Why people buy not profitable hardware?

[MysticalCockFungus]

Newbies get excited and wet there pants at making $20 a day from plugging a machine into a wall, they don't do proper research and think that's $20 a day for the rest of their life or however long they think... and wallah you just made a net profit by selling your unprofitable ASIC. 

[nzin]

again, not everyone is good with calculation and bitcoin difficulty, if you tell them they are going to earn blablabla bitcoin they will believe...

right. Personaly, I think 3 things came into account:
- there is hype and stories, and miners are scarce. If they are scarce, in people minds it means that there is something to get.
- the math are hard to get. Sorry but explain how works a decrease in value overtime is not linear but exponential :-), some people don't catch it really. I had to take 10 minutes to explain that to a colleague.
- and when you type "bitcoin calculator" on google, you arrived for example on a BFL sponsored page that fools you (http://www.bitcoinx.com/profit/): sure there is a profitability decline per year on their calculator, but check the value. If (for example) you enter the price of the cointerra and its hashate, the site let you imagine you will make a profit.

Personaly until I used the "expert mode" with http://www.coinish.com/calc/ I didn't know where to get a good simple calculator.

So people are guided on wrong information and (a bit) greed and hype.

[kokojie]

again, not everyone is good with calculation and bitcoin difficulty, if you tell them they are going to earn blablabla bitcoin they will believe...

right. Personaly, I think 3 things came into account:
- there is hype and stories, and miners are scarce. If they are scarce, in people minds it means that there is something to get.
- the math are hard to get. Sorry but explain how works a decrease in value overtime is not linear but exponential :-), some people don't catch it really. I had to take 10 minutes to explain that to a colleague.
- and when you type "bitcoin calculator" on google, you arrived for example on a BFL sponsored page that fools you (http://www.bitcoinx.com/profit/): sure there is a profitability decline per year on their calculator, but check the value. If (for example) you enter the price of the cointerra and its hashate, the site let you imagine you will make a profit.

Personaly until I used the "expert mode" with http://www.coinish.com/calc/ I didn't know where to get a good simple calculator.

So people are guided on wrong information and (a bit) greed and hype.

Except your premise is wrong, same mistake as the OP. You are assuming difficulty will increase by something like 30% perpetually, which simply is false and impossible. The increase in difficulty will also slow down exponentially. We will probably NEVER see a 30% increase again. We are seeing mostly 20% increases nowadays, and soon even 20% will be history. So your "expert mode" calculator will also paint the wrong picture for you, because it assumes difficulty increase perpetually, which is simply UNTRUE, we've had many many difficulty DECREASES in the history of Bitcoin. We will probably see this phenomenon again within 6 months or so (as long as the price stays at $500 level).

[pjviitas]

again, not everyone is good with calculation and bitcoin difficulty, if you tell them they are going to earn blablabla bitcoin they will believe...

right. Personaly, I think 3 things came into account:
- there is hype and stories, and miners are scarce. If they are scarce, in people minds it means that there is something to get.
- the math are hard to get. Sorry but explain how works a decrease in value overtime is not linear but exponential :-), some people don't catch it really. I had to take 10 minutes to explain that to a colleague.
- and when you type "bitcoin calculator" on google, you arrived for example on a BFL sponsored page that fools you (http://www.bitcoinx.com/profit/): sure there is a profitability decline per year on their calculator, but check the value. If (for example) you enter the price of the cointerra and its hashate, the site let you imagine you will make a profit.

Personaly until I used the "expert mode" with http://www.coinish.com/calc/ I didn't know where to get a good simple calculator.

So people are guided on wrong information and (a bit) greed and hype.

Except your premise is wrong, same mistake as the OP. You are assuming difficulty will increase by something like 30% perpetually, which simply is false and impossible. The increase in difficulty will also slow down exponentially. We will probably NEVER see a 30% increase again. We are seeing mostly 20% increases nowadays, and soon even 20% will be history. So your "expert mode" calculator will also paint the wrong picture for you, because it assumes difficulty increase perpetually, which is simply UNTRUE, we've had many many difficulty DECREASES in the history of Bitcoin. We will probably see this phenomenon again within 6 months or so (as long as the price stays at $500 level).

+1

Difficulty will be forced to level out due to technological limitations.

The best projected watts per gigahash is 1W/Gh.

So unless someone comes up with some revolutionary technology soon difficulty will be forced to level out.

[samsonn25]

again, not everyone is good with calculation and bitcoin difficulty, if you tell them they are going to earn blablabla bitcoin they will believe...

right. Personaly, I think 3 things came into account:
- there is hype and stories, and miners are scarce. If they are scarce, in people minds it means that there is something to get.
- the math are hard to get. Sorry but explain how works a decrease in value overtime is not linear but exponential :-), some people don't catch it really. I had to take 10 minutes to explain that to a colleague.
- and when you type "bitcoin calculator" on google, you arrived for example on a BFL sponsored page that fools you (http://www.bitcoinx.com/profit/): sure there is a profitability decline per year on their calculator, but check the value. If (for example) you enter the price of the cointerra and its hashate, the site let you imagine you will make a profit.

Personaly until I used the "expert mode" with http://www.coinish.com/calc/ I didn't know where to get a good simple calculator.

So people are guided on wrong information and (a bit) greed and hype.

Except your premise is wrong, same mistake as the OP. You are assuming difficulty will increase by something like 30% perpetually, which simply is false and impossible. The increase in difficulty will also slow down exponentially. We will probably NEVER see a 30% increase again. We are seeing mostly 20% increases nowadays, and soon even 20% will be history. So your "expert mode" calculator will also paint the wrong picture for you, because it assumes difficulty increase perpetually, which is simply UNTRUE, we've had many many difficulty DECREASES in the history of Bitcoin. We will probably see this phenomenon again within 6 months or so (as long as the price stays at $500 level).

As more and more people chase mining for bitcoins difficulty will keep increasing.

[odolvlobo]

Except your premise is wrong, same mistake as the OP. You are assuming difficulty will increase by something like 30% perpetually, which simply is false and impossible. The increase in difficulty will also slow down exponentially. We will probably NEVER see a 30% increase again. We are seeing mostly 20% increases nowadays, and soon even 20% will be history. So your "expert mode" calculator will also paint the wrong picture for you, because it assumes difficulty increase perpetually, which is simply UNTRUE, we've had many many difficulty DECREASES in the history of Bitcoin. We will probably see this phenomenon again within 6 months or so (as long as the price stays at $500 level).

I agree that it is impossible for the difficulty to increase 30% each period forever. HOWEVER, it doesn't have to do it forever, it only has to maintain that rate for a few months to have almost the same result.

For example, a miner that currently mines 1 BTC per 2016 blocks will mine about 4.3 BTC total if the difficulty increases 30% each period forever. On the other hand, if the difficulty increases 30% each period for 6 months and then 7% after that forever, the miner will mine about 4.4 BTC. The second case is much more realistic, but it has nearly the same result.

[DrG]

Except your premise is wrong, same mistake as the OP. You are assuming difficulty will increase by something like 30% perpetually, which simply is false and impossible. The increase in difficulty will also slow down exponentially. We will probably NEVER see a 30% increase again. We are seeing mostly 20% increases nowadays, and soon even 20% will be history. So your "expert mode" calculator will also paint the wrong picture for you, because it assumes difficulty increase perpetually, which is simply UNTRUE, we've had many many difficulty DECREASES in the history of Bitcoin. We will probably see this phenomenon again within 6 months or so (as long as the price stays at $500 level).

I agree that it is impossible for the difficulty to increase 30% each period forever. HOWEVER, it doesn't have to do it forever, it only has to maintain that rate for a few months to have almost the same result.

For example, a miner that currently mines 1 BTC per 2016 blocks will mine about 4.3 BTC total if the difficulty increases 30% each period forever. On the other hand, if the difficulty increases 30% each period for 6 months and then 7% after that forever, the miner will mine about 4.4 BTC. The second case is much more realistic, but it has nearly the same result.

Thank you for pointing that out.  Everybody who states that it's silly to estimate that network growth rate will be exponential until the end of time hasn't bothered to check to see what the difference is from a hypothetical of just 4 or 6 months.  It's like a petri dish that was just seeded.  Yes sooner or later it will saturate, but we just go incubated 

[samsonn25]

Except your premise is wrong, same mistake as the OP. You are assuming difficulty will increase by something like 30% perpetually, which simply is false and impossible. The increase in difficulty will also slow down exponentially. We will probably NEVER see a 30% increase again. We are seeing mostly 20% increases nowadays, and soon even 20% will be history. So your "expert mode" calculator will also paint the wrong picture for you, because it assumes difficulty increase perpetually, which is simply UNTRUE, we've had many many difficulty DECREASES in the history of Bitcoin. We will probably see this phenomenon again within 6 months or so (as long as the price stays at $500 level).

I agree that it is impossible for the difficulty to increase 30% each period forever. HOWEVER, it doesn't have to do it forever, it only has to maintain that rate for a few months to have almost the same result.

For example, a miner that currently mines 1 BTC per 2016 blocks will mine about 4.3 BTC total if the difficulty increases 30% each period forever. On the other hand, if the difficulty increases 30% each period for 6 months and then 7% after that forever, the miner will mine about 4.4 BTC. The second case is much more realistic, but it has nearly the same result.

Very nice thesis.

[evansearle42]

Newbies get excited and wet there pants at making $20 a day from plugging a machine into a wall, they don't do proper research and think that's $20 a day for the rest of their life or however long they think... and wallah you just made a net profit by selling your unprofitable ASIC. 

not everyone is good with calculation..

[kokojie]

Except your premise is wrong, same mistake as the OP. You are assuming difficulty will increase by something like 30% perpetually, which simply is false and impossible. The increase in difficulty will also slow down exponentially. We will probably NEVER see a 30% increase again. We are seeing mostly 20% increases nowadays, and soon even 20% will be history. So your "expert mode" calculator will also paint the wrong picture for you, because it assumes difficulty increase perpetually, which is simply UNTRUE, we've had many many difficulty DECREASES in the history of Bitcoin. We will probably see this phenomenon again within 6 months or so (as long as the price stays at $500 level).

I agree that it is impossible for the difficulty to increase 30% each period forever. HOWEVER, it doesn't have to do it forever, it only has to maintain that rate for a few months to have almost the same result.

For example, a miner that currently mines 1 BTC per 2016 blocks will mine about 4.3 BTC total if the difficulty increases 30% each period forever. On the other hand, if the difficulty increases 30% each period for 6 months and then 7% after that forever, the miner will mine about 4.4 BTC. The second case is much more realistic, but it has nearly the same result.

I think you missed the part where I said we will probably never see a 30% increase again, last six diff changes:


Feb 28 2014    3,815,723,799    21.92%    27,314,015 GH/s
Feb 17 2014    3,129,573,175    19.39%    22,402,357 GH/s
Feb 05 2014    2,621,404,453    19.49%    18,764,744 GH/s
Jan 24 2014    2,193,847,870    22.59%    15,704,175 GH/s
Jan 13 2014    1,789,546,951    26.16%    12,810,076 GH/s
Jan 02 2014    1,418,481,395    20.12%    10,153,885 GH/s

[samsonn25]

Even 19-22% every 10-11 days is 70+% every month. 

Hardware cannot keep up this pace.

The price of BTC cannot rise that fast either.

End Game.

[kodiak1120]

Even 19-22% every 10-11 days is 70+% every month. 

Hardware cannot keep up this pace.

True.

The price of BTC cannot rise that fast either.

False. 
 

End Game.

Maybe.

[samsonn25]

Quote from: samsonn25 on Today at 03:40:57 PM
The price of BTC cannot rise that fast either.

False. 


If BTC price increased 70% a month till end of year it would be $1,000,000.00

[pjviitas]

Except your premise is wrong, same mistake as the OP. You are assuming difficulty will increase by something like 30% perpetually, which simply is false and impossible. The increase in difficulty will also slow down exponentially. We will probably NEVER see a 30% increase again. We are seeing mostly 20% increases nowadays, and soon even 20% will be history. So your "expert mode" calculator will also paint the wrong picture for you, because it assumes difficulty increase perpetually, which is simply UNTRUE, we've had many many difficulty DECREASES in the history of Bitcoin. We will probably see this phenomenon again within 6 months or so (as long as the price stays at $500 level).

I agree that it is impossible for the difficulty to increase 30% each period forever. HOWEVER, it doesn't have to do it forever, it only has to maintain that rate for a few months to have almost the same result.

For example, a miner that currently mines 1 BTC per 2016 blocks will mine about 4.3 BTC total if the difficulty increases 30% each period forever. On the other hand, if the difficulty increases 30% each period for 6 months and then 7% after that forever, the miner will mine about 4.4 BTC. The second case is much more realistic, but it has nearly the same result.

I think you missed the part where I said we will probably never see a 30% increase again, last six diff changes:


Feb 28 2014    3,815,723,799    21.92%    27,314,015 GH/s
Feb 17 2014    3,129,573,175    19.39%    22,402,357 GH/s
Feb 05 2014    2,621,404,453    19.49%    18,764,744 GH/s
Jan 24 2014    2,193,847,870    22.59%    15,704,175 GH/s
Jan 13 2014    1,789,546,951    26.16%    12,810,076 GH/s
Jan 02 2014    1,418,481,395    20.12%    10,153,885 GH/s

The only way that difficulty can continue to increase is in one of 2 ways:
1. Someone invents a way to get getter than 1 Watt per Giga-hash
2. Bitcoin value continues to increase

Not being able to do #1 will force difficulty to level out due to energy costs.

It has already been shown time and time again that #2 is not going to happen which will again force difficulty to level out due to less miners.

I predict that Bitcoin difficulty will level out before the end of the year.

[J_Dubbs]

if you are spending dollars to obtain the hardware then your investment return will be measured in terms of the future exchange rate of BTC/USD (or whatever currency you used to purchase). My crystal ball is in the repair shop right now, otherwise I'd ask what the future value of BTC will be so we could figure out an answer for you. With something this speculative the further out on the time horizon that you try to forecast the less accurate you will be, and calculating a lagging measure such as ROI does not make sense when forecasting based on present-day values.

The other situation is if you make the purchase with BTC, this is uniquely different because then yes, the medium of exchange is the same as the measure of profitability. So if you spend .5 on a miner, it needs to mine back more than .5 to have a positive return on the sunk costs, and then it needs to cover it's ongoing hidden costs (power use, value of space that it occupies is an opportunity cost measured against the next best use for that space, somewhat subjective to measure that though). The thing is, usually if you are buying equipment with BTC it would be through a group buy on the forums, and in my opinion those are usually priced in a way that most deals will eventually mine back more BTC than they cost, exception probably being the USB sticks.

I'm digressing, my point is if your medium of exchange in relative terms is cash, maybe you bought a miner with USD and you keep your books in USD so you will either exchange your BTC for a realized gain/loss, or you will run a conversion to measure profitability. Thing is, anything other than exchanging doesn't make sense, because your measure can change by 50% tomorrow, nobody knows where BTC is headed, and the level of speculation and risk/reward is why it's exciting enough for us to all rally around it. So this idea that hardware bought with cash will never be profitable is flawed, you cannot base that on present-day value alone, and more than likely BTC will not trade flat for the next 12 months based on clearly identifiable trends. If it was flat like USD/USD then sure go ahead and forecast but BTC/USD is too volatile to reliably declare what is and is not profitable in the future after some time mining. And yes, there are other ways to do it, you can buy BTC on Coinbase then purchase in a group buy, yada yada blah blah- the different methods of acquisition for mining gear are no different than the raw materials acquisition strategy in any industry. The most successful miners identify the gap in the market to acquire gear cheapest, and thus their production setup is more profitable than the novice cash buyer on Ebay. Identifying the gap in the market, and filling it, is the mark of a successful entrepreneur and increased profits are the reward for success.

[odolvlobo]

if you are spending dollars ...

The other situation is if you make the purchase with BTC ...

A better way to think about it is to consider that you could buy a miner that will generate a certain amount of BTC over a period of time, or you could just buy BTC immediately. Pick the option that gives you the most BTC for the price of the miner.

[vnvizow]

Mostly because there are noobs and people who don't understand that does this, later they'll just regret that they've wasted their money but would still want to get something out of the machine and mine a little which in turn is great for the community

[J_Dubbs]

if you are spending dollars ...

The other situation is if you make the purchase with BTC ...

A better way to think about it is to consider that you could buy a miner that will generate a certain amount of BTC over a period of time, or you could just buy BTC immediately. Pick the option that gives you the most BTC for the price of the miner.

Yes, but that ability to identify the gap, where you can leverage better buying power through buying BTC first and then using it to buy a discounted miner is local knowledge to people with some skin in the game; most newbies don't realize this until after they purchase their first miner. But you nailed it, the ability to pick the best option, generally speaking for any business, is the path of least cost or highest efficiency beyond the competition and profit level is the measure/reward for performance, which is essentially the ability to identify and act upon gaps in the market. I believe Lugwid Von Mises outlined all this in Profit & Loss...

Mostly because there are noobs and people who don't understand that does this, later they'll just regret that they've wasted their money but would still want to get something out of the machine and mine a little which in turn is great for the community

Almost there but still too elementary. I'll put it this way: If BTC is exchanging for $100k in 6 months then NOBODY who paid hard cash yesterday for mining gear will be pissed, at all. Will it be worth that much? Well, probably not, I used a very extreme example. My point is nobody knows where BTC is headed and the volatility keeps the door open for future profits almost regardless of where the purchase price may be at. Basically, if BTC goes through the roof exponentially on some future unknown date, which we cannot accurately predict, then the variance levels on sunk costs for equipment will not matter much at all- at least when using a measure in relative terms, such as USD.