$12366, first data point.

[KenKaniff]

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[1715288669]

1715288669

[Puppet]

I thought this would be a very interesting assessment. I've heard a lot about people saying to invest in bitcoin rather than mining but yet I haven't seen any solid proof or graphs depicting the exact differences between the two. I know it would be very hard to calculate and display that information considering all the variables and the ever changing price of bitcoin but I'm sure one of the wizards here could.  

Mining is a zero sum game. No matter how much or how little the community invests in mining hardware and electricity, the amount of bitcoins they will mine will remain roughly identical. If you invest too much, you will lose money, its as simple as that. OTOH,  If Satoshi was still the only person mining on his own PC, its clear he would be making a fortune with essentially zero cost.

GPU mining was highly profitable for a long time, until finally difficulty caught up and we pretty much achieved an equilibrium. We are past that point now, even if no one can give you firm numbers of how much miners invested in asics, because vendors arent opening their books. Compounding the problem is that you are also affected by future sales that havent happened yet, but you know they will happen because of the extreme low marginal production cost of asics.

Still let me try to gather some ballpark numbers for the past 6-12 months, even ignoring the 28nm investment surge. Until recently, BFL was the biggest supplier of hashrate. Josh recently claimed they were responsible for roughly half the network hashrate. Lets say they are only responsible for 1PH that has actually been shipped since April. Their hardware currently costs ~$50/GH. That would mean  ~$50M worth of 65nm asics have been shipped.  Another way to guestimate this is his claim they shipped 20.000 asic devices. Using a $2500 average of their middle of the road product, that gives you the same number. It wont be correct, but it will be in the ballpark.  Now most estimates will also tell you have they are no further than 1/3 of their total backorder, they are still only shipping orders from March, which if true, means they received a total of ~$150M worth of 65nm preorders, most of which arent even operating yet.

Now for the catch; when most of these people ordered their hardware, a bitcoin was worth less than $20. So you could say they invested something the equivalent of 7.5 million bitcoins. Thats more than half of the bitcoins that exist. And considering less than 1.5M bitcoins where mined in the past year by everyone combined, only 1/3 would of which could be attributed to BFL miners,  I dont think I need to do the math on whether they will break even when denominated in BTC, or how they fared against someone who bought bitcoins at $20.

[KenKaniff]

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[chrono030]

$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.

If you want to buy my KNC jupiter hashing at 540 gh/s in CGminer for 12k, i wouldn't be opposed to it

[Rival]

The Jupiters sell for about $8500 on ebay.

Obviously, the more hash you buy in a single unit the less you pay for the hash. The Jupiters are less expensive per hash than the BFL singles, which are less expensive per hash than the Little singles, which are less expensive than the Jalepenos... etc. The more you are willing to spend the better deals you can get...just like with everything else. I went with the price of singles as a good average across the price/hash spectrum.

[nexus99]

I thought this would be a very interesting assessment. I've heard a lot about people saying to invest in bitcoin rather than mining but yet I haven't seen any solid proof or graphs depicting the exact differences between the two. I know it would be very hard to calculate and display that information considering all the variables and the ever changing price of bitcoin but I'm sure one of the wizards here could.  

Mining is a zero sum game. No matter how much or how little the community invests in mining hardware and electricity, the amount of bitcoins they will mine will remain roughly identical. If you invest too much, you will lose money, its as simple as that. OTOH,  If Satoshi was still the only person mining on his own PC, its clear he would be making a fortune with essentially zero cost.

GPU mining was highly profitable for a long time, until finally difficulty caught up and we pretty much achieved an equilibrium. We are past that point now, even if no one can give you firm numbers of how much miners invested in asics, because vendors arent opening their books. Compounding the problem is that you are also affected by future sales that havent happened yet, but you know they will happen because of the extreme low marginal production cost of asics.

Still let me try to gather some ballpark numbers for the past 6-12 months, even ignoring the 28nm investment surge. Until recently, BFL was the biggest supplier of hashrate. Josh recently claimed they were responsible for roughly half the network hashrate. Lets say they are only responsible for 1PH that has actually been shipped since April. Their hardware currently costs ~$50/GH. That would mean  ~$50M worth of 65nm asics have been shipped.  Another way to guestimate this is his claim they shipped 20.000 asic devices. Using a $2500 average of their middle of the road product, that gives you the same number. It wont be correct, but it will be in the ballpark.  Now most estimates will also tell you have they are no further than 1/3 of their total backorder, they are still only shipping orders from March, which if true, means they received a total of ~$150M worth of 65nm preorders, most of which arent even operating yet.

Now for the catch; when most of these people ordered their hardware, a bitcoin was worth less than $20. So you could say they invested something the equivalent of 7.5 million bitcoins. Thats more than half of the bitcoins that exist. And considering less than 1.5M bitcoins where mined in the past year by everyone combined, only 1/3 would of which could be attributed to BFL miners,  I dont think I need to do the math on whether they will break even when denominated in BTC, or how they fared against someone who bought bitcoins at $20.

You definitely summed it up for me. That was a really good post. I never looked at the whole picture like you just described. The best investment on the table in the whole bitcoin universe was to be the guy selling the mining equipment!

The person selling the shovels always makes the most money.

[KenKaniff]

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[Syke]

Time to rerun the numbers. New difficulty 391648152.

[CobaltBlueD]

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.

I think you have it backward.  You cannot base value on cost of mining equipment.  If mining is unprofitable, so be it. BTC is worth what people will pay for it. It just means people need to stop spending so much money mining.  IMHO

[Rival]

Today, the first day of the new difficulty, BTC are around $190 on MTGox. But the cost to mine a bitcoin has increased dramatically. Prices of miners have declined but only slightly. I expect they will decline quite a bit more over the next two weeks. Prices of BFL 60 Gh/s singles will have to decline to $951 each (currently $1300) to maintain their previous capabilities in terms of generating BTC per dollar spent.

October 24, 2013: 553Gh/s gets 1 BTC/day @ a cost of $12366 (9.25 BFL singles from ebay) ($22.36/Gh/s)
October 26, 2013: 778Gh/s gets 1 BTC/day @ a cost of $16900 (13 BFL singles from ebay) ($21.72/Gh/s)

[Rival]

October 24, 2013: 553Gh/s gets 1 BTC/day @ a cost of $12366 (9.25 BFL singles from ebay) ($22.36/Gh/s)
October 26, 2013: 778Gh/s gets 1 BTC/day @ a cost of $16900 (13 BFL singles from ebay) ($21.72/Gh/s)

November 05 2013: 1016Gh/s gets 1 BTC/day @ a cost of $22013 (17 BFL singles from ebay) ($21.66/Gh/s)

It was much cheaper in dollar terms just 2 weeks ago to get a bitcoin per day. Not quite half the price, but I do see a trend developing.

This trend will likely break once some supply of more cost-efficient asic's becomes available for immediate delivery in bulk, possibly the AM cube on the 14th.

[JimiQ84]

October 24, 2013: 553Gh/s gets 1 BTC/day @ a cost of $12366 (9.25 BFL singles from ebay) ($22.36/Gh/s)
October 26, 2013: 778Gh/s gets 1 BTC/day @ a cost of $16900 (13 BFL singles from ebay) ($21.72/Gh/s)

November 05 2013: 1016Gh/s gets 1 BTC/day @ a cost of $22013 (17 BFL singles from ebay) ($21.66/Gh/s)

It was much cheaper in dollar terms just 2 weeks ago to get a bitcoin per day. Not quite half the price, but I do see a trend developing.

This trend will likely break once some supply of more cost-efficient asic's becomes available for immediate delivery in bulk, possibly the AM cube on the 14th.

why are you sticking to BFL singles from ebay? Asicminer blades are consistently cheaper and you can get them in same timeframe (2-3 days tops, if you are US resident). AM blade has price of $19.3/GH/s (0.8BTC per blade, $259 per BTC, 10.75GH/s)

[Rival]

Because I am measuring the price of asic miners in dollars instead of btc. At over $300 per coin the blades are now more expensive than the bfl singles when measuring hash/dollar. Ebay was chosen for price points because it is liquid and responsive.

I am tracking dollar cost to mine 1 coin per day. Not bitcoin cost to mine 1 coin per day.

[Puppet]

You are not tracking the cost of mining 1 BTC. You are looking at the purchase price per GH. How many bitcoins that purchase will actually mine is utterly dependent on the network growth, which is (insufficiently) priced in the selling price, and which you are completely ignoring.  So you are ignoring by far the most important mining variable today, and pretend it will be no different in 12 months when hashrate stagnates,  as today when mining revenue is more than halved every month.

You are also ignoring what will become the single most important mining variable in a few months: electricity cost. Once network growth begins to stagnate (or keeps pace only with BTC pricev) you can write off your hardware purchase over 10 years if you want to, completely throwing your only metric out of the window,  but you still have to pay the electricity bill every month. And it wont be long before the cost of mining (actual cost, ie, electricity cost + hardware write off)  will roughly equal the mining revenue. As long as its more than marginally profitable to mine, more people will want to do it, and thus difficulty will go up. Its really that simple.

On top of that, a few things are special about todays situation:
- exponential network growth making estimating mining revenue almost impossible
- due to that growth, extremely short hardware write off period
- inability of suppliers to meet market demand, ie, ridiculous high hardware prices and almost irrelevant electricity costs.

None of these factors will remain.

Whatever it is you think you are measuring or trying to predict, without taking any of the above in to account, it has zero meaning.

[Rival]

It will prove the correlation between the cost of minting new bitcoins and the value of a bitcoin. Or disprove it. When it costs a million dollars to buy the gear to mint one bitcoin per day we will have our answer.

[Puppet]

It will prove the correlation between the cost of minting new bitcoins and the value of a bitcoin. Or disprove it. When it costs a million dollars to buy the gear to mint one bitcoin per day we will have our answer.

But you are not measuring what you claim that you are measuring. The "cost of mining bitcoins"  != hardware prices per GH, and especially not ones sold to end users.
Those are market prices formed by supply and demand, and demand is correlated with bitcoins price and expected future difficulty. Is that really so hard to grasp?

Here is a hint for you: those hardware vendors are making a fortune. You speak of "cost", what do you think it costs KnC to produce a GH? What would it cost Bitfury? Or why is that less relevant than what it costs you?

Secondly you can measure any correlation you want, but you are drawing the wrong conclusions from it (and from incorrect data) because you are (deliberately?) oblivious to the underlying mechanisms, which really arent very difficult to understand.

[k9quaint]

It will prove the correlation between the cost of minting new bitcoins and the value of a bitcoin. Or disprove it. When it costs a million dollars to buy the gear to mint one bitcoin per day we will have our answer.

But you are not measuring what you claim that you are measuring. The "cost of mining bitcoins"  != hardware prices per GH, and especially not ones sold to end users.
Those are market prices formed by supply and demand, and demand is correlated with bitcoins price and expected future difficulty. Is that really so hard to grasp?

Here is a hint for you: those hardware vendors are making a fortune. You speak of "cost", what do you think it costs KnC to produce a GH? What would it cost Bitfury? Or why is that less relevant than what it costs you?

Secondly you can measure any correlation you want, but you are drawing the wrong conclusions from it (and from incorrect data) because you are (deliberately?) oblivious to the underlying mechanisms, which really arent very difficult to understand.

^This^

Plus:
Buying mining hardward (ASIC) is simply a structured purchase of bitcoins (time to delivery varies) with an variable revenue stream of bitcoins (based on future network difficulty). It can be most easily compared with buying a fixed number of bitcoins from an exchange. Just as historical prices are adjusted for inflation, mining performance needs to be adjusted for appreciation in the price of BTC. One could present all prices and revenue in BTC to avoid having to make this adjustment. Reducing a combination of variables (difficulty, hardware price, btc price, delivery date) to a single value will not result in a good indicator.

[Rival]

I do agree that purchasing mining equipment is a way of structuring a purchase of bitcoins, what makes it different is that the total number of bitcoins returned is only a poor estimate due to the inability to accurately predict difficulty increases... one could say it is a bet as to the time difficulty increases will plateau.

That said, I personally believe that there is a component of bitcoin price directly tied to the cost of mining additional coins. There have been quite a number of voices expressing the opinion that they are unrelated. The problem in my opinion was that there was no useful metric. Cost per Gh/s is meaningless as the global hash increases. Fluctuations in the value of BTC make cost analysis almost useless. For that reason I selected a metric that does not ever change as a baseline. 1 bitcoin/day was that metric to which I measure everything else. The change over time of the cost to mine 1 bitcoin per day does not rely on good estimates of future difficulty rates, does not depend on future btc values, and measures today at this moment what is required. No one can with any accuracy project what a particular device will obtain over it's useful lifetime in dollars because no one really knows future difficulty or conversion rates. But they can with reasonable certainty calculate what it costs in dollars today to buy the gear to get 1 btc/day. And that amount is nearly twice what it was two weeks ago.

That tells me that whatever component of btc price is related to mining costs has nearly doubled in two weeks. Comparing this over time with btc prices should allow me to get a rough estimate of what part of the price is related to mining costs. It is really not so complicated.

[Rival]

October 24, 2013: 553Gh/s gets 1 BTC/day @ a cost of $12366 (9.25 BFL singles from ebay) ($22.36/Gh/s)
October 26, 2013: 778Gh/s gets 1 BTC/day @ a cost of $16900 (13 BFL singles from ebay) ($21.72/Gh/s)
November 05 2013: 1016Gh/s gets 1 BTC/day @ a cost of $22013 (17 BFL singles from ebay) ($21.66/Gh/s)

November 17, 2013: 1212Gh/s gets 1 BTC/day @ a cost of $42,420 (20.2 BFL singles from ebay) ($35/Gh/s)

The prices of ASIC units for immediate delivery has increased dramatically over the last few weeks with bidding wars erupting over available units. There is a massive shortage of ASIC miners in relation to the demand due to slow production, and increased demand due to the rapidly increasing value of BTC.

I was hoping to substitute the ASICMiner cube this week for the 60Gh/s BFL units, but they immediately sold out and are not available even on the secondary markets such as Ebay in any quantity. I must say it was unexpected that the price per gh/s increased. It appears that this trend will continue until some company can provide higher hashing units at a lower cost. Many are promising to do so, but none have any available for immediate delivery at this time.

The cost to mine 1btc/day has quadrupled in less than one month. If this trend continues it will be over $100,000 before Christmas.

[LouReed]

October 24, 2013: 553Gh/s gets 1 BTC/day @ a cost of $12366 (9.25 BFL singles from ebay) ($22.36/Gh/s)
October 26, 2013: 778Gh/s gets 1 BTC/day @ a cost of $16900 (13 BFL singles from ebay) ($21.72/Gh/s)
November 05 2013: 1016Gh/s gets 1 BTC/day @ a cost of $22013 (17 BFL singles from ebay) ($21.66/Gh/s)

November 17, 2013: 1212Gh/s gets 1 BTC/day @ a cost of $42,420 (20.2 BFL singles from ebay) ($35/Gh/s)

The prices of ASIC units for immediate delivery has increased dramatically over the last few weeks with bidding wars erupting over available units. There is a massive shortage of ASIC miners in relation to the demand due to slow production, and increased demand due to the rapidly increasing value of BTC.

I was hoping to substitute the ASICMiner cube this week for the 60Gh/s BFL units, but they immediately sold out and are not available even on the secondary markets such as Ebay in any quantity. I must say it was unexpected that the price per gh/s increased. It appears that this trend will continue until some company can provide higher hashing units at a lower cost. Many are promising to do so, but none have any available for immediate delivery at this time.

The cost to mine 1btc/day has quadrupled in less than one month. If this trend continues it will be over $100,000 before Christmas.

Yes, but the price for 1 Bitcoin might be +$10,000 by Christmas at this rate!