What would mining look like...

[SgtSpike]

...if it were a multi-billion dollar industry?

Say, for example, overall annual mining revenues were in the $10's of billions.  Who would be mining, and with what?  What would the margins look like?  Would there be a concerted effort between major mining corporations (assuming mining corporations existed) to help ensure profitability of said corporations?  In other words, some sort of agreement that if price/difficulty reached a certain ratio, each of those corporations would reduce their capacities by a certain percentage?  In the traditional sense, it might be akin to price fixing.  Speaking of which, would said mining corporations take it a step further, and price fix by refusing to sell below a certain price/difficult ratio as well?  Would the small-time miner still find room to achieve profitability, or would margins be so slim as to only allow those with steep discounts on electricity to be able to mine profitably?  Would electric companies purposefully charge corporate miners more per kwh, and/or would government mandate an additional tax on electricity used for mining?

Discuss.

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[niko]

...if it were a multi-billion dollar industry?

Say, for example, overall annual mining revenues were in the $10's of billions.  Who would be mining, and with what?  What would the margins look like?  Would there be a concerted effort between major mining corporations (assuming mining corporations existed) to help ensure profitability of said corporations?  In other words, some sort of agreement that if price/difficulty reached a certain ratio, each of those corporations would reduce their capacities by a certain percentage?  In the traditional sense, it might be akin to price fixing.  Speaking of which, would said mining corporations take it a step further, and price fix by refusing to sell below a certain price/difficult ratio as well?  Would the small-time miner still find room to achieve profitability, or would margins be so slim as to only allow those with steep discounts on electricity to be able to mine profitably?  Would electric companies purposefully charge corporate miners more per kwh, and/or would government mandate an additional tax on electricity used for mining?

Discuss.

Would there be any bad consequences for Bitcoin users if miners were engaging in "price fixing" (rather difficulty fixing)?  I don't see any. Besides, Bitcoin is open in the sense that anyone can join in, so any "difficulty fixing" probably wouldn't last long.

[Agent Provocateur]

don't think it would be different to actual multi-billion dollar industrie's habits. maybe in a more modern way.

[Littleshop]

...if it were a multi-billion dollar industry?

Say, for example, overall annual mining revenues were in the $10's of billions.  Who would be mining, and with what?  What would the margins look like?  Would there be a concerted effort between major mining corporations (assuming mining corporations existed) to help ensure profitability of said corporations?  In other words, some sort of agreement that if price/difficulty reached a certain ratio, each of those corporations would reduce their capacities by a certain percentage?  In the traditional sense, it might be akin to price fixing.  Speaking of which, would said mining corporations take it a step further, and price fix by refusing to sell below a certain price/difficult ratio as well?  Would the small-time miner still find room to achieve profitability, or would margins be so slim as to only allow those with steep discounts on electricity to be able to mine profitably?  Would electric companies purposefully charge corporate miners more per kwh, and/or would government mandate an additional tax on electricity used for mining?

Discuss.

One of the greatest things about bitcoin mining is its barrier to entry.  The thing that could change that of course is difficulty going to 100x what it is now.  ASICS could do that though I do not think too quickly.  At that point, there would be little point in mining with anything but ASIC.  If ASICs where controlled only one or two parties then the small guy would be shut out.  I just don't think this is going to happen.  If bitcoin was a billion dollar business, making ASICs would be profitable even with a small slice of the market.  Lots of competition would show up.  

The same is true with miners refusing to sell coins.  They are not only competing with other miners, they are competing with coin holders as well.  The price will find a new equilibrium that would be higher, but miners would be loosing money by not selling.  If the price goes too high, new people will mine and sell.  

[MoonShadow]

...if it were a multi-billion dollar industry?

Say, for example, overall annual mining revenues were in the $10's of billions.  Who would be mining, and with what?  What would the margins look like?  Would there be a concerted effort between major mining corporations (assuming mining corporations existed) to help ensure profitability of said corporations?  In other words, some sort of agreement that if price/difficulty reached a certain ratio, each of those corporations would reduce their capacities by a certain percentage?  In the traditional sense, it might be akin to price fixing.  Speaking of which, would said mining corporations take it a step further, and price fix by refusing to sell below a certain price/difficult ratio as well?  Would the small-time miner still find room to achieve profitability, or would margins be so slim as to only allow those with steep discounts on electricity to be able to mine profitably?  Would electric companies purposefully charge corporate miners more per kwh, and/or would government mandate an additional tax on electricity used for mining?

Discuss.

One of the greatest things about bitcoin mining is its barrier to entry.  The thing that could change that of course is difficulty going to 100x what it is now.  ASICS could do that though I do not think too quickly.  At that point, there would be little point in mining with anything but ASIC.  

depends on who you are.  I find it unlikely that GPU mining is going to die among those who use the waste heat to warm their flats.  No matter how efficient the custom mining gear may become, there is no way that a professional mining outfit can compete with the guy just trying to make a litte lextra while keeping his bedroom warm in winter.  I suspect that, should bitcoin mining ever go truely pro, that GPU like processors ar going to be sold in strips of every 6 inches or so, and taped to the undersides of water & process piping like heat trace cabling is today.  The biggest mining pool in 2020 might end up the contractor in charge of maintaince on the Alaskan Oil Pipeline.  Or the population of Reykjavík, Iceland.  Two places that heat is in high demand while electricity is relatively cheap.

[Jutarul]

I'd think we'd see an even more colorful mix of possibilities for mining.
Currently we have have solo miners, pooled mining & mining contracts. What else is possible? Use your imagination.

Software solutions for mining which improve hashrate by 0.5% will be worth real money.
Hardware solutions for mining which improve hashrate by 0.5% will be worth real money.

If the market value of bitcoin goes up, hashrate will rise. However, this process is saturating, since the difficulty adjusts.
Ultimately mining is a break even economy, never forget that.

Mining will become a political instrument not an economical one!
========================================
Thus compare mining to warfare. Companies who sell mining equipment produce the weapons for an arms race.
Those companies will make most of the profit.
I predict that as soon as bitcoin is established, the main computer hardware developers will buy off the little bitcoin ASIC companies which are out there and engage in the selling of mining equipment.

[Vod]

Say, for example, overall annual mining revenues were in the $10's of billions. 

Impossible.  Even if a company could win every single block, it would still be just over $13 million dollars at today's exchange rate.

[MoonShadow]

If the market value of bitcoin goes up, hashrate will rise. However, this process is saturating, since the difficulty adjusts.
Ultimately mining is a break even economy, never forget that.

Don't assume that all the money to be made in bitcoin mining will come from the block rewards or transaction fees.  If bitcoin is big enough that walmart starts taking it, then target will also; but don't expect the mining operations of each (whether they do it themselves or contract out) will accept the transactions of the other.  To some degree, each of these major players are going to have to mine defensively so that they can control the delay times of their own transactions clearing while also being able to offer their customers the option of paying in bitcoin feelessly.

Also, don't expect that walmart's mining datacenter is going to ever include transactions intended for Target, if they can identify those addresses.

[MoonShadow]

Say, for example, overall annual mining revenues were in the $10's of billions. 

Impossible.  Even if a company could win every single block, it would still be just over $13 million dollars at today's exchange rate.

Maybe it's impossible, but you have an underdeveloped imagination.

[Jutarul]

If the market value of bitcoin goes up, hashrate will rise. However, this process is saturating, since the difficulty adjusts.
Ultimately mining is a break even economy, never forget that.

To some degree, each of these major players are going to have to mine defensively so that they can control the delay times of their own transactions clearing while also being able to offer their customers the option of paying in bitcoin feelessly.

Also, don't expect that walmart's mining datacenter is going to ever include transactions intended for Target, if they can identify those addresses.

Good point. Another way of looking at the mining business is the buying of "transaction" cycles. Currently 1GHash at 10THash (=1:10000) total hashrate will buy you 1008/10000=0.1 free blocks per week (6*24*7=1008), i.e. a free transaction block all for yourself every 10 weeks.
Obviously if you need to move a lot of money around, then there's an economic incentive in gaining access to mining equipment. However, it has to be a lot of money!

I find it more realistic that companies like walmart and target would pool together and agree to process each others transactions, instead of fighting on that level.

Defensive mining is only relevant on the above 1% market share of mining equipment. If it's below the delay times make it impractical to achieve defense in the first place. That is if you "need" to process transactions within a week you need to invest 0.1% money of the "total" value of hardware equipment in mining operations. Thats $1Million per $1Billion in hardware equipment.
!! However, this heavily depends on the number of players. If 10000 players play that game, it's impossible to achieve the goal: it's a never-ending arms race !!
( because the average mining share per player is 0.01%, i.e. 10 weeks)

[ArticMine]

One factor to consider here is the weather. Where will many Bitcoin mines be located? The coldest countries in the world. http://www.youtube.com/watch?v=Tfs4jPR3BDI We are already see this effect in BTC prices on BTC-e (Russia) and Virtex (Canada) when compared to MtGox. Now what do Russia and Canada have in common when it comes to mining Bitcoin?

[niko]

One factor to consider here is the weather. Where will many Bitcoin mines be located? The coldest countries in the world. http://www.youtube.com/watch?v=Tfs4jPR3BDI We are already see this effect in BTC prices on BTC-e (Russia) and Virtex (Canada) when compared to MtGox. Now what do Russia and Canada have in common when it comes to mining Bitcoin?

It's the price of electricity, not the weather. Another factor is cultural/political - some societies will care less about Bitcoin then others.

[MoonShadow]

One factor to consider here is the weather. Where will many Bitcoin mines be located? The coldest countries in the world. http://www.youtube.com/watch?v=Tfs4jPR3BDI We are already see this effect in BTC prices on BTC-e (Russia) and Virtex (Canada) when compared to MtGox. Now what do Russia and Canada have in common when it comes to mining Bitcoin?

It's the price of electricity, not the weather. Another factor is cultural/political - some societies will care less about Bitcoin then others.

It's the price of electricity and the weather, for the little end user/miner who needs a little spot heat in a cold climate.

[giszmo]

By the time the "annual mining revenues were in the $10's of billions" I hope we already moved towards proof of stake so the need to have transaction fees compensate the shrinking coin generation disappears and therefore the pressure to rise transaction fees also vanishes. Bitcoin is not about guaranteeing an income for miners. Mining should ideally not be profitable.

My instinct-no to proof of stake turned into a "we need it desperately at some point". I would love to stop generation early and switch to proof of stake. The massive generation now is why proof of stake would make the owners of bitcoin rich for "nothing".

[arklan]

but if there was no profit to be made mining - why would anyone do it? in non-bitcoin economies, there's still massive amounts of computer power used and the like. it's all handled and paid for by banks and their transactions fees and interests rates. why, in the case of no available profit from any source, would anyone participate in an activity  that would cost massive amounts of money in hardware and electricity?

[giszmo]

but if there was no profit to be made mining - why would anyone do it? in non-bitcoin economies, there's still massive amounts of computer power used and the like. it's all handled and paid for by banks and their transactions fees and interests rates. why, in the case of no available profit from any source, would anyone participate in an activity  that would cost massive amounts of money in hardware and electricity?

With proof of stake, people would compete over the possible but not mandatory transaction fees at no costs at all compared to proof of work. It doesn't need thousands of computers crunching numbers to sign blocks. Once the proof of stake system would suffer a 51% attack from 1% of stake, stake holders would switch on mining to secure their stake in case no fees were paid leading to nobody mining at that point in time. if block creation takes ages, stake holders would start mining to protect their stake.

[weex]

I'd just like to point out that if miner's revenues were to equal $10 bllion (presumably this will not hapen in the next 5 monhts) at 25btc/block, each bitcoin would need to be worth $7610. Of course transaction fees would decrease that necessary price. It happening after another reward drop, means you'd have to double that to $15k per coin.

Miner's revenues should probably be compared to VISA's network operating costs to get an idea of an eventual ceiling on the market.

I don't think price or difficulty fixing will be possible but I do think it would become centralized to large extent to a handful of places around the world where cheap or subsidized electricity existed.

[cunicula]

By the time the "annual mining revenues were in the $10's of billions" I hope we already moved towards proof of stake so the need to have transaction fees compensate the shrinking coin generation disappears and therefore the pressure to rise transaction fees also vanishes. Bitcoin is not about guaranteeing an income for miners. Mining should ideally not be profitable.

My instinct-no to proof of stake turned into a "we need it desperately at some point". I would love to stop generation early and switch to proof of stake. The massive generation now is why proof of stake would make the owners of bitcoin rich for "nothing".

Agreed, there is no way that proof-of-work mining would last that long. The benefits from moving to proof-of-stake would simply be too huge for developers (either of bitcoin or of its successor) to ignore.

[Jutarul]

How did this become a proof-of-stake discussion?

Anyway, I doubt that proof-of-stake is relevant for bitcoin
1) fixing a fundamental aspect of the protocol is unlikely. Proof-of-stake is something which has to be explored in something like stakecoin. Think of silver and gold, both exist. If you're serious about implementing proof-of-stake start a fork now and solve the problem of coin distribution.
2) involving the asset into a mechanism for earnings is a bad idea:
- It will make the money instantly more expensive (since suddenly bitcoin has an economic value, other than store of value)
- It shifts the mining economy from low-margin profit to a high-margin profit, since the cost of mining is greatly reduced. This means that coins tend to accumulate and a big stake holder can manipulate the exchange market at their will. Putting speculators and mining operations into the same entity will corrupt the exchange market.

I understand the major concerns about proof-of-work: Scalability. If bitcoin becomes a dominant payment system, the required investment and electricity costs in mining operations are huge. However, the fact that it intrinsically converges against a low-margin profit equilibrium means that it will stabilize at a value which will make economic sense. (but actually it will converge against a net loss equilibrium, due to other considerations, i.e. defensive mining)

[cunicula]

- It will make the money instantly more expensive (since suddenly bitcoin has an economic value, other than store of value)

Your complaint is that proof-of-stake would make the currency price too high. Classic.