Profitability and CEX.io

[JackBlak]

Hi There,

I am new to bitcoin and need advice.

I keep seeing mining 'calculators' but none of them actually shows you how the return is computed step-by-step. I want to understand how to compute this n excel so I can have it next to me everytime I want to make a trade. The part that puzzles most is the difficulty and how that feeds into the calc.

Does anyone have a step-by-step calc, or can you point me to one? I want to enter it into excel.

Secondly. I want to get more hands-on in terms of mining, and trading. I looked at CEX.io and it says that I can get 1GHS for 0.04BTC. Assuming $800 price, that is $32 for one gigahash.
That seems rather high. BFL will be offering hashing power much cheaper quite soon I hear, as will hashfast. Also, I read today that cloud hashing will be offering mining in February for $9.49/ghs.
http://au.finance.yahoo.com/news/cloudhashing-com-announces-industry-first-080629423.html
Seems legit, as these guys were on the new york times front page couple weeks back.

Won't this, combined with BFL soon-to-come machines (and I am sure several others) cause CEX.io prices to plummet? I ask because I have just opened a cex.io account, and I want to make a bit of change day-trading hashing power.

[jorgebonilla]

Not too long ago CEX was trading at 0.08 and it just went downhill in the last couple of weeks.
I was lucky to get out at 0.06 while the BTC created using their GHS vs the BTC lost due to decrease in price was still at a good ROI ratio.

The question is how long will it stay at 0.04 and if it will be enough time to make some BTC?

I'm going back into cex but with a very short trigger, because new and bigger mining gear should be delivered in Late JAN, therefore prices per GHS should drop significantly again in the immediate future. Then again, it might not.

[odolvlobo]

The math behind calculating mining profitability is complicated. Basically, you have to predict the future of the difficulty value and then apply those values to your revenue calculation.

One major shortcut is to model difficulty increases as a constant. That simplifies the calculation considerably. in this case you can compute the total amount of bitcoins you will mine by calculating the amount you will mine in 2016 blocks and dividing that by the increase.

For example, 1 GH/s will mine 0.00496 BTC per 2016 blocks. If you think each difficulty increase will be about 12%, then 1 GH/s will mine at most about 0.041 BTC. That prediction is absurdly low, but it is what cex.io miners predict. A better prediction is 20%, for a total revenue of less than 0.025 BTC. A high side prediction might be 30%, for a total revenue of less than 0.017 BTC. I hope you see from these examples that cex.io is a money loser at the current price.

Finally, in the mining world you should avoid converting to USD in order to simplify calculations and comparisons.

[ProudMiner]

Think CEX.io as a stock exchange market, you buy stocks for a price and you try to sell them at a higher price for profit, in the mean time the GH/s mine coins for a higher profit.
It is not a mining contract, it is a commodity exchange, instead of buying oil, corn, iron or gold, you buy coins and GH/s.
Now it is a good time to start using it because the price is low and there is a good profit margin.

[odolvlobo]

Now it is a good time to start using it because the price is low and there is a good profit margin.

The price is not low -- it will go much lower. The price has dropped about 85% in the last 3 months, and it will continue to drop as the difficulty continues to rise. Some people might be able to sell their shares for more than they paid for them, but most people will lose money.

Furthermore, if you consider GH/s to be a commodity, you have to think of it as a perishable commodity that loses 20+% of its value every 12 days.

[MonkeyDOH]

is only about bitcoin mining ?

[ProudMiner]

No, the profit comes from the difference between the buy and the sell price of the commodities.
Mining is just a bonus.