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?

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[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)

[talldude]

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.

No, the mining power of the network was tiny, and difficulty very low. Check this chart: http://forum.bitcoin.org/index.php?topic=27071.0

For example, in april of 2010, 1MH/s of computing power netted you around 25 cents a day. A Core i7 can make about 10MH/s so that's 2.5 bucks a day using cpu mining which is more than enough to cover electricity.

GPU mining came around in the end of 2010, and you can see the fall in $/MH that resulted from the growth of computing power.

[hugolp]

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).

@ mining toaster. I totally want one now.

I hear your point and I guess you're right in the sense that nothing profitible is ever profitible for everyone or it would cease to be considered profit and swallowed up by inflation.

That said, if someone single handedly sets up 50Gh/s of mining rigs, is there any situation where they can lose? Other than the price of bitcoin dropping of course.

A new technology with better energy efficiency appearing for example.

[mike678]

No, the mining power of the network was tiny, and difficulty very low. Check this chart: http://forum.bitcoin.org/index.php?topic=27071.0

For example, in april of 2010, 1MH/s of computing power netted you around 25 cents a day. A Core i7 can make about 10MH/s so that's 2.5 bucks a day using cpu mining which is more than enough to cover electricity.

GPU mining came around in the end of 2010, and you can see the fall in $/MH that resulted from the growth of computing power.

Can I get the source for the difficulty and value of a bitcoin in april 2010?

[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.

No, the mining power of the network was tiny, and difficulty very low. Check this chart: http://forum.bitcoin.org/index.php?topic=27071.0

For example, in april of 2010, 1MH/s of computing power netted you around 25 cents a day. A Core i7 can make about 10MH/s so that's 2.5 bucks a day using cpu mining which is more than enough to cover electricity.

GPU mining came around in the end of 2010, and you can see the fall in $/MH that resulted from the growth of computing power.

Wait, so if I had a Core i7 back then, I could have made around $2.50/day.  But now I'm clearing around $9.xx/day and somehow that's less profitable?

[AngelusWebDesign]

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.

No, the mining power of the network was tiny, and difficulty very low. Check this chart: http://forum.bitcoin.org/index.php?topic=27071.0

For example, in april of 2010, 1MH/s of computing power netted you around 25 cents a day. A Core i7 can make about 10MH/s so that's 2.5 bucks a day using cpu mining which is more than enough to cover electricity.

GPU mining came around in the end of 2010, and you can see the fall in $/MH that resulted from the growth of computing power.

Wait, so if I had a Core i7 back then, I could have made around $2.50/day.  But now I'm clearing around $9.xx/day and somehow that's less profitable?

You're currently making $9.xx a day with a Core i7?   I doubt it.

[AngelusWebDesign]

It's a pretty clear implication.

You can't compare apples to oranges.

If someone bought a couple $150 video cards, you have to compare their income with those two cards *then* with the income from those two cards *now*.

You can't compare an i7 in 2010 with an i7 plus 2 video cards in 2011.

Why don't I compare a 4 GH/s farm today with a 10 GH/s farm in 2 months, and see which one makes more money per day?

[Mousepotato]

It's a pretty clear implication.

You can't compare apples to oranges.

If someone bought a couple $150 video cards, you have to compare their income with those two cards *then* with the income from those two cards *now*.

You can't compare an i7 in 2010 with an i7 plus 2 video cards in 2011.

Why don't I compare a 4 GH/s farm today with a 10 GH/s farm in 2 months, and see which one makes more money per day?

I must have missed 60-Minutes.  What are you trying to argue again?  I'm simply saying that mining is more profitable today than it was 1.5 years ago.  Back then it was a losing proposition and only those living "off the grid" and generating 100% of their electricity through solar panels could claim they were have true positive cash flow from mining.

Now we have a lot of people saying that mining is no longer worth it, and my only question to these people are "Where were you a year+ ago when mining was even LESS profitable?"  Or even before that when there was no MtGox or any other exchange?

[AngelusWebDesign]

It's a pretty clear implication.

You can't compare apples to oranges.

If someone bought a couple $150 video cards, you have to compare their income with those two cards *then* with the income from those two cards *now*.

You can't compare an i7 in 2010 with an i7 plus 2 video cards in 2011.

Why don't I compare a 4 GH/s farm today with a 10 GH/s farm in 2 months, and see which one makes more money per day?

I must have missed 60-Minutes.  What are you trying to argue again?  I'm simply saying that mining is more profitable today than it was 1.5 years ago.  Back then it was a losing proposition and only those living "off the grid" and generating 100% of their electricity through solar panels could claim they were have true positive cash flow from mining.

Now we have a lot of people saying that mining is no longer worth it, and my only question to these people are "Where were you a year+ ago when mining was even LESS profitable?"  Or even before that when there was no MtGox or any other exchange?

Is that true, that mining was a losing proposition back then? Difficulty was sure much lower...

I think the answer to your question is -- most of us hadn't heard of Bitcoin yet, so we didn't have an opinion one way or the other.

[AngelusWebDesign]

The only people I've seen say "mining isn't worth it" are those OUTSIDE the mining community -- such as comments on Reddit posts, non-Bitcoin message boards, etc.

Has anyone here actually said mining isn't worth it? Maybe some in General Discussion, I don't know. Maybe you can be more specific -- name names, quote quotes, etc.

[Mousepotato]

Has Triplemining even cracked their first block yet?

[jasonk]

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?

You are missing the fact that some people have free electricity, some pay just 3-4c per Kwhr, and others pay 30-50c!  I went in 50/50 with a friend on a 1G hash mining rig.  In the last 10 days it generated just over 3.5 BTC.  A lot of that was due to downtime from some of the pools out there.  The electricity cost at his place is 29c a Kwhr.  When we added profits up @ the current $14 ish per BTC.  In the last 10 days we basically broke even.  Needless to say, we stopped mining with this rig.  I will continue to mine with my 12c per Kwhr electricity, but im making only $9 a day with 1.4G hashes.

[AngelusWebDesign]

3-4 cents an hour? That seems a bit low.

Maybe for the first 100 kW/h on a tiered system, maybe.

But rather than take anyone's word for it, I did a bit of Googling:

http://www.eia.gov/energyexplained/index.cfm?page=electricity_factors_affecting_prices

The average retail price of electricity in the United States in 2009 was 9.82 cents per kilowatt-hour (kWh). The average prices by type of utility customer were:

Residential: 11.5¢ per kWh
Transportation: 10.7¢ per kWh
Commercial: 10.2¢ per kWh
Industrial: 6.8¢ per kWh

Electricity Prices Vary by Locality
Prices vary over time and by locality due to the availability of power plants and fuels, local fuel costs, and pricing regulation and structures.

The three States with the highest average price of electricity in 2009 were:

Hawaii (21.21¢ per kWh)
Connecticut (18.06¢ per kWh)
New York (15.52¢ per kWh)

Those with the lowest average prices in 2009 were:

Wyoming (6.08¢ per kWh)
Idaho (6.51¢ per kWh)
Kentucky (6.52¢ per kWh)

On average, electricity prices are highest in Hawaii, mainly because most of the electricity there is generated with fuel oil. Idaho usually has the lowest prices mainly because of the availability of low-cost hydroelectric power from Federal dams.

[jasonk]

Yes several members here have mentioned paying as low as 4c per Kwhr.  Crazy I know...

Also your pricing fails to mention that in some cities their is tiered pricing.  For example my friend pays about 12c per Kwhr for the first 10kwhrs per day.  Then about 15c for the next 5kwhrs.  Then it skyrockets to 29c after that.  Without the mining rigs he touches tier 3 every day just about, so its 29c per kwhr for mining rigs

[Bitcoin Harbor]

Mining will always be barely profitable, but the question is, for whom?

There are economies of scale here, and sooner or later it will be only be worth it for those who can do it most cheaply per bitcoin mined - the big boys. If Bitcoin gets reasonable acceptance as a currency, Google, Amazon or the like will start devoting some of their vast and frightening computing resources to it, at least when they're not in use for anything else.

I think the heyday of the individual miner is short lived - sooner or later it will become attractive for companies with vast resources, and we'll simply be outcompeted. This isn't bad, necessarily, it's just where things must eventually end up, in my opinion.

So enjoy it while you can!

      -Tristan

[BitPorium]

Mining will always be barely profitable, but the question is, for whom?

There are economies of scale here, and sooner or later it will be only be worth it for those who can do it most cheaply per bitcoin mined - the big boys. If Bitcoin gets reasonable acceptance as a currency, Google, Amazon or the like will start devoting some of their vast and frightening computing resources to it, at least when they're not in use for anything else.

I think the heyday of the individual miner is short lived - sooner or later it will become attractive for companies with vast resources, and we'll simply be outcompeted. This isn't bad, necessarily, it's just where things must eventually end up, in my opinion.

So enjoy it while you can!

      -Tristan

Seems like a very realistic scenario. But some of the major players from now will also make that transition. I hope the network stays large enough so that two entities dont become the major powers. I dont like the prospect of google or amazon having a large percentage of the network

[eleuthria]

The funny thing about mining profitability is how electricity is priced (at least in most of the US).

Large scale miners pay more per kWh than hobbyist miners.  In MOST of the US (I have yet to hear of any state/area that it is different), you end up paying more for electricity as your usage grows to certain threshholds.  In CA, the base level is around 13-15 cents per kWh.  When I was mining with 7 rigs (14 video cards), almost all the electricity usage was classified in top tier due to high usage for the month.  Top tier pricing is 42 cents per kWh.

The overhead becomes significantly higher once you try to expand beyond a few cards in the computer you already had turned on 24/7.

[lowlevel]

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?

I don't know about there.. but here, its safe to assume you'll pay double the rate/kWh after taxes, trasmission/delivery fees, debt retirement fees, etc.

[AngelusWebDesign]

Yes, you need to take your last electric bill, and write down THREE numbers:

A) How many kW/h you used
B) Your total bill -- how much you have to send in
C) Your "customer charge" or statement fee -- any "fixed" fees that are charged every month.

In my case, there is a $15 statement fee that's charged every month, whether I use 10 kW/h or 5000.
So I subtract that.

Then divide what's left by A to get your rate per kWh.