Appetite for debt issued from my mining business

[jamesg]

Hello Fellow Bitcoiners,

As you know (or may not know) I have a mining business consisting of about 32Gh at the moment and still growing. Up until now, I have self funded. I am looking to see if there is an appetite from other bitcoin enthusiasts who would like to invest in this type of business and if so, how would you like to invest. I see really two options available at this time.

• Take on a couple (two or three) private investor with a revenue split until the debt is repaid.
• Setup a bond on the GLBSE which would allow more individuals to invest in smaller amounts. Maybe the bond would pay 4% a month?

I have plenty of room for expansion include 208v 200 amp three phase power and plenty of HVAC. I could easily do 3-5 times the hashing power I have now without issue. Also, my facilities are insured with proper security and fire detection.

As for my credentials, I have become a trusted trader on the -otc, I won the "world's best rig builder award" competition put on by coinconnect and I have been an active forum member contributing my experiences in the mining and hardware sub forums and more recently in the marketplace. I also own a Florida based business which runs and operates the actual mining operations.

I hope to get constructive feedback in this thread. If you think this is a risky venture (which it is) or would like to troll the thread for some other reason, please take it elsewhere. If you would like to contact me in private, just send me a PM.

Thanks and I look forward to your feedback.

gigavps

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[pirateat40]

I'm pirateat40 and approve this message.

[PatrickHarnett]

Good idea - I'd probably go for a revenue split version rather than GLBSE.

One potential problem is if difficulty went up a lot and prices fell, then it might not be profitable.

[jamesg]

Good idea - I'd probably go for a revenue split version rather than GLBSE.

One potential problem is if difficulty went up a lot and prices fell, then it might not be profitable.

I agree that mining is risky and there will be times when might become unprofitable. I am also pretty confident in my strategy and in it's execution thus far.

[Kluge]

I like how it was set up here. I'd consider doing something like that at a similar rate, fwiw.

[Epoch]

I am not trolling and hope this message is taken as constructive feedback. Regarding the bond @ 4% idea, consider this:

At the current difficulty (1.25m) and exchange ($6.25/BTC), a $300 5970 (hashrate 800Mhash/s) would generate $4 per day, or $122 per month.

Obviously a 5970 cannot exist in a vacuum. It needs a PC, electricity, cooling, space to run it in ... let's be generous and say all that infrastructure and support doubles the price of that card to $600.

So back to our calculations: a $600 investment would be generating $122/month. Or, putting it another way, a 20% return PER MONTH. You are suggesting the bond offer 4%.

I understand that if anyone doesn't like the offered terms, they need not accept. But, to me at least, a 4% return does not seem very attractive/fair when I am aware that you are making at least 20%/month from my investment.

[DeathAndTaxes]

Did you forget about electricity?
Did you forget about the time value of labor?

Also your "analysis" is wildly optimistic.  $300 for 5970 is pretty much as good as it gets.  800 MH/s isn't sustainable.  Difficulty and/or price will change and bond holder is partially insulated from that.

[Epoch]

Did you forget about electricity?
Did you forget about the time value of labor?

Also your "analysis" is wildly optimistic.  $300 for 5970 is pretty much as good as it gets.  800 MH/s isn't sustainable.  Difficulty and/or price will change and bond holder is partially insulated from that.

I could have spelled out the individual contributions above the base purchase cost, but that's not the intent of my post. Rather, I merely doubled the base cost as a gross approximation; it is a reasonable baseline for discussion. Physical costs (electricity, hosting space, PC infrastructure) will not double the purchase price in a large scale operation. If anyone disagrees, I won't argue. No one is stopping you from choosing your own numbers and running the calculations; perhaps 15%/month is more realistic ... doesn't change the fact that the proposed 4%/month is very low in comparison.

I am also not saying that Gigavps' proposal does not merit consideration. It does. Everyone's situation will be different. I suspect there will be those will feel an 'easy' 4%/month is a great deal.

Others (such as myself) might realize they could do better by simply adding capacity to their own mining operation themselves. The reality for me is that I am not in a position to increase my mining capacity, so something like Gigavps's proposal (details notwithstanding) is another avenue for me to consider.

[jamesg]

I am not trolling and hope this message is taken as constructive feedback. Regarding the bond @ 4% idea, consider this:

At the current difficulty (1.25m) and exchange ($6.25/BTC), a $300 5970 (hashrate 800Mhash/s) would generate $4 per day, or $122 per month.

Obviously a 5970 cannot exist in a vacuum. It needs a PC, electricity, cooling, space to run it in ... let's be generous and say all that infrastructure and support doubles the price of that card to $600.

So back to our calculations: a $600 investment would be generating $122/month. Or, putting it another way, a 20% return PER MONTH. You are suggesting the bond offer 4%.

I understand that if anyone doesn't like the offered terms, they need not accept. But, to me at least, a 4% return does not seem very attractive/fair when I am aware that you are making at least 20%/month from my investment.

Hi Epoch,

Thanks for you post. You are missing a couple things that I will help fill you in on.

First, if I go with the bond, I will be paying interest out of my own pocket until the equipment arrives. It takes multiple weeks to negotiate deals for equipment, get it in, set it up, RMA failed equipment and all the other stuff that goes into building new rigs.

Second, I must be able to make enough btc to buy back the bonds upon their maturing. Otherwise, I would need to issue new bonds to pay back the old and continue the cycle of debt. So I would probably not be profiting at all until the debt is repaid. I would also be a month short of revenue and would also be down the interest paid in that first month.

Third, your calculations do not take into account downtime or costs to run the equipment.

Finally, I have the expertise to build and run this equipment and am able to deal with the heat, electricity and any other issue that may arise from these situations. I would also be able to recover in case of theft, fire or otherwise total loss of the DC.

I hope this helps clarify the true costs of doing something like this.

gigavps

[jamesg]

Did you forget about electricity?
Did you forget about the time value of labor?

Also your "analysis" is wildly optimistic.  $300 for 5970 is pretty much as good as it gets.  800 MH/s isn't sustainable.  Difficulty and/or price will change and bond holder is partially insulated from that.

Thanks for posting about the time value of labor. I really haven't considered how valuable my time is in all of this but this is definitely a consideration. In my consulting work, my normal fee is $200 an hour but I like doing bitcoin related stuff so much, I just consider it play time. 

[DeathAndTaxes]

Did you forget about electricity?
Did you forget about the time value of labor?

Also your "analysis" is wildly optimistic.  $300 for 5970 is pretty much as good as it gets.  800 MH/s isn't sustainable.  Difficulty and/or price will change and bond holder is partially insulated from that.

I could have spelled out the individual contributions above the base purchase cost, but that's not the intent of my post. Rather, I merely doubled the base cost as a gross approximation; it is a reasonable baseline for discussion. Physical costs (electricity, hosting space, PC infrastructure) will not double the purchase price in a large scale operation.

Simple version
You can't purchase electricity as a capital cost.

Labor and electricity are ongoing costs which never go away.  They reduce the revenue each month into perpetuity.  You can't consider them a physical/capital cost.  

[chungenhung]

I would be interested to invest.
PM me know when you decide to start this.

[jamesg]

I would be interested to invest.
PM me know when you decide to start this.

PM sent.

[vuce]

How much would be the minimum investment? I'd love to invest with you but am currently a bit short on bitcoins

[jamesg]

How much would be the minimum investment? I'd love to invest with you but am currently a bit short on bitcoins

Hi vuce, if I go with the first option, I would want a limited number of investors just so that I can keep the overhead low.

As far a quantities, PM me.

[PatrickHarnett]

I am not trolling and hope this message is taken as constructive feedback. Regarding the bond @ 4% idea, consider this:

At the current difficulty (1.25m) and exchange ($6.25/BTC), a $300 5970 (hashrate 800Mhash/s) would generate $4 per day, or $122 per month.

Obviously a 5970 cannot exist in a vacuum. It needs a PC, electricity, cooling, space to run it in ... let's be generous and say all that infrastructure and support doubles the price of that card to $600.

So back to our calculations: a $600 investment would be generating $122/month. Or, putting it another way, a 20% return PER MONTH. You are suggesting the bond offer 4%.

I have one of my rigs that I consider frequently because it's sitting on a small shelf in my gym.  A simple AMD 2 core thing with two 5850's that I got reasonably cheap.  I worked out last week that it is costing me $1.92/day to run and making about $3/day in coins (cruising along about 600Mhash), so $1-$1.50/day profit.  Even with the cheap components, it was $400-$500 so it has a payback longer than one year.

So, to catch up on the above example, the 5970 making $122/month less $60-ish in running costs give $60/month.  To buy the thing, and replace it is a capital charge so taking that pay-back out, down to $30-ish, and then there is the time to make it all run.  

As I explain to people, Bitcoin is a get-slightly more wealthy slowly proposition.

[vuce]

How much would be the minimum investment? I'd love to invest with you but am currently a bit short on bitcoins

Hi vuce, if I go with the first option, I would want a limited number of investors just so that I can keep the overhead low.

As far a quantities, PM me.

OK, I'll leave this one to others. Next time

[bluefirecorp]

How much are your electricity rates?   

[jamesg]

How much are your electricity rates?   

$0.07585/Kw for the 208v.

After everything is said and done (taxes, fees, 120v, etc) the effect rate right now is about $0.12/Kw.

The effective rate will go down as I bring on more hashing power.

[pirateat40]

If anyone could get GPU's cheap and run them as efficient as possible it's gigavps.