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Author Topic: Where Will The Difficulty Factor Go Next? (After it hits 140k next week)...  (Read 6347 times)
LMGTFY
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May 07, 2011, 07:20:46 PM
 #21

Yes, I think you're probably right (at least on the first paragraph), but... we've been here before. In late January we'd hit USD parity, mining was easy, difficulty manageable. Then we had six weeks of increasing difficulty and declining price, which led - in part through the perceived scarcity of bitcoins caused by increased difficulty - to a rapid rise in price. Mining is easy again.

My point is that I believe this is likely to be cyclical, and your second paragraph suggests an end of easy mining that I think is overstating things. I strongly suspect that mining is going to get difficult again - but it won't last.

Let's not forget that there are many, many gamers who already own high-end video cards. After all, that's why these cards were produced in the first place.

And a not-insignificant portion of these gamers are in situations where they personally don't pay for increased electricity use (i.e. dorms, fixed-rate utility apartments, living at home). For this crowd, mining is perceived to be 100% profit no matter what the price.
I'm speculating, but I think this group is one that's possibly most influenced by difficulty. Sure, fixed and variable financial costs are near zero, but they're not stupid - they know that running their machines hot 24 hours a day will mean buying a new gaming rig sooner than they'd planned for. They look at current difficulty, think "free money", then think things through harder once difficulty increases. Additionally (and this is why I was thinking about "natural wastage"), this group of miners is more likely to be semi-itinerant - my mining operation (such as it is...) is very fixed - I'm not likely to move house any time soon. Gamers are going to consist of a higher proportion of young people and students, who move houses more frequently (leading to down time), or who share houses/apartments (leading to objections to noise/heat).

I wouldn't make any bets on this being cyclical after n=2 samples. While I'd certainly agree with you that the bitcoin exchange rate drives growth and equilibrium of mining, I have a much harder time believing that the difficulty of mining influences the exchange rate.
On two samples, sure. This is pure speculation on my part. As regards difficulty influencing price - I'm surprised! It seems intuitive to me that difficulty affects supply. OK, supply is growing steadily, but as demand grows that demand can be met by mining, purchasing bitcoins, or by selling a good or service in exchange for bitcoins. With difficulty increasing, mining yields less, so the options for obtaining bitcoins are reduced.

After all, most miners are in it for the USD (or EUR, etc.) profits, not the BTC profits. I can't help but think that most of these miners immediately sell their BTC, which effectively pushes BTC value down. At this point, the only thing holding prices up is demand for BTC. This is quite the wildcard right now and is probably more the realm of speculators than people actually expecting to use bitcoins to buy things. If these speculators get spooked or tired of the fluctuations and difficulties with exchanges (see CoinCard shutdown, MtGox DDoS) and decide to stop their buying, the value of BTC would quickly go down.
I suspect you're correct, at least for the gamer/miner demographic, and probably for much of the rest of the mining demographic as well (I realise that there are some miners - myself included - who mine mostly to hold, believing the future value of bitcoins to be substantially higher than the present value). Playing Devil's Advocate, however... the gamer/miner can possibly afford to mine-and-hold more than the investor/miner who needs to recoup the cost of their mining rig...

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May 10, 2011, 08:46:40 AM
 #22

Difficulty follows price. The only way Difficulty is going down at this point is if $/BTC goes down to about $0.40 and stays there for a couple weeks... With prices the way they have been the next re-target is going to be rather over 200,000.

Damn, I better squeeze in as much hashing power between now and the next difficulty increase. It would be nice for us miners if price stabilized for a few months Tongue

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May 10, 2011, 09:35:54 AM
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Difficulty follows price. The only way Difficulty is going down at this point is if $/BTC goes down to about $0.40 and stays there for a couple weeks... With prices the way they have been the next re-target is going to be rather over 200,000.

Damn, I better squeeze in as much hashing power between now and the next difficulty increase. It would be nice for us miners if price stabilized for a few months Tongue

If you are going to do that you had better do it cheap. By my current estimation, if you spend more than about $380 per Ghash/s of mining rig you are better off simply buying Bitcoins.

Youch..to fit into the $380 price seems a bit hard. I've found a 5870 card for $150 but according to your estimation that's nowhere enough hashing power per $

I think it is pretty much near impossible to get 1 Ghash for $380 or less.

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May 11, 2011, 12:38:09 AM
 #24

$820 I can easily do Cheesy..we shall see. Either way I'm buying a new 5870 soon.


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May 11, 2011, 03:24:11 AM
 #25

By my current estimation, if you spend more than about $380 per Ghash/s of mining rig you are better off simply buying Bitcoins.

This must be based on a very high cost of electricity.

Civil Liberty Through Complex Mathematics
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May 12, 2011, 04:19:08 AM
 #26

Finding the point of demarcation which will deliver a certain amount of Bitcoins to you on a certain time horizon by purchasing them or purchasing a mining rig. It really depends on what your time horizon is and what you think will happen to the price of Bitcoins

The time horizon should be close to the economical lifetime of the hardware.  Anything else is just arbitrary.  What time horizon are you using?

Civil Liberty Through Complex Mathematics
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