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Author Topic: The economics of 'mining' - some salutary reflections  (Read 855 times)
softword
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August 17, 2013, 01:35:40 PM
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My interest in bitcoins is recent, stimulated in large part by Max Keiser and a growing distrust of the current global monetary system. In any event I finally decided to get involved in November of 2012.

First problem - how to buy bitcoins? In the end my first action was to order a 60/Ghsh miner from the now infamous 'Butterfly Labs', paid for in $. (I somewhat naively believed the information they provided about themselves... one lives and learns as they say)

In January 2013 I opened a Mt.Gox account and bought a few coins, and finally I've ordered a 400/Ghsh device from KncMiner, at a cost of around 100 bitcoins. At present it seems entirely possible that the device ordered a month ago will arrive before the one order in November of last year, given the glacial speed of production by 'Butterfly Labs'. Should things turn out this way my poor opinion of Butterfly Labs will sink even further into the abyss...

My point?!!

Well... the vital question is 'ROI' (return on investment) and on the whole people seem to focus on this question in $ terms - however, I would argue that it makes more sense to examine the 'bitcoin' return. Compare and contrast, my 400 G/hash device from KncMiner ordered recently cost 100 bitcoins, my  Nov 2012 'cash' investment with Butterfly labs could alternatively bought around 150 bitcoins... given the dramatically rising hash rate of the network, will I ever be able to mine 150 bitcoins with a 60G/hash device? I doubt it. Will I get my money back in $ terms? That seems more possible.

One further sobering thought. On June 23rd, 2012 for $30,000 you could have pre-paid for 1,500 G/hash mini-rig from 'Butterfly labs'. Or for the same amount of cash bought a few more than 4,600 bitcoins... the bitcoins would now be worth around $500,000... Retrospectively it seems clear which would have been the better choice.

Conclusion

The hash rate WILL increase - possibly by an order of magnitude (multiply by 10) and quite probably a good deal more than that... As the hash rate increases the cost of mining kit will inevitably go down.

The value of bitcoins should increase (baring some form of savage government intervention) - once again, quite possibly by an order of magnitude over the next 12/18 months. This after all has been the pattern to date.

So - I'd suggest to the prudent investor that the most sensible course at present would be to buy and hold bitcoins - allow the current tsunami of mining capacity to manifest itself, and buy mining kit (or not) when the growth in 'hashing power' has abated somewhat and there is some reasonable chance to see 'long term value' in the purchase of expensive hardware.

(Retrospectively - I wish I'd followed my own advice! But... we can all make perfect decisions with the benefit of hindsight...)





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lucasjkr
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August 17, 2013, 02:01:17 PM
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Yes, clearly everyone should have avoided spending their bitcoins last year. They also should have sold in April this year, and rebought a few days later. Hindsight is great, but none of us can drive by looking in the review mirror only.  The big question, the unknown, is where do things go from here?
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August 17, 2013, 02:13:41 PM
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My interest in bitcoins is recent, stimulated in large part by Max Keiser and a growing distrust of the current global monetary system. In any event I finally decided to get involved in November of 2012.

First problem - how to buy bitcoins? In the end my first action was to order a 60/Ghsh miner from the now infamous 'Butterfly Labs', paid for in $. (I somewhat naively believed the information they provided about themselves... one lives and learns as they say)

In January 2013 I opened a Mt.Gox account and bought a few coins, and finally I've ordered a 400/Ghsh device from KncMiner, at a cost of around 100 bitcoins. At present it seems entirely possible that the device ordered a month ago will arrive before the one order in November of last year, given the glacial speed of production by 'Butterfly Labs'. Should things turn out this way my poor opinion of Butterfly Labs will sink even further into the abyss...

My point?!!

Well... the vital question is 'ROI' (return on investment) and on the whole people seem to focus on this question in $ terms - however, I would argue that it makes more sense to examine the 'bitcoin' return. Compare and contrast, my 400 G/hash device from KncMiner ordered recently cost 100 bitcoins, my  Nov 2012 'cash' investment with Butterfly labs could alternatively bought around 150 bitcoins... given the dramatically rising hash rate of the network, will I ever be able to mine 150 bitcoins with a 60G/hash device? I doubt it. Will I get my money back in $ terms? That seems more possible.

One further sobering thought. On June 23rd, 2012 for $30,000 you could have pre-paid for 1,500 G/hash mini-rig from 'Butterfly labs'. Or for the same amount of cash bought a few more than 4,600 bitcoins... the bitcoins would now be worth around $500,000... Retrospectively it seems clear which would have been the better choice.

Conclusion

The hash rate WILL increase - possibly by an order of magnitude (multiply by 10) and quite probably a good deal more than that... As the hash rate increases the cost of mining kit will inevitably go down.

The value of bitcoins should increase (baring some form of savage government intervention) - once again, quite possibly by an order of magnitude over the next 12/18 months. This after all has been the pattern to date.

So - I'd suggest to the prudent investor that the most sensible course at present would be to buy and hold bitcoins - allow the current tsunami of mining capacity to manifest itself, and buy mining kit (or not) when the growth in 'hashing power' has abated somewhat and there is some reasonable chance to see 'long term value' in the purchase of expensive hardware.

(Retrospectively - I wish I'd followed my own advice! But... we can all make perfect decisions with the benefit of hindsight...)


Hindsight is a wonderful thing.

One way round it is to have a look into trading in mining shares. That way you not only serve to benefit from a rise in the value of btc (if the trend continues), but also compound that increase with dividends - and hopefully share price increases - of those mining stocks.

At least that's what I'm trying to do... Smiley

If I have any bitcoins for sale, you'll find them here - https://bitbargain.co.uk/buy/from/tomhashemi

Follow me on twitter: http://twitter.com/tomhashemi
lucasjkr
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August 17, 2013, 06:01:09 PM
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If it turns out that yesterday's prices were the recent high, I plan to have sold everything. But if they go a lot higher, obviously I will have bought as many coins as my budget allows! It's sure fire, can't lose!
Xodust99
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August 17, 2013, 10:35:41 PM
 #5

A learning experience indeed but an experience none the less!   Wink

Sharecoin: SgUZ9bYLT576gjLSSNbp15U9enKGkzdXn6
cipher0
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August 18, 2013, 12:16:57 AM
 #6

You could always transfer your 60 Gigahash to a 600 Gigahash Monarch. I'm not sure how much extra you would end up having to pay but you would at least get 10 times the hashing power. Of course, the Monarchs probably won't be delivered for another year, regardless of the Nov/Dec delivery claim, but what do you have to lose? Who knows, they may actually be delivered on time.
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