The end of the ASIC

[crumbs]

I thought i'll not hear this anymore.

Now people realized that simple mining rigs were good.

The technology was overvalued but they got their money.

This is not true. If you didn't steal electricity GPU mining were as much a gamble as ASIC mining now. Most people (newbies) doesn't understand this and complain constantly.

On the other hand, we have the biggest peer to peer network which ever existed.

ASIC mining is the way forward and is very good for bitcoin. Only the fools who bought hardware for the wrong price and at the wrong time have regrets.

Also, don't think that the "fruits" of badly timed purchases will rot in a drawer. People will buy them up from the "losers" of the game.

If most of the hashrate comes from a handful of ASIC mega-mines, gauging network size by hashrate alone is silly.  Look at the trends:  Solo mining to pooled mining to hosted/commercial mining to ASIC manufacturer mining. 

[qiuness]

It is evident to me mining difficulty has more impact than halving (or at least halving magnifies price in relation to difficulty)

More to the point how many GPU miners are still running?

For me I'd need to see a 50% drop in price today to make it unprofitable. I suspect at least 70% of GPU miners are still at it, and are waiting for the coming ASIC oversupply.

@ OP
In Q3 and Q4 of 2010 GPU mining had a bigger impact on difficulty than ASIC's today, (CPU mining was rendered useless) the result proponents of Bitcoin pushed the price up.  

While I agree with you. There are other variables like price that change the dynamic so no need to panic.

70% still mining btc? NO WAY! More like 5%

[viboracecata]

Yes, Yes, in Chinese board, you can see ASIC post everywhere and pertinent IPO.

Are people in other country do the same thing?

[Rival]

I have some serious concerns about the future of ASICs as stated in the OP. I think that difficulty increases will destroy the ASIC manufacturers. Even the most efficient ASICs imaginable will stop production when their cost to produce is greater than the expected positive ROI. Eventually no one will buy them, or at least no one who has had third-grade math classes.

Those who own them after production stops will run them at a small profit until they fail. Perhaps someday there may be fiat to be made producing them again, and I am sure people will try from time to time to make new ones. They will probably make enough to replace the ones that eventually burn up, and then go bankrupt like all of their predecessors. And new farm schemes will be floated in front of investors and bring in some btc to fund new production, but these will also likely fail.

Eventually, I expect if BTC succeeds we will see small hashing chips added to things like cellphones that will bring in a slow trickle of satoshis to billions worldwide, bringing a close to the age of ASICs, and the fulfillment of a fully distributed system concept.

At least that's how I see it.

[Rival]

In response to a PM, it works like this:

There may be a glut of strip-stores in a particular area. Suppose them to be at 50% occupancy. You might ask yourself why just a block away they are breaking ground on another strip store. The answer is rather bizarre. A developer grabs some paper and scribbles down some numbers. He runs them through a few other people who mix them all up, and when that paper is revised 20 times it becomes a prospectus. This prospectus is provided to an investment management firm who then sells the idea of profitability to some fund managers and investors. Individual investors in these funds find their nest eggs moved into securities that fund the construction of the new strip store. The strip store is built, and the following list of people profit:

The property owner
The developer
The construction team
The contrators
The municipality
The fund managers
The investment management firm
The listing /rental agent

Then the space is put up for rent to retailers. Those who move into the nice clean new spaces pay huge premiums for leases, and usually go bankrupt. Then the leasing agent lowers the lease prices, but is still unable to keep 50% occupancy like all of the rest.

Who loses? The individual investors who were moved into the securities that promised big fat returns.

This is the fate of ASIC manufacturing. They will overproduce even when it is completely unprofitable because IT IS NOT THEIR MONEY! They get paid whether an ASIC hits ROI or not.

The concept is that eventually you run out of stupid money, or at least the level of stupid money required to continue producing things that will be worthless to the end user.

[Adrian-x]

The concept is that eventually you run out of stupid money, or at least the level of stupid money required to continue producing things that will be worthless to the end user.

When you see this has happened, you can know it is a good time to look at ways of getting into ASIC mining. 

It'll be hard, because there are many players not to mention the technologies and other productive uses for the heat will be evolving too, so it may not be a clean identifiable moment. 

I don't see it as a problem for Bitcoin; I see it as an opportunity to invest should it ever become a problem for some players. 

I think this is how the many successful corporations today accumulated there opportunities in the of the 1930's

[btcton]

It will eventually balance out. The lack of profitability of ASICS will make the bitcoin supply go down, making its value go up.

[The Extreme]

The saving grace in all of this is the deflationary nature of Bitcoin. 

Way back when, when coins were easily mined even with a CPU, and marketplace demand for BTC was all but non-existent, the coins were cheap.  As hashrates rise (especially with the all the ASICs coming on line), it becomes a lot harder to mine.  So, as a commodity (this word is something of a misnomer, but lots of people treat BTC as such), Bitcoin goes up in value, at least as measured in fiat currecies. 

That to say nothing of the reductions in payouts every four years or so.  We are down to 25 BTC at a time now, with 12.5 only some three years away.  Again, as the coins become harder to create because payouts are reduced, prices are very likely to rise. 

But that is really to say nothing as to one key term: critical masss.  Today, in 2013, it appears as though Bitcoin is on the cusp of really being in widespread use.  Earlier this year, i read an article by a gal who lived for one week on only Bitcoin.  A year ago, it would have been impossible for her to do; now, many, many businesses are starting to accept Bitcoin.  The trend appears to be wider and wider acceptance of BTC as a legitimate monetary unit, at least as far as the marketplace is concerned (Governments are another matter, but it seems unlikely that a government could do much to stop it, or that all governements in the world would try).  The point is: there are likely to be a lot more users of Bitcoin in the very near future.  That said, supply and demand dictate that again, prices are likely to rise. 

All that said, it seems likely that Bitcoin is poised to really go up in value as measured in fiat currency. And therein is the key with all this newfound hashing power.... the hashing power helps contribute to the value and security of Bitcoin, which in turn makes development of even more powerful ASIC units viable.  There will eventually be a natural cap on the value of Bitcoin, as only so many transactions worldwide will be conducted in Bitcoin.  But even if it's only one tenth of one percent of all transactions... wow. 

One more thing: I think when the person mentioned "it costs nothing to create fiat currency" their meaning was fiat can be created out of thin air, unlike Bitcoin.  There is physically nothing to drop the u.S. Government from creating, say, a trilion dollar bill.  A paper bill of this nature could be produced for a dollar or less.  So in that regard, creating fiat currency still "costs":, but only as much as it does to create a physical representation of such currency.  You can't simply create 54 billion bitcoins the same way Fiat money gets created, and I think that was the point.   

By the way, for the curious, the $1 bill costs about three cents to make.  A penny costs the U.S. mint 2.4 cents to make; even though the cost of the materials is slightly less than one cent, there are overhead/administrative costs on all coins produced by the Mint.  Even if the Mint could get the materials for penny making for free, they would still very likely lose money producing them. 

[Rampion]

Sorry if this was addressed, but OP's arguments are "noob arguments" (no offense intended), in the sense that he probably was not a miner/bitcoiner in 2011 and 2012, and didn't see the evolution and cycles of mining, which are pretty much repeating themselves.

Mining has always been (and always will be) an only marginally profitable business. Market adjust itself, and only the most efficient miners do a marginal profit. During a) exponential rise in price (as in 2011 or 2013) and b) a change to a new, very efficient technology there are small windows of time in which mining is wildly profitable, triggering a "mining gold rush", but these windows close extremely fast. It happened in 2011 (GPU introduction lead to exponential network rise until the hashrate reached plateau and started to decline) and it will happen now. The "wildly profitable" window of 2013 was really wild because a third factor was added to the equation, which is the extremely limited supply of ASIC during the first semester of 2013. The few lucky ASIC owners made a killing for a few months, and the newcomers have been blinded by the impossible returns of the lucky few, and rushed to pre-order units like theres no tomorrow.

At the end of the day, nothing will change much - some miners will mine at a loss for the added benefit of receiving "clean, fresh-minted" coins, some others will gradually shut their miners off (or upgrade), and some others will keep mining at a marginal profit thanks to very competitive fixed and variable costs.

IMO ASIC will be the endgame for the amateur miner looking for profits. CPU or GPU are commodity items, custom made ASICs are not - they are custom-made "money printing machines", and normally the ones having the means and the funds to produce their own "money printing machines" have no incentive in selling those machines for less money than they will print in their lifetime. Making a long story short, ASIC manufacturers currently have two ways to maximize their profit:

a) they use customer's money to do projects much bigger than their own funds would allow, they risk nothing, but in exchange they have to promise a good return to customers

b) they use and risk their own money to design their own chip, cover NRE costs and then they just deploy themselves as many chips as possible, cutting out of the equation the consumers.

In my opinion we are in phase a), and soon enough we will see phase b), which basically means that mining is getting "pro", and amateurs will be gradually cut out. This is something we have seen in the past in many "industries" - a blatant example is gold extraction. A similar process is in action here. Customers will buy bonds, contracts and such, but most of the hash rate will coming from mining operations handled by companies, not from individuals hashing in their basement.

The long-term problem would be to have "too big" pro-miners, whose fall could endanger Bitcoin, taking the network to a halt. But I wouldn't be to worried about this problem, market should be efficient and regulate itself in order for this not to happen.

[johnyj]

a) they use customer's money to do projects much bigger than their own funds would allow, they risk nothing, but in exchange they have to promise a good return to customers

b) they use and risk their own money to design their own chip, cover NRE costs and then they just deploy themselves as many chips as possible, cutting out of the equation the consumers.

b) is not practical for manufacturers due to fast rising difficulty and higher probability of never seeing a return

a) will raise the mining cost very quickly and indirectly reduce the coin supply, raise the coin price

[sammir]

http://bflfraud.com/ you guys need to see this

[crumbs]

a) they use customer's money to do projects much bigger than their own funds would allow, they risk nothing, but in exchange they have to promise a good return to customers

b) they use and risk their own money to design their own chip, cover NRE costs and then they just deploy themselves as many chips as possible, cutting out of the equation the consumers.

b) is not practical for manufacturers due to fast rising difficulty and higher probability of never seeing a return

If it's not profitable for the manufacturers to mine with their own gear, which they get at cost, how in the world would their customers, who pay a markup, make monyz?

a) will raise the mining cost very quickly and indirectly reduce the coin supply, raise the coin price

The coin supply stays the same, the only question here is who gets the coins -- you or the other guy.  Risking other people's money simply means that you don't risk your own.  Success?  You win.  Failure?  You win too (you paid yourself while developing the chippery).

[600watt]

If I mine one coin a day, or one coin a year, I'm still participating in the network, and I won't care.

That is a legitimate view.  Securing the network in a decentralized fashion even if it means low or no long term profit.  Nothing wrong with that.

Besides, my coin today (or in a year) will be worth a 1000 times what it is now in a few short years.  I'll be ahead

This is a flawed way of looking at it.  Say you can buy a miner X for 1 BTC today.  If that miner doesn't produce >1 net BTC over its lifetime you are always behind.  The exchange rate is irrelevant.  Why?  You always have the option to just buy 1 BTC today and thus have 1 BTC in the future.

However note the prior statement as a non-economic reason to still mine.  Just don't confuse non-economic good with "profit" which is actually a loss.  Personally I see nothing wrong with it.  If 10,000 people buy relatively small rigs (say 10GH/s avg) thats 100 TH/s helping to keep the network decentralized.  Maybe someday someone will convince netgear or the like to add low powered SHA ASIC into their mainstream router and you could have tens of millions of people mining in a decentralized fashion.

there can be exeptions: when i was ready to invest into mining gear the price for one btc was at exactly 100,- €. i tried to figure out what was the better investment: pre-order hardware or coins. i decided to go for the hardware. right after i paid, the price of btc went down. if i would have invested in coins it would still be a loss, since the price for btc so far did not make back to 100,- €.
i am very curious to see if the miners mine more btc then i would have been able to buy on that day i paid the miners.

[DeathAndTaxes]

If I mine one coin a day, or one coin a year, I'm still participating in the network, and I won't care.

That is a legitimate view.  Securing the network in a decentralized fashion even if it means low or no long term profit.  Nothing wrong with that.

Besides, my coin today (or in a year) will be worth a 1000 times what it is now in a few short years.  I'll be ahead

This is a flawed way of looking at it.  Say you can buy a miner X for 1 BTC today.  If that miner doesn't produce >1 net BTC over its lifetime you are always behind.  The exchange rate is irrelevant.  Why?  You always have the option to just buy 1 BTC today and thus have 1 BTC in the future.

However note the prior statement as a non-economic reason to still mine.  Just don't confuse non-economic good with "profit" which is actually a loss.  Personally I see nothing wrong with it.  If 10,000 people buy relatively small rigs (say 10GH/s avg) thats 100 TH/s helping to keep the network decentralized.  Maybe someday someone will convince netgear or the like to add low powered SHA ASIC into their mainstream router and you could have tens of millions of people mining in a decentralized fashion.

there can be exeptions: when i was ready to invest into mining gear the price for one btc was at exactly 100,- €. i tried to figure out what was the better investment: pre-order hardware or coins. i decided to go for the hardware. right after i paid, the price of btc went down. if i would have invested in coins it would still be a loss, since the price for btc so far did not make back to 100,- €.
i am very curious to see if the miners mine more btc then i would have been able to buy on that day i paid the miners.

If the price of coins doesn't go back up then any future coins (bought or mined) share the same lower value.  Mining isn't better (or worse) in that respect.
All that matters is value of miner in BTC vs amount of net BTC mined (gross BTC mined - electrical costs) over the lifetime of the rig.

If you buy a 10 BTC rig and it generates a lifetime revenue of <10 BTC you are worse off than if you just bought coins.  As others pointed out in the thread there are non-ecnonical reasons why some may choose to mine at a small loss (anonymity, help decentralize the network, hobbyist/experimentation, etc) but that doesn't change the black and white of a loss vs profit.

[yufu571]

agree

[johnyj]

If it's not profitable for the manufacturers to mine with their own gear, which they get at cost, how in the world would their customers, who pay a markup, make monyz?

No, they won't. I can guarantee that many of those ASIC pre-order customers don't even understand the daily coin supply is fixed, most of them are holding a traditional investment wisdom of "more equipment will bring more coins"

This is also true for some mining equipment manufacturers, they only understand that ASIC devices will sell like crazy, they don't understand that the market will be fully saturated when they deliver

Sooner or later the customers will realize that buying the coin is always the best investment approach, and the price of ASIC devices will plunge

a) will raise the mining cost very quickly and indirectly reduce the coin supply, raise the coin price

The coin supply stays the same, the only question here is who gets the coins -- you or the other guy.  Risking other people's money simply means that you don't risk your own.  Success?  You win.  Failure?  You win too (you paid yourself while developing the chippery).

When mining cost rise, the number of coins to be sold on market will reduce. Anyway, ASIC manufaturers bypass the risk to their customers, but if they had financed through other means like a bank loan, they might get into trouble too

[Adrian-x]

No, they won't. I can guarantee that many of those ASIC pre-order customers don't even understand the daily coin supply is fixed, most of them are holding a traditional investment wisdom of "more equipment will bring more coins"

This is also true for some mining equipment manufacturers, they only understand that ASIC devices will sell like crazy, they don't understand that the market will be fully saturated when they deliver

Sooner or later the customers will realize that buying the coin is always the best investment approach, and the price of ASIC devices will plunge

I think you are underestimating the understanding of the average miner.
The only traditional investment wisdom is use Fiat to buy an ASIC and earn XBT, and if XBT goes up you profit. When the gamble comes in, is it better to buy XBT with Fiat or ASIC's, and if you hang around here it's clear you should buy XBT.

But ASIC's clearly aren't going away.

[erk]

If the price of coins doesn't go back up then any future coins (bought or mined) share the same lower value.  Mining isn't better (or worse) in that respect.
All that matters is value of miner in BTC vs amount of net BTC mined (gross BTC mined - electrical costs) over the lifetime of the rig.

If you buy a 10 BTC rig and it generates a lifetime revenue of <10 BTC you are worse off than if you just bought coins.  As others pointed out in the thread there are non-ecnonical reasons why some may choose to mine at a small loss (anonymity, help decentralize the network, hobbyist/experimentation, etc) but that doesn't change the black and white of a loss vs profit.

Most ASICs are priced in USD,  if the price of BTC/USD doubles one day, and I use that peak to purchase an ASIC miner, then the price drops back to half the next week, I might only have to mine half the BTC to make ROI than people that bought a week either side of that peak. eg. If I ordered a $274 BFL Jalapeno when BTC/USD was $266 on April 10th, I only need to mine just over 1BTC for ROI compared to people that ordered at $54 on April 12th. who now have to make 5BTC for ROI. The cost of the rig is not always a constant BTC figure.

Secondly, the people that mined their BTC back in 2011, were able to purchase rigs that were priced in BTC like the Batch#2 Avalon, with BTC that were dirt cheap to mine.  I use to get well over a BTC a week from a single HD5770 card I pulled out of the trash can and stuck into a linux box.

So the point I am making is the concept of ROI is different for each person.


 

[johnyj]

Most ASICs are priced in USD,  if the price of BTC/USD doubles one day, and I use that peak to purchase an ASIC miner, then the price drops back to half the next week, I might only have to mine half the BTC to make ROI than people that bought a week either side of that peak. eg. If I ordered a $274 BFL Jalapeno when BTC/USD was $266 on April 10th, I only need to mine just over 1BTC for ROI compared to people that ordered at $54 on April 12th. who now have to make 5BTC for ROI. The cost of the rig is not always a constant BTC figure.

A.  I bought 5 BTC@$54 to purchase a Jalapeno and it will never make back 5 BTC after I receive it
B.  I bought 5 BTC@$54 and hold on to them

C. I mined 5 BTC with GPU and bought 1 Jalapeno with 1 coin when bitcoin price was at top, it barely made back 1 BTC I invested (ASIC devices ROI calculation is based on BTC investment)
D. I mined 5 BTC and hold on to them

Either case, A or C is worse, C has a hope of getting more coins if the difficulty drop, but when ASIC devices' income are still much higher than electricity cost, the difficulty rally won't stop

[Rival]

If I bought a miner for 100btc with btc at $100 each I would spend $10,000. 

Scenario #1: I mine 50btc in 1 year. The price of btc has fallen to $50 per coin. I have lost $7500. I would lose $5000 just leaving them in coins

Scenario #2: I mine 50btc in 1 year. The price of btc rises to $200 per coin. I break even. I would make $10,000 just leaving them in coins.

Scenario #3: I mine 100btc in 1 year. The price of btc has fallen to $50 per coin. I have lost $5000. I would lose $5000 just leaving them in coins.

Scenario #4: I mine 100btc in 1 year. The price of btc has increased to $200 per coin. I make $10,000. I would make $10,000 just leaving them in coins.

Scenario #5: I mine 200btc in 1 year. The price of btc has fallen to $50 per coin. I break even. I would lose $5000 just leaving them in coins.

Scenario #6 I mine 200btc in 1 year. The price of btc increases to $200 per coin. I make $30,000. I would make $10,000 just leaving them in coins.


Conclusion #1: Any asic that cannot break even in btc terms will produce lower profits than buying and holding coins regardless of market fluctuations.

Conclusion #2: Any asic that can break even in btc terms will produce identical results as buying and holding coins regardless of market fluctuations.

Conclusion #3: Any asic that produces more in btc terms than it cost in btc terms will produce higher profits than buying and holding coins regardless of market fluctuations.

Conclusion #4: It is possible to profit in fiat terms from a miner that cannot break even in btc terms by increased valuations of btc, but buying and holding btc would be more profitable.