If you're thinking buying mining hardware, read this first

[JJG]

I wonder why JJG cares so much about others money. I've seen over 15 posts by JJG saying that mining will be not profitable. Of course in a long term there will be only miners who have electricity for free. But for now, difficulty adjusts to current price so mining is almost always profitable.

You're missing the point.

I'm not talking about mining, I'm talking about running out to buy dedicated mining hardware with the belief that it will just pay for itself in a few months and then continue generating income for the owner indefinitely.

My registration and posts were prompted by some posts on this forum and a few others. In one example, someone spent $3000 on a dedicated mining rig and expected to pay $151/month in electricity, but hadn't bothered to take difficulty increases into account. By the time he received his hardware arrive, difficulty was up 19%. In ~9 more days, it jumps 30% (if not more). That means only a week or so after he started, his profits were already only 2/3 of what he predicted he'd make. If another 30% difficulty increase happens after the next one, his profits will be 1/2 of what he predicted.

A lot of the miners who come to this forum are starry-eyed with profits they roughly calculated, and eager to buy all the mining hardware they can. After all, it's free money, right? Well, realize that it's a race to the bottom and you're up against a rapidly increasing difficulty value that is explicitly designed to keep you from making easy money indefinitely. That's the system, and that's how it works.

Meanwhile, the influx of miners generally aren't intent on actually using bitcoin, they just want to do some mining and then immediately cash out to pay off their hardware. When scores of miners are desperately trying to sell their BTC to pay off their hardware investments, the value of BTC is going to fluctuate wildy, and the general direction won't be up.

Plenty of people have run the numbers. Curve fitting the rising difficulty is a trivial task, more advanced models don't tell better stories either. But none of this stops the "I want to believe" crowd who thinks that they're going to turn 6990s into indefinite cash streams.

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[njloof]

There's nothing about the price of BTC in the last few weeks that suggests that a little downward pressure on the price wouldn't be a good thing. In the real world there are options markets and short sales to counterbalance rises in price; here in Bitcoin land those mechanisms don't exist on any real scale. Mining for sale will push back against the speculation in Bitcoin price, up until the lower price makes mining unprofitable.

[slurch]

I wonder why JJG cares so much about others money. I've seen over 15 posts by JJG saying that mining will be not profitable. Of course in a long term there will be only miners who have electricity for free. But for now, difficulty adjusts to current price so mining is almost always profitable.

It's not terribly complex logic. If he talks, say, 10 GHash off the network with his logic, difficulty would drop proportionately (albeit slightly). If, however, by his argument he prevents many people who are considering making a mining hardware investment (such as myself) from making said investment and instead using that money to buy Bitcoins, this is a win-win for him if he is mining. He increases scarcity and offsets potential network difficulty increases. It's not completely altruistic, ya know?

For the record, I plan on adding about a Ghash to the network myself over the next month or so. And yes, I realize this is a race to the bottom. So is the rat race that is fiat capitalism. I'll opt for this any day of the week...at least on here I'm not deluding myself.

[Darth Severus]

They have a lot in common.

Esperanto would be super useful if everyone spoke it.  Bitcoin would be super useful if everyone spoke it.  But you are right that Bitcoin would still be useful for niche applications where Esperanto isn't.

Paying anonymously and transfer money arround the world anonymously is not a niche, also hiding money in a small datastore and having several backups. It´s only the exchanges which have to work better, and there must be more shops. I´m optimistic about that.

[JJG]

It's not terribly complex logic. If he talks, say, 10 GHash off the network with his logic, difficulty would drop proportionately (albeit slightly). If, however, by his argument he prevents many people who are considering making a mining hardware investment (such as myself) from making said investment and instead using that money to buy Bitcoins, this is a win-win for him if he is mining. He increases scarcity and offsets potential network difficulty increases. It's not completely altruistic, ya know?

You must realize the total network computing capacity is over 1000 Ghash/s right now. 10GHash/sec is less than the day-to-day variations in computing capacity.

There's a strong trend in this thread. People either:

• Look at the charts, run their own calculations/models, and determine that buying mining rigs is a very poor decision
• Ignore the math, charts, and rising difficulty, and instead rely on conspiracy theories to brush my arguments aside

Even the guy who said the trick was to buy cheap hardware admitted that it's no longer straightforward to buy hardware cheap enough to make it work.

Whatever you think my motives are (I assure you I am not trying to manipulate the market with a forum post  ) you can't argue with the math. So far no one has provided any sort of projections or calculations that show I'm wrong. Conspiracy theories don't count.

[proudhon]

So far no one has provided any sort of projections or calculations that show I'm wrong. Conspiracy theories don't count.

And nobody can, because the profitability of mining depends most largely on the exchange rate going up at a certain rate, but that's the bit of the equation about which nobody can make reliable predictions.  At this point I continue to mine because I believe this is a worthwhile project to spend some of my electricity (and ultimately money) on.

[JJG]

So far no one has provided any sort of projections or calculations that show I'm wrong. Conspiracy theories don't count.

And nobody can, because the profitability of mining depends most largely on the exchange rate going up at a certain rate, but that's the bit of the equation about which nobody can make reliable predictions.  At this point I continue to mine because I believe this is a worthwhile project to spend some of my electricity (and ultimately money) on.

And we've been over that flawed argument already, too.

tomcollins was kind enough to share his projections of mining profitability with exchange rate increases/decreases taken into account.

If you're betting on the exchange rate going up, then buying bitcoins will net you a profit without buying rapidly depreciating hardware and paying for expensive electricity.

[proudhon]

So far no one has provided any sort of projections or calculations that show I'm wrong. Conspiracy theories don't count.

And nobody can, because the profitability of mining depends most largely on the exchange rate going up at a certain rate, but that's the bit of the equation about which nobody can make reliable predictions.  At this point I continue to mine because I believe this is a worthwhile project to spend some of my electricity (and ultimately money) on.

And we've been over that flawed argument already, too.

tomcollins was kind enough to share his projections of mining profitability with exchange rate increases/decreases taken into account.

If you're betting on the exchange rate going up, then buying bitcoins will net you a profit without buying rapidly depreciating hardware and paying for expensive electricity.

Just to be clear, I'm not advancing any of the arguments that mining is the most profitable investment, a more profitable investment than directly buying bitcoins, or that mining is a better investment because mining assets offset the risk of potential bitcoin failure.  You said that "no one has provided any sort of projections or calculations that show I'm wrong", and in my response I was essentially agreeing with you and explaining that the calculations needed to show you're wrong depend on something nobody can reliably calculate (i.e. future exchange rates).  In other words, given what we can know, you're right.  Also, I was saying that at this point, having realized that mining is not the best bet in terms of profitability, I mine because I think mining is worthwhile for reasons other than merely generating bitcoins (e.g. network security, and all that).  Even in the case that there's no chance of me generating a profit, I will still mine to some extent because I think it advances a worthwhile project -- a decentralized currency.

[JJG]

So far no one has provided any sort of projections or calculations that show I'm wrong. Conspiracy theories don't count.

And nobody can, because the profitability of mining depends most largely on the exchange rate going up at a certain rate, but that's the bit of the equation about which nobody can make reliable predictions.  At this point I continue to mine because I believe this is a worthwhile project to spend some of my electricity (and ultimately money) on.

And we've been over that flawed argument already, too.

tomcollins was kind enough to share his projections of mining profitability with exchange rate increases/decreases taken into account.

If you're betting on the exchange rate going up, then buying bitcoins will net you a profit without buying rapidly depreciating hardware and paying for expensive electricity.

Just to be clear, I'm not advancing any of the arguments that mining is the most profitable investment, a more profitable investment than directly buying bitcoins, or that mining is a better investment because mining assets offset the risk of potential bitcoin failure.  You said that "no one has provided any sort of projections or calculations that show I'm wrong", and in my response I was essentially agreeing with you and explaining that the calculations needed to show you're wrong depend on something nobody can reliably calculate (i.e. future exchange rates).  In other words, given what we can know, you're right.  Also, I was saying that at this point, having realized that mining is not the best bet in terms of profitability, I mine because I think mining is worthwhile for reasons other than merely generating bitcoins (e.g. network security, and all that).  Even in the case that there's no chance of me generating a profit, I will still mine to some extent because I think it advances a worthwhile project -- a decentralized currency.

Sorry if I appeared a bit abrasive. You're definitely on the right track with your efforts and your mentality.

You might be want read over tomcollins' projections, though. He ran several different scenarios depending on the exchange rate going up or down and at different rates. In other words, the exchange rate doesn't matter as much as you might think.

[slurch]

It's not terribly complex logic. If he talks, say, 10 GHash off the network with his logic, difficulty would drop proportionately (albeit slightly). If, however, by his argument he prevents many people who are considering making a mining hardware investment (such as myself) from making said investment and instead using that money to buy Bitcoins, this is a win-win for him if he is mining. He increases scarcity and offsets potential network difficulty increases. It's not completely altruistic, ya know?

You must realize the total network computing capacity is over 1000 Ghash/s right now. 10GHash/sec is less than the day-to-day variations in computing capacity.

There's a strong trend in this thread. People either:

• Look at the charts, run their own calculations/models, and determine that buying mining rigs is a very poor decision
• Ignore the math, charts, and rising difficulty, and instead rely on conspiracy theories to brush my arguments aside

Even the guy who said the trick was to buy cheap hardware admitted that it's no longer straightforward to buy hardware cheap enough to make it work.

Whatever you think my motives are (I assure you I am not trying to manipulate the market with a forum post  ) you can't argue with the math. So far no one has provided any sort of projections or calculations that show I'm wrong. Conspiracy theories don't count.

Guh. It doesn't matter if you're right. Of course you're right...some basic math would prove that. It matters if people agree with your point of view. It also matters as to what I want to spend my hashes on. I happen to really enjoy mining as a hobby, and even if Bitcoin went belly-up tomorrow, I would point my mining hardware at SETI@Home or something like that...so it wouldn't be a complete waste. Plus, retired Bitcoin miners can play ANY GAME THEY WANT.

Let's also consider it a good thing to have more people mining, if only because it protects us that much more from a >50% attack. There's a botnet out there, ya know? And maybe he hasn't seen your thread... (of course, it wouldn't matter if he did, since he's not paying for things like power and mining hardware, for starters)

Regardless of your motives (which are unclear at best), I think that hardcore mining (the kind I am NOT doing...yet) attracts a certain kind of person with a passion for this sort of work. You'd be hard-pressed to show that person any convincing math to make them stop...and the world needs more people like that.

There is a definite place for math and numbers and a place for people do just do whatever the hell it is they want to do. I believe that this is a case of the latter...PROVIDED they have understood the former.

[slurch]

You must realize the total network computing capacity is over 1000 Ghash/s right now. 10GHash/sec is less than the day-to-day variations in computing capacity.

That's why there's were two differing points in my OP.

Say...are YOU mining? Have you purchased any hardware specifically to mine with?

[FreeMoney]

  Hi, I´m new here. IMHO the difference between Esperanto and Bitcoins is the usefulness. You can´t buy stuff anonymously by Esperanto, or hide money, or speculate, etc. Bitcoins are usefull to some people, while Esperanto is pure idealism.

Welcome.

Bitcoin and Esperanto both get their usefulness from the fact that other people use them. The reason I think Bitcoin will take off and Esperanto didn't is that you can get into Bitcoin for a little bit of money and maybe waiting a few days at worst. Learning a language takes a lot more effort and the vast majority can't be bothered. So it doesn't get critical mass and is just for idealists. Bitcoin started with idealists for sure, but it's so easy for others to give it a shot. And they can do it to whatever degree they want and still get some value. Learning 1% of Esperanto doesn't do much for you, but a tiny amount of Bitcoins is great.

[JJG]

You must realize the total network computing capacity is over 1000 Ghash/s right now. 10GHash/sec is less than the day-to-day variations in computing capacity.

That's why there's were two differing points in my OP.

Say...are YOU mining? Have you purchased any hardware specifically to mine with?

Full disclosure: I am mining with a 5870 that I already owned. The financial models and projections I base my claims on sprang from my analysis of whether or not I should add another card to my machine for mining. It doesn't take much math to realize that by the time the card showed up, the mining boat would have sailed. I would have broken even after several months, but the profits weren't nearly the rosy predictions many forum members here have.

Then, I came across threads here where people were spending thousands of dollars to build mining rigs and expecting to make their money back right away, with no apparent understanding of the huge difficulty increases coming down the pipe. I started this thread to balance the gold-rush sentiment out and make people think a little bit harder before plowing their money into mining rigs.

And the noble, passionate miner you speak of is probably not as common as you might think. Just take a look at the Overclock.net bitcoin thread where people were desperately searching for Radeons so they could make bank without any work.

[slurch]

It's a hobby. And a money hole. And in the unlikely event that each Bitcoin is worth as much as a share of Berkshire Hathaway in 15 years, it's as you say...it's still cheaper to buy them. Take that $700 a year ago and buy a whole PILE of bitcoins...but don't buy hardware solely to mine with.

Now, if you'll excuse me, I found a good deal on some 5870's that I'm not letting go to someone else.

Full Disclosure: I purchased a 5830 3 weeks ago with the primary intent of mining with it. It was $109, and it could already pay for itself almost twice now if it wanted to at current market rates. Fortunately for me, I was also replacing an nVidia 9300GS, so it wasn't like I was actually buying some frivolous thing. The rig I'm looking at building, though, is probably very frivolous.

[Maxxx]

JJG appears to be purposely discouraging people imo.

Think of it this way, 1 year of bitcoin mining on 2k to 3k USD in hardware (almost anywhere in America, power-wise) is better than letting 10k USD sit in your average savings account accumulating interest.

[tomcollins]

JJG appears to be purposely discouraging people imo.

Think of it this way, 1 year of bitcoin mining on 2k to 3k USD in hardware (almost anywhere in America, power-wise) is better than letting 10k USD sit in your average savings account accumulating interest.

And 2k-3k buying Bitcoins on the exchange is likely to do even better, except in rare scenarios.  I'm going to laugh my ass off when people who bought high end video cards get passed up by the next big innovation, much like anyone who was CPU mining a few months ago.

But if you have a machine sitting idle and just need to pop in a video card and it's not terribly expensive and you might use it anyway, go for it!   You can likely pay for the card, and if not, it's still useful to you.  Or you could resell it.  But it's a terrible business model (unless you get other people to pay for your rigs through investing).  Renting a mining rig was an absolute terrible investment in my calculations based on the market rates.  But an absolute goldmine for those who could find the bigger suckers.

[slurch]

And 2k-3k buying Bitcoins on the exchange is likely to do even better, except in rare scenarios.  I'm going to laugh my ass off when people who bought high end video cards get passed up by the next big innovation, much like anyone who was CPU mining a few months ago.

This. Honestly, this is what worries me. ASIC mining? GPU mining could become an outmoded thing of the past...and then what. Get 60-70% of your hardware investment back maybe.

Maybe one should save one's money until this new technology is readily available, and then pounce on it as soon as it is.

[JorgePasada]

And 2k-3k buying Bitcoins on the exchange is likely to do even better, except in rare scenarios.  I'm going to laugh my ass off when people who bought high end video cards get passed up by the next big innovation, much like anyone who was CPU mining a few months ago.

This. Honestly, this is what worries me. ASIC mining? GPU mining could become an outmoded thing of the past...and then what. Get 60-70% of your hardware investment back maybe.

Maybe one should save one's money until this new technology is readily available, and then pounce on it as soon as it is.

What's ASCII mining? Sorry, maybe a noob question . . . .

[TurboK]

And 2k-3k buying Bitcoins on the exchange is likely to do even better, except in rare scenarios.  I'm going to laugh my ass off when people who bought high end video cards get passed up by the next big innovation, much like anyone who was CPU mining a few months ago.

This. Honestly, this is what worries me. ASIC mining? GPU mining could become an outmoded thing of the past...and then what. Get 60-70% of your hardware investment back maybe.

Maybe one should save one's money until this new technology is readily available, and then pounce on it as soon as it is.

What's ASCII mining? Sorry, maybe a noob question . . . .

Not ASCII. ASIC. Application-specific integrated circuits. Basically, chips specifically designed to push more mhash on the lowest wattage.

[ChaosFox]

I don't know, I believe mining will remain profitable for a while longer. If difficulty increases too much, it means several miners will no longer find it profitable and will leave, even if just temporally, thus decreasing difficulty until a balance point is reached. Not to mention that BTC can increase its value, too. I don't really know what to say about ASIC miners, though.

Though, I'm not a big miner. In fact, I just mine with a crappy 9600 GT when I'm not using my computer a lot, and while I pay peanuts for power, I don't think I'd buy a dedicated mining rig.