Has mining reached the end? ( at least in the US )

[dign4gold]

Not trying to be alarmist, I am asking what is to me a serious question. I am not an expert - I am am trying to gain a better understanding of the bitcoin mining paradigm and a picture of where it is headed.

Multiple posts on the forum point out that as the difficulty increases the incentive to mine decreases, thus a balance will be reached where a steady ( if minor ) profit can be realized from a mining operation. I don't see this happening.

Looking back through the difficulty increases vs. total hashing power of the network, they have increased at almost the same rate. Simple guess would be that the theory is not correct, and that this difficulty/hash rate sync will not change ( until the block reward halves ).

The problem is this requires continually increasing capital investment to in order to maintain profitability

However, after this last difficulty increase, all of the online calculators that I can find ( and my crappy spreadsheet ), all show that no amount of hashing power will actually reach an ROI let alone profit - in a region where electrical costs average .1 USD ( where I am writing this from ). Taking a quick look across the US, that pretty much covers the whole country.

I don't see how the Mining Data Centers ( in the US ) that are still in the building phase are going to ever make money.

What I do see is a lot of Mining Data Centers now being built in the EU and Asia. However, looking through most developed regions, the lowest electrical costs I am finding are in china at an average just below .03 USD. Which will only be able to ROI in roughly Q1 2015, and never return a profit due to the difficulty/hash rate sync mentioned above.

I don't believe the alternatives such as Solar Powered Data Centers will be able to overcome this problem either because the capital investment per kwh of solar is nearly 1.5x that of the mining equipment. Which clearly wipes out any profitability.

Can anyone dispute any of this with clear facts? ( there is an awful lot of false optimism and conjecture on this forum )

Not looking for an argument, I just want to find out if any other miners see this same problem?

[mvalley]

Yeah, pretty much agreed and I think electricity costs are even more than what people realize. If you look at http://shrinkthatfootprint.com/average-electricity-prices-kwh you'll see poor bastards paying 41 cents in denmark and on average china is 8 cents.

I redid my last calc and imagined if everyone instantly upgraded to the new antminer S3's that will supposedly consume 0.60 W/GHS. Even with that, you find the world will starting losing $ after about 240 days when the price they are paying for electricity matches the $2.1M in bitcoin generated per day. That doesn't include any other charges like datacenter charges, etc that many mining companies are paying.

So either bitcoin has to shoot up in price (but what will drive demand?) or miners need to become WAY more energy efficient in the next few months.

[dign4gold]

That was one point I neglected in my post, the BTC/XBT valuation.

It seems much more stable the past quarter, so I based my assumptions upon an average of $600USD.

If we are optimistic and believe the hype that BTC/XBT will reach parity with Gold, that only postpones the situation until Q3 of 2015.

[brian_23452]

I think you drastically overestimate the the impact cost of electricity has on the network hashrate.  Even for ordinary miners, the cost of electricity isn't the prohibitive cost, it is the cost of the unit itself compared to how much it will ever mine, if run essentially forever.  Look at how many miners are for sale today (especially older units) that will never ever ROI even if you run them for years and years with free electricity. 
Of course, this only represents a small percentage of the network.  The major players in the market, the huge ASIC companies and their accompanying data centers, pay pennies on the dollar for their machines and hence they are enormously profitable no matter what the electricity cost is.  Especially when you consider that the majority of the profitability is in the very beginning and after that they can turn around and sell them as new to customers to get back more than they even paid in the first place, electrical costs are essentially a non factor.  There are R&D costs of course but they use "customers" to cover those....Then as if that isn't enough they can always sell mining contracts for even more money....
No, these data centers are enormously profitable and will remain so for the foreseeable future.  But, this model only works for them as long as they can continue to come up with bigger and bigger units, hence the constant increase in hashrate. 

Just as a little thought experiment to see how this works for them, imagine I gave you say, an SP10 a month before anyone else had one, AND sold it to you for only like 500 dollars, AND gave you an interest free loan to cover the cost that wasn't due until whenever you felt like paying it back.  And you can sell the unit for 5 times that after mining with it for a month or two.  It is impossible for you to not make money on this deal even if you pay some ridiculously expensive price for power.

[Glizlack]

People have been saying this since the big drop from 1200. Can you lose money mining yes. I am very close to that point with my old block erupter cube. Going to unplug them sometime next month. There are also people making money.

The sales of miners would be dropping more if they wasn't selling. Only so many people that keep buying despite losing money. Some miners may not keep track of their costs but I would bet most all of them are at least breaking even or close to it.

I would also suggest some of the difficulty projections are very pessimistic is it going up yes but maybe not at 40% per month for the next 6 months.


Steve

[BurtW]

This has all been caculated before.  Just read this thread:  https://bitcointalk.org/index.php?topic=281279.0

tl;dr:  Based on $100 BTC:USD exchange rate and $0.10 per kWh electrical power rate

Code:

Device        Process  Eff (J/GH) [1]    Diff (mil)  Hashrate (PH/s)
--------------------------------------------------------------------------------------------------
Hashfast         28nm        ~0.8 [7]       25,100            179.7  
Cointerra        28nm        ~0.8 [2]       25,100            179.7   
BFL (Monarch)    28nm        ~0.8 [4]       25,100            179.7 

So if BTC is at $600 the break even point is 6x the numbers given above, etc.

Next estimated difficulty is 16,054 (mil), estimated hash rate is 108.7 (PH/s), so there is still plenty of room to grow assuming a $600 BTC price.

[mvalley]

Yeah, being a miner manufacturer is definitely the best deal. You can get multiple streams of income from mining with the HW, reselling at a profit and selling cloud mining contracts. I would totally pursue that angle if I had more of chip design background.

But for the majority who are just making money from mining profits and buying miners at market prices, it's looking pretty bad over the next 4-6 months. But usually with this kind of thing, it will take people another 3-6 months after that to actually admit defeat so I think miner sales/resales will still be okay for another year assuming BTC prices hold.

[BurtW]

However, looking through most developed regions, the lowest electrical costs I am finding are in china at an average just below .03 USD.

I know a guy in the US with a very large commercial mining operation.  He pays less that $0.02 per kWh.  You have to use a lot of electricity to get that rate and use it at a very constant rate (no peaks) but that is exactly what a very large Bitcoin mining operation does: 24/7 constant consumption!

[mvalley]

Code:

Device        Process  Eff (J/GH) [1]    Diff (mil)  Hashrate (PH/s)
--------------------------------------------------------------------------------------------------
Hashfast         28nm        ~0.8 [7]       25,100            179.7  
Cointerra        28nm        ~0.8 [2]       25,100            179.7   
BFL (Monarch)    28nm        ~0.8 [4]       25,100            179.7 

So if BTC is at $600 the break even point is 6x the numbers given above, etc.

Next estimated difficulty is 16,054 (mil), estimated hash rate is 108.7 (PH/s), so there is still plenty of room to grow assuming a $600 BTC price.

I wouldn't say there is plenty of room.

179.7*6 = 1078.2 PH

108*1.14^18=1,142 PH

So we have about 18 difficulty adjustments ahead which is around 216 days ~ 7 months.

[mvalley]

However, looking through most developed regions, the lowest electrical costs I am finding are in china at an average just below .03 USD.

I know a guy in the US with a very large commercial mining operation.  He pays less that $0.02 per kWh.  You have to use a lot of electricity to get that rate and use it at a very constant rate (no peaks) but that is exactly what a very large Bitcoin mining operation does: 24/7 constant consumption!

That's amazing. I don't know how people can negotiate those rates in the USA since I thought taxes and gen costs are over 2c/kW. Middle eastern countries seem to have the best absolute rates at 1-2 cents per kw.

[xstr8guy]

To lazy to quote the post but it said something like this...

"You can turn around and sell a used miner for more than you paid for it after a couple of months."

Um, no you can't. You could last year but that's simply not true now. Not even close.

[zimmah]

Sucks to be a miner in Europe, electricity is very expensive here.

Most of it is taxes too. Maybe I should consider buying solar panels, or creating a mining farm in canada or russia or something.

[brian_23452]

To lazy to quote the post but it said something like this...

"You can turn around and sell a used miner for more than you paid for it after a couple of months."

Um, no you can't. You could last year but that's simply not true now. Not even close.

You obviously can't read.

[Harley997]

Sucks to be a miner in Europe, electricity is very expensive here.

Most of it is taxes too. Maybe I should consider buying solar panels, or creating a mining farm in canada or russia or something.

In the US you are able to sell your electricity from solar panels "back to the grid" so even if you are not paying for electricity it would still not be "free" as you could earn from it in other ways