did ASIC ruin bitcoin ?

[smscotten]

that may be the problem with this wave is that a lot of people will get disillusioned that they got taken for a ride by the earlier adopters and quit or start calling cops and lawyers.

Cops and lawyers? Taken for a ride? Huh?!?

[SlyFoxy12]

A miner makes an investment in equipment and electricity, etc., and in return they get Bitcoins.  The amount of their investment is then compared to the value of the their production.  *But*, the potential future value of their production should be taken into account to.

Why do people keep thinking this?
The miner could have bought  BTC directly with the capital investment (or maybe the initial investment was BTC anyway) so the future value of bitcoin doesn't matter. The investment is good if it makes more BTC than the capital would have bought, it's bad if it doesn't - the price of BTC does not factor into this.

The price of bitcoin factors in heavily to buying equipment. You have to hope that the coins you mine are going to get an increase in value. Mining is just a more secure form of investing as you at least have the hardware if you can sell it on if the value of the coins mined don't flourish as you hope. Obviously if you don't have the facilities to run the hardware then yeah, buying coins directly is a better option.

[NWO]

Did CPUs ruin bitcoin?

Now take your answer and apply it to ASIC.

[smscotten]

The price of bitcoin factors in heavily to buying equipment. You have to hope that the coins you mine are going to get an increase in value. Mining is just a more secure form of investing as you at least have the hardware if you can sell it on if the value of the coins mined don't flourish as you hope. Obviously if you don't have the facilities to run the hardware then yeah, buying coins directly is a better option.

Admittedly the resale value of the hardware can be a hedge against losses, but I don't think that makes mining hardware a good investment compared to just buying Bitcoin. See, the price of Bitcoin factors heavily into buying Bitcoin as well.

Say you have $137 to invest right now. You can buy 1.14 Bitcoin today. Or you can buy three block eruptors. Never mind the setup and buying USB hubs and whatnot, lets assume you can plug them in and start them going.  At the current rate of difficulty, those three eruptors will have mined 0.140 Bitcoin for you in two weeks. Sounds great, right? Because that's a little more than eight weeks to ROI.

Except that that's about when the difficulty goes up again. Over the next two weeks you'll get another 0.110 BTC. The difficulty will increase again, and in the following two weeks you'll get 0.090. At the end of eight weeks you will have mined a total of 0.410 BTC. At the end of twelve weeks your total revenue will be 0.509. At the end of six months you will have gotten 0.65 BTC total. Even if at that point the difficulty never increases again, ROI would still be another year out.

Saying that you hope the coins will increase in value is all well and good. Lets say that in six months the USD-to-Bitcoin exchange rate goes up by a factor of ten. OK, then at the end of the six months you'll have 0.65 BTC which will be worth almost $780. That makes a pretty good return on your original $137, I know. Except that if you bought Bitcoin instead of mining hardware, you'd have had 1.14 BTC instead of 0.65 BTC, and $1370 is a lot more than $780.

It doesn't matter whether the price goes up, down, or stays the same. If difficulty keeps increasing, you'll get a lot more Bitcoin by buying it with USD than by buying mining hardware with USD.

And here's the important part: at the end of that six months, the three block eruptors will be bringing in less than one-tenth the bitcoin per day that they did when they started. Do you think anyone will be willing to pay more than about one-tenth what you paid for them at that point? Even selling the hardware after six months of mining would only bring you up to about 0.75 BTC on your 1.14 BTC investment.

[NewLiberty]

You can't ruin Bitcoin with hardware.  Bitcoin can be ruined if it's utility is threatened but that's not with hardware.  Even if someone had a magic box with 60% of hashing power right now they still wouldn't find it profitable in real life to double spend and crash the rate vs simply to mine and sell the coins at a much higher rate.  That's exactly what happened with Avalon.  They probably at one point had more hashpower than the entire network combined if not a few times that, but who could they double spend to make it even remotely worthwhile?  Nobody.  Will that remain true as we approach both a much larger acceptance therefore a much easier double spend profitability and a lower block reward combined with lots of old cheap asics with lots of hashpower but simply electrically inefficient.  Only time will tell.

Hardware may be one of the only things that CAN ruin bitcoin.  A 51% attack launched by a hostile force could do that.
ASICs help protect against that.  Running them in defense against such an attack is noble in the face of unprofitability.
(Thank you, miners)

[Carlton Banks]

Excuse me if I don't read all 6 pages of this thread, but did anyone handle the "in a decade or two, BTC price increases so much + advanced mining hardware becomes so expensive that it basically gets taken over by corporations" scenario? I can think of  a few objections, just thought I'd put it out there if it's not already been handled.

[FreedomCoin]

You can't ruin Bitcoin with hardware.  Bitcoin can be ruined if it's utility is threatened but that's not with hardware.  Even if someone had a magic box with 60% of hashing power right now they still wouldn't find it profitable in real life to double spend and crash the rate vs simply to mine and sell the coins at a much higher rate.  That's exactly what happened with Avalon.  They probably at one point had more hashpower than the entire network combined if not a few times that, but who could they double spend to make it even remotely worthwhile?  Nobody.  Will that remain true as we approach both a much larger acceptance therefore a much easier double spend profitability and a lower block reward combined with lots of old cheap asics with lots of hashpower but simply electrically inefficient.  Only time will tell.

Hardware may be one of the only things that CAN ruin bitcoin.  A 51% attack launched by a hostile force could do that.
ASICs help protect against that.  Running them in defense against such an attack is noble in the face of unprofitability.
(Thank you, miners)

Your welcome, glad we could help and heat our houses in the winter with the wasted heat.

I think i only used my heater 3 or so times over last winter.

[DeathAndTaxes]

Excuse me if I don't read all 6 pages of this thread, but did anyone handle the "in a decade or two, BTC price increases so much + advanced mining hardware becomes so expensive that it basically gets taken over by corporations" scenario?

Bitcoin mining is essentially a problem which is almost perfectly parallelized, there are no significant global restrictions, and the barrier to entry is non-existent.  What you are seeing today is the gold rush phase but it will fade.  Hardware will become more available, and as NRE get paid off and inventories build the price per GH/s will only fall.   This means that there is no realistic scenario where a small miner can't compete on with big miners (especially when you consider those with reduced or so called "free" power).

For example say a 1 PH/s miner someday costs $1000x well a 1 TH/s miner would probably be ~$x. Yes larger units are marginally cheaper per GH/s but not to a point that it would make smaller units unviable.  Sure if you have 1/1000th the hashing power of a big entity, then your reward is only 1/1000th but your capital and electrical costs are ~1/1000th as well.  People look at the USB Block Eruptors says it is a "bad" deal and assume that means small units will cost too much.  The reality is the price of miners right now has little to do with cost and more to due with demand.  Friedcat sells out of every batch of BE.  As a merchant the best possible price is the highest price where you still continually sell out.  Any higher and you are stuck with inventory, any lower and you still run out you just makes less.  As demand falls so will the price (it already has to some extent from 2 BTC to 0.3 BTC).  Eventually the margins on these small miners will be very low and they will be produced in hundred thousand lot units.  I could see entities like ASICMiner getting out of the retail business all together instead they mass produce chips and sell them to OEM who build the end product (the AMD/NVidia model).  USB Miners will lose their "premium" relative to larger units as they become more available and there is more competitions.

Mining isn't really that attractive for corporations, most wouldn't want to touch Bitcoin mining with a 10 foot pole.  Bitcoin mining is a somewhat unique industry where your profitability matters less on what you do but on what other people (you can't control) do.  For example a lot (maybe the majority) of early ASIC miners (orders in 2012 and 2013) will have negative net profits.   This is because you can do everything "right" (order when difficulty is low, pick the right supplier, have low electrical costs, buy the most efficient gear, etc) and still lose due to tens of thousands of clueless noobs who combined deploy so much hashing power that the revenue for everyone falls.  You can't stop them from doing that which means a big entity can't protect their margins.  Sure they can optimize cost but price spikes, a bunch of noobs think they will become millionaires in a month buy a 100 PH/s and then price falls.  Everyone is stuck in the same low/no profitability boat.  That scenario is a nightmare for any CEO.  Period.  It isn't something anyone with a lot of capital will be dreaming about.

Maybe I am an optimistic but I don't see it being an issue.  Mining will eventually be a very boring, low profit business.  Many hobyist will mine hoping to break even as an alternative way to acquire coins (essentially buying them from the power company). I would be far more worried about centralization in the financial services space to a tiny handful of massive global players.  By financial services I mean bitcoin dealers, brokers, exchanges, merchant processors, etc.  This is more of a risk because government will put up barriers to entry and those that can afford those costs will have a vested interest to see those costs become larger to kill off any future competitors.  This has already started to happen in the sense of nonsensical high cost regulation and one should only expect it to accelerate as Bitcoin becomes a bigger deal.  Luckily that isn't a core aspect of Bitcoin itself but it is something to closely watch.

[smscotten]

Excuse me if I don't read all 6 pages of this thread, but did anyone handle the "in a decade or two, BTC price increases so much + advanced mining hardware becomes so expensive that it basically gets taken over by corporations" scenario? I can think of  a few objections, just thought I'd put it out there if it's not already been handled.

If everything goes right, corporations will have a huge stake in Bitcoin. I suspect that in a decade or two, the only real money to be made from mining will be the transaction fees. In 10 years we will be getting ready for the block reward to drop to 3.125 BTC and in 20 years we will have just passed the reward halving to 0.78125. It's likely by then that the large bulk of the network will be large companies handling and securing transactions and collecting transaction fees. The block rewards will still be a nice bonus but I would guess that an industry will grow (is already growing) around Bitcoin and mining won't necessarily be something everyone does.

But whether corporations can "take over" Bitcoin is the real question and i think we've gone beyond that point. The people and/or organizations that are willing to put the most time, energy, ingenuity, and money into it will have the biggest stake. But collecting transaction fees, while it could be a very large industry, is necessarily going to be much smaller than the set of industries sending and receiving that money.

So yeah, it won't be something that hobbyists will get rich off, but it's hard to imagine that it would ever be something that hobbyists could no longer participate in. I'm personally looking forward to the day when I might get a chance to help a kid build a mining rig for an elementary school science fair.

If in 20 years most of the network is still running on the mining efforts of amateurs, then it will be fair to say that Bitcoin had failed.

[Carlton Banks]

Some well thought out replies. I would add that the rest of technological progress will likely be pretty dynamic in the coming few decades: if we're only just at the stage where open source firearms are being developed, what happens when electronic devices start becoming homemade? The potential for someone to print their own mining rig suddenly throws up limits around the physical resources needed and the availability of the design knowledge or availability of designs. I realise we're nowhere close to printing chips right now, but I think anyone who follows the semiconductor manufacturing industry will know: they're running out of road, and on the timescales I'm talking about, too. Who will innovate the next processor fabrication technology: Intel, TSMC, or some Kazakh carbon-substrate 3D printing enthusiast, living far away from prying eyes? You can't put that particular brand of toothpaste back in the tube...

[David Rabahy]

Comparing investments against one another is always wise; I recommend diversity.  I, for one, haven't put a penny into mining yet but am utterly delighted to have other folks doing so; best o' luck; break a leg.

If the only currency is Bitcoin then taking the future value of Bitcoins into account is not relevant to determining the wisdom of mining as an investment.  Since there are other currencies then taking the exchange rate into account is relevant.  Then again I'm sure I will be told if the exchange rate does move in favor of Bitcoin then the original investment should have skipped mining and gone directly into speculating on Bitcoin.

Mining as a charitable donation; hmm, can I deduct them from my income on my tax return?

[DeathAndTaxes]

Comparing investments against one another is always wise; I recommend diversity.  I, for one, haven't put a penny into mining yet but am utterly delighted to have other folks doing so; best o' luck; break a leg.

If the only currency is Bitcoin then taking the future value of Bitcoins into account is not relevant to determining the wisdom of mining as an investment.  Since there are other currencies then taking the exchange rate into account is relevant.  Then again I'm sure I will be told if the exchange rate does move in favor of Bitcoin then the original investment should have skipped mining and gone directly into speculating on Bitcoin.

Mining as a charitable donation; hmm, can I deduct them from my income on my tax return?

You could structure it as a single owner business and then deduct the resulting net business loss on your tax return.  Businesses which continually lose money are still businesses, the IRS just looks for a profit potential. 

[Darktongue]

Some well thought out replies. I would add that the rest of technological progress will likely be pretty dynamic in the coming few decades: if we're only just at the stage where open source firearms are being developed, what happens when electronic devices start becoming homemade? The potential for someone to print their own mining rig suddenly throws up limits around the physical resources needed and the availability of the design knowledge or availability of designs. I realise we're nowhere close to printing chips right now, but I think anyone who follows the semiconductor manufacturing industry will know: they're running out of road, and on the timescales I'm talking about, too. Who will innovate the next processor fabrication technology: Intel, TSMC, or some Kazakh carbon-substrate 3D printing enthusiast, living far away from prying eyes? You can't put that particular brand of toothpaste back in the tube...

Well put,  that's exactly why I stick around.  I believe this ecosystem is actually top dog in the open source multiverse (had to use it ). Hell I would even say we have preppers beat. 

[teknohog]

The space race is fucking over.  Hype has fallen and yes BTC more then likely needs a fix.  2  years of speculation lead to a ton of improvements on GPU and FPGA Mineing.  For some it was an education.  Myself included.  Now that we really don't have much to tweak on we are bored and restless LOL.

It's an arms race now. No real fun in that.  No real education aside from perhaps understanding ASIC Tech. I pray daily somebody will find a homebrew method to allowing one to expand on this hardware they have.  But thay isn't going to happen.  I for one am going to continue keeping one or two gpu rigs around.  So much can be done aside from ET Search and PW Cracking.

For me it's not about money.  This hosted mineing shit with 4737474GigaNanoUberBits of hash powet per person.  Thats more money then brains

Agreed. Looking back, the best financial investment would have been to buy lots of BTC, but there were a lot more fun ways to participate. I've had tons of fun learning to code FPGAs, and some might even consider it a skill worth money. I've generally only bought hardware that the user could program themselves, so that rules out ASICs - as you said, there are plenty of other uses for GPUs, and the same goes for FPGAs.

Of course, there have to be people who develop stuff, instead of investing, so this kind of fun aspect is actually quite important even from the financial POV.

Some of the altcoins have rekindled the fun to some extent, notably Primecoin from the most recent ones. It's a little sad that a lot of the talk around Primecoin is about hosted mining and profitability, while the math itself is so exciting.

[astutiumRob]

Block Erupters aren't very economical pieces of kits, you'd need a good number to keep up with the difficulty rate

If one is not profitable, it's unlikely more-than-one will magically transform into being profitable - simple maths ...
They make great gifts, good GPU replacements for hobby-miners and have blinking lights - what's not to like

[LukasP33]

nothing "ruined" bitcoin in my opinion it is still at its very beginning

[NewLiberty]

Did CPUs ruin bitcoin?

Now take your answer and apply it to ASIC.

+1

[NewLiberty]

... there were a lot more fun ways to participate. I've had tons of fun learning to code FPGAs, and some might even consider it a skill worth money. I've generally only bought hardware that the user could program themselves, so that rules out ASICs - as you said, there are plenty of other uses for GPUs, and the same goes for FPGAs.

Of course, there have to be people who develop stuff, instead of investing, so this kind of fun aspect is actually quite important even from the financial POV.

Some of the altcoins have rekindled the fun to some extent, notably Primecoin from the most recent ones. It's a little sad that a lot of the talk around Primecoin is about hosted mining and profitability, while the math itself is so exciting.

Here's a hidden gem for those who have read this far into the thread and can parse the lingo:

When we get EEPROM ASICs that can switch coins and crypto algos, deep into the micron chip limit, then we will have saved our project from those that would see it fail.
Whosoever can get there first, gets a hero medal from yours truly.

[User705]

that may be the problem with this wave is that a lot of people will get disillusioned that they got taken for a ride by the earlier adopters and quit or start calling cops and lawyers.

Cops and lawyers? Taken for a ride? Huh?!?

be nice.  Actually I did do a preorder but realized that I was extremely unlikely to receive it even if the companies had it produced so I sold it on.  You can review some of my previous posts.  The issue is I'm a reasonable person and willing to admit mistakes.  A large % of the population however can not.  So they see the new shiny ASIC ad for 600gh and picture all these riches that shall flow from it but it's a statistical improbability for them to make any serious money from it so the reaction after you pictured yourself a millionaire but instead the device barely covers electricity can certainly be bad.  Still surprises me no one drove a truck through BFL building.  To get back on topic BTC is a protocol so hardware running it can't ruin it but yes some of these new adopters will get discouraged but will learn a great lesson in the process.

[smscotten]

that may be the problem with this wave is that a lot of people will get disillusioned that they got taken for a ride by the earlier adopters and quit or start calling cops and lawyers.

Cops and lawyers? Taken for a ride? Huh?!?

be nice.  Actually I did do a preorder but realized that I was extremely unlikely to receive it even if the companies had it produced so I sold it on.  You can review some of my previous posts.  The issue is I'm a reasonable person and willing to admit mistakes.  A large % of the population however can not.  So they see the new shiny ASIC ad for 600gh and picture all these riches that shall flow from it but it's a statistical improbability for them to make any serious money from it so the reaction after you pictured yourself a millionaire but instead the device barely covers electricity can certainly be bad.  Still surprises me no one drove a truck through BFL building.  To get back on topic BTC is a protocol so hardware running it can't ruin it but yes some of these new adopters will get discouraged but will learn a great lesson in the process.

It wasn't clear to me that you were talking about BFL rather than BTC in general. I get what you were saying now. Thank you for clarifying.