Why You Haven't Seen Miners Leave in Hordes.....

[P4man]

You are forgetting that the number of miners drives up demand. For every additional miner, every other miner's payout is reduced on average by (1 / total # of miners). This lowers supply (per person) and increases demand.

Im not forgetting that at all. Its precisely the "per person" that make the above nonsensical. I doesnt matter how many miners there are or how many rigs they have. It has zero influence on the overall number of coins minted and zero influence on either supply or demand for bitcoins for either trade or speculation. It only affects individual miner profitability.

If miners don't make a profit, don't expect them to stick around. There goes demand.

Assuming miners act rationally, the number of miners will auto regulate itself to be borderline profitable. But profitability of mining has nothing to do with supply or demand.  Even if everyone in the world starts mining, there will still only be 1 block found per 10 minutes.

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[Etlase2]

Im not forgetting that at all. Its precisely the "per person" that make the above nonsensical. I doesnt matter how many miners there are or how many rigs they have. It has zero influence on the overall number of coins minted and zero influence on either supply or demand for bitcoins for either trade or speculation. It only affects individual miner profitability.

Which, in turn, affects price. And if you think that the amount of people mining has zero influence on supply or demand, you need to take a course on economics. I am not going to try to teach you that here.

Assuming miners act rationally, the number of miners will auto regulate itself to be borderline profitable. But profitability of mining has nothing to do with supply or demand.  Even if everyone in the world starts mining, there will still only be 1 block found per 10 minutes.

And because everyone in the world will only be getting 50/7 billion BTC per block, the cost to produce a block will be in the (hundreds of?) millions of dollars. You think 1 BTC will still sell for $5 if that is the case? Do you think 1 BTC will still sell for $5 if there are only 10 people mining?

[P4man]

Im not forgetting that at all. Its precisely the "per person" that make the above nonsensical. I doesnt matter how many miners there are or how many rigs they have. It has zero influence on the overall number of coins minted and zero influence on either supply or demand for bitcoins for either trade or speculation. It only affects individual miner profitability.

Which, in turn, affects price.

It doesnt. Price of bitcoins is only determined by supply and demand of bitcoins The amount of miners or mining rigs has influence on neither. Perhaps you should take that economy 101.

And because everyone in the world will only be getting 50/7 billion BTC per block, the cost to produce a block will be in the (hundreds of?) millions of dollars. You think 1 BTC will still sell for $5 if that is the case?

You have the relationship backwards.  If 1 BTC is worth $5, do you think 7 billion people will mine for it? As a miner you can not influence the price of bitcoin. You can only affect your own profitability by pulling the plug or buy more mining rigs.  It doesnt go both ways.  Adding more rigs wont influence bitcoin price.

[Etlase2]

It is not a coincidence that bitcoins are selling for around $5. That puts the ROI within a somewhat reasonable margin. With the silk road effect being over with, bitcoins are never going to return to $30 unless new demand is created. That means businesses need to start accepting bitcoins. Since any established business is going to realize what a joke it is, the odds of that happening are low. And if the only solution the bitcoin community can come up with is a way for businesses to immediately convert bitcoins to cash, then there is absolutely no reason for them to use bitcoin at all. And LOL no new demand is created because the coins are instantly put back on the market anyway.

You have the relationship backwards.  If 1 BTC is worth $5, do you think 7 billion people will mine for it?

I do not have the relationship backwards, I just didn't think I would have to spell it out for you that it would be a gradual process. 1 BTC will not be worth $5 if 7 billion people are mining, this should be patently obvious and helpful to draw the conclusion that the cost to miners does indeed have an affect on the price.

[P4man]

It is not a coincidence that bitcoins are selling for around $5. That puts the ROI within a somewhat reasonable margin.

Again, you got it backwards. That bitcoins are selling for $5 *is* indeed "coincidence". Or at least, its totally unrelated to the miners, but purely a result of demand, mostly speculation and some demand for commerce.

That ROI is somewhat reasonable is NOT coincidence. Not because of the price, but because the number of miners automatically adjusts to an equilibrium. You can even calculate that, its really simple. Bitcoin creation is currently fixed at 50 BTC per 10 minutes. Assume a BTC market price of $5 per BTC.

That is $250 per 10 minutes or $1500 worth of BTC per hour.

assume electricity costs $0.1 per KwH
assume everyone uses identical paid for videocards that draw 100W.

One GPU costs $0.1*0.1Kw =$0.01 per hour

So there will be an equilibrium at 150.000 GPUs.  Doesnt matter if its 2 people owning those 150K rigs, or 150K people with a single gpu. More than 150K GPUs, difficulty will increase and the miners will lose money (causing some to pull the plug). Less than 150K GPUs, difficulty will drop and they will make profit (attracting more of them).

Note how I havent used difficulty in the math. Thats because it doesnt change the equation. Difficulty level is what governs the amount of miners towards the equilibrium. If you make an assumption for hashrate, You can even calculate the resulting difficulty level if you want. its that simple.  the amount of miners adjust themselves to the price and costs, not vice versa.

Now you show me the math or even logic how changing the amount of GPUs or # of people owning them somehow influences the price of bitcoins? There is no such relationship.

[Etlase2]

yada yada yada the THash/s has been relatively stable for months now as the price has dropped like a rock. It can't go much lower than $5, or the thash/s is going to start dropping like a rock as well. Supply and demand are at relative parity. But when miners stop "demanding" new coins when the award halves, it's going to fricken crash. That's my point. They are related. I didn't say that the price only comes from the miners' cost to produce. I said it's that plus the speculation. Since there's no real demand for coins other than speculation, the price is approaching the point where it is cost to produce+ROI, but the average cost to produce is half of what people are actually paying to produce. It's dangerous and unhealthy.

miner: I DEMAND coins to sell to speculators!

it isn't one-sided, and it's a terrible economy.

[P4man]

It can't go much lower than $5, or the thash/s is going to start dropping like a rock as well.

Yeah! You're beginning to understand the relationship now !

Supply and demand are at relative parity. But when miners stop "demanding" new coins when the award halves, it's going to fricken crash. That's my point.

Oh, no, you arent
I give up.

As for hashrate being stable. Really?
http://bitcoin.sipa.be/speed-lin-ever.png

You know whats been relatively stable? Mining profit:
http://tvori.info/bitcoin/charts/historical.png
(green line)
Just a short spike when bitcoin bubbled and people couldnt follow bringing enough mining rigs online.

[Etlase2]

here is what I said

it may create a cascade of effects that bring the bitcoin sell price below the value of its current cost to produce. Then another cascade (crash) of effects to follow.

Another cascade to follow. people stop mining, people sell, end of the world is nigh, etc. ad nauseum.

You believe the cost to produce has no bearing whatsoever. But it does. The network becomes less secure, people have less faith, etc. etc. etc. etc.


durrr but the difficulty will just decrease to compensate, jebediah!

[P4man]

Quoting your own previous fallacies does little to prove you point. People stopping to mine has nothing to do with people selling bitcoins. You still dont seem to realize that no matter how many or how few people mine, combined they accumulate exactly the same amounts of bitcoins. 50 BTC per 10 minutes. Whether that is divided by 10 miners or 10 million change nothing about the amount bitcoins they will sell. The will sell 50 BTC per 10 minutes, minus what they keep as speculation.

That in 2 or so years, only 25 BTC will be mined per 10 minutes will have 2 effects: everything else remaining equal (so ignoring a potential increase in transaction fees and especially an appreciation of bitcoins), the amount of miners will half. And admittedly, something will drop in price substantially: the price of used AMD cards. Nothing else.

[Beta-coiner1]

I think the original answer for the original question is that it is still considered profitable.

One can still get a considerable amount of BTC through alternate currencies and I believe "merged mining" in a pool could make that even more profitable in the future when it comes on line.When merged mining comes online the alternate currencies should actually increase in value considering the difficulty increase.

Currently,Solidcoin is the most profitable to BTC.

[Nagle]

Mining peaked around August 1, 2011.

The mining graph has roughly the shape of the Bitcoin/USD price graph, but trails it by about two months. One interpretation of this is that miners hang on an average of two months after they start losing money, then quit.

[Bitcoin_Silver_Supply]

Mining is speculation. There is no magical time frame for how long miners will hold out. They simply stay in the game as long as they believe it may be more profitable in the long run.

[lemonginger]

I can't believe we're another 6 months into this experiment and people still don't understand that the auto-adjusting difficulty means that # of miners has absolutely nothing to do with the supply of bitcoins, thus nothing to do with the demand for bitcoins except in really indirect ways (a miner being perhaps more likely to increase demand for bitcoins by evangelizing about them or convincing a local retailer to accept them, etc)

[CanaryInTheMine]

Calculating ROI by speculating on future BTC value is fallacious.  If you want to speculate, you can just buy BTCs with dollars. The same dollars you need to buy hardware and electricity cost, so they compete.

pretty much all ROI calculations are based on assumptions and "speculating on future"  BTC is not immune to that.
you just have to try to some close to "guessing" what reality/future will be...
variance is used to create several situations/expected outcomes and then you can use probability to pick a scenario that is most likely to happen.

[CanaryInTheMine]

Which only helps those who currently run a business. The average person can't deduct anything like that from their taxes.
And as soon as you're filing taxes for a business, H&R Block charges you $350, not $35.

turbotax.

[CanaryInTheMine]

I can't believe we're another 6 months into this experiment and people still don't understand that the auto-adjusting difficulty means that # of miners has absolutely nothing to do with the supply of bitcoins, thus nothing to do with the demand for bitcoins except in really indirect ways (a miner being perhaps more likely to increase demand for bitcoins by evangelizing about them or convincing a local retailer to accept them, etc)

spot on!

[stryker]

In regards to the OP, seems miners are leaving.... noticed the network is down to an estimated 11.8 Th/s at this time..... as the post above says if its 1.4 Th/s down, thats an awful lot of GPUs :-)

[ercolinux]

In regards to the OP, seems miners are leaving.... noticed the network is down to an estimated 11.8 Th/s at this time..... as the post above says if its 1.4 Th/s down, thats an awful lot of GPUs :-)

11,2Th/s now and the drop in 2 month is of about 4Th/s, 24% less computational power or about 20000 low/medium power video cards (we are back at the levels of end of june but with a higher difficulty and a lower price).
The net is slow to adeguate the difficulty, we need at least a 10% drop in difficulty to keep the pace: if see the graphs when power grows difficulty is all the time below the actuall power, but when there is a drop difficulty stay well over:

[ensign_lee]

Now you guys make wonder, assuming you have a bitcoin business,  if you could deduct losses of your bitcoin holdings as currency exchange costs

Don't forget to report your income generating bitcoins as well.

[SgtSpike]

Don't forget the botnets!  Since there is now malware out that can utilize a person's GPU to mine coins, I wouldn't be surprised if as much as 1/3 of all the TH/s is acquired through botnet activity.