Is Bitcoin mining a zero-sum game? Or is it a race to the top?

[StanCrypt]

Big firms like Intel are coming into the sector by bringing their custom ASIC knowledge to produce processors for SHA-256 hashing, according to a recent story in Bitcoin Magazine, stating categorically that newcomers and small mining businesses will face more challenges when more efficient mining machines are introduced.
To my knowledge, the mining algorithm was created as a 'Red Queen Game2', or a multi-leader Stackelberg game for the economists out there. The Nash equilibrium isn't supposed to be affected by the advent of technologies that cut the cost of mining operations—at least not if all participants have equal access to them.

But I can't help but wonder if these new big time players could use new technology to greatly influece the Mining and Hashing power of bitcoin thereby reducing its efficiency. What are your thoughts on this?

[jackg]

Can Intel make efficient chipsets - I don't think that's actually really ever been their focus.

You mention it'll effect small mining operations and newcomers too, it likely won't effect the older chip makers for a while as there's seem to be quite efficient and small too (so it might be hard for the likes of Intel to directly compete with them).

Bitfury stopped selling chips for a few years and nothing much seemed to happen there that made them seem like they were too powerful over other miners (I think they initially had quite. A big % of mining share too - around the size of antpool and f2pool at the time).

[ranochigo]

For starters, not everyone would have access to the chips. US has a huge list of sanctions and restrictions to certain areas which wouldn't allow the chips to be exported there at all.

It wouldn't be clear if Intel would be interested to market them to the retail market or to provide them directly to the companies which would reduce the cost and complexity for them as well. The continual improvement in ASICs efficiency is a common theme throughout the lifetime of Bitcoin mining. It is well known that for an increase in the supply of efficient ASICs, the rest of the network would be stuck with their own equipment and would earn less, at a worse efficiency.

[avikz]

Can Intel make efficient chipsets -

Why not? A global chipmaker company can certainly make powerful chips if they want to.

I don't think that's actually really ever been their focus.

That's possibly true! They are probably focused on other tasks instead of making mining chips. Mining rigs have a very niche market and can't become a mass product due ot its cost. Intel as a market leader would definitely be interested in maintaining their dominance on the mass market rather than entering into a niche market. That's just good business sense!

[bitmover]

I believe that the point you are missing is that a better equipment requires more investment. There is a limit to hwo much money miners will invest, even big players

Can Intel make efficient chipsets -

Why not? A global chipmaker company can certainly make powerful chips if they want to.

That will have development and research costs. That's not a problem if there are big players who might want to buy those chips for high prices.

[hatshepsut93]

Bitcoin mining is not a zero sum game, miners who find a block don't profit from miners who didn't find a block. Every miner profits in the long run, unless their costs are higher than the value of coins that they find. Introduction of more powerful ASICs is indeed a zero sum effect, because the owners of new ASICs will find more coins, while the old miners will find less coins - the number of found coins is constant. But this doesn't mean that mining as a whole is a zero sum game.

[jackg]

I don't think that's actually really ever been their focus.

That's possibly true! They are probably focused on other tasks instead of making mining chips. Mining rigs have a very niche market and can't become a mass product due ot its cost. Intel as a market leader would definitely be interested in maintaining their dominance on the mass market rather than entering into a niche market. That's just good business sense!

With the chips they normally produce, Intel seem to focus on making faster processing speeds by increasing the sizes of their instruction sets to handle more advanced operations (I think they support more hashing operations being run directly off the cpu in one instruction for example).

Can Intel make efficient chipsets -

Why not? A global chipmaker company can certainly make powerful chips if they want to.

That will have development and research costs. That's not a problem if there are big players who might want to buy those chips for high prices.

They also need their mining to be profitible enough to pay back their investment which might make them not want to invest as much on it because of that.

They might be looking at getting in it also now as technology has stopped improving miner chip wise afaik - there might be new things to come out but it might be easy enough for Intel to already buy patents of current chips and try to improve them (or buy companies already producing them - like they did with GPUs).

[Welsh]

Worth mentioning that mining will follow Moore's law, and therefore at some point we won't see exponential growth that we've seen in the last few years. So, while new products might temporarily set them apart compared to the competition, the margins get lesser as time goes on, until eventually affordable options are out there for everyone.

At the moment, we're at the point where mining is relatively priced out for those without quite substantial investments. That should change in time though as above.

[Findingnemo]

Big firms like Intel are coming into the sector by bringing their custom ASIC knowledge to produce processors for SHA-256 hashing, according to a recent story in Bitcoin Magazine, stating categorically that newcomers and small mining businesses will face more challenges when more efficient mining machines are introduced.
To my knowledge, the mining algorithm was created as a 'Red Queen Game2', or a multi-leader Stackelberg game for the economists out there. The Nash equilibrium isn't supposed to be affected by the advent of technologies that cut the cost of mining operations—at least not if all participants have equal access to them.

But I can't help but wonder if these new big time players could use new technology to greatly influece the Mining and Hashing power of bitcoin thereby reducing its efficiency. What are your thoughts on this?

Everything is same, if intel can produce more efficient miners then miners will switch so they can cut expenses and earn a little more but it is not really going to influence or affect the mining industry of bitcoin because already people who have enough machine powers can mine bitcoin and others moved to other possible shitcoins since they can't really withstand the difficult rate.

[ranochigo]

Bitcoin mining is not a zero sum game, miners who find a block don't profit from miners who didn't find a block. Every miner profits in the long run, unless their costs are higher than the value of coins that they find. Introduction of more powerful ASICs is indeed a zero sum effect, because the owners of new ASICs will find more coins, while the old miners will find less coins - the number of found coins is constant. But this doesn't mean that mining as a whole is a zero sum game.

Isn't that what a zero sum game means. The fact that we have numerous different players in the mining market, you have a scenario where certain miners profit more than the others. It isn't about if a proportion of miner profits or if miners profit from others, but rather if the total utility in the economic system actually changes with any impact on the system; think of it this way, with someone purchasing more ASICs, that person profits more but the others will profit even lesser but the entire system doesn't change. Since this entire effect is contained in the mining economy, mining is a zero sum game.

[hatshepsut93]

Isn't that what a zero sum game means. The fact that we have numerous different players in the mining market, you have a scenario where certain miners profit more than the others. It isn't about if a proportion of miner profits or if miners profit from others, but rather if the total utility in the economic system actually changes with any impact on the system; think of it this way, with someone purchasing more ASICs, that person profits more but the others will profit even lesser but the entire system doesn't change. Since this entire effect is contained in the mining economy, mining is a zero sum game.

When you look at introduction of new ASICs, the miners who have lost some of their profits are still making profits. No one mines at a loss. And the very definition of zero sum requires that someone loses as much as others gain. So the race of equipment is a zero sum game, but mining itself is not. I think we should separate mining from ASIC technology, to not create confusion about zero sum game.

Imagine someone decided to mine with a severely outdaed equipment - they would be spending on electricity much more than the value of coins they find, but this loss won't go to miners with never equipment, as the definition of zero sum game requires it to.

[Husires]

With the current chip crisis and disruption of supply chains, the remaining chips will be valuable and will be used in industries that generate millions or billions instead of Bitcoin mining.

The more companies engaged in mining, the more efficient and decentralized the network, and it is also impossible to think that countries or entities will join to buy bitcoin without managing mining farms or even entire contracts.

I expect that after 50 years, if the price of Bitcoin increases significantly, the purpose of mining profits will not be to produce more coins, but to ensure that the entire network operates without interference from one of the parties.

[ranochigo]

When you look at introduction of new ASICs, the miners who have lost some of their profits are still making profits. No one mines at a loss. And the very definition of zero sum requires that someone loses as much as others gain. So the race of equipment is a zero sum game, but mining itself is not. I think we should separate mining from ASIC technology, to not create confusion about zero sum game.

Imagine someone decided to mine with a severely outdaed equipment - they would be spending on electricity much more than the value of coins they find, but this loss won't go to miners with never equipment, as the definition of zero sum game requires it to.

That would be an inefficient market allocation. In a logical and perfect scenario, each miner mines at the optimum MPB/MPC and that is the market equilibrium.

This makes it such that a smaller change actually makes it more rational for a miner to either scrap and sell it or to turn it off. The phenomenon which the miner actually finds it more efficient to mine at a specific point in time would then be a market failure due to the time lag or lack of perfect information. Hence, in essence the market logic would still apply, but it gets more skewed in the real world.

[franky1]

so lets imagine a scenario:

network was 200exahash

every 16 blocks (6.25btc*16=100btc)
200 exahash shared 100btc every 2hours 40 minutes
but lets say it costs bitmain asics ~$29k a coin to mine previously at $0.04/kw electric cost
where by 100coins later (2hours 40 minutes) they spent $2.9m
.. or for those that like detail and a bit more accuracy
(pencil math: 10 exahash is 5btc, 100peta is 0.05btc, 1peta is 0.0005btc, 100terra is 0.00005)

and so a 140terra bitmain asic is 0.00007btc($2.10 at $30k/btc) every 2 hours 40min income

now lets work out the outgoing cost
the asic costs $11.6k. which is spread over 2 years
(pencil math: $11.6k/730, $15.89/day, $0.6621 an hour, $0.2207 every 20minutes)
meaning hardware cost is: $1.7656 every 2 hours 40 minutes
imagine electric cost is 0.04/KWH which at 3kw/h is $0.3192 for 2 hours 40minuts
meaning bitmains costs are $2.0848

thus bitmain asics are only just breaking even at $0.04/kwh

imagine intel jumped in.. and added 10exahash.

bitmain are still spending $2.08 per hour..
but now with 210exahash
means 10exahash gets a share of the 100btc earned per 2 hours 40mins

meaning the 200exa of bitmain are not getting 100btc. they are only getting 95btc.
which if you share it down.
means each bitmain asic is not getting 0.00007btc but instead 0.0000665($1.99 at $30k/btc)
so now bitmain asics are losing $0.0948 every 2 hours 40 minutes

.......
but here is the rub...
before intel jumped in. bitmain asics may have sold even at break even 100btc every 2 hours 40minutes to the markets..
they are now at a loss. meaning they are not going to sell their 95coin share to the markets. thus the push down on markets is reduced by 95btc every few hours less sells occuring.

bitmain now have an average cost of $31,350/btc so wont sell for less than this.
if the entire open mining network cannot make coin anymore for ~$30k and instead it costs them $31,350 for the most (previously efficient) miners to mine. then everyone has a decision to make.

a few asic miners turn off their asics. and instead buy coin at $30k rate instead of spending value at $31.35k rate by mining. (cheaper to buy than to mine)
where there is more market buying with less market selling

which then causes a decrease in hashrate as there are less asics mining.
and an increase of market price

which can cause the hashrate competition for the 100btc back into alignment of the shares of the reward covering the costs because if less people are taking from the reward, more reward goes to each remaining miners.
..so in this instance its not a race to the top or bottom, its rebalancing

[sklopan]

It largely depends on the bitcoin exchange rate and, which is not unimportant, on the price of electricity. So, it may well bring results.

[franky1]

I want to belive that this is because bitcoin mining has hit the pinnacle of Moore's Law, which states that processing density doubles every 18 months, there are no more huge jumps left.

the failure of some people who think that bitcoin asics are at their limit. is a failure of understanding all the variables

its not just about chip NM size of transistors. other variables can be tweaked far beyond the NM measure.

for instance even if we say that transistors are stuck at 7nm.
(its less, but lets use large numbers for easy demo)
what can be changed is the sensitivity of the transistors.
EG imagine transistors 'switch' based on a receipt of 0.1 volt. new 7nm transistors could "switch" at 0.05volt. meaning the 'density' of the transistor has not changed. but less overall voltage is needed. and less voltage means less heat and so the gaps in the chip between transistors and thus the gaps on the circuit board between chips and thus the gaps between different circuit boards can be pushed tighter together, due to less heat generation....
.. this then means either less electric used per hash if same hash per second.. thus cheaper..
or due to tighter circuit boards inside the asic, fit more circuits and double up hashrate. even when the nm size of transistors has not changed

.
or looking at the macro level.. although the network does have ~1.5mill asics running at the same time.. nothing stops people just buying more asics.

[hd49728]

All financial markets are zero-sum games so is crypto market. As well as Bitcoin mining industry but your perspective sbould be more widely. Bitcoin is not only about Proof of Work and mining. It pioneers the blockchain industry and it is an ever-lasting symbol in crypto.

It is unrealistic to say crypto market including Bitcoin mining and market is not zero-sum game. Realistically let's do reasearch and join it, take advantage of earlh adopters and investors rather than only and always being skeptical about it.

[skinnyjeans77]

It's not a zero sum game because it's useful as a store of value and for permissionless payments.

[teosanru]

Big firms like Intel are coming into the sector by bringing their custom ASIC knowledge to produce processors for SHA-256 hashing, according to a recent story in Bitcoin Magazine, stating categorically that newcomers and small mining businesses will face more challenges when more efficient mining machines are introduced.
To my knowledge, the mining algorithm was created as a 'Red Queen Game2', or a multi-leader Stackelberg game for the economists out there. The Nash equilibrium isn't supposed to be affected by the advent of technologies that cut the cost of mining operations—at least not if all participants have equal access to them.

But I can't help but wonder if these new big time players could use new technology to greatly influece the Mining and Hashing power of bitcoin thereby reducing its efficiency. What are your thoughts on this?

This is really new and interesting that how these players have started to influence mining sector as well now. I won't be surprised to learn if big mining firms are lobbying or even funding ASIC manufacturers to give these high speed processors dedicatedly to them all on all it's definitely a race to the top. This sector has been completely capitalised and a sole individual is really nowhere in the competition if you compare it to all the corporates in here. It was once a zero sum game but not now for sure.