Mining at a loss: Insurmountable Problem in the near future or am I mistaken?

[niemivh]

The problem I see in the near future for Bitcoin is that the best hardware that presently exists will soon (months?) be inadequate for mining at existing price levels.  Meaning that buying a Radeon 6990 will not even net you back a worthwhile amount of money (or any) at existing price levels.  As there will therefore be added a tremendous amount of downward pressure on the market at the same time that only more demand for BTC will be able to counteract.

The other built in failsafe to this scenario is the 'transaction fees' that miners and clients can charge in order to process transactions.  Well this presumes a robust economy with people actually trading in goods and services and not what the actual Bitcoin economy looks like.  Look at the charts there is not much movement, and how much of that is even really exchange for goods and services?  Most the value that BTC has gained in USD over the past many months is of a purely speculative nature.

It was a different world when you could get any crap laptop and make 50 bitcoins a day or even a week for the potential gains were much higher for a much lower amount of 'capital investment' (ie, crap laptop that you weren't using anyway), but now with the introductory capital costs being so high with so little returns I don't see a way out of this, which is unfortunate.

I believe we'll have a large shedding of miners soon as the difficulty chews up all but those that are running the various levels of hardware.

Next we'll see another exodus when it hits a competitive level at the level of the highest existing hardware.

Then another one when people who are the enthusiasts (those who tweak every little setting for maximum efficiency) start bowing out.

This may already be happening.  And this combined downward pressure (assuming that the miners sell their BTC when they leave the system) will cause even the highest efficiency miners to question if they want to continue to mine at a loss.  As we've seen it only takes someone with about 4% of the supply of BTC to completely crash the price to $0.01, that is the kind of downward pressure compounded with the lack of liquidity that can be brought to bear.  For example, if one of the primary founders has thought of this problem as I have and would rather try to 'cash out' than hold on and potentially see the project survive it might actually set this 'bomb' off.  There will be plateaus in this process as the difficulty goes down as people are exiting but the overall trend is the same.

I've already sold all my BTC at a loss and am not planning on buying back in, so I'm not hear to start a panic.  I haven't spent the last 2 months organizing meet-up groups for Bitcoin, spending hours a day on this forum and researching bitcoin and money theory and economics and talking to all manner of people about it to try and kill it.  You can take or leave my word on that, it doesn't matter to me.

However the only way I see out of this is:

1) Either to have the client for BTC radically improve so those non-techy can use it (?)
2) Have another wave of users come in and buy BTC (not likely)
3) Develop a custom ASCI that does the hashing, it is unknown if this could even solve this problem for long (very unlikely)
4) Expand the use of BTC as an actual median of exchange as more movement will equate to fees which will better insure the integrity of the network (dependent on the client and other factors)

If there is some glaring thing I'm missing as part of this equation please let me know.

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[kokjo]

mining shall not be profitable!

it should run at 0-cost and 0-profit.

just earning enough to keep your rig going.

when mining is profitable(the price goes up or the difficulty goes down), more miners will come and make mining unprofitable.
when mining is unprofitable(the price goes down or the difficulty goes up), miners will leave and make mining profitable.

its simple supply and demand.

stop crying about it.

[yochdog]

+1 Kokjo

As less robust miners drop out, the difficulty will go down, thus making it more profitable for those who remain.

The network will find an equilibrium, and it will be very much survival of the fittest (or most efficient).

[indio007]

Bitcoins weak link is the other side of the deal. We need to find a way to make the object a bitcoin is exchanged for non-reversible or more certain.


bitcoin is just like cash. Fraud with cash happens all day every day. It's not the cash that's the problem. it's the other side of the deal.

[kokjo]

Bitcoins weak link is the other side of the deal. We need to find a way to make the object a bitcoin is exchanged for non-reversible or more certain.


bitcoin is just like cash. Fraud with cash happens all day every day. It's not the cash that's the problem. it's the other side of the deal.

i do not understand what you mean.

bitcoin can't be counter-feit.

[Mousepotato]

It was a different world when you could get any crap laptop and make 50 bitcoins a day or even a week for the potential gains were much higher for a much lower amount of 'capital investment' (ie, crap laptop that you weren't using anyway), but now with the introductory capital costs being so high with so little returns I don't see a way out of this, which is unfortunate.

I believe you're mistaken.  Mining is much more profitable now than it was back when you could mine 50 BTC per day on a crap laptop.

[MrWizard]

niemivh you are right, mining will not be profitable in the future.  Bitcoin is the only commodity in history that has a GUARANTEED REDUCTION in rewards by 50% every few years until returns drop to ZERO.  Then you are depending on transaction fees which have no guarantees that they will be significant.

[indio007]

Bitcoins weak link is the other side of the deal. We need to find a way to make the object a bitcoin is exchanged for non-reversible or more certain.


bitcoin is just like cash. Fraud with cash happens all day every day. It's not the cash that's the problem. it's the other side of the deal.

i do not understand what you mean.

bitcoin can't be counter-feit.

What i mean is the currency side of the transaction has no problems. It's on the other side.

If I trade bitcoins for widgets, it's the delivery of the widgets where the fraud occurs not the bitcoin side.
Same with cash (unless counterfeit).
Fraud with bitcoin is occurring with the delivery of whatever is traded for the bitcoin whether it be a product or electronic credits.
The ability to defraud is very asymmetric.
Bitcoins value will skyrocket is this issue is solved.

[niemivh]

mining shall not be profitable!

it should run at 0-cost and 0-profit.

just earning enough to keep your rig going.

when mining is profitable(the price goes up or the difficulty goes down), more miners will come and make mining unprofitable.
when mining is unprofitable(the price goes down or the difficulty goes up), miners will leave and make mining profitable.

its simple supply and demand.

stop crying about it.

Apparently you didn't understand anything of what I said.

I'm saying that with the best hardware on the market mining will still be unprofitable soon unless:

1) Better hardware is soon released
2) The price goes up

Neither of these seem probable, hence why I'm reporting it here.  Posts like yours don't make me feel any better about the long-term outlook of Bitcoins.

[ttk2]

mining shall not be profitable!

it should run at 0-cost and 0-profit.

just earning enough to keep your rig going.

when mining is profitable(the price goes up or the difficulty goes down), more miners will come and make mining unprofitable.
when mining is unprofitable(the price goes down or the difficulty goes up), miners will leave and make mining profitable.

its simple supply and demand.

stop crying about it.

Apparently you didn't understand anything of what I said.

I'm saying that with the best hardware on the market mining will still be unprofitable soon unless:

1) Better hardware is soon released
2) The price goes up

Neither of these seem probable, hence why I'm reporting it here.  Posts like yours don't make me feel any better about the long-term outlook of Bitcoins.

Mining becomes unprofitable, miners leave, difficulty goes down, mining is profitable again. Thats how it works.

[Yuusha]

1) Better hardware is soon released
2) The price goes up

3) Difficulty goes down.

[niemivh]

Bitcoins weak link is the other side of the deal. We need to find a way to make the object a bitcoin is exchanged for non-reversible or more certain.


bitcoin is just like cash. Fraud with cash happens all day every day. It's not the cash that's the problem. it's the other side of the deal.

i do not understand what you mean.

bitcoin can't be counter-feit.

What i mean is the currency side of the transaction has no problems. It's on the other side.

If I trade bitcoins for widgets, it's the delivery of the widgets where the fraud occurs not the bitcoin side.
Same with cash (unless counterfeit).
Fraud with bitcoin is occurring with the delivery of whatever is traded for the bitcoin whether it be a product or electronic credits.
The ability to defraud is very asymmetric.
Bitcoins value will skyrocket is this issue is solved.

There are all good reasons for BTC to exist and grow, it's more of the element of it hitting a wall with existing purchasable hardware that is the problem that I'm trying to point out.

[Littleshop]

mining shall not be profitable!

it should run at 0-cost and 0-profit.

just earning enough to keep your rig going.

when mining is profitable(the price goes up or the difficulty goes down), more miners will come and make mining unprofitable.
when mining is unprofitable(the price goes down or the difficulty goes up), miners will leave and make mining profitable.

its simple supply and demand.

stop crying about it.

Apparently you didn't understand anything of what I said.

I'm saying that with the best hardware on the market mining will still be unprofitable soon unless:

1) Better hardware is soon released
2) The price goes up

Neither of these seem probable, hence why I'm reporting it here.  Posts like yours don't make me feel any better about the long-term outlook of Bitcoins.

Depends on what you mean by soon.  We have months of marginally profitable mining for people who already own their rigs.  And for people who do not pay for power mining should be a money maker for a long time.

[niemivh]

mining shall not be profitable!

it should run at 0-cost and 0-profit.

just earning enough to keep your rig going.

when mining is profitable(the price goes up or the difficulty goes down), more miners will come and make mining unprofitable.
when mining is unprofitable(the price goes down or the difficulty goes up), miners will leave and make mining profitable.

its simple supply and demand.

stop crying about it.

Apparently you didn't understand anything of what I said.

I'm saying that with the best hardware on the market mining will still be unprofitable soon unless:

1) Better hardware is soon released
2) The price goes up

Neither of these seem probable, hence why I'm reporting it here.  Posts like yours don't make me feel any better about the long-term outlook of Bitcoins.

Mining becomes unprofitable, miners leave, difficulty goes down, mining is profitable again. Thats how it works.

Funny that you ignored the part of my post that covered that.  Mining difficulty doesn't go down beyond a certain point in each difficulty of the block chain.  I'm talking about a near future when even a lower amount of miners doesn't pan out to the level of difficulty and capital requirement required to start mining bitcoins.

[Mousepotato]

Depends on what you mean by soon.  We have months of marginally profitable mining for people who already own their rigs.  And for people who do not pay for power mining should be a money maker for a long time.

Let's not dismiss the fact that mining was never really profitable until recently.  Early adopters basically had to eat the cost of their H/W and electricity.  If we return to an "unprofitable" state once again, that's fine with me.

[niemivh]

mining shall not be profitable!

it should run at 0-cost and 0-profit.

just earning enough to keep your rig going.

when mining is profitable(the price goes up or the difficulty goes down), more miners will come and make mining unprofitable.
when mining is unprofitable(the price goes down or the difficulty goes up), miners will leave and make mining profitable.

its simple supply and demand.

stop crying about it.

Apparently you didn't understand anything of what I said.

I'm saying that with the best hardware on the market mining will still be unprofitable soon unless:

1) Better hardware is soon released
2) The price goes up

Neither of these seem probable, hence why I'm reporting it here.  Posts like yours don't make me feel any better about the long-term outlook of Bitcoins.

Depends on what you mean by soon.  We have months of marginally profitable mining for people who already own their rigs.  And for people who do not pay for power mining should be a money maker for a long time.

Idk, probably over the next months to a year.  Something like that.  I know that mining with my 6970 is nearly already unprofitable.  Also depends how rapidly the technology advances but the difficulty of Bitcoin greatly outpaces Moore's Law, and that is the problem that I'm talking about.

[niemivh]

Depends on what you mean by soon.  We have months of marginally profitable mining for people who already own their rigs.  And for people who do not pay for power mining should be a money maker for a long time.

Let's not dismiss the fact that mining was never really profitable until recently.  Early adopters basically had to eat the cost of their H/W and electricity.  If we return to an "unprofitable" state once again, that's fine with me.

I didn't forget that.  I mentioned it and brought up that that wasn't the only problem.

I think the echo chamber is on overdrive in here.  The Bitcoiners are starting to believe their own propaganda.

The question is, with the entry costs now being much higher to even mine at a potential for gain, how many people will be flocking to buying the next and greatest video cards to mine at a loss for the foreseeable future?  A lot easier to mine with a old computer rather than a $2000 rig, the potential returns are much higher if you didn't have to buy any expensive equipment in the first place.

[The_JMiner]

Will add .02 BTC later lol

[ttk2]

Depends on what you mean by soon.  We have months of marginally profitable mining for people who already own their rigs.  And for people who do not pay for power mining should be a money maker for a long time.

Let's not dismiss the fact that mining was never really profitable until recently.  Early adopters basically had to eat the cost of their H/W and electricity.  If we return to an "unprofitable" state once again, that's fine with me.

I didn't forget that.  I mentioned it and brought up that that wasn't the only problem.

I think the echo chamber is on overdrive in here.  The Bitcoiners are starting to believe their own propaganda.

The question is, with the entry costs now being much higher to even mine at a potential for gain, how many people will be flocking to buying the next and greatest video cards to mine at a loss for the foreseeable future?  A lot easier to mine with a old computer rather than a $2000 rig, the potential returns are much higher if you didn't have to buy any expensive equipment in the first place.

So? Whats the big deal if we lose a few Terahashes? Network security is well above what it needs to be for the current market cap and exchange rate. And merged mining will increase mining profitability in just a few months by allowing people to mine on multiple block chains at once with the same hashing power.

[static]

so what would you have said to the miners in the beginning when they were paying for electricity -

and bitcoins were trading for 8 cents - with no buyers?



if they had listened to you -

bitcoins wouldn't be roughly $14 dollars now...



you're not factoring in faith.

early adopters had faith in bitcoin's future -

you don't.



so you did the right thing by leaving.

more for the believers.