The mining market balance

[sadpandatech]

Back on the subject of BFL having to lower price due to miner ROI slowing sales;



We first have to try and speculate just how many units BFL can produce and how quickly.  Right now they would have to produce and deliver 12,700~ of the $1300 SC units in order for the ROI from those units to move to over the 1 year mark. This is assuming Nov. 1 delivery so 2 months of mining at 50BTC per block. Jan. delivery puts the ROI at 380~ days.

So the question, how likely is it that the demand is even there for 12k units? The mining market is still not very large. Right now we can see what, 500~ orders?  The problem with the lack of demand is that it will not take for the ROI to be reduced for miners to demand a lower price to continue sales. It could just as likely go the other way around. With BFL finding they have a need to lower the price just to make more sales before the ROI issue comes into play.


And right now speculation math would put them at over $600k in pre orders. Likely enough to already cover their NRE...


(it's all speculation at this point) I will continue to work and rework my math with every changing bit of info.  And I'm more than happy to show anyone where I get my 12,700 40GH unit number from.

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[P4man]

I think the price will only double (when the reward halves) when all coins in supply are used for trade in the Bitcoin economy, i.e. are needed

As it is now (but I have no data back that up) most of the coins are simply hoarded, therefore there is no need for BTC/$ rate to rise

The coins that have been mined have a certain value... the fact that less coins will be mined in the future won't make the already mined coins more valuable, unless there is actual demand for them

Again, as long as most coins are hoarded, there won't be a 1 : 1 relation between price & reward halving.... at least, there shouldn't be

Exactly. Hoarding ==speculating. I would guess at least 90% of bitcoins value today is pure speculation, rather than using it as tool to facilitate economic activity. Bitcoins finite supply is already priced in by speculators (hoarders or otherwise), and reward halving is just the mechanism that ensures finite supply.

Now the reward halving will have an impact, but afaics, only on miners who use their coins for something other than hoarding and therefore would have to buy (more) coins.  Logically, that would push prices up, but the effect will not kick in until after the event, and its probably completely statistical noise.

[P4man]

 And I'm more than happy to show anyone where I get my 12,700 40GH unit number from.

Id love to see it, as Im too lazy to do it myself.
That said, the asic is not going to be the bottleneck. IM guessing a single wafer should yield near 10TH. You cant order a single wafer, typically a minimum order at a fab is a lot of 25 wafers.  PCBs, cases, assembly, etc can (and probably are) contracted out to some Chinese sweat shop. I dont know what these devices will even look like, but I cant say I see a potential bottleneck.

[sadpandatech]

And I'm more than happy to show anyone where I get my 12,700 40GH unit number from.

Id love to see it, as Im too lazy to do it myself.
That said, the asic is not going to be the bottleneck. IM guessing a single wafer should yield near 10TH. You cant order a single wafer, typically a minimum order at a fab is a lot of 25 wafers.  PCBs, cases, assembly, etc can (and probably are) contracted out to some Chinese sweat shop. I dont know what these devices will even look like, but I cant say I see a potential bottleneck.

aye, that was exactly what I said. Market demand will be the bottleneck for BFL.. ;p

Math;
First a link showing the difficulty with ~12,700 40GH units in action. Calculated by punching in the total hash of those units and adjusting difficulty until 7200BTC per day is produced.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=509440000.00&exchangerate=6.30&bitcoinsperblock=50.00&rigcost=1300&powerconsumption=15&powercost=0.12&investmentperiod=355
Second a link showing 40GH at this new difficulty and 50BTC block reward. paypack time 368 days.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=40000.00&exchangerate=6.30&bitcoinsperblock=50.00&rigcost=1300.00&powerconsumption=15.00&powercost=0.10&investmentperiod=355
Third a link showing the same at 25BTC block rewards. It's at this point we see the ROI has become what many would consider unreasonable.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=40000.00&exchangerate=6.30&bitcoinsperblock=25.00&rigcost=1300.00&powerconsumption=15.00&powercost=0.10&investmentperiod=355
Fourth link showing that cutting the price of the 40GH unit in half brings ROI back to ~1 year. It does not account for new sales further increasing that time by increasing difficulty.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=40000.00&exchangerate=6.30&bitcoinsperblock=25.00&rigcost=650&powerconsumption=15.00&powercost=0.10&investmentperiod=355


edit; I first arrived at that difficulty by punching in 1 40GH unit at $1300 and pushing the difficulty up until it was over 1 year ROI at 50BTC block.

[sadpandatech]

I should add to that, the benefit to miners is with lower demand for their products at the release price that it is unlikely they will sell enough units to reach this theoretical difficulty(71.1mil) of mine until something changes to further drive demand.

Current orders at about 500, if all 40GH units, if all actually available for release will put the difficulty at about +2.8mil above current at time.

edit; for previous post. I should also add that for ease of calculating I did not consider anything mining besides the newly onlined 40GH per unit asics. Adding in older hardware that will be online in my scenario should not change the overall numbers much.

[Cablez]

I would think that there would be a healthy secondary market for these devices considering the lengthy failure rates and promise of better ROI with a used unit.

[Qoheleth]

The OP's proposal of a production+mining cooperative is one that appeals to me and one towards which I'd be willing to contribute a good chunk of cash. This is partly because I think it'd work, and partly because I really like cooperatives as a species of legal entity, and partly because I want some alternative to lining BFL's pockets and if it takes funding an ASIC design then by gum I'll help fund an ASIC design.

(Of course, the organization would have to be spearheaded by someone I could meet personally and in whom I could build some personal confidence. But that probably goes without saying when entrusting someone with this kind of money!)

[sadpandatech]

The OP's proposal of a production+mining cooperative is one that appeals to me and one towards which I'd be willing to contribute a good chunk of cash. This is partly because I think it'd work, and partly because I really like cooperatives as a species of legal entity, and partly because I want some alternative to lining BFL's pockets and if it takes funding an ASIC design then by gum I'll help fund an ASIC design.

I second that.

I belive they could solve the 'who gets one first' scenario buy mining with the produced hardware until nUnits are ready to ship or nTime worth of orders are ready to ship. And by paying out those eanrings to the coop members. Then shipping the things as closely together as possible. Atleast for the first big ordering round.

[DutchBrat]

The OP's proposal of a production+mining cooperative is one that appeals to me and one towards which I'd be willing to contribute a good chunk of cash. This is partly because I think it'd work, and partly because I really like cooperatives as a species of legal entity, and partly because I want some alternative to lining BFL's pockets and if it takes funding an ASIC design then by gum I'll help fund an ASIC design.

I second that.

I belive they could solve the 'who gets one first' scenario buy mining with the produced hardware until nUnits are ready to ship or nTime worth of orders are ready to ship. And by paying out those eanrings to the coop members. Then shipping the things as closely together as possible. Atleast for the first big ordering round.

I have to admit I did not quite read all the posts (lazy me), but why the need to solve a mathematical puzzle of who to receive it first and pay what when you are forming a COOP

As I did read before the problem basically comes down to (and we saw that in the halfhearted answer from BFL) either you believe in Bitcoin and think that mining will yield the most money, or you believe in selling Bitcoin products for fiat money and then you do what BFL does.

Starting a COOP by Bitcoin fanatics one would believe that they think mining BTC will yield the most (they are willing to invest in developing a mining product that they then want to buy from the company), so why sell any of the mining products ? Surely the reasoning must be that you make a better return by actually give nothing to the community but just mine the heck out of it before any competitors come to market.

Only when your own mining has become less profitable then selling your 'heavily discounted' ASICs to unsuspected miners at an above ROI price, you stop mining and get into the selling business.

So setup a COOP to develop an ASIC (BFL's ones are probably 6 months away), get 100 - 200 TH/s online, start mining centrally and give all the COOP shareholders a payout based on their shareholdings. Dividends are based on mined BTCs until the point where mining has become unprofitable (a point which might be years away if you are the first to mine) and then start selling ASICs en masse, giving COOP shareholders their second means of generating dividends

Just my 2 cents

[sadpandatech]

The OP's proposal of a production+mining cooperative is one that appeals to me and one towards which I'd be willing to contribute a good chunk of cash. This is partly because I think it'd work, and partly because I really like cooperatives as a species of legal entity, and partly because I want some alternative to lining BFL's pockets and if it takes funding an ASIC design then by gum I'll help fund an ASIC design.

I second that.

I belive they could solve the 'who gets one first' scenario buy mining with the produced hardware until nUnits are ready to ship or nTime worth of orders are ready to ship. And by paying out those eanrings to the coop members. Then shipping the things as closely together as possible. Atleast for the first big ordering round.

Just my 2 cents

Your take on it is very valid. It would really come down to what the members of said coop would want from it. The coop's primary objective would be to function profitably. But how much profit would we need to squeeze from it? Delivering a unit to market versus keeping it solely for mining until it is no longer profitable may be what some members would prefer. I personaly enjoy owning my own equipment even if it is slightly less profitable than what a coop could produce. I would imagine I am not alone. Again, with a coop there will be very many reasons why people would become members. The coop would be obligated to function the way that the majority voted.

Plus the selling of hardware gives that many more options to bond holders. Members could either share the profit from mining and sales or cash in their bonds towards hardware. I like choices even if the optimum structure would be to solely mine and dump when done.

[Dalkore]

The reward drop will impact the price even before it happens, since speculators will buy in preparation for the price increase.

What makes you think they arent already?

Never said they aren't. But the effect is likely to be strongest around the time of the actual halving.

I agree with this statement as well.  The retail buying will be the strongest at the halving.

[P4man]

Ill check your math later, but this needs a rebuttal first:

aye, that was exactly what I said. Market demand will be the bottleneck for BFL.. ;p

You seem to forget BFL can price these units almost arbitrarily. If demand slows down too much because the ROI becomes too long, BFL can easily slash prices by 50%, 90% or more. ASICs cost next to nothing to produce, and Id be surprised if any of the other components in the miners would. So slashing prices wont really hurt BFL, their gross margin would go from say 10000% to "only" 5000%;  it would only really hurt previous BFL customers if it spurs another gold rush. BFL can play that game over and over, and they might even begin it before they ship their first unit.

[sadpandatech]

Ill check your math later, but this needs a rebuttal first:

aye, that was exactly what I said. Market demand will be the bottleneck for BFL.. ;p

You seem to forget BFL can price these units almost arbitrarily. If demand slows down too much because the ROI becomes too long, BFL can easily slash prices by 50%, 90% or more. ASICs cost next to nothing to produce, and Id be surprised if any of the other components in the miners would. So slashing prices wont really hurt BFL, their gross margin would go from say 10000% to "only" 5000%;  it would only really hurt previous BFL customers if it spurs another gold rush. BFL can play that game over and over, and they might even begin it before they ship their first unit.

that was my point. we agree on this point I believe. My point in the bottleneck was that it is the only thing that would slow down onlining of more hashpower. That is that rate at which BFL is willing to slash prices.  And my math is very, very rough. I tried to point out some of the things it does not include and that it is a lot of speculation of which units make up the bulk of online units. Not including currently hasing hardware, etc etc. And mosre importanty a lack of BFL's first run production numbers makes any math guess work.

I do look forward to seeing any other speculations on the math though. The more angles on it the closer we will get to the actual imho.

cheers

edit' Yea, just reread the part where you said they could potentially do it before the first unit ships. I have to agree there as well. It would seem on pre orders alone they have likely covered a good protion of their NRE costs. So, what exactly ar the VC's paying for? coffee imported to keep them all working?

[BR0KK]

Plain simple Explantation:

U and all their valued customers == VC

[sadpandatech]

Plain simple Explantation:

U and all their valued customers == VC

Not I, homey. ;p  I'd rather not mine than support them. But, yea it really makes me believe the VC thing is a bunch of bullshit.

[BR0KK]

https://bitcointalk.org/index.php?topic=89757.0

At least 46k bitcoin .....

[Brunic]

Starting a COOP by Bitcoin fanatics one would believe that they think mining BTC will yield the most (they are willing to invest in developing a mining product that they then want to buy from the company), so why sell any of the mining products ? Surely the reasoning must be that you make a better return by actually give nothing to the community but just mine the heck out of it before any competitors come to market.

Bitcoin has some fundamentals, and by this COOP suggestion, I'm looking for a way to stay in line with those fundamentals. It's also a way to keep Bitcoin value.

If the COOP would mine instead of selling mining products, it would centralize mining.  By selling mining products, it encourages decentralization. It's the same reason as to why I want to make a COOP manufacturer, it is to encourage decentralized ownership of ASIC production. I want miners to have control over the production and the sales of ASIC.

Dividends are based on mined BTCs until the point where mining has become unprofitable (a point which might be years away if you are the first to mine) and then start selling ASICs en masse, giving COOP shareholders their second means of generating dividends

It's a COOP, it is not a corporation. You can only have one share, so even if the COOP is ultra-profitable, by owning only one share, you're not going to make a lot of profit anyway. The COOP is about other advantages like, for example, simple discount of ASIC products(Get 20% rebate if you are a member!). Also, the voting power for decisions is a democratic one (1 person, 1 vote), not a capitalist one (1$, 1 vote). An interesting use of that could be to let the miners decide the selling prices of the ASIC. You make one vote every 4 months, you put a maximum price variation (like 20%) and so, as a miner, you can project long-term for your ROI, without having surprises from a closed company. You also have precise informations about production and shipping(unlike....you know who), and if you're not satisfied, you are in a position to help the process, since you own the COOP.

I think this could be a lot more interesting for miners than simply making dividends.

(Of course, the organization would have to be spearheaded by someone I could meet personally and in whom I could build some personal confidence. But that probably goes without saying when entrusting someone with this kind of money!)

I completely agree with this. I've started this topic to help create a discussion, and how people view this idea. For now, I don't have any ASIC manufacturers, and I don't have the technical skills to make any ASIC anyway so I can't start this project. I simply think that, all this ASIC talk will attract competitors, and maybe one of those will consider a COOP instead of a corporation, and contribute to grow this project.

[P4man]

Math;
First a link showing the difficulty with ~12,700 40GH units in action. Calculated by punching in the total hash of those units and adjusting difficulty until 7200BTC per day is produced.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=509440000.00&exchangerate=6.30&bitcoinsperblock=50.00&rigcost=1300&powerconsumption=15&powercost=0.12&investmentperiod=355
Second a link showing 40GH at this new difficulty and 50BTC block reward. paypack time 368 days.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=40000.00&exchangerate=6.30&bitcoinsperblock=50.00&rigcost=1300.00&powerconsumption=15.00&powercost=0.10&investmentperiod=355
Third a link showing the same at 25BTC block rewards. It's at this point we see the ROI has become what many would consider unreasonable.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=40000.00&exchangerate=6.30&bitcoinsperblock=25.00&rigcost=1300.00&powerconsumption=15.00&powercost=0.10&investmentperiod=355
Fourth link showing that cutting the price of the 40GH unit in half brings ROI back to ~1 year. It does not account for new sales further increasing that time by increasing difficulty.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=40000.00&exchangerate=6.30&bitcoinsperblock=25.00&rigcost=650&powerconsumption=15.00&powercost=0.10&investmentperiod=355


edit; I first arrived at that difficulty by punching in 1 40GH unit at $1300 and pushing the difficulty up until it was over 1 year ROI at 50BTC block.

Not sure I follow, why do you use 50BTC block reward to guestimate difficulty target when those asics will be mining almost exclusively when block reward is 25 BTC? I also dont think anyone aiming for 1 year ROI is smart in the asic era, but lets go with that anyway.

40GH=40.000 MH/s. If I tap that in using 25 BTC block reward, I get 1 year break even at difficulty ~34M.
network hashrate= D * 2**32 / 600
= 34M * 7.158.278
= 243 TH
= ~6100 single SCs

Thats a sizable quantity, but not exactly something you cant produce and ship in a whole year (plus a 4-6 month ramp). Its roughly the number of discrete videocards amd and nvidia ship each and every hour.

[sadpandatech]

Math;
First a link showing the difficulty with ~12,700 40GH units in action. Calculated by punching in the total hash of those units and adjusting difficulty until 7200BTC per day is produced.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=509440000.00&exchangerate=6.30&bitcoinsperblock=50.00&rigcost=1300&powerconsumption=15&powercost=0.12&investmentperiod=355
Second a link showing 40GH at this new difficulty and 50BTC block reward. paypack time 368 days.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=40000.00&exchangerate=6.30&bitcoinsperblock=50.00&rigcost=1300.00&powerconsumption=15.00&powercost=0.10&investmentperiod=355
Third a link showing the same at 25BTC block rewards. It's at this point we see the ROI has become what many would consider unreasonable.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=40000.00&exchangerate=6.30&bitcoinsperblock=25.00&rigcost=1300.00&powerconsumption=15.00&powercost=0.10&investmentperiod=355
Fourth link showing that cutting the price of the 40GH unit in half brings ROI back to ~1 year. It does not account for new sales further increasing that time by increasing difficulty.
http://tpbitcalc.appspot.com/?difficulty=71167701.5592&hashrate=40000.00&exchangerate=6.30&bitcoinsperblock=25.00&rigcost=650&powerconsumption=15.00&powercost=0.10&investmentperiod=355


edit; I first arrived at that difficulty by punching in 1 40GH unit at $1300 and pushing the difficulty up until it was over 1 year ROI at 50BTC block.

Not sure I follow, why do you use 50BTC block reward to guestimate difficulty target when those asics will be mining almost exclusively when block reward is 25 BTC? I also dont think anyone aiming for 1 year ROI is smart in the asic era, but lets go with that anyway.

40GH=40.000 MH/s. If I tap that in using 25 BTC block reward, I get 1 year break even at difficulty ~34M.
network hashrate= D * 2**32 / 600
= 34M * 7.158.278
= 243 TH
= ~6100 single SCs

Thats a sizable quantity, but not exactly something you cant produce and ship in a whole year (plus a 4-6 month ramp). Its roughly the number of discrete videocards amd and nvidia ship each and every hour.

I used 50 instead of 25 because it does not affect difficulty. It does obviously make more sense to use 25 though since at most we will only see a few months of 50 with new hardware.  I do like your numbers being much more conservative than mine on what an acceptable ROI would be. That will of course vary a bit from individual to individual.

Now the thing with the 6100 units. It's not that I think they would have any issue producing 6100 units(can bet they have an on-demand type contract with the chip foundry.) Its that the market demand is not there from miners for 6100 units. That could be very good for the early buyers or it cold be very bad if it forces BFL to lower prices sooner to encourage more buyers. I suspect many will wait until first release so we can calculate some more accurate ROI numbers. One thing I am certain about is that it will be fun to watch and speculate on for some time. =)

[P4man]

Its that the market demand is not there from miners for 6100 units.

 Its just  a matter of at what price. But even at the given price, if somehow BFL doesnt sell anything like the equivalent of 6000 singles and they do not lower price, those things will pay them selves back in a few months, and if that is the case, you can bet some people will order a racks full of them, just like they did with the GPU rush. FWIW, currently the network is made up of the equivalent of ~40.000 GPUs.

edit: also interesting, this post:
https://bitcointalk.org/index.php?topic=89922.msg990263#msg990263

This is correct, we're shipping about 50 singles and 1.5 mini rigs a day at current rates.

BTW, the reason I think 1 year ROI is far too dangerous, is that its unlikely bitcoin difficulty and therefore price/difficulty and therefore asic $/GH is even predictable within an order or magnitude over a period of 1 year. With GPUs or FPGAs you could be relatively sure the price per GH of the hardware wasnt going to collapse dramatically.