Finally, a correct (endgame) difficulty calculator

[Puppet]

Forget all these history based linear/exponential extrapolations. Now you can actually calculate where bitcoin difficulty is headed.

To be able to calculate that, you need two simple assumptions:
- overall miners are rational and will only keep buying hardware until they reach the point of marginal profitability within a given period (investment horizon).
- Likewise, ASIC vendors will keep producing and selling chips as long as  its profitable, ie, as long as miners are wiling to pay a price above their marginal costs.

To be able to calculate the point where these two cross over, you need to have an idea what the chips cost to produce (and a minimum operational profit margin), and a clear view of costs of the miner.

Fill out your own assumptions by downloading this spreadsheet:
https://docs.google.com/spreadsheet/ccc?key=0ApaVTTCEb_oudGFsUnNuQUVNUGc2Z3VUVmF3ZVBuV2c&usp=sharing

Here are mine, using Hashfasts published numbers:



(updated)

Feel free to add the cost of casing/PSU/shipping/handling etc in the "per chip" field, Im assuming in the long run these things will be sold bare bones without fancy enclosures and the costs of PCB is negligible and miners already have PSUs or wont factor in that cost given they have decent resale value. Feel free to alter those assumptions.

Also note the investment horizon should NOT be compared to today, when difficulty is growing explosively. This spreadsheet calculates the "end game" where difficulty remains fiarly stable, or at least is only really influenced by BTC exchange rate and perhaps mining fees. In such environment, an investment horizon of a few years is entirely reasonable.

Finally, I did make a shortcut in the formula to calculate the cost of these chips. To accurately calculate that based on die size and wafer size, you need a special tool:
http://www.silicon-edge.co.uk/j/index.php?option=com_content&view=article&id=68

My formula uses the correct numbers for hashfasts chip size (177 candidates for a 18mmx18mm chip), but I simply extrapolate linearly for bigger or smaller chips. IN reality smaller chips will generally yield a number of chip candidates per wafers thats slightly more than proportionally to its size (up to a point), and larger chips will yield less than proportional. If you want more exact numbers, just use that calculator and redo the cost per die math yourself, but all the other assumptions are likely a much bigger variable.

In a chart:



edit: corrected yield calculations and per chip costs.

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[Puppet]

BTW, googling for electricity prices, wikipedia shows rates in russia can be as low as 2.4 cents per KWH. That gives this result:



In kuwait its only 1 cent, that would allow the network to reach 1 exahash (1000 PH) if you can solve the cooling problem
Free electricity would bottom out around 1.7 EH.

[DigitalHermit]

overall miners are rational and will only keep buying hardware until they reach the point of marginal profitability within a given period (investment horizon).

Your assumption overlooks the fact that actors can make rational decisions that are not in their interest due to the action of others. Consider the Prisoner's dilemma and how it applies to miners choosing to purchase or not purchase hardware in aggregate:

http://en.wikipedia.org/wiki/Prisoner%27s_dilemma

In the case of mining hardware purchases, the choice is cooperate (don't purchase hardware) or defect (purchase hardware).

If a miner purchases new hardware and most other miners do not, the miner can potentially profit.

If a miner purchases new hardware and most other miners do as well, difficulty goes up to the point that mining is unprofitable for all participants by the time the hardware arrives.

This is the game we are playing and will continue to play until difficulty levels off and profitability for the majority of miners returns.

[Puppet]

In the case of mining hardware purchases, the choice is cooperate (don't purchase hardware) or defect (purchase hardware).

That could be a factor if one entity had a majority part of the hashrate with no competition and it would somehow manage to hang on to that.
But Ive lost count of the number of ASIC vendors that are, or soon will be on the market. There is no way you could get them all in a cartel to "cooperate".  All it takes is one defector.

Miners dont even enter the picture. If someone sells mining rigs at a price appears profitable, someone somewhere will buy it, no matter what existing miners decide.

[JohnDow1968]

I'm surprices this thread doesn't get more attention.
However, I would love to understand it better.
Can you pls hit me up on skype to explain it?

[Puppet]

I'm surprices this thread doesn't get more attention.

Im not. Most miners right now are only looking forward for the next 3-6 months or so. Thats the time during which they will either earn, or more likely, lose a lot of money. As long as you are buying asics at $3-$30/GH it doesnt really matter if the network will top out at 50 or 500PH 24 months later. All that really matters is the next few months. This speadsheet offers no help predicting that.

However, I would love to understand it better.
Can you pls hit me up on skype to explain it?

Why dont you just ask your questions here? Im more than willing to explain anything thats not clear, but the idea of a forum is that its public so everyone can chime in and/or benefit.

What part are you struggling with?

[boozer]

What part are you struggling with?

I'm struggling with the fact that I can't get a good deal on an ASIC right now.  Can you change the numbers to convince me I should buy one from someone 

[User705]

I think your calculations should include ancillary pcb, power, and cooling costs as even if these items aren't sold as a package miners still have to buy them and will calculate the costs into the equation.  At some point I'm sure the extra stuff will cost more then the ASIC chips.  I expect difficulty to overshoot as manufacturers realize that for maximum profitability they must sell in preorder chunks and buyers don't truly see real total order numbers.  Also Puppet is probably correct that miners aren't looking at further then 6 months max for calculations.

[Puppet]

I think your calculations should include ancillary pcb, power, and cooling costs as even if these items aren't sold as a package miners still have to buy them and will calculate the costs into the equation.

PCB, yeah I agree, but frankly Im not in a position to make an educated guess what those would cost in volume. If you look at bitfury blades, thats a whole lot of chips on a single large, but fairly simple PCB. What would that cost in volume? $50  ? I dont know, perhaps a lot less, but even so that would add $2.5 dollar per chip.Whatever you think is reasonable, just add it to the packaging cost.

Power is included, if you need cooling on top of that, you can easily adjust your electricity price.

packages/cases, I dont think is needed. When we mined with GPU's, no one used cases and Ive not seen a lot of demand for bitfury cases either. As long as prices are where they are now, vendors may as well include nice rackmountable cases, but as margins dwindle, we will move towards bare bone rigs on shelves again.

I expect difficulty to overshoot as manufacturers realize that for maximum profitability they must sell in preorder chunks and buyers don't truly see real total order numbers.  

I totallly agree. Moreover, its quite possible that at least some asic vendors will overproduce if they underestimate the production capacity of their competitors. Time between ordering wafers and being able to ship miners to customers is fairly long. So  they may have to sell their last inventories at a loss.

[User705]

I meant power supply which doesn't scale well even in bulk mainly because of raw materials inside and heavy weight so shipping costs are higher.

[Puppet]

I meant power supply which doesn't scale well even in bulk mainly because of raw materials inside and heavy weight so shipping costs are higher.

Already many vendors ship them without PSU. Like KnC, bitfury,.. that doesnt mean you shouldnt include the cost, but I also think most miners have piles of unused power supplies from their gpu's, fpga's and soon to be retired asics. Standard PSUs  are also fairly easy to resell, unlike unprofitable miners so I wouldnt include the cost at 100%.

Also Im not sure how much cheaper you can go if you dont need ATX compliance. A quick check on alibaba suggests it can be done rather cheaply. For instance:
http://www.alibaba.com/product-gs/530704893/power_supply_open_frame.html

360W with a listed price between $1 (?) and $8 depending on volume.

Sure, it all adds up, but doesnt really change things dramatically.

[AndrewWilliams]

Nice work Puppet


Since I am not that technically inclined using new things, can you please summarize if any of the current prospects for mining are profitable? (Will meet ROI)

[Puppet]

Nice work Puppet


Since I am not that technically inclined using new things, can you please summarize if any of the current prospects for mining are profitable? (Will meet ROI)

Thats not what I am even trying to calculate here. Profitability of mining hardware ordered now will be dependent on how fast we move towards the endgame, which depends entirely on the ability of the various manufacturers to ramp production of these rigs, and their speed/ability/willingness to adjust prices to difficulty. I cant calculate something like that, I can only guess.

FWIW, my guess is most of these offers will not be profitable, quite possibly none of them. The only ones that may be profitable are the ones that ship early while most of the competition ships late. Considering the amount of competition out there, that doesnt seem like a wise bet to make.

[Puppet]

Found a decent reference point to get an idea of the cost of the PCB:
From Mercury Research in 2011:


Now keep in mind that videocard PCBs are notoriously complex, requiring many layers and very tight timings (high clocked ram), and yet even the highest end ones dont add more than $8 to the BOM, or $15 or so if you include passive components, connectors and the like.

[ecliptic]

Where did you get your numbers for 36$ per 28nm ASIC Manufacturing Costs?

I'd expect that to be behind several NDAs..

[organofcorti]

Nice work, Puppet. Shame I didn't see this before, then I'd know why you were so anti-ARIMA forecasts

Have you tried using your spreadsheet on historical data to see how it performed? This would give you the ability to include confidence intervals (-ish).

I hope you keep working on it.

[Puppet]

Where did you get your numbers for 36$ per 28nm ASIC Manufacturing Costs?

I'd expect that to be behind several NDAs..

The silicon cost is calculated based on the price per wafer and number of candidates per wafer.  Its not like TSMC or GF have pricelists on their website, but there is plenty of industry analysis literature out there that gives an idea. Im using $4000 per processed 300mm 28nm wafer, which is last years average price. I dont have a public source for you for that, but this may show the ballpark is at least correct:
http://www.xbitlabs.com/news/other/display/20110912192619_TSMC_Reportedly_Hikes_Pricing_on_28nm_Wafers_Due_to_Increased_Demand.html
Note the articel is from 2011.

Prices may have come down further since 2012, and I strongly suspect bitcon asics use less layers than the average (making them cheaper), but otoh $4000 is a volume price that may be out of reach of bitcoin asic vendors today. Since this is an endgame calculator, that doesnt matter much. To get to the above numbers, bitcoin asics would have to become fairly big volume anyway.

As for the other costs, chip packaging is typically calculated per ball, with $0.003 per ball being a good rule of thumb. That works out to ~$3 per chip. The additional $4 per chip I used for testing and handling is probably way too much.

[Puppet]

Have you tried using your spreadsheet on historical data to see how it performed? This would give you the ability to include confidence intervals (-ish).

How do you figure this could be applied retroactively? This doesnt give you a timeline.

[organofcorti]

Have you tried using your spreadsheet on historical data to see how it performed? This would give you the ability to include confidence intervals (-ish).

How do you figure this could be applied retroactively? This doesnt give you a timeline.

I was assuming you'd enter the figures that would have applied months ago. But I just noticed:

Also note the investment horizon should NOT be compared to today, when difficulty is growing explosively. This spreadsheet calculates the "end game" where difficulty remains fiarly stable, or at least is only really influenced by BTC exchange rate and perhaps mining fees. In such environment, an investment horizon of a few years is entirely reasonable.

So you can't do a historical check?

[Puppet]

I dont think you understand what Im trying to calculate here?
 IM trying to figure out the hashrate where mining costs and income are in balance (for a given BTC exchange rate and for the current block reward). Thats just a number that depends on a lot of variables, but mostly electricity cost, energy efficiency, and to some extend, investment horizon, hardware production costs. There is no timeline on when we will approach this, there is no historical data to check against.