Mining will always be barely profitable

[nmat]

I believe that, from now on, mining will always be barely profitable. Not much more nor much less than that.

This happens because difficulty always corrects itself when there are too many or too few people mining. If it is really worth it, people will get in. If it is not, people will get out. It's a smooth process of self-adjustment.

With time, mining hardware will become much more efficient and people that invest in recent hardware will get more profit than the others, but that will soon be corrected by hardware depreciation.

Am I missing something?

[Cluster2k]

You're missing the fact that some people don't pay for electricity directly.  They pay in other hidden, indirect ways, but as long they're not getting a bill for the kilowatt hours used per month they believe it's free.  Miners living with parents, or taking power from work are two examples.  They will continue to mine long after mining is unprofitable either due to a lack of interest in bitcoin or a more efficient technology being adopted (FPGAs, ASICs, etc).  If those that posses FPGA/ASIC boards choose not to share their toys they can make life for GPU miners very difficult.

[fpgaminer]

Related to Cluster2k's response, there are vast differences in the cost of electricity for those that do pay. Mining will be profitable for those that get cheap electricity, and those of us in California will get the short end of the stick 

As an interesting side-effect, if Bitcoin becomes a significant world currency, it will be yet another driving force of increasing computing efficiency and reducing electrical waste. I have a feeling the Bitcoin network is already more efficient than most super computers (but that's just a guess)

[geek-trader]

I agree with your general idea.  However, I disagree with part of your hypothesis. 

"This happens because difficulty always corrects itself when there are too many or too few people mining. If it is really worth it, people will get in. If it is not, people will get out. It's a smooth process of self-adjustment."

I'm in California, I own my home so I pay my own electricity.  I'm in an electricity worst-case scenario.   

I bought a 5830 to mine and stuck it in my existing file server.  The difference between mining and just serving files is 125 watts.  That's 45 cents a day.  I live by the beach, so I don't use air conditioning, I just open the windows.  Heat generation from my 1 card is not an issue, so lets just take the direct 125 watts / 45 cents a day.

At the current difficulty, it takes me 5 1/4 days to mine 1 BTC.  That's $2.33 of electricity to mine 1 BTC.

I will not stop mining unless the price of a BTC falls below $2.33, or the difficulty gets so high that it takes weeks and weeks to mine a BTC.  I don't see the difficulty getting so high that the electricity cost of a bitcoin passes the USD price of a bitcoin any time soon.

Plus, I like mining.  I've met some cool people mining.

My point is, after you've bought the hardware, the incentive to "get out" is low.  Maybe people running several multi card rigs will cut back, but the "hobbyist" miner like myself is here to stay.

Now, the incentive for new people to get in DOES get lower as the difficulty gets higher.  Why spend hundreds on hardware that will never get paid back?

[nmat]

Yes, electricity plays a big role here. Those with special conditions (cheap/free electricity, solar power, etc.) will definitely raise the stakes. The others will fall behind in terms of profit...

My point is, after you've bought the hardware, the incentive to "get out" is low.  Maybe people running several multi card rigs will cut back, but the "hobbyist" miner like myself is here to stay.

Now, the incentive for new people to get in DOES get lower as the difficulty gets higher.  Why spend hundreds on hardware that will never get paid back?

Well, guys like you are here to make it harder for guys with free electricity that just want the money But you're right, it is harder to get out than it is to get in. I predict that very few people will join in the following weeks until the network slowly evens out again as some people quit.

[Big Time Coin]

what is your rate that costs 45c per day?  I pay ~$0.085 per kwh so 125 w x 24 hours would cost me $0.24 per day.  I guess you pay about $0.16 per kwh?

Honestly, I don't even know that I am doing the math right.  Does 125 watts = 125 watts per hour = 3kwh per day?

[hennessy]

I'm in California, I own my home so I pay my own electricity.  I'm in an electricity worst-case scenario.   

No you're not... If i calculated right that is 15 cent /kwh. Thats really high for american standards, but cheap compared to germany. We currently pay 22 (euro)cent per kwh ~ 25 $cent. I'm running two rigs with 1300W. Thats almost 7€ a day just for power.

[NetTecture]

I'm in California, I own my home so I pay my own electricity.  I'm in an electricity worst-case scenario.   

No you're not... If i calculated right that is 15 cent /kwh. Thats really high for american standards, but cheap compared to germany. We currently pay 22 (euro)cent per kwh ~ 25 $cent. I'm running two rigs with 1300W. Thats almost 7€ a day just for power.

Which is pretty much your problem I can offer you colocation in about a month cheaper than that including administration - I am JUST outside of germany and pay.... 6.5 cents + VAT. During the day - night is cheaper

You show a good problem - basically people spending a lot for power WILL be at a loss. Anyone not running a farm will be miniscule in some months, not worth the trouble.

[Cluster2k]

I'm getting beaten with both ends of a spiky stick here.

I'm in Australia and pay 0.25c/kWh.  That's nearly 27 US cents.  Bitcoins pay US$15 at the moment but that's less than AU$13 when I bring it home (weak US dollar and conversion costs).  I've cut down mining and just have one PC  eating 4.75kWh/day making 0.25 max BTC per day.  $3.25 income on $1.19 costs.  Take out income tax and it's a very exciting profit of around a buck fifty a day.  Woohoo.

And we have a carbon tax coming in soon, which will boost coal and gas fired power costs nicely.  No nuclear power here.

[hennessy]

Which is pretty much your problem I can offer you colocation in about a month cheaper than that including administration - I am JUST outside of germany and pay.... 6.5 cents + VAT. During the day - night is cheaper

I am quiet interested, where would that be - poland?

And we have a carbon tax coming in soon, which will boost coal and gas fired power costs nicely.  No nuclear power here.

That is the next problem. Germany is currently phasing out all nuclear power plants, so energy costs will rise even more in the next few years. My guess is that next year bitcoin mining won't pay out anymore in germany.

[skyhigh]

0.22e isnt $0.25  but more like $0.31

[nazgulnarsil]

many people have costs in the .10c/kwh range.  If profitability drops under that expect to see the difficulty flatline.

[Cluster2k]

Also, what's all this nonsense I keep seeing from these saturday morning economists about the 'mining difficulty increase' meaning a 'decrease in value'. Are they taking crazy pills? Isn't it quite obvious it will be the opposite? Does anything lose value when it becomes harder to get? -_-;;;

As has been repeated on this forum many times, just because Bitcoins are difficult to get does not make them valuable.  I have a widget here which is one of a kind.  It should be worth a mint, right?  Yet it isn't, because rarity is one piece of the equation.  The other is desirability.  Is ownership of bitcoins desirable to speculators, investors, or the average person?  Only the latter creates true long term value and need.

Bitcoins had a higher dollar value 3 weeks ago when difficulty was less than half what it is today.  By simple logic the price of Bitcoins should be higher today than 3 weeks ago.  Probably double the price.  Yet, it isn't.  The last couple of difficulty increases have seen the price fail to move upwards.  Speculators do not care if you burned $9 of electricity to create a bitcoin worth $10.  To them it doesn't matter at all, as they never had to pay your bills.  There are already more than enough bitcoins around to satisfy speculator needs.

[Salain]

My point is, after you've bought the hardware, the incentive to "get out" is low.  Maybe people running several multi card rigs will cut back, but the "hobbyist" miner like myself is here to stay.

Now, the incentive for new people to get in DOES get lower as the difficulty gets higher.  Why spend hundreds on hardware that will never get paid back?

This.  Ignoring future price speculation, there are really three stages of profitability for each person out there -
1) BTC price is much lower than electricity costs.  Correct move is to sell their hardware.
2) BTC price is above electricity costs, below the level required to pay back the cost of hardware.  Possible moves are to sell hardware, or to mine and hope for the price appreciation.  Correct move is to NOT buy new hardware.
3) BTC is above both electricity and hardware costs.  Correct move is to buy new hardware.

The point is that when price-difficulty relationship reaches stage 2) for a person, they will no longer be considering new hardware purchases - so they will not increase the difficulty.  Stages 1) and 3) are obvious, the difficulty would shrink and grow, respectively.  But 2) is the interesting case, since it could allow us to hit a stable point that is not profitable in the near term.

[AngelusWebDesign]

Two good posts in a row!

[Mousepotato]

This.  Ignoring future price speculation, there are really three stages of profitability for each person out there -
1) BTC price is much lower than electricity costs.  Correct move is to sell their hardware.
2) BTC price is above electricity costs, below the level required to pay back the cost of hardware.  Possible moves are to sell hardware, or to mine and hope for the price appreciation.  Correct move is to NOT buy new hardware.
3) BTC is above both electricity and hardware costs.  Correct move is to buy new hardware.

I'm not sure if Stage 1 is, or has ever been, advisable.  Following Stage 1 would have been absolutely ludicrous a year ago or so when 1 BTC was going for a half a cent.  Perhaps in the future, there's a chance that Stage 1 might eventually become sage advice, but let's hope not.

[triforcelink]

I'm currently mining about .6 btc/day with 1GH/s at Deepbit and its costing me about $1.92/day

[nmat]

BitMole, I am not saying that it won't be profitable. I am just saying that it won't be like:
"OMG! I became a millionaire in a week and I have more money that I can ever spend! I have AMD cards running under my bed and even my toaster is mining for me!"

I think that it will be profitable for some, but not very profitable. There will be high competition among miners. The profitability of the "mining market" will be driven by: the cost of electricity, the cost of hardware, the introduction of new and better hardware and, most importantly, BTC cost (which is created by speculators/investors/others at the regular markets).

[Mousepotato]

Pardon my ignorance, but isn't it more profitable to mine today than it was when Bitcoins cost less than a half a penny a piece 1.5 years ago?  The lack of profitability didn't stop the mining movement back then, and it's not going to stop us now.

[nmat]

Pardon my ignorance, but isn't it more profitable to mine today than it was when Bitcoins cost less than a half a penny a piece 1.5 years ago?  The lack of profitability didn't stop the mining movement back then, and it's not going to stop us now.

Was it? I wasn't here back then... I know difficulty was very low so everyone was making lots of coins (even with CPUs)