Overall Outlook?

[legolouman]

In reference to my other live thread: https://bitcointalk.org/index.php?topic=69252.msg807456
While looking to invest much more into the community and cryptocurrency I've come to know and love, I wonder: Is it really worth it?

With the block reward halving in December, well before any rigs become profitable, what do people anticipate happening? Will the market stay the same, leaving the miner's to pack up and head home? Or will the market readjust, causing prices to go up and balance everything out?

The things that worry me greatly are:

• SoloMiner  88.6.216.9, who is greatly effecting the difficulty, a worry of him flooding the markets with his collected coins, and etc
• The GPU vs FPGA deal. With GPU's becoming less inefficient than a FPGA, which will turn out to be the more profitable way to go?
• Again, my worries on the reward halving. I think the FPGA vs GPU problem will pretty much reside on the results of this. If the market adjusts, then FPGA won't be the way to go as of now

Thanks for everything

Lou

PS-I'd call this market speculation, but I'll move it if it is more mining related.

[Kluge]

First off, my bought-in-April-2011 GPUs paid for themselves, including electricity costs and excluding the liquidation value I got from them after I sold a couple weeks ago. I'm quite pleased with how it turned out, but also pleased I got out when I did -- I'm not too far away from losing money with my remaining card at the rate I pay for electricity.

1) Not worrying. If my math is correct, 7.2k Bitcoins "should" be created every day with a 50BTC reward. The mysterious solominer finds roughly (from someone in a previous thread) 1/15 of the blocks. 7200*(1/15)=480BTC, which really shouldn't move the market much, even if the coins were being sold "fresh" every day (also worth noting the coins which are on market due to mystery-miner always selling all his coins doesn't necessarily equal 480 coins being put on the market which wouldn't have been there otherwise given the miners who would've otherwise received the coins also selling their coins as they're "produced" -- it's likely just increasing the % of total coins produced in a day being sold, again assuming mystery-miner sells his coins as mined). When the reward halves, mystery-miner's daily reward will be 240BTC, which isn't very scary at all.

2&4) I think it's safe to assume FPGA "market share" of the hashing power is rapidly increasing. Even if the market "adjusts," that doesn't mean GPU mining will be viable long-term, especially when/if we see good results on ASICs. I imagine FPGA/ASIC efficiency (rather, the cheaper cost to "create" a Bitcoin using that kind of hardware) would keep most miners happily churning out coins even at a lower price and higher difficulty -- there's not really any reason an ultra-efficient FPGA should ever stop mining and selling unless they're hoarding and hoping for a better price or the value of Bitcoins becomes near-worthless. That said, there will always be a large variation in what people pay for electricity -- for someone paying something negligible or someone paying nothing for electricity, they'd be foolish (barring revolutionary new mining hardware) to not use GPUs in their situation. In that situation, it will always be more cost-efficient (again, barring a future scenario where ASICs or something have better Mh/$ efficiency) to run GPUs.

3) Not sure I understand. I don't think electricity providers are raising their rates due to increased demand caused by Bitcoin mining.

[legolouman]

First off, my bought-in-April-2011 GPUs paid for themselves, including electricity costs and excluding the liquidation value I got from them after I sold a couple weeks ago. I'm quite pleased with how it turned out, but also pleased I got out when I did -- I'm not too far away from breaking even anymore.

1) Not worrying. If my math is correct, 7.2k Bitcoins "should" be created every day with a 50BTC reward. The mysterious solominer finds roughly (from someone in a previous thread) 1/15 of the blocks. 7200*(1/15)=480BTC, which really shouldn't move the market much, even if the coins were being sold "fresh" every day (also worth noting the coins which are on market due to mystery-miner always selling all his coins doesn't necessarily equal 480 coins being put on the market which wouldn't have been there otherwise given the miners who would've otherwise received the coins also selling their coins as they're "produced" -- it's likely just increasing the % of total coins produced in a day being sold, again assuming mystery-miner sells his coins as mined). When the reward halves, mystery-miner's daily reward will be 240BTC, which isn't very scary at all.

2&4) I think it's safe to assume FPGA "market share" of the hashing power is rapidly increasing. Even if the market "adjusts," that doesn't mean GPU mining will be viable long-term, especially when/if we see good results on ASICs. I imagine FPGA/ASIC efficiency (rather, the cheaper cost to "create" a Bitcoin using that kind of hardware) would keep most miners happily churning out coins even at a lower price and higher difficulty -- there's not really any reason an ultra-efficient FPGA should ever stop mining and selling unless they're hoarding and hoping for a better price or the value of Bitcoins becomes near-worthless. That said, there will always be a large variation in what people pay for electricity -- for someone paying something negligible or someone paying nothing for electricity, they'd be foolish (barring revolutionary new mining hardware) to not use GPUs in their situation. In that situation, it will always be more cost-efficient (again, barring a future scenario where ASICs or something have better Mh/$ efficiency) to run GPUs.

3) Not sure I understand. I don't think electricity providers are raising their rates due to increased demand caused by Bitcoin mining.

1)Then the mystery miner really isn't as big of a threat than I thought. I really would like to know what hardware they've got.

2&4) From what I can understand, you feel that GPU's are no longer the "every miner's" tool. Unless I can cut operating costs or investment somehow, yet you aren't quite sure how FPGA/ASIC systems will fare in comparison. What would you personally consider a high power cost?

As for #3, I don't really remember what I was trying to get at, obviously, it wasn't very important.

Thanks again.

[Kluge]

2&4) From what I can understand, you feel that GPU's are no longer the "every miner's" tool. Unless I can cut operating costs or investment somehow, yet you aren't quite sure how FPGA/ASIC systems will fare in comparison. What would you personally consider a high power cost?

Right. Miners effectively now have the option of efficiency through MH/$ efficiency (the GPU choice) or MH/KWh (the FPGA/ASIC choice). GPUs are relatively cheap up-front, but are risky for those paying a "reasonable amount" for electricity. As adoption of power-efficient miners increases as a % of total miners, there may be less resistance against a higher difficulty and lower price. That is, where old data show miners seem to drop out when Bitcoins lose value (whether this is because interest in BTC drops or because mining becomes unprofitable is up for debate) - what we may see in the future is that when price drops without a difficulty adjustment, GPU miners stop mining, but FPGA/ASIC miners keep going because, in any short-term scenario currently conceivable, there's no reason not to.

If difficulty remains where it's at now, and the price of BTC drops to $1, there isn't much reason for FPGA/ASIC miners to stop mining, because they don't pay much to create the coins. Many GPU miners, however, would not be willing to pay $5 in electricity to produce a good worth $1. Instead, in the future, difficulty may stop decreasing, and only increase at a slower rate when price drops. Just as CPU miners are now laughable, GPU miners may soon suffer the same fate, and in the future, were the market to adjust to having the majority of miners using high-efficiency FPGA or ASIC rigs, those too may eventually be superseded by something brand new and even more efficient.

As for "high power cost" (which was a bad phrase to use, but I'll run with it) - I'd consider that any amount where mining on mid-range ATI cards is unprofitable, which I'd guesstimate is something like $.15/KWh. Using that definition, and assuming FPGA/ASIC cards continue increasing in usage as miners, "high power cost" will lower with time, perhaps in a couple years settling at something like $.04/KWh.

(Quick disclaimer: I wouldn't be surprised to learn I'm overstating the impact of higher-power-efficiency hardware. It's a pretty big investment to buy something which has little existing demand outside of tiny markets, and which costs multiple times more than GPUs. I have no idea what % of miners run FPGA rigs. Maybe 5% currently, maybe .05%. In two years, FPGA miners may only make up maybe 3% of the network's total hashing power. *shrug*)

[legolouman]

2&4) From what I can understand, you feel that GPU's are no longer the "every miner's" tool. Unless I can cut operating costs or investment somehow, yet you aren't quite sure how FPGA/ASIC systems will fare in comparison. What would you personally consider a high power cost?

Right. Miners effectively now have the option of efficiency through MH/$ efficiency (the GPU choice) or MH/KWh (the FPGA/ASIC choice). GPUs are relatively cheap up-front, but are risky for those paying a "reasonable amount" for electricity. As adoption of power-efficient miners increases as a % of total miners, there may be less resistance against a higher difficulty and lower price. That is, where old data show miners seem to drop out when Bitcoins lose value (whether this is because interest in BTC drops or because mining becomes unprofitable is up for debate) - what we may see in the future is that when price drops without a difficulty adjustment, GPU miners stop mining, but FPGA/ASIC miners keep going because, in any short-term scenario currently conceivable, there's no reason not to.

If difficulty remains where it's at now, and the price of BTC drops to $1, there isn't much reason for FPGA/ASIC miners to stop mining, because they don't pay much to create the coins. Many GPU miners, however, would not be willing to pay $5 in electricity to produce a good worth $1. Instead, in the future, difficulty may stop decreasing, and only increase at a slower rate when price drops. Just as CPU miners are now laughable, GPU miners may soon suffer the same fate, and in the future, were the market to adjust to having the majority of miners using high-efficiency FPGA or ASIC rigs, those too may eventually be superseded by something brand new and even more efficient.

As for "high power cost" (which was a bad phrase to use, but I'll run with it) - I'd consider that any amount where mining on mid-range ATI cards is unprofitable, which I'd guesstimate is something like $.15/KWh. Using that definition, and assuming FPGA/ASIC cards continue increasing in usage as miners, "high power cost" will lower with time, perhaps in a couple years settling at something like $.04/KWh.

(Quick disclaimer: I wouldn't be surprised to learn I'm overstating the impact of higher-power-efficiency hardware. It's a pretty big investment to buy something which has little existing demand outside of tiny markets, and which costs multiple times more than GPUs. I have no idea what % of miners run FPGA rigs. Maybe 5% currently, maybe .05%. In two years, FPGA miners may only make up maybe 3% of the network's total hashing power. *shrug*)

I see. From the numbers I can put together, there are maybe about 3-400ish sold FPGA's made just for Bitcoin mining, about 50-100 of those aren't yet confirmed as delivered. Unless I'm just going mad from being tired, I'm starting to think that it isn't too crazy for me to build a rig after all.

On peak, I pay about $.11-.12 kWh, off peak about $.05, at least that's what I can put together looking at the bill. With some numbers I put together, I think this could all work if I can get the hardware for the right price.

Thanks for all of your help. Do you accept tips?

[LightRider]

Hopefully people will realize that money is not worth the effort to maintain its destructive, divisive and deleterious effects.

[Dhomochevsky]

1 - If you worry about the mystery miner from Spain flooding the market with coins, then you should be terrified about the early adopters such as Artforz pushing the market to zero with their current accumulated wealth. Hell, between MM and Artforz, I think only the 2 of them have about 30-30something percent of the total hashing power. Unless they aren't in this for the profit and are spending millions of dollars just to fuck around and take down Bitcoin, dumping everything in an uncontrolled manner would be a silly thing to do. So don't worry about it. I think the Bitcoin network is following a Pareto distribution mode, where 20% of the miners own 80% of the hashing power, or something like that.


2 and 3 - Based on some back-of-the-envelope calculations of the FPGA designs sold here on this forum, I would say that the percentage of "public" FPGA's currently covers about 1.5% of the network's hashing power (optimistic estimate, it should actually be a little lower). By the end of May I expect it to reach about 3%. This is based on a tally of currently delivering FPGA units and an estimate of future sales. For example - the first couple of batches of Icarus boards numbered in the tens. x6500 sold 100 units so far. Ztex sold somewhere around that amount too and BFL just started delivering singles. The third batch of Icarus boards I estimate numbered almost 100 boards, maybe more and x6500 is just starting to deliver another 100 boards. So the growth rate is slightly accelerating, that's why I estimate a doubling in market share in the next 2 months. Beyond that predictions become rather murky though. There are FPGA design projects floating around, there are high odds of optimized bitstreams appearing in the wild, pushing efficiency an extra 50%, there are large mining turnkey solutions being discussed as starting delivery this summer... All in all the market is becoming more and more dynamic and it's realistic to expect a geometric progression in FPGA hashing power until december, when the reward will halve. Therefore it's safe to say that GPU mining will become increasingly unprofitable to mine with, provided the current $/MH ratio stays constant. It might increase, but still, it will be much more profitable to mine with a FPGA than with a GPU.

When the reward halves, I believe the market will slowly adjust to reflect the change, meaning price per BTC will go up, but it will be a rather slow climb, enough to put unprofitable miners out of the game. That is, of course, barring some crazy swings in price or another bubble like the one that popped last summer.

All in all, don't worry about major dumps of coins or people gaining too much hashing power. That would affect everyone, not just you and sooner or later a solution will be found. And if you want to get in the game for a long time, go FPGA, gather capital and wait for the first large scale/high efficiency mining units.

[cunicula]

When the reward halves, I believe the market will slowly adjust to reflect the change, meaning price per BTC will go up, but it will be a rather slow climb, enough to put unprofitable miners out of the game. That is, of course, barring some crazy swings in price or another bubble like the one that popped last summer.

Appreciation due to halving of the block reward is not consistent with rational behavior on the part of even a minority of market participants. If its going to appreciate in expectation, then you should buy now in order to profit. If you do not buy even though price is expected to increase, then you are not rational. Only some people need to be rational for this to hold, not everyone.

What will happen when the block reward halves is that bitcoin will become more vulnerable to 51% attacks.

[farfiman]

What will happen when the block reward halves is that bitcoin will become more vulnerable to 51% attacks.

Not if btc= 10$ or above

[Technomage]

Absolute safety and thus raw vulnerability of Bitcoin against a 51% attack is most likely going to get much stronger in the next couple of years. Increasing usage and the halving of currency inflation will basically make sure that even though safety will get lower in relative terms (difficulty vs market cap), in actual terms it will very likely get much better because with increasing usage and appreciation of Bitcoin the price is likely to more than double. At the same time miners will get more extra reward from transactions because there are more of them. If we suppose that the network right now has overkill safety compared to the market cap (which I believe it has), it's just going to balance to a more reasonable level.

It's a valid point to think about what will happen when the next block halving happens, from 25 to 12.5 BTC. And the next one after that. At that time we better have improvements in the protocol to make sure the mining network remains large even when a larger and larger portion of miner rewards come from transaction fees alone. But worrying about this right now, claiming that the Bitcoin network will actually become unsafe anytime soon, is ludicrous. It's highly likely that the Bitcoin network will remain secure for a long time to come (longer than the whole technology has been in existence so far) and will probably get much more secure in absolute terms.

That's an issue that has real meaning in perhaps 5-10 years which means that there is plenty of time to come up with solutions, either improvements to proof of work or changing to a totally different system based more on proof of stake. These should be first experimented in alternate chains because Bitcoin at this moment is doing just fine.

[cbeast]

Hopefully people will realize that money is not worth the effort to maintain its destructive, divisive and deleterious effects.

Grok. Most can only handle one paradigm shift at a time, and usually the hard way.

[cbeast]

When the reward halves, I believe the market will slowly adjust to reflect the change, meaning price per BTC will go up, but it will be a rather slow climb, enough to put unprofitable miners out of the game. That is, of course, barring some crazy swings in price or another bubble like the one that popped last summer.

Appreciation due to halving of the block reward is not consistent with rational behavior on the part of even a minority of market participants. If its going to appreciate in expectation, then you should buy now in order to profit. If you do not buy even though price is expected to increase, then you are not rational. Only some people need to be rational for this to hold, not everyone.

What will happen when the block reward halves is that bitcoin will become more vulnerable to 51% attacks.

It also depends on the perceived usefulness of Bitcoin. While supply may decrease, speculation and demand may decrease as well leading to only a small or no increase in price. Increase in usefulness however, will be multiplied by the inverse decrease in supply. Mining is also at least partially dependent on speculation. Becoming more vulnerable due to a decrease in mining is as highly unlikely as the failure to progress the technology usefulness itself.

Dontcha just love double speak? Tying arguments in logic knots is more funner than purely fallacious argumentation. I prefer short declarative statements. The truth is usually just that easy.

[gewure]

i think the price will double.

we all know, that supply will drop significant - but why should demand do the same?!

[eleuthria]

i think the price will double.
we all know, that supply will drop significant - but why should demand do the same?!

The daily volume on the exchanges has been significantly higher than the coins mined per day for quite some time.  Cutting the mining rate in half is not cutting the TRADING SUPPLY in half.  It will have very little impact.

[proudhon]

Cutting the mining rate in half is not cutting the TRADING SUPPLY in half.  It will have very little impact.

This.