Should I start Diablo Mining Company, a 1M BTC startup?

[DiabloD3]

Is this a plan for organizing a 51% attack for profit? If so, sign me up.

Or is there no business model here? If so, why invest in this?

No, there is no 51% attack here.

There is a business model, its been linked to from the op post.

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[DiabloD3]

Oh, and some "companies" on GLBSE already put 40-50% of earnings aside to be used for expansion, it's not like they all pay out everything.

Yes, but from what I've seen, most don't. Most of these companies have no fiscal responsibility. Its like watching the Dot Com bubble all over again. I don't want anything to do with that.

Anyways: sturle seems to have gotten my point: I don't care about profits in USD, as long as this company is not profitable in BTC it is NOT profitable at all! Think of a company in Zimbabwe Dollars instead of US Dollars: Even if you started it with 1 million dollars and it now makes Billions per day, the conversion rate eats it all. As you said yourself: You are hoping for press coverage of a 5 million USD Bitcoin startup, not a 1 million BTC Bitcoin startup.

Anyone who invests in this with Bitcoins is (in my opinion) at least not thinking it through. The press you'd get for this (if any) would be probably also in this direction, I doubt many would buy shares if you cannot explain this (other than "Price for BTC in USD will double!!!111"). It might be fine just to get publicity though.

Conversion rate doesn't eat the profit, and I'm not sure why you think it would. Lets say, in the far future, the single wind turbine and a few solar panels have turned into a large scale wind farm and solar thermal + graphite storage plant... to issue dividends, Bitcoins would have to be purchased at market prices to pay them out. Ergo, Bitcoin volume increases and the trend of Bitcoin prices turn to a more upward direction than normal.

I am hoping for press coverage, but it is only a perk. It is not required by the plan. It is, however, something I foresee happening as a result of a successful DMC IPO.

[Sukrim]

to issue dividends, Bitcoins would have to be purchased at market prices to pay them out. Ergo, Bitcoin volume increases and the trend of Bitcoin prices turn to a more upward direction than normal.

So the more successful you get with this, the fewer dividends will be paid, since it becomes more expensive to buy the coins for them. You have to build twice the solar capacity if the price doubles to pay the same dividend. How is this not "eating profits"?!

Also I'm really not convinced that all that "green power" stuff should be in the focus of the company. Either you mine or you produce electricity and maybe even offer housing for FPGAs at low rates instead of buying them yourself. I know from Europe that green electricity is subsidized (you get a fixed rate for selling your green power to the grid for quite a few years guaranteed), no idea about the situation in the US.

[DiabloD3]

to issue dividends, Bitcoins would have to be purchased at market prices to pay them out. Ergo, Bitcoin volume increases and the trend of Bitcoin prices turn to a more upward direction than normal.

So the more successful you get with this, the fewer dividends will be paid, since it becomes more expensive to buy the coins for them. You have to build twice the solar capacity if the price doubles to pay the same dividend. How is this not "eating profits"?!

Because, for one, DMC does not pay a fixed dividend. It pays 50% of the profits. Green power generation exists to get rid of the largest operation cost mining has: electricity.

Also I'm really not convinced that all that "green power" stuff should be in the focus of the company. Either you mine or you produce electricity and maybe even offer housing for FPGAs at low rates instead of buying them yourself. I know from Europe that green electricity is subsidized (you get a fixed rate for selling your green power to the grid for quite a few years guaranteed), no idea about the situation in the US.

Lowering operation costs is the focus of the company. Green power is a way of doing this. Green energy is subsidized in various ways in the US, I detailed this in the 4/27 update to the plan. There is no reason why DMC can't do both mining and green energy, since green energy lowers the operating costs of the company.

[rjk]

So far, I haven't heard any substantial arguments against the plan, other than ones that can be explained away with "we can't predict conversion rate, difficulty rate, etc", and I am OK with that. Where do I invest?

[Sukrim]

So far, I haven't heard any substantial arguments against the plan, other than ones that can be explained away with "we can't predict conversion rate, difficulty rate, etc", and I am OK with that. Where do I invest?

What about:
* poses real risk of centralisation by creating a hash rate for a single person that can compete even with deepbit in the suggested configuration.
* Diablo has not disclosed any previous work experience with either energy generation (a few m² are nice and might get subsidies - but if you start talking about several kWh it gets tricky and expensive) or mining farm administration.
* Investments will be in USD, Shares will be valued in BTC - as soon as BTC prices rise, your investment has gone bad. Profits will be in USD (electricity) and BTC (mining), both sources of income can (and probably will) be squashed by USD<-->BTC conversion rate and Bitcoin's internal difficulty mechanisms.
* To earn back your investment, this "company" has to generate at least 2 million Bitcoins either through mining (gets more and more diffficult --> Moore's Law, reward cut every 4 years) or electricity (valued in USD, paid in BTC --> currency risk). This is NOT realistic from a current point of view.
* It is suggested to use FPGAs - even though these are powerful mining machines, ASICs are potentially faster and save more power. Also: hardware doesn't last forever. Written off for 5 years, it means that they cost ~200 USD a piece per year additionally to electricity costs.
* others (as an example: Vladimir) have more experience, plan more realistically, don't get cought up in dreams about self sustainability with solar power but focus on their job and have already industry partners as well as a registered company (...and are known by their real name!). They also deal in fiat currency mainly, which after all isn't that volatile usually. You'd still get out the same amount of BTC but buying a second share from the IPO will cost roughly the same as the first share.

[rjk]

So far, I haven't heard any substantial arguments against the plan, other than ones that can be explained away with "we can't predict conversion rate, difficulty rate, etc", and I am OK with that. Where do I invest?

What about:
* poses real risk of centralisation by creating a hash rate for a single person that can compete even with deepbit in the suggested configuration. <-- Same with Vlad's operation, really.
* Diablo has not disclosed any previous work experience with either energy generation (a few m² are nice and might get subsidies - but if you start talking about several kWh it gets tricky and expensive) or mining farm administration. <-- I think his credentials are sufficient for this operation, or at least he would know who to contract anything major out to.
* Investments will be in USD, Shares will be valued in BTC - as soon as BTC prices rise, your investment has gone bad. Profits will be in USD (electricity) and BTC (mining), both sources of income can (and probably will) be squashed by USD<-->BTC conversion rate and Bitcoin's internal difficulty mechanisms. <-- See my "we can't predict conversion rate, difficulty, etc" thing above.
* To earn back your investment, this "company" has to generate at least 2 million Bitcoins either through mining (gets more and more diffficult --> Moore's Law, reward cut every 4 years) or electricity (valued in USD, paid in BTC --> currency risk). This is NOT realistic from a current point of view. <-- What is unrealistic about it? For a company that is just starting with a 5 year plan, why shouldn't it exist for 10, 15, 25 more years?
* It is suggested to use FPGAs - even though these are powerful mining machines, ASICs are potentially faster and save more power. Also: hardware doesn't last forever. Written off for 5 years, it means that they cost ~200 USD a piece per year additionally to electricity costs. <-- ASICs aren't available yet, and I am sure that they would be on the table if they were.
* others (as an example: Vladimir) have more experience, plan more realistically, don't get cought up in dreams about self sustainability with solar power but focus on their job and have already industry partners as well as a registered company (...and are known by their real name!). They also deal in fiat currency mainly, which after all isn't that volatile usually. You'd still get out the same amount of BTC but buying a second share from the IPO will cost roughly the same as the first share. <-- So you have more info about Vlad's operation than we do? Do please elaborate.

See points in RED above.

[sturle]

Continuing investment in new mining technology is a valid point, but it makes the constant difficulty assumption even less valid.  Even the valuation of BTC if you grow to much, because you could pull off a 51% attack.  Even if growth beyond your initial 1/3 of the hashrate would only be stupid unless difficulty increases, because at that point you mainly compete with yourself.  Your share of the blocks will increase slower and slower the higher percentage of the total hashrate you get, and you will push difficulty higher.  Many GPU miners, like me, don't need to mine for profit.  It is enough to get about 2/3 of my power costs back, and it is still the cheapest heating system around.  If price per block and difficulty remains constant, as you assume, GPU mining will never become unprofitable.

If the global hash rate is 10 thash, that doesn't mean that a 51% attack is 5... it means its ANOTHER 10. And even then, its not guaranteed (ask gmaxwell sometime on the exact numbers, its pretty difficult to reliably perform the attack even with that 10 thash).

For this argument you conveniently don't assume difficulty to remain constant any more.  You assume your added hashpower to add to the current 10 Thash/s, and not replace it as you argued earlier (otherwise the difficulty would increase, and all your profit calculations are wrong).

If you believe your hashpower will add to the current total hashpower, you must also assume the difficulty to change accordingly.  If you think your haspower will replace existing haspower, making difficulty and total hashpower constant, then 5 Thash/s is enough.

You are constantly changing your basic assumptions to make your numbers look better than they are.  Now I don't think you should start this business because you won't do realistic calculations.

That said, yes, I will purposely back off if we get close to 50% because, frankly, its insane and its bad for investors. However, increasing diff to price out most GPU users IS good for investors. Nvidia and Radeon 4xxx have already crossed the points of no return, it is only time for even the most efficient GPU setups to fall behind, even without DMC. Being aggressive for a large scale mining operation isn't a bad thing.

If you assume difficulty to change that much, and still believe in increasing Bitcoin price, buying coins is clearly the best investment.

As for GPU mining becoming unprofitable, all you're doing is calculating cost of heating into your total operating cost math. Which, don't get me wrong, thats pretty smart... for the 2-5 months your part of the world calls Winter. The other months you're turning the A/C and/or shutting mining off. That is not something a large scale mining operation should do.

Speak for yourself.  I need heating all year.  I don't think anyone around here even have A/C.  Mean temperature in mid August is 14 °C.  Maximum temperature last year was 23.1 °C.  Mean temperature in mid February is about 0 °C, so the temperature variation from winter to summer is low for a northern climate.  There isn't much temperature variation during the day either.

[Bitbird]

＠DiabloD3, I have been drafted a plan which also related about green mining almost at the same time with your plan. My estimated kick-start budget was around 1000 to 1500 btc for a workable prototype which should be a small project compare with yours.

Some individual views: Since investors usually more like to see some physical demonstrations before they invest their money, a prototype or model might be a nice start before a large scale operation. Beside, if choose a right place/country for the full scale operation the differences could be huge for the advantages of their renewable energy policies.

Many possibility and details can be discussed further. I think your plan would be quite promising. The big thing need not to be fast. Time will gradually mature for it.

[Smoovious]

um... 50% goes to dividends? that seems pretty damned high...

hit a couple/few months of lousy returns and increased expenses (say, for hardware replacement, repairs to the green, etc) and you're in big trouble.

I'd suggest something more like, 10% of profit cash on hand, per period. it would scale over a longer period of time, keeping more of an emergency fund available. If you have a good run with low expenses and low costs, that 10% after about 10 or so months in that condition, would be the equivalent of paying out 100% of that period's profits to dividend, while still keeping the remaining 90% of the cash on hand for emergencies, and next period's dividend cut.

Also, don't make business/financial decisions based on the dividend. The business' sustainability and health comes first, and once it is going and profitable, then, and only then, address the dividend.

I've seen too many companies fail on the net, because they prioritized their dividend, instead of their company. After all. What good is focusing on a dividend when you don't have enough cash on hand left to conduct business?

-- Smoov

[Sukrim]

* Investments will be in USD, Shares will be valued in BTC - as soon as BTC prices rise, your investment has gone bad. Profits will be in USD (electricity) and BTC (mining), both sources of income can (and probably will) be squashed by USD<-->BTC conversion rate and Bitcoin's internal difficulty mechanisms. <-- See my "we can't predict conversion rate, difficulty, etc" thing above.

Yes, but there are established estimates (like Moore's law) and also it is not too unreasonable to expect US Dollars not to go the way of the Zimbabwe Dollar anytime soon.
Also if the company was valued in USD instead of BTC there would be no need to predict conversion rates. See the "SATOSHIS-DAEMON.horse" shares as an example.

Anyways, good luck with this lunatic plan, I hope you hit some headlines with it (I doubt it) and the BTC I don't spend on that company get worth more without me investing.

[DiabloD3]

So far, I haven't heard any substantial arguments against the plan, other than ones that can be explained away with "we can't predict conversion rate, difficulty rate, etc", and I am OK with that. Where do I invest?

What about:
* poses real risk of centralisation by creating a hash rate for a single person that can compete even with deepbit in the suggested configuration. <-- Same with Vlad's operation, really.
* Diablo has not disclosed any previous work experience with either energy generation (a few m² are nice and might get subsidies - but if you start talking about several kWh it gets tricky and expensive) or mining farm administration. <-- I think his credentials are sufficient for this operation, or at least he would know who to contract anything major out to.
* Investments will be in USD, Shares will be valued in BTC - as soon as BTC prices rise, your investment has gone bad. Profits will be in USD (electricity) and BTC (mining), both sources of income can (and probably will) be squashed by USD<-->BTC conversion rate and Bitcoin's internal difficulty mechanisms. <-- See my "we can't predict conversion rate, difficulty, etc" thing above.
* To earn back your investment, this "company" has to generate at least 2 million Bitcoins either through mining (gets more and more diffficult --> Moore's Law, reward cut every 4 years) or electricity (valued in USD, paid in BTC --> currency risk). This is NOT realistic from a current point of view. <-- What is unrealistic about it? For a company that is just starting with a 5 year plan, why shouldn't it exist for 10, 15, 25 more years?
* It is suggested to use FPGAs - even though these are powerful mining machines, ASICs are potentially faster and save more power. Also: hardware doesn't last forever. Written off for 5 years, it means that they cost ~200 USD a piece per year additionally to electricity costs. <-- ASICs aren't available yet, and I am sure that they would be on the table if they were.
* others (as an example: Vladimir) have more experience, plan more realistically, don't get cought up in dreams about self sustainability with solar power but focus on their job and have already industry partners as well as a registered company (...and are known by their real name!). They also deal in fiat currency mainly, which after all isn't that volatile usually. You'd still get out the same amount of BTC but buying a second share from the IPO will cost roughly the same as the first share. <-- So you have more info about Vlad's operation than we do? Do please elaborate.

See points in RED above.

rjk pretty much covers it.

However, ASIC are on the table. So are 28nm FPGA if they come out before ASIC do. Just because I can't buy them yet doesn't mean I wont. And if they come out before DMC is finished launching? I buy them as first gen hardware. Its just that, at the moment, those ztex quads are the best bang for our buck. In fact, if they were to make 8 FPGA boards that took nothing but a pci-e 6 for power, that'd be even better.

Also, solid state hardware does last quite awhile. The fans might not last 10 years (although I intend on buying these without the ZTEX HSF and use higher air flow fans plus redundant fan setups so hardware doesn't fry if a fan fails (ie, typical HA enterprise computing overkill)), but I would be very surprised if most of the FPGAs died around the 5 year mark. I have no interest in shutting off hardware that can still mine; combined with green power generation, older hardware can keep mining when it'd be unprofitable for everyone else.

Its not that I dream about self-sustainability, but our largest operating cost is electrical power. Anything that can be done to lower or eliminate that MUST be considered. No one knows if diff will suddenly shoot to 10 times what it is now, or BTC prices drop to 10 times less than they are now. It would be irresponsible of me not to plan for these outcomes even if they are unlikely.

Also, its spelled "caught".

[DiabloD3]

Continuing investment in new mining technology is a valid point, but it makes the constant difficulty assumption even less valid.  Even the valuation of BTC if you grow to much, because you could pull off a 51% attack.  Even if growth beyond your initial 1/3 of the hashrate would only be stupid unless difficulty increases, because at that point you mainly compete with yourself.  Your share of the blocks will increase slower and slower the higher percentage of the total hashrate you get, and you will push difficulty higher.  Many GPU miners, like me, don't need to mine for profit.  It is enough to get about 2/3 of my power costs back, and it is still the cheapest heating system around.  If price per block and difficulty remains constant, as you assume, GPU mining will never become unprofitable.

If the global hash rate is 10 thash, that doesn't mean that a 51% attack is 5... it means its ANOTHER 10. And even then, its not guaranteed (ask gmaxwell sometime on the exact numbers, its pretty difficult to reliably perform the attack even with that 10 thash).

For this argument you conveniently don't assume difficulty to remain constant any more.  You assume your added hashpower to add to the current 10 Thash/s, and not replace it as you argued earlier (otherwise the difficulty would increase, and all your profit calculations are wrong).

If you believe your hashpower will add to the current total hashpower, you must also assume the difficulty to change accordingly.  If you think your haspower will replace existing haspower, making difficulty and total hashpower constant, then 5 Thash/s is enough.

No, thats what a 51% attack is. Its when you're 51% of the global network. It has nothing to do with difficultly. If global hash rate is 10 thash, I need to bring 10 thash online from start to finish to perform 51% attacks. It has nothing to do with profitability, it is a statement on how the attack works.

If it ever gets to the point where DMC can perform one, we stop expanding otherwise it could collapse the Bitcoin network.

[DiabloD3]

um... 50% goes to dividends? that seems pretty damned high...

hit a couple/few months of lousy returns and increased expenses (say, for hardware replacement, repairs to the green, etc) and you're in big trouble.

I'd suggest something more like, 10% of profit cash on hand, per period. it would scale over a longer period of time, keeping more of an emergency fund available. If you have a good run with low expenses and low costs, that 10% after about 10 or so months in that condition, would be the equivalent of paying out 100% of that period's profits to dividend, while still keeping the remaining 90% of the cash on hand for emergencies, and next period's dividend cut.

Also, don't make business/financial decisions based on the dividend. The business' sustainability and health comes first, and once it is going and profitable, then, and only then, address the dividend.

I've seen too many companies fail on the net, because they prioritized their dividend, instead of their company. After all. What good is focusing on a dividend when you don't have enough cash on hand left to conduct business?

-- Smoov

Yes, 50% is high, but a lot of potential investors have been demanding 100%, and I have refused to raise it that high.

I agree with a lot of what you're saying, however, and this is what I've been trying to tell people: the survival of the company is more important than profit. As it stands, short term operating costs will be taken out of BOTH dividends and payments into the growth fund. If anything happens that requires not paying dividends that month to keep the company running, then that is what will happen.

I am only interested in the long term survival of the company for the most part. DMC is not a Wall Street bank nor Enron. After the initial build out, the growth fund can be left to grow for a year or more in anticipation for ASIC or unforeseen equipment failure or damage.

[DiabloD3]

Poll is over, 49 for, 64 against. So, we're going to do another vote: https://bitcointalk.org/index.php?topic=78919.0