$12366, first data point.

[Rival]

$12366 is the amount of money a consumer must spend on average today to have delivered to their home within 2 days the 534 Gh/s currently required to mine 1 bitcoin per day (24 hours).

This number was arrived at by using ebay prices for obtaining 60 Gh/s Butterfly units, the cheapest source I could find ($1400 each) for immediate delivery of hash.

I do not have any historical data for cost of immediate delivery of hash vs amount required to mine 1 btc/day, so I consider this the first data point. It is also important to note that every day more hash comes online, meaning that this datapoint is only really valid until the next diff increase, and is only an average of the cost across the entire 2048 diff bracket we are currently in.

While manufacturers can certainly generate hashing units at a far lower cost, I am looking at only what end user consumers must pay.

If others have information on previous datapoints it would be of some value for plotting the trends and someday determining the direction and velocity of the changes, and forecasting future prices of bitcoins.

[goxed]

$12366 is the amount of money a consumer must spend on average today to have delivered to their home within 2 days the 534 Gh/s currently required to mine 1 bitcoin per day (24 hours).

This number was arrived at by using ebay prices for obtaining 60 Gh/s Butterfly units, the cheapest source I could find ($1400 each) for immediate delivery of hash.

I do not have any historical data for cost of immediate delivery of hash vs amount required to mine 1 btc/day, so I consider this the first data point. It is also important to note that every day more hash comes online, meaning that this datapoint is only really valid until the next diff increase, and is only an average of the cost across the entire 2048 diff bracket we are currently in.

While manufacturers can certainly generate hashing units at a far lower cost, I am looking at only what end user consumers must pay.

If others have information on previous datapoints it would be of some value for plotting the trends and someday determining the direction and velocity of the changes, and forecasting future prices of bitcoins.

Unless the manufacturers have paid off their NRE costs, you may have to amortize it.

[Rival]

Wow, my math was messed up.  Time to show my work:

Each 60Gh/s machine generates nearly .06/ day.
17 machines will generate 1.04/day at 1024 Gh/s (1 Th/s!)
17 machines at $1400 each = $23,800.

That's a lot of cash to get a bitcoin per day for a very limited time. It appears bitcoins are stupid cheap at $200 each.

[Syke]

Wow, my math was messed up.  Time to show my work:

Each 60Gh/s machine generates nearly .06/ day.
17 machines will generate 1.04/day at 1024 Gh/s (1 Th/s!)
17 machines at $1400 each = $23,800.

That's a lot of cash to get a bitcoin per day for a very limited time. It appears bitcoins are stupid cheap at $200 each.

But your numbers ignore the fact that BFL is way overpriced. You can get 1 TH/s for $10k.

[Rival]

Wow, my math was messed up.  Time to show my work:

Each 60Gh/s machine generates nearly .06/ day.
17 machines will generate 1.04/day at 1024 Gh/s (1 Th/s!)
17 machines at $1400 each = $23,800.

That's a lot of cash to get a bitcoin per day for a very limited time. It appears bitcoins are stupid cheap at $200 each.

But your numbers ignore the fact that BFL is way overpriced. You can get 1 TH/s for $10k.

Where can you get 1 Th/s delivered immediately for $10K? I am intentionally ignoring any pre-order offers because in every case the diff will change before they are ever delivered and brought online.

[Rannasha]

You can get 534 GH/s at roughly 0.09 BTC per GH/s right now on cex.io (counting in some slippage with a large order). With current BTC/USD price of $200, that's $9612.

[Rival]

You can get 534 GH/s at roughly 0.09 BTC per GH/s right now on cex.io (counting in some slippage with a large order). With current BTC/USD price of $200, that's $9612.

Yeah, but in my revised (unscrewed up calculations) you need right at 1 Th/s for 1 btc/day. So:

1000 Gh/s * 0.09 btc * 205 $/btc = $18450 for 1btc/day. Plus or minus a little here and there. Better than buying BFL singles on ebay, but still pretty pricey for coins.

[wobber]

You can get 534 GH/s at roughly 0.09 BTC per GH/s right now on cex.io (counting in some slippage with a large order). With current BTC/USD price of $200, that's $9612.

Yeah, but in my revised (unscrewed up calculations) you need right at 1 Th/s for 1 btc/day. So:

1000 Gh/s * 0.09 btc * 205 $/btc = $18450 for 1btc/day. Plus or minus a little here and there. Better than buying BFL singles on ebay, but still pretty pricey for coins.

What? But you'll mine more than 1! maybe 30~

[wobber]

So, given all this data, how could we compute the best price for a BTC in current mining conditions?

[wtfvanity]

So, given all this data, how could we compute the best price for a BTC in current mining conditions?

Since the price or difficulty do not follow each other, no.



And why are you assuming that BFL can deliver a product for that amazing price, and have it delivered before the next, say 4, 5 or 6 difficulty changes. By the time you sink 10 or 20 grand into generating 1 BTC a day, you probably won't generate 0.1 a day by the time they deliver.

A better estimate, if you are trying to calculate it this way, would be someone who can deliver in 2 business days. That would probably be AM miners, but your cost is going to be higher.

[wobber]

"Price and difficulty do not follow each other"

you mean nobody found a relationship between them yet, doesn't really mean it doesn't exist

[wtfvanity]

"Price and difficulty do not follow each other"

you mean nobody found a relationship between them yet, doesn't really mean it doesn't exist

So... you've figured it out and are going to share it with us? Or, no one has found that relationship, so the answer to your last question, is still... surprise! no!

[Rival]

My use of BFL singles was based upon prices for in-hand units from ebay, not for preorders from BFL.

Although imperfect, ebay is a generally accessible marketplace with price-discovery mechanisms. If people bid them up to around $1400, it is not unrealistic to utilize this as a price-point for purchases.

There must be a correlation between mining costs and coin values. If it cost zero to mine a coin per day the value of BTC would be effectively zero. (reduction to absurd). One could simply mine as many as they like rather than spend currency obtaining them. On the flip side, if it cost 1 trillion dollars to mine a single coin, the value of a coin would certainly be greater than zero or else no coins would be minted. So long as people continue to mine we must assume the value to be greater than zero.

The question that everyone should be asking themselves is "How to we measure and correlate that effect?".

The first step in solving is to look at what terms we need. We need a way to measure mining results. That is why I went with 1BTC/Day, a unit of measure which is independent of difficulty and btc value. 1BTC/day is a fixed unit that does not change.

Then we ask ourselves, what resources are required to generate the 1BTC/Day? What resources were required last week? last month? last year? But more importantly, the real question is: What will be the cost NEXT YEAR?"

If the cost to generate 1BTC/day is twice next year what it is this year, then the component of btc price that is affected by mining results should double as well. The final piece of the formula is finding exactly how much influence this cost has on BTC prices, and whether this influence is increasing or decreasing.

So many questions, so little time...

[Rival]

Right now, today, if you have no mining gear and a big pile of dollars, how many dollars would you have to spend to achieve 1BTC/day today?

(For our purposes, we can ignore the two-three-day shipping periods for existing equipment, and will not use pre-orders for equipment not yet built)

What is the cheapest we can do it today?

(Better hurry, in 3 more days it will cost a whole lot more)

[wtfvanity]

Right now, today, if you have no mining gear and a big pile of dollars, how many dollars would you have to spend to achieve 1BTC/day today?

(For our purposes, we can ignore the two-three-day shipping periods for existing equipment, and will not use pre-orders for equipment not yet built)

What is the cheapest we can do it today?

(Better hurry, in 3 more days it will cost a whole lot more)

I missed that part sorry. Still, you can pick up Asicminer blades for about 1 BTC right now, brand new, quick shipping, and that is a similar price point as the used stuff on ebay.

40% jump Sunday is gonna make some miners very sad.

[Rival]

Right now, today, if you have no mining gear and a big pile of dollars, how many dollars would you have to spend to achieve 1BTC/day today?

(For our purposes, we can ignore the two-three-day shipping periods for existing equipment, and will not use pre-orders for equipment not yet built)

What is the cheapest we can do it today?

(Better hurry, in 3 more days it will cost a whole lot more)

I missed that part sorry. Still, you can pick up Asicminer blades for about 1 BTC right now, brand new, quick shipping, and that is a similar price point as the used stuff on ebay.

40% jump Sunday is gonna make some miners very sad.

Actually, my $12366 was correct, a 60Gh/s miner does about 0.12 per day, not 0.06. Today it is in the $10K -$12K range. Next week the prices of all hardware should depreciate by some percentage, and the price of btc should increase by some percentage. Regardless, I suspect the cost to achieve 1BTC/day should increase, by how much remains to be seen.

[Puppet]

There must be a correlation between mining costs and coin values. If it cost zero to mine a coin per day the value of BTC would be effectively zero. (reduction to absurd).
One could simply mine as many as they like rather than spend currency obtaining them. On the flip side, if it cost 1 trillion dollars to mine a single coin, the value of a coin would certainly be greater than zero or else no coins would be minted. So long as people continue to mine we must assume the value to be greater than zero.

You got it backwards. THe cost of mining doesnt influence the price of bitcoins. In your logic you are ignoring the fact that the network adjusts difficulty automatically, thereby constantly changing the cost of mining 1 BTC per day pretty dramatically. In the end, the cost of mining a bitcoin will roughly equal the value of a bitcoin, but this is due solely due to changing difficulty and will happen no matter at what price bitcoin is or how much a GPU or ASIC costs to produce or to run.

Also you shouldnt look at the retail price of mining gear, that price just represents what idiots who cant do math are willing to pay. Looking at costs of mining gear is looking at it the wrong way, this gear is developed and priced so it can make a profit based on bitcoins price, not the other way.  But if you insist, why dont you look at the real costs, ie, production cost instead? By my estimate, a hashfast 400GH asic costs less than $35 to produce. Add PCB, PSU etc, and you may get up to $100 per 400GH tops. Does that mean bitcoin is currently overvalued? Of course not. It just means that HF will make a ton of money and difficulty will skyrocket, thats all it says.

[Rival]

I have seen this chicken and egg argument enough times already. It has already been proven through regression theory, at least to my satisfaction. Originally bitcoins were generated with essentially zero cost and had essentially zero value. The first offer of USD for bitcoins occurred at least 6 months before the first dollar was spent on equipment to mine more than what could be achieved by what was just lying around. The value of bitcoins led the expenditure of mining and still does. Mining is an expression of a desire to chase the value of a bitcoin.

There are currently many factors affecting the daily value of a bitcoin. But one cannot suggest that the cost to mine them is irrelevant. They now are in a symbiotic relationship. If the cost to mine bitcoins dropped to zero, the value of the coins would plummet to zero quickly. If the cost to mine bitcoins shot to a trillion dollars, no more coins would be mined and the price of bitcoins would skyrocket. But it is symbiotic as I stated, and works both ways. If I woke up tomorrow and bitcoins were $100,000 each I would go on ebay and buy every single ASIC miner I could get my hands on at current prices, helping the prices of ASIC gear climb to astronomical levels. So would everyone else, regardless of how much it costs the manufacturer to build them. When you berate people who buy them today what you are really saying is that you think that they are overpriced in relation to the current price of bitcoins, and proving my point. When they buy them, they think bitcoins are under-priced and will increase. I am aware of the false dichotomy which states that if you think bitcoins will increase in value, you are better off buying the coins and holding them as opposed to buying mining gear. This is not true for all scenarios. One example is where a sustained drop in global hash leading to decreasing difficulty levels would make mining a superior choice. Another is when you obtain hash rates at prices far below what the average miner can obtain them for. There are others.

I have demonstrated that it currently costs around $12,000 to mine 1BTC/day today. This is not what it cost last month, last year, or two years ago. I think it is important to be able to forecast what it might be next month, or even next year, and I am certain there are plenty of others who would like to know as well.

That is why I want to quantify this relationship. It also works quite well as an answer to people who just spout things like "mining costs do not affect the price of bitcoins" without doing even the most basic research first.

[glub0x]

Strongly agree good post!

[Puppet]

I think it is important to be able to forecast what it might be next month, or even next year,

And just how do you hope to do that without knowing what a bitcoin will be worth?

Its not a chicken and egg problem, its quite obvious that mining difficulty follows price and not the opposite. Its quite obvious that mining equipment is priced at a point that chases mining profitability. Why else do january orders cost half as much as december orders?

 If you like regression theory so much, what do you think would happen when we are hit with a 51% attack, making the mining of new bitcoins impossible? Your mining cost will shoot to infitinty, but do you think the price would follow?  OR would it crash ? What if Bitfury were to deploy a 100PH private farm tomorrow? Mining cost for everyone else would explode, would it cause an increase of bitcoin price?  And what happens if bitfury decides to double it from 100 to 200PH ? THey double their costs and what else changes? Nothing.

Similarly, if SHA256 would be hacked causing the price to crash to nearly zero, dont you think that will have an impact on the price of mining equipment? Or do you think mining equipment will drop in price first and only when mining becomes cheap, the price of bitcoin will follow?

Miners control only a very small amount of the coins traded each day. Something like 1%. How you think they control the price is beyond me.