bitcoin mining is a waiting game.  Those who can wait the longest will benefit the most. 

If you like waiting I've got a bunch of GPUs that I'll sell cheap

[cdog]

Mining is a grinders game, for people who want to mine and hold for years. Mining to sell for fiat makes no sense, just get a job, lol.