The Best Mining Rigs Are Now Barely Profitable -- Now What?

[jimmothy]

PUE of home miners = 1.03

PUE of industrial miners = 1.3-1.5

Hey, jimmothy, what does PUE stand for?

http://en.wikipedia.org/wiki/Power_usage_effectiveness

Basically cooling + hardware

As soon as you need to add air conditioning and extra fans you lose efficiency.

Home miners (less than ~3KW) don't need extra cooling because they don't get too hot.

Also some people using their asics as heaters during the winter saves money where as a datacenter would waste it.

[a.miner]

http://en.wikipedia.org/wiki/Power_usage_effectiveness

Basically cooling + hardware

As soon as you need to add air conditioning and extra fans you lose efficiency.

Aha.  Thanks.  I've done those calculations, just didn't know the formal term for it.

[Bitcoin++]

"Also some people using their asics as heaters during the winter saves money where as a datacenter would waste it."

I really hope it will evolve into this. Antminers can perhaps be downclocked enough to run silently. Then they can be used all winter long in Scandinava, Russia, Canada and Northern US.
Maybe some producer even will make a bitcoin miner & heater hybrid. When ASICs become cheap they can sell such a heater for $100 and most of your electricity bill will be offset by bitcoins.   

[precrime3]

What is consensus of ROI/breakeven on antminers s1's since price dropped to .63 BTC?

[a.miner]

The big unknown - the exchange rate. If the exchange rate goes back up again, miners will continue to be profitable. If it keeps dropping, then yeah, miners are going to start shutting down their machines.

Yeah, but the exchange rate can’t follow the exponential rise in difficulty – otherwise we would see $25,000 bitcoins a year from now.

Agree. something will have to give

Right.  That’s what prompted this thread.  I’m interested in what people think will break, and what direction it will break in.

Difficulty can only rise as much as people are willing to throw money in to it. For difficulty to follow last years rate we would need to see the value of btc increase.

If nobody is making a profit they will shut off their inefficient miners until only the most efficient miners remain.

This pretty much parallels my thinking.

Technology will improve, but it will be a while before we see, say, 14nm ASICs.  And even then, manufacturers are going to have to produce much more efficient mining rigs at much slimmer profit margins.

The current price point of $1.25 a gigahash is way too high.  And 2 gigahash per watt is also way too high.  These numbers need to come down by an order of magnitude.

Eventually, the price of bitcoin will rise.  We hope.

But in the meantime, a lot of miners are going to go broke.

[nkocevar]

People will stop mining as much once they hit their ROI. Then the difficulty will drop, resulting in more people mining again. Vicious cycle.

[precrime3]

People will stop mining as much once they hit their ROI. Then the difficulty will drop, resulting in more people mining again. Vicious cycle.

Yup, seems most money is made in the parts where everybody is turning off there machines....

[nkocevar]

People will stop mining as much once they hit their ROI. Then the difficulty will drop, resulting in more people mining again. Vicious cycle.

Yup, seems most money is made in the parts where everybody is turning off there machines....

Are there any examples of this already happening? Or is the difficulty still raising at a steady rate?

[precrime3]

People will stop mining as much once they hit their ROI. Then the difficulty will drop, resulting in more people mining again. Vicious cycle.

Yup, seems most money is made in the parts where everybody is turning off there machines....

Are there any examples of this already happening? Or is the difficulty still raising at a steady rate?

No, it just seems that would be most logical, assuming people come back to the coin when its "profitable" again.

[rocks]

What will happen is the large centralized for-profit mining operations will close down, sell of their ASICs and mining will become decentralized again (which I predicted a year ago).

Once mining becomes break-even with electricity costs on the most efficient ASIC designs in low electricity cost regions, mining will only be viable in "home" type setups where other costs such as space, cooling and support are free. "Datacenter" style operations will become money losing operations because by design their cost structure includes more than electricity and have to cover space, cooling and IT support.

What we are going to see are the large datacenter mining operations slowly sell of their H/W at lower and lower prices and close up shop.

There are only three variables that will matter for mining:
1) $/BTC price
2) Watt per GH/s
3) $ per Kwh

For a given BTC price, an optimal GH/s per Watt ASIC design, and cost of electricity, there is a difficulty where mining becomes break even. I ran this calculation and posted a year ago assuming $200 BTC, 0.7W per Gh/s and $0.10 Kwh and if I remember correctly the break even global hashrate was around 50,000 TH/s. The inputs need to be updated to get the new break even hashrate but we are getting close.

To see what will happen just look at the GPU era. Mining difficulty overshot and then leveled off and slowly came down as some miners shutdown their operations till the effort was breakeven. Then FPGAs came online which had a higher capital cost with ~1 year breakeven timeframe but miners bought these because of the focus on electricity efficiency. I am guessing we will see the same with the highest efficiency ASIC designs selling at ~1-2 year breakeven rates.

[a.miner]

What will happen is the large centralized for-profit mining operations will close down, sell of their ASICs and mining will become decentralized again (which I predicted a year ago).

Once mining becomes break-even with electricity costs on the most efficient ASIC designs in low electricity cost regions, mining will only be viable in "home" type setups where other costs such as space, cooling and support are free. "Datacenter" style operations will become money losing operations because by design their cost structure includes more than electricity and have to cover space, cooling and IT support.

What we are going to see are the large datacenter mining operations slowly sell of their H/W at lower and lower prices and close up shop.

There are only three variables that will matter for mining:
1) $/BTC price
2) Watt per GH/s
3) $ per Kwh

For a given BTC price, an optimal GH/s per Watt ASIC design, and cost of electricity, there is a difficulty where mining becomes break even. I ran this calculation and posted a year ago assuming $200 BTC, 0.7W per Gh/s and $0.10 Kwh and if I remember correctly the break even global hashrate was around 50,000 TH/s. The inputs need to be updated to get the new break even hashrate but we are getting close.

To see what will happen just look at the GPU era. Mining difficulty overshot and then leveled off and slowly came down as some miners shutdown their operations till the effort was breakeven. Then FPGAs came online which had a higher capital cost with ~1 year breakeven timeframe but miners bought these because of the focus on electricity efficiency. I am guessing we will see the same with the highest efficiency ASIC designs selling at ~1-2 year breakeven rates.

Hi rocks!  Thanks for the detailed reply.  I think you covered all the important issues.

So our strategy is:

1) Bid up the price of BTC
2) Goad the manufacturers into a price war
3) Move to Canada (or Russia…)

Having said that, has anybody heard any rumors of companies planning 14nm ASICs?

[davejh]

What will happen is the large centralized for-profit mining operations will close down, sell of their ASICs and mining will become decentralized again (which I predicted a year ago).

Once mining becomes break-even with electricity costs on the most efficient ASIC designs in low electricity cost regions, mining will only be viable in "home" type setups where other costs such as space, cooling and support are free. "Datacenter" style operations will become money losing operations because by design their cost structure includes more than electricity and have to cover space, cooling and IT support.

What we are going to see are the large datacenter mining operations slowly sell of their H/W at lower and lower prices and close up shop.

There are only three variables that will matter for mining:
1) $/BTC price
2) Watt per GH/s
3) $ per Kwh

For a given BTC price, an optimal GH/s per Watt ASIC design, and cost of electricity, there is a difficulty where mining becomes break even. I ran this calculation and posted a year ago assuming $200 BTC, 0.7W per Gh/s and $0.10 Kwh and if I remember correctly the break even global hashrate was around 50,000 TH/s. The inputs need to be updated to get the new break even hashrate but we are getting close.

To see what will happen just look at the GPU era. Mining difficulty overshot and then leveled off and slowly came down as some miners shutdown their operations till the effort was breakeven. Then FPGAs came online which had a higher capital cost with ~1 year breakeven timeframe but miners bought these because of the focus on electricity efficiency. I am guessing we will see the same with the highest efficiency ASIC designs selling at ~1-2 year breakeven rates.

I might have this wrong, but 0.7W per GH/s equates to 16.8 Wh per GH/day. At 10c per kWh that's $0.00168 per day in electricity per GH/s. At 50 PH/s thats only $84k per day in electricity charges - well below the current mining reward. Assuming only 144 blocks per day and 25 BTC per block that's 3600 blocks. Assume $400 per BTC and that's $1.44M per day in mining rewards. The break-even for just electricity would be 17x higher at around 850 PH/s.

The capital cost for the mining rigs is the majority of where the mining reward is currently having to go - it's much higher than the operating cost. Operating cost only really gets interesting to decide when to switch the hardware off. If the difficulty levels out more then the balance will move much more towards the operating cost.
 

[rocks]

What will happen is the large centralized for-profit mining operations will close down, sell of their ASICs and mining will become decentralized again (which I predicted a year ago).

Once mining becomes break-even with electricity costs on the most efficient ASIC designs in low electricity cost regions, mining will only be viable in "home" type setups where other costs such as space, cooling and support are free. "Datacenter" style operations will become money losing operations because by design their cost structure includes more than electricity and have to cover space, cooling and IT support.

What we are going to see are the large datacenter mining operations slowly sell of their H/W at lower and lower prices and close up shop.

There are only three variables that will matter for mining:
1) $/BTC price
2) Watt per GH/s
3) $ per Kwh

For a given BTC price, an optimal GH/s per Watt ASIC design, and cost of electricity, there is a difficulty where mining becomes break even. I ran this calculation and posted a year ago assuming $200 BTC, 0.7W per Gh/s and $0.10 Kwh and if I remember correctly the break even global hashrate was around 50,000 TH/s. The inputs need to be updated to get the new break even hashrate but we are getting close.

To see what will happen just look at the GPU era. Mining difficulty overshot and then leveled off and slowly came down as some miners shutdown their operations till the effort was breakeven. Then FPGAs came online which had a higher capital cost with ~1 year breakeven timeframe but miners bought these because of the focus on electricity efficiency. I am guessing we will see the same with the highest efficiency ASIC designs selling at ~1-2 year breakeven rates.

I might have this wrong, but 0.7W per GH/s equates to 16.8 Wh per GH/day. At 10c per kWh that's $0.00168 per day in electricity per GH/s. At 50 PH/s thats only $84k per day in electricity charges - well below the current mining reward. Assuming only 144 blocks per day and 25 BTC per block that's 3600 blocks. Assume $400 per BTC and that's $1.44M per day in mining rewards. The break-even for just electricity would be 17x higher at around 850 PH/s.

The capital cost for the mining rigs is the majority of where the mining reward is currently having to go - it's much higher than the operating cost. Operating cost only really gets interesting to decide when to switch the hardware off. If the difficulty levels out more then the balance will move much more towards the operating cost.
 

Thanks for double checking, your calculation is right. I was going off of memory and switched the break even hash rate with break even difficulty in my head.

Just checked and my assumptions last year were $200 per BTC, $0.10 per KwH and 0.8W per GH/s. This worked out to a break even hash rate of 375 PH/s at a difficulty of 52 billion. (I remembered this as 50 PH/s). If you take your assumptions and double the price to $400/BTC and use 0.7W efficiency I got a break even hash rate of 857 PH/s, so yes that's right.

What's interesting about this calculation is you can see how the difficulty should rise or fall once the ASIC market settles down.
1) Global hash rate should go up and down with BTC price. For example if you double the price of BTC the hash rate should double.
2) Global hash rate should go up and down opposite of the price of electricity. For example if the cost of electricity doubles, global hash rate should drop by half.
3) Global hash rate should go up and down with ASIC efficiency. For example if ASIC designs improve by 10%, global hash rate should go up by 10%.

Regardless of the exact number and break even date though, the basic point still holds. Once the hash rate rise to where the most efficient ASICs are break even with electricity, "datacenter" style operations are not profitable and lose cash flow every single month. At that point the only thing for them to do is sell off their hardware and exit. Who knows how it will happen, they might get decent market prices from home users or it might be a fire sale, but my guess is mining will become more decentralized than today.

Even 875 PH/s is not that far away, probably 6 to 12 months. Here is the log chart: http://bitcoin.sipa.be/speed-ever.png. Each of those bars on the vertical axis represents a 100x increase in hash rate. We are at 50 today which is only 14x from break even using your numbers....

[nkocevar]

What's interesting about this calculation is you can see how the difficulty should rise or fall once the ASIC market settles down.
1) Global hash rate should go up and down with BTC price. For example if you double the price of BTC the hash rate should double.
2) Global hash rate should go up and down opposite of the price of electricity. For example if the cost of electricity doubles, global hash rate should drop by half.
3) Global hash rate should go up and down with ASIC efficiency. For example if ASIC designs improve by 10%, global hash rate should go up by 10%.

Where exactly did you get these numbers? and how do you know for sure if they are true?

[pjviitas]

What's interesting about this calculation is you can see how the difficulty should rise or fall once the ASIC market settles down.
1) Global hash rate should go up and down with BTC price. For example if you double the price of BTC the hash rate should double.
2) Global hash rate should go up and down opposite of the price of electricity. For example if the cost of electricity doubles, global hash rate should drop by half.
3) Global hash rate should go up and down with ASIC efficiency. For example if ASIC designs improve by 10%, global hash rate should go up by 10%.

Where exactly did you get these numbers? and how do you know for sure if they are true?

He uses the word should alot.

Unfortunately miners are not always the most rational folk so I don't really buy his ideas.

I think that miners will continue to buy mining gear at a breakneck pace and keep plugging them in until they either burn their house down or the electrical inspector shuts them down.

In turn the worldwide hashrate will collapse and centralized mining operations will be left to pick up the pieces.

When one looks at the steadily increasing difficult this scenario will be happening alot sooner than people thing.

I mean how many spare 15A breakers do you think one house has?

The infrastructure is simply not in place for decentralized mining.

[rocks]

What's interesting about this calculation is you can see how the difficulty should rise or fall once the ASIC market settles down.
1) Global hash rate should go up and down with BTC price. For example if you double the price of BTC the hash rate should double.
2) Global hash rate should go up and down opposite of the price of electricity. For example if the cost of electricity doubles, global hash rate should drop by half.
3) Global hash rate should go up and down with ASIC efficiency. For example if ASIC designs improve by 10%, global hash rate should go up by 10%.

Where exactly did you get these numbers? and how do you know for sure if they are true?

Create an excel spread sheet that calculates the break even hash rate for a given BTC price, ASIC efficiency and cost of electricity.

Adjust each assumption up and down, you'll see the break even hash rate adjusts as described above.

[Puppet]

Create an excel spread sheet that calculates the break even hash rate for a given BTC price, ASIC efficiency and cost of electricity.

Adjust each assumption up and down, you'll see the break even hash rate adjusts as described above.

I did the excel sheet ages ago and the results are obviously not quite that simple, unless you assume free hardware (or an eternal break even time expectation).

[a.miner]

Create an excel spread sheet that calculates the break even hash rate for a given BTC price, ASIC efficiency and cost of electricity.

Adjust each assumption up and down, you'll see the break even hash rate adjusts as described above.

I did the excel sheet ages ago and the results are obviously not quite that simple, unless you assume free hardware (or an eternal break even time expectation).

https://i.imgur.com/qqChE7nl.png

Thanks for the link to that other thread, Puppet!  There's lots of good information there.

In rough numbers, I agree with your calculations.

[a.miner]

So...... I guess we can expect the big players to hold the price of BTC down until they're ready to liquidate their operations, then?

[samsonn25]

What will happen is the large centralized for-profit mining operations will close down, sell of their ASICs and mining will become decentralized again (which I predicted a year ago).

Once mining becomes break-even with electricity costs on the most efficient ASIC designs in low electricity cost regions, mining will only be viable in "home" type setups where other costs such as space, cooling and support are free. "Datacenter" style operations will become money losing operations because by design their cost structure includes more than electricity and have to cover space, cooling and IT support.

What we are going to see are the large datacenter mining operations slowly sell of their H/W at lower and lower prices and close up shop.

There are only three variables that will matter for mining:
1) $/BTC price
2) Watt per GH/s
3) $ per Kwh

For a given BTC price, an optimal GH/s per Watt ASIC design, and cost of electricity, there is a difficulty where mining becomes break even. I ran this calculation and posted a year ago assuming $200 BTC, 0.7W per Gh/s and $0.10 Kwh and if I remember correctly the break even global hashrate was around 50,000 TH/s. The inputs need to be updated to get the new break even hashrate but we are getting close.

To see what will happen just look at the GPU era. Mining difficulty overshot and then leveled off and slowly came down as some miners shutdown their operations till the effort was breakeven. Then FPGAs came online which had a higher capital cost with ~1 year breakeven timeframe but miners bought these because of the focus on electricity efficiency. I am guessing we will see the same with the highest efficiency ASIC designs selling at ~1-2 year breakeven rates.

I might have this wrong, but 0.7W per GH/s equates to 16.8 Wh per GH/day. At 10c per kWh that's $0.00168 per day in electricity per GH/s. At 50 PH/s thats only $84k per day in electricity charges - well below the current mining reward. Assuming only 144 blocks per day and 25 BTC per block that's 3600 blocks. Assume $400 per BTC and that's $1.44M per day in mining rewards. The break-even for just electricity would be 17x higher at around 850 PH/s.

The capital cost for the mining rigs is the majority of where the mining reward is currently having to go - it's much higher than the operating cost. Operating cost only really gets interesting to decide when to switch the hardware off. If the difficulty levels out more then the balance will move much more towards the operating cost.
 

Thanks for double checking, your calculation is right. I was going off of memory and switched the break even hash rate with break even difficulty in my head.

Just checked and my assumptions last year were $200 per BTC, $0.10 per KwH and 0.8W per GH/s. This worked out to a break even hash rate of 375 PH/s at a difficulty of 52 billion. (I remembered this as 50 PH/s). If you take your assumptions and double the price to $400/BTC and use 0.7W efficiency I got a break even hash rate of 857 PH/s, so yes that's right.

What's interesting about this calculation is you can see how the difficulty should rise or fall once the ASIC market settles down.
1) Global hash rate should go up and down with BTC price. For example if you double the price of BTC the hash rate should double.
2) Global hash rate should go up and down opposite of the price of electricity. For example if the cost of electricity doubles, global hash rate should drop by half.
3) Global hash rate should go up and down with ASIC efficiency. For example if ASIC designs improve by 10%, global hash rate should go up by 10%.

Regardless of the exact number and break even date though, the basic point still holds. Once the hash rate rise to where the most efficient ASICs are break even with electricity, "datacenter" style operations are not profitable and lose cash flow every single month. At that point the only thing for them to do is sell off their hardware and exit. Who knows how it will happen, they might get decent market prices from home users or it might be a fire sale, but my guess is mining will become more decentralized than today.

Even 875 PH/s is not that far away, probably 6 to 12 months. Here is the log chart: http://bitcoin.sipa.be/speed-ever.png. Each of those bars on the vertical axis represents a 100x increase in hash rate. We are at 50 today which is only 14x from break even using your numbers....

There is one variable missing from your equation that is very important.

The cost of the mining equipment. With this variable added it seems we are already at the point of the no sum game, at least for the retail and commercial miners. Manufacturers might have another 30-45 days because they can mine at the manufactured cost of the machines.  Even for them it will start being unprofitable past 15 billion difficulty.