Caveat emptor

[gmaxwell]

Mining is the process of converting energy into proof-of-work
for the purpose of establishing a tamper-resistant historical
record in Bitcoin.

While mining rewards miners with transaction fees and freshly
created coins, mining is not a magical money making process.
In theory, Mining exists in perfect competition, so mining
profitably can be difficult or even impossible.

Currently the Bitcoin system releases ~3600 BTC per day and
these coins are shared proportionally by the miners according
to their relative hashpowers. As overall hashpower increases
the return per hashpower decreases. In recent times hashpower
has been doubling every month or so.

Many mining companies engage in a practice of selling
"pre-orders" thereby shifting the substantial risks of hardware
development entirely onto their customers. The practice of
preorders also exploits ignorance about the future income
mining will yield: People compute their income as if they
had the hardware today, when it's not scheduled for delivery
until months later...

And then almost every hardware maker has missed their
scheduled deadlines. Because of the rapid growth of hashrate
a weeks delay can mean the difference between a nice profit
and a loss. Many makers have also delivered devices substantially
under spec, many others have been outright scams which have
failed to deliver anything at all.

Some of the most experienced people in Bitcoin have lost out
in these offerings, don't just assume you won't be taken.

Companies which have cost people thousands of coins that
they'll never recover are still operating with impunity,
fueled by a seemingly never ending wave of people eager
to get involved who think that mining is a lower risk
way of obtaining coins.

Hosted mining companies with immediately available hashpower
often sell it at greater than it's expected value and themselves
represent enormous consolidation risks to the Bitcoin ecosystem.

In reality, mining is risky: It's riskier than holding
bitcoins because it's comparatively illiquid, and current
mining hardware is not really useful for any other applications.
These risks are multiplied by the unreliability of hardware companies
and the uncertainty of future mining income. Keep in mind: few
companies disclose how much hardware they are selling to other
people, and many of them roll their profits into buying their
own gear at cost and mining in competition with their investor-customers.

That said— I enjoy mining and I would not discourage people
joining in. Mining is essential to the security of Bitcoin.
It's important that mining be widely distributed and especially when people
mine using P2Pool it contributes to keeping Bitcoin decentralized and secure.

Just don't rush in thinking you are going to make a ton of riskless
money. At current retail prices I doubt most hardware available will
break even unless the growth rate slows substantially, which seems
unlikely in the near term. I think the exuberance of miners has
fueled the irresponsibility in hardware companies and driven more
competent and cautious parties out of the market.

It's all our our responsibility to behave sensibly if we want bitcoin
to flourish.

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[Minor Miner]

Purchasing pre-orders basically is financing a company that may use your money to "steal" from you in the end.   The temptations are too big for many companies.   If they just delay your delivery until the next wafer lot (and ignore you for a month or so), they can sell your pre-order to someone else that steps in later (after proof of concept) and offers more money.
There are laws against this but many in bitcoin take years to realize that laws apply to them.   A good law to become familiar with is tortuous interference.  Many states offer treble damages as the MINIMUM judgment.  
What does that mean to miners?   I will give an example.   Let's say someone familiar with the way ASICs are pre-ordered, did not pre-order but now has collected a lot of money from other people and wants some machines in the worst way.   He knows that the manufacturer has a contract for most of their preorders.  But instead of just buying the "cushion" units from the early batches (better yields or the units held back to be safe), he wants more.   If that person, enters into an agreement with the manufacturer that damages someone with an existing contract, it is tortuous interference and the damaged party has a claim against both parties.  An example of this would be the diversion of a large portion of a sold out batch to a customer that recently came to the manufacturer with cash (instead of waiting in the established queue).
I believe this has happened many times.   I believe it will happen again.   Avalon batch II seems very suspicious to anyone who was a customer at the time and saw the pictures of their machines months before they were delivered.   But, it makes the stakes VERY HIGH for anyone whose lawyer gets to discovery and finds behavior like this.   That lawyer should post here because the clients will be a plenty.
Please do not pre-order.   I like to mine.   I mine in a serious way, beyond being able to call it a hobby.   BUT, I will never buy a pre-order again.   If companies have not risked their own capital (or profits they have made from the free capital given in early batches) and do not have units ready to ship same day, I will not buy them.
I hope others start behaving this way also.   Several manufacturers will go bankrupt (some from greed and misuse of customers' funds) as the market becomes saturated and demand dries up.   If you have a pre-order with that company, you will lose 100% of your money.

[gmaxwell]

One possible way to address the head of line behavior is for us to put our funds in escrow (doesn't require risking the funds to a third party, see bitrated.com) only to be released if the product is delivered on-time, with clear pro-rating for late delivery.

The problem is that so long as there is an excess demand for mining hardware at any cost— including paying prices that can probably never make a profit— it will be harder for the community to get vendors to accept terms like that.  Why sell to the guy who armors himself against fraud when you can sell to a sucker?

I worry that the end result is that most sane people will sit back and not mine, most who do mine will lose their shirts and not continue, and more hashrate will end up consolidated with major private facilities that did have the leverage to secure preferential treatment to the ultimate detriment of Bitcoin.

[perezoso]

I worry that the end result is that most sane people will sit back and not mine, most who do mine will lose their shirts and not continue, and more hashrate will end up consolidated with major private facilities that did have the leverage to secure preferential treatment to the ultimate detriment of Bitcoin.

Worry that could be the end result?  You are behind the curve, core developer.  The process of transition is already well underway. To wit, KnC (which, ironically, largely made good on preorders).  

The pre-order saga demonstrates that it's time to discard quaint notions of fair play and civil discourse on this issue, gmaxwell, because the cesspool ethics of a number of people that have been attracted to offering Bitcoin pre-order sales - I need not mention two particularly bad US-based companies, based in California and Kansas, by name - have amply shown that they simply are not responsive to ethical considerations and rational discourse.  

Please stop hesitating to acknowledge this simple reality, as your failure to do so ultimately only serves to enable the same behavior that has lost both you and me value, and which is an ongoing discredit to this community.  And stop shooting the messenger.

[gmaxwell]

Worry that could be the end result?  You are behind the curve, core developer.  The process of transition is already well underway. To wit, KnC (which, ironically, largely made good on preorders).  

Made good, but go compute the returns on their hardware—

At the moment the only ASIC hardware sales I know have broken even (or better) vs just sitting on your Bitcoin (or buying coin if you didn't already have it) are B1 Avalon, and  early Bitmain Antminers (jury is still out on ones being sold now).  There may be some of the bitfury devices included in that club depending on timing, but I'm not actually sure of that since the prices changed a bunch of times.

Might be interesting to build up a table of "device/when/cost in btc/yielded btc to date" to highlight how screwed up the situation is.

I don't know what you're saying I'm failing to acknowledge. The purpose of this thread is to raise awareness for other people about things I already know. I think that some of the problems will be diminished if the pool of potential victims is more savvy and refuses to accept the sketchy or outright dishonest behavior.

[midnightmagic]

No, KnC didn't "largely make good." At all. Their customers can only pretend they made ROI because bitcoin price rose unpredictably high.

[SirWizz]

No, KnC didn't "largely make good." At all. Their customers can only pretend they made ROI because bitcoin price rose unpredictably high.

Sure they did. They delivered what they promised in a reasonable time frame. They are not responsible for you getting all your BTC/money back or otherwise, that risk is yours to take.

[gmaxwell]

Sure they did. They delivered what they promised in a reasonable time frame. They are not responsible for you getting all your BTC/money back or otherwise, that risk is yours to take.

I think it's more productive to speak concretely— People spent X coins, returned X*.8 coins or whatever, than to try to debate the fine details of "make good".

The hardware vendors have an enormous informational and control advantage over their customers: They know what the pre-order queue and delivery pacing will look like, they know and control how much of their own hardware they intend to buy with, they control how much hardware they sell to other people.  As such, I do think it's a little disingenuous to say "risk is yours to take". If it was pure uncertainty unknown the the buyer and seller then that would be the case, it's not so simple where the informational/control advantage exists.

[novello]

In this rather peculiar and specialised marketplace, normal rules don't apply. If you do away with all companies that start up with pre-order money, then you'll be left with a few that have past revenues to sustain their future development.

That would dilute any notions of competition - if there were, say, three left then there would be no real incentive to compete against each other, not when there would be such rich pickings, and like it or not, miners would end up paying a lot more for their hardware.

Just remember that buying is a choice, no one is forced to do it but they do because, as gmaxwell has pointed out, they have grand visions of making millions through mining. For most, that's simply never going to happen - you need too much money to start with to buy enough equipment, etc. That's not to say you can't make a reasonable return from a reasonable investment, especially if the chip/rig vendors stop being so greedy.

It will be very interesting to see what happens with the little ASICMiner chip - it's a nice, elegant idea but I'm sure it'll end up being hijacked by the middlemen and that end customers will never get anything anywhere near 1$/Gh let alone the headline $0.5/GH.

[gmaxwell]

In this rather peculiar and specialised marketplace, normal rules don't apply. If you do away with all companies that start up with pre-order money, then you'll be left with a few that have past revenues to sustain their future development.

Thats not so. You can use clear terms and investment rather than pre-order nonsense. With transparency and equity in the business things would be much better off.

Just remember that buying is a choice, no one is forced to do it ... That's not to say you can't make a reasonable return from a reasonable investment, especially if the chip/rig vendors stop being so greedy.

Right and I hope with this thread to advance people's understanding and thereby improve the whole market place. If miner hardware charlatans cannot exist without miner buyer rubes.  I've never bought mining hardware with grand plans of making a lot of money, I've bought hardware with the intention of supporting the network— and hopefully not losing (a bunch) on the process, maybe make enough to pay for the effort.  I'm a little irritated that it's become hard to do that and to sort out all the fraud because too many people are willing victims.

[eiliant]

Just want to say thanks for this sticky.

[SirWizz]

The hardware vendors have an enormous informational and control advantage over their customers: They know what the pre-order queue and delivery pacing will look like, they know and control how much of their own hardware they intend to buy with, they control how much hardware they sell to other people.  As such, I do think it's a little disingenuous to say "risk is yours to take". If it was pure uncertainty unknown the the buyer and seller then that would be the case, it's not so simple where the informational/control advantage exists.

While there is some truth to what you are saying, no one knows what the landscape will look like in a few months and that's why I believe the risk is still largely on the buyer's side. The risks the manufacturers face are multiple as well, however they have been paid for taking said risks. The buyer (miner) is taking a huge risk gambling on a future that's virtually unknown to anyone. Also, while one company can control what they do and they should be held responsible for their actions they can't control what others are doing or predict the future, therefore I will argue that ultimately the risk is yours to take.

[novello]

In this rather peculiar and specialised marketplace, normal rules don't apply. If you do away with all companies that start up with pre-order money, then you'll be left with a few that have past revenues to sustain their future development.

Thats not so. You can use clear terms and investment rather than pre-order nonsense. With transparency and equity in the business things would be much better off.

Just remember that buying is a choice, no one is forced to do it ... That's not to say you can't make a reasonable return from a reasonable investment, especially if the chip/rig vendors stop being so greedy.

Right and I hope with this thread to advance people's understanding and thereby improve the whole market place. If miner hardware charlatans cannot exist without miner buyer rubes.  I've never bought mining hardware with grand plans of making a lot of money, I've bought hardware with the intention of supporting the network— and hopefully not losing (a bunch) on the process, maybe make enough to pay for the effort.  I'm a little irritated that it's become hard to do that and to sort out all the fraud because too many people are willing victims.

Investment is a good thing, but many times it also equates to a substantial risk of losing your money. Experienced investors understand this, miners would have great difficulty in parting with their money for the promise of a potential future return. If company X says to you, "put $1000 into my company and I'll give you 1 share of the 10,000 the company will offer" the first question most miners will ask is "and what do I get for it?". The range of potential answers are mostly not what miners want to hear - they want a return, and in as short a period as possible. A conventional investment model simply won't work for most miners.


I'm sure that forum members appreciate what you're trying to do, and your philanthropic nature - I certainly do - but greed is always going to make people take more risks. Any experienced asic engineer looking at the Hashfast or Cointerra initial offerings would be alarmed at their underlying arrogance and lack of hard technical detail in their pitch. But many other simply see $ signs and the chance to get one up on their competitors, so take the risk. You'll never stop them, but I agree that it's worth the effort.

[rograz]

At the moment the only ASIC hardware sales I know have broken even (or better) vs just sitting on your Bitcoin (or buying coin if you didn't already have it) are B1 Avalon, and  early Bitmain Antminers (jury is still out on ones being sold now).  There may be some of the bitfury devices included in that club depending on timing, but I'm not actually sure of that since the prices changed a bunch of times.

You can add Avalon minis to that short list, they ended up being cheap enough due to the low interest for the tradehill auction to turn out fairly profitable.

Stats for my 10 avalon minis until they were sold off http://eligius.st/~wizkid057/newstats/userstats.php/17zSH1nmnY1wHoJST95hReALa9ecfSFsEw

[bitcoin_miner]

many thanks  for this  thread.

this is idea to good invest in mining bitcoin hardware
check using mining profit calculator before buy mining hardware. check you'll get ROI in one or two months or not. If ROI more three months, you'll get big get risk your invest may  be will not return. caused difficulty in mining bitcoin.
don't pre-order for miner hardware. buy miner from manufacturer that  can ship mining hardware in one or two days.

[spin]

Should this not be a sticky on all mining forums?

[billotronic]

Good post sir!

One little thing to sudo factor in is the possibility of achieving ROI by dumping used hardware on ebay etc which was the reason I made profit on my BFL jalapeno.

[Minor Miner]

Good post sir!
One little thing to sudo factor in is the possibility of achieving ROI by dumping used hardware on ebay etc which was the reason I made profit on my BFL jalapeno.

Assuming "the greater fool theory" will work into your favor is only good for so long.    Not an easy exit for someone ordering now and not getting the miner for 2 months or 3 or 6?

[billotronic]

Good post sir!
One little thing to sudo factor in is the possibility of achieving ROI by dumping used hardware on ebay etc which was the reason I made profit on my BFL jalapeno.

Assuming "the greater fool theory" will work into your favor is only good for so long.    Not an easy exit for someone ordering now and not getting the miner for 2 months or 3 or 6?

Well that and a little "One mans trash is another mans treasure" and sure the hell not talking about selling it for the full cost.

And I guess it would also greatly depend on the hardware in question. Personally, after my own experience with BFL (and I was a lucky one who actually got my jala in a 'reasonable' amount of time) I sure wont preorder any miners ever again. I would rather not mine then to go through that again and my jala only cost 260... can't imagine dumping 10k... those bastards are lucky they have not been lynched.

[achillez]

Worry that could be the end result?  You are behind the curve, core developer.  The process of transition is already well underway. To wit, KnC (which, ironically, largely made good on preorders).  

Made good, but go compute the returns on their hardware—

At the moment the only ASIC hardware sales I know have broken even (or better) vs just sitting on your Bitcoin (or buying coin if you didn't already have it) are B1 Avalon, and  early Bitmain Antminers (jury is still out on ones being sold now).  There may be some of the bitfury devices included in that club depending on timing, but I'm not actually sure of that since the prices changed a bunch of times.

Might be interesting to build up a table of "device/when/cost in btc/yielded btc to date" to highlight how screwed up the situation is.

I don't know what you're saying I'm failing to acknowledge. The purpose of this thread is to raise awareness for other people about things I already know. I think that some of the problems will be diminished if the pool of potential victims is more savvy and refuses to accept the sketchy or outright dishonest behavior.

I made good $ on my BFL equipment