ASICMiner franchise plans: can now scale quickly without dominating the network

[TsuyokuNaritai]

I haven't seen people talking about Friedcat's franchising plans outside the ASICMiner threads, so I'm leaving this here to hopefully address some of the recent fears (such as https://bitcointalk.org/index.php?topic=247168) about AM dominating the network in the future, and to encourage discussion from the wider community.

ASICMiner isn't capital intensive, and the costs are very small compared to the assets and profits, so it's built to scale fast. But as directly mining too much of the network total would break people's faith in bitcoin, this has always been a potential barrier to gaining too much network share, and Friedcat has always said he'll take steps to deal with this concern before unleashing the planned future hashing power onto the network.

So now, in addition to selling excess hardware, he's now announced plans to rent out further excessive hashing power so that growth can continue. Shareholders will still get growing dividends as the network share grows, but the mining will be distributed.

Update
Hardware Franchising

This is a new business model option besides self-mining and hardware sales. We will rent the excessive hashing power to financial and technical capable people, accepting full deposits at the market price, shipping the devices and collecting a certain PPS rate based on the theoretical hashrate. The PPS rate, the dividing of cost coverage, as well as warranty/exit strategy are being discussed in detail and executed as small-scale experiments.

This model is similar to hardware sales in the aspect that we do not have in control on how the users make use of our devices, therefore has more decentralization in spirit. And like with self-mining, it aims at settings in scale, enjoying the reduction of NRE cost and operating cost overall, and reducing potential marketing/advertisement/customer service costs.

Thoughts?

[greenbtc]

Is there any more than that quote over there on their forums? I couldn't find anything.

[TsuyokuNaritai]

Is there any more than that quote over there on their forums? I couldn't find anything.

If you mean https://asicminer.info/forum/index.php?page=Thread&threadID=21 that's not really their forums, it's an unofficial forum. I think they just copied the quote from comment I linked to above.

[themagicdrake]

I think it's a pretty interesting idea, but...

excessive hashing power

currently, they are not at that "desired number" of 20% of the network.

[romerun]

I think it's a pretty interesting idea, but...

excessive hashing power

currently, they are not at that "desired number" of 20% of the network.

They have that much hashing power, could be more than 50% of the current network I guess, if they fire up all erupters, but chose to distribute them instead.

[JordanL]

I was extremely excited to hear this, although I still think that selling hardware directly to customers does more to keep mining decentralized. I hope that Bitfountain has plans to open additional data centers, ideally in other countries.

Is there any more than that quote over there on their forums? I couldn't find anything.

If you mean https://asicminer.info/forum/index.php?page=Thread&threadID=21 that's not really their forums, it's an unofficial forum. I think they just copied the quote from comment I linked to above.

Correct on both points.

[chriswilmer]

As someone technically and financially capable of doing this, the whole thing has been expressed with a very poor explanation of the value proposition.

Why would someone want to franchise from Friedcat?

This is a good question and I would also be interested in knowing the answer. What exactly does it mean anyway? It's not a hosting service right?

[Jutarul]

As someone technically and financially capable of doing this, the whole thing has been expressed with a very poor explanation of the value proposition.

Why would someone want to franchise from Friedcat?

This is a good question and I would also be interested in knowing the answer. What exactly does it mean anyway? It's not a hosting service right?

I expect friedcat to publish the terms in more detail within the not so distant future.

Right now, consider the franchising model an extension of the self mining model, where some of the yield is sacrificed (=profit for the franchisee) to gain decentralization and make the long term profit from self mining scalable.

As for the value proposition:
benefits for ASICMINER:
- decentralization without sacrificing long term profit from hashing power (except the cut for the franchisee)
- integration/partnership with bitcoin mining community.
- reduce/remove the single point of failure characteristics of self mining.

benefits for the mining operator:
- no deprecation risk of hardware, i.e. removes any ROI failure
- hardly any capital expenditure needed, mostly collateral required (can be loan financed, i.e. a better application for mining bonds, where the franchisee raises the required deposit from the capital market)
- more flexibility and control over cost vs. profits (i.e. the "rent" can be adjusted according to difficulty), which makes the viability of the operation less dependent on difficulty growth.

I don't want to dig into the details of how franchising compares to hardware sales and how that relationship depends on the risk aversion and available investment capital in the market. Let's just say franchising satisfies a different target customer than hardware sales.

addendum: ROI failures seem to be one of the most pressing issues of 2013/2014. Unless you're totally risk-on, you should always ask your hardware supplier for ROI guarantees.

addendum: with "renting" out hashing power it is implied that the device is controlled by the franchisee, NOT ASICMINER. I.e. the blades are sent to the customer and in exchange ASICMINER receives a fraction of the theoretical yield. However, it is up to the customer on how to use the device.

[Franktank]

Thanks Jutarul, interesting times ahead.

[Factory]

you should always ask your hardware supplier for ROI guarantees.

That simply won't happen.

[lucasjkr]

Most Importantly, it allows them to collect on even more hashing power without technically 51%ing the network. Rather than just sell off 100 th of equipment (to make up a number), where they collect up front at the e Penske of their own mining operation, they can sell, make back costs and then some,and incrementally collect on even more hashing power in the network. The asicminer pool might only have 20%-30 of the network,but through this scheme, they could end up providing, and collecting on, in excess of 51% of the network without too many alarm bells going off. 

Friedcat was first out the door and he owns this network. The only reason he's not 51 of it now is sheer kindness. May as well be called the friedcat payment network. And yes, I own shares. Passthroughs. Though I'm starting to wonder about direct ownership.

[Franktank]

Most Importantly, it allows them to collect on even more hashing power without technically 51%ing the network. Rather than just sell off 100 th of equipment (to make up a number), where they collect up front at the e Penske of their own mining operation, they can sell, make back costs and then some,and incrementally collect on even more hashing power in the network. The asicminer pool might only have 20%-30 of the network,but through this scheme, they could end up providing, and collecting on, in excess of 51% of the network without too many alarm bells going off. 

Friedcat was first out the door and he owns this network. The only reason he's not 51 of it now is sheer kindness. May as well be called the friedcat payment network. And yes, I own shares. Passthroughs. Though I'm starting to wonder about direct ownership.

Direct shares are for long term investors, PT's are for day traders. Those who try to day trade with direct shares will get lynched by other AM investors, friedcat's time is worth more than that.

[🏰 TradeFortress 🏰]

ASICMINER franchise plans: can now dominate the network without quickly scaring.

I think most ASICMINER shareholders (me included) cares more about the % of hashing power that ASICMINER collects proceeds from, not if they're mining on ASICMINER's solo pool or not

[lucasjkr]

Most Importantly, it allows them to collect on even more hashing power without technically 51%ing the network. Rather than just sell off 100 th of equipment (to make up a number), where they collect up front at the e Penske of their own mining operation, they can sell, make back costs and then some,and incrementally collect on even more hashing power in the network. The asicminer pool might only have 20%-30 of the network,but through this scheme, they could end up providing, and collecting on, in excess of 51% of the network without too many alarm bells going off. 

Friedcat was first out the door and he owns this network. The only reason he's not 51 of it now is sheer kindness. May as well be called the friedcat payment network. And yes, I own shares. Passthroughs. Though I'm starting to wonder about direct ownership.

Direct shares are for long term investors, PT's are for day traders. Those who try to day trade with direct shares will get lynched by other AM investors, friedcat's time is worth more than that.

I'm not day trading ASICMiner shares. Just simply acquiring more and more passthroughs every few days. The thing I like is that their distributions can reinvest to pick up more of the tiny shares, but I'd rather transfer round lots of 100 to direct ownership rather than having to maintain faith that my passthrough operator won't simply run off with all my shares, or the worry about an exchange getting DOS'd, closing down, or any other outcome.  I'm definitely not looking to waste friedcats time, just thinking about things from a risk perspective - I'd rather cut out a couple of layers of uncertainty since I have zero plans on selling.

[AMuppInTime]

From a shareholder's perspective, it allows for more dividends.
From a franchisee's perspective, it lets you get a cut on the dividends solely for "hosting" the hashing system.
From ASICminer's perspective, it means expanding their hashing by distributing it.


Officially ASICminer will control maybe 20% and limit themselves to that, but might actually represent 40-60% of the network through the franchise network (of which shareholders would get divs equivalent to 30-50% and franchisees 10%.)  Those numbers are made up of course, but you get the gist of it: AM is "buying off" its way into hashing more by "tipping" the franchisees.


My take on this: AM has much more hashing power than they can deploy right now without being detrimental to the network's integrity. So much more than they cannot sell it without hurting themselves because there isn't competition. They are effectively throttling the sales for maximum profit and optimizing the return on their own assets by giving a cut to the franchisees. They might be doing so to maximize their profit due to their head start to deploy as much as they can before the competition gets in more in the 4th quarter because they have stock on hold that they aren't using to not go over 20%...
*edit* also lets them deploy systems outside of physical locale / prevents hardware concentration (makes it less obvious / scaling less an issue / raises less flags)

Either way, it means one thing: More divs.

[Voodah]

This is just AM wanting more than 20%, but on the down low.

If they have so much extra power lying around, why don't they considerably lower their prices and sell out? Most of their hardware is unprofitable at their current prices, and every single product right now will be obsolete not many months from now

They are thinking retaining control is more important than clearing stock. I don't agree.

As a shareholder though, divs are divs; but still, I'm not sure if this translates to "More divs" as stated above. I'd like to know a little about the numbers. How much div is expected per GH on sold products vs how much div would a hosting contract generate in its lifetime per GH.

[Franktank]

This is just AM wanting more than 20%, but on the down low.

If they have so much extra power lying around, why don't they considerably lower their prices and sell out? Most of their hardware is unprofitable at their current prices, and every single product right now will be obsolete not many months from now

They are thinking retaining control is more important than clearing stock. I don't agree.

As a shareholder though, divs are divs; but still, I'd like to know a little about the numbers. How much div is expected per GH on sold products vs how much div would a hosting contract generate in its lifetime.

With the brain trust at BitFountain, don't you think that they've run multiple simulations "what happens if we sell most of our hardware" vs "what happens if we mine with our hardware" and everything in between? Also taking into account difficulty increase? I'm sure they've done this and chosen the one that maximizes profit in both short and long term scenarios.

We, as investors, only have a piece of the puzzle. Keep in mind that BitFountain is paid on the dividends as well; they want to maximize output as much as we do, but not at the cost of compromising future returns.

[Voodah]

This is just AM wanting more than 20%, but on the down low.

If they have so much extra power lying around, why don't they considerably lower their prices and sell out? Most of their hardware is unprofitable at their current prices, and every single product right now will be obsolete not many months from now

They are thinking retaining control is more important than clearing stock. I don't agree.

As a shareholder though, divs are divs; but still, I'd like to know a little about the numbers. How much div is expected per GH on sold products vs how much div would a hosting contract generate in its lifetime.

With the brain trust at BitFountain, don't you think that they've run multiple simulations "what happens if we sell most of our hardware" vs "what happens if we mine with our hardware" and everything in between? Also taking into account difficulty increase? I'm sure they've done this and chosen the one that maximizes profit in both short and long term scenarios.

We, as investors, only have a piece of the puzzle. Keep in mind that BitFountain is paid on the dividends as well; they want to maximize output as much as we do, but not at the cost of compromising future returns.

They have definitely run all the numbers and simulations.

That's why I wanna see them.