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 Author Topic: Is rig building still profitable?  (Read 41292 times)
bytemaster
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fractally

 Re: Is rig building still profitable? May 22, 2011, 05:35:39 PM

There value is enhanced with relatively low exchange volatility.  With low volatility the demand comes from anonymous exchange outside the banking system.

If the exchange rate is relatively stable then it does not matter what the US\$ "price" is for BTC to have value in trade.

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fergalish
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 Re: Is rig building still profitable? May 22, 2011, 08:34:49 PM

The difficulty has been increasing more-or-less exponentially since the first increase 30/Dec/09, see http://forum.bitcoin.org/index.php?topic=43.0

http://forum.bitcoin.org/index.php?topic=1918 In this thread I calculated the expected number of blocks you can ever generate, assuming an exponentially increasing difficulty.  I've refined the calculation a bit - the original didn't take into account the fact that the time between difficulty increases was not 14 days, but shorter, depending on how fast the 2016 blocks between increases are generated.

I won't go into the details, but the equations are:

E = Ch/((a-1)D)
P0 = exp(-E)
h0.5 = -(a-1)D ln(0.5)/C

Where:
C = 0.0002818  is a constant
h is your hashes-per-sec:  1Ghps = 1x109
a is the difficulty increase factor, i.e. if difficulty goes from 20 to 30, then a=1.5
D is the current difficulty
P0 is the probability that you will never (never ever ever) generate another block. See note 4 for the meaning of "never".
h0.5 is the hashes-per-sec that you would need to have a 50/50 probability of generating just one block.
E is the total number of blocks you can expect to ever generate, ever.  See noe 4 for the meaning of "ever".

Current values are:
D = 244139
a = 1.3435 (see note 1)

Therefore, with 1Ghps:
E = 3.36 blocks
P0 = 0.0347
h0.5 = 206 Mhps

So, if you do buy the rig, you have a 3.5% chance of never ever generating another block.  You can expect to create 3.36 blocks = 168 BTC = \$1092 at current exchange rates.  To have a 50/50 chance of creating a block, you'd need to have 206Mhps (this has nothing to do with you and your rig, it just gives an idea of what the entry-level Mhps is - a top CPU now would generate at most, I expect, 10-12 Mhps).

On the other hand, if you buy \$700 of bitcoins now, then you'll have 100 bitcoins right now.  That's about 2/3 of what you can expect to get spending on a rig and generating.  All depends on whether you think the price is gonna go up or down.  Good luck.

Notes:
1. Difficulty is assumed to rise exponentially forever.  This is incorrect, but it's holding up much better than I would have expected - see attached graph.  The inset to the graph shows the difficulty increase factor.  If we average this value over all blocks since the first actual increase in difficulty, we obtain the value a=1.3435
2. Eventually the reward for a block will halve, then halve again and so on.  You can expect 3.36 blocks, but if they happen to be generated after the reward halves, then you'll get less than 168BTC.
3. If you mine solo, then you won't get 3.36 blocks, it'll obviously be either 2,3,4,5 or whatever.  If you mine in a pool, then you can expect a reward equivalent to 3.36 blocks, less the pool's fee.
4. You will receive these bitcoins slowly.  When I say "all you'll ever expect to generate", I really mean "ever" - from now until the sun goes nova and swallows the earth. However, I expect that the exponential increase will stop before then, for one reason or another. Likewise "never".
5. You'll have to add in electricity costs.
6. These values for E, P0, h0.5, assume you start mining *now*, if it takes you a month to get started, then adjust for the difficulty at the moment you start.

If this post saves you money: 15BHRM52yuzjNyvkrdu8dcWFnfpK6eWsXm

I tried to upload a graph, but a message says the upload folder is full, please contact an admin.  Any admins listening?  In the meantime, I've put it on ubitious: http://ubitio.us/file/download/328   I can't help that you have to pay for the file (BTC 0.02), but as soon as I can, I'll attach it here.

EDIT: the graph is simple really, it's just a graph of difficulty Vs time, with an exponential fit, and also another curve showing the difficulty increase factor.  All info for it was taken from blockexplorer.com.
bytemaster
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fractally

 Re: Is rig building still profitable? May 22, 2011, 09:01:38 PM

Suppose your employer has unmetered electric (office park rental).
If your employer pays you \$1000 it will cost him \$1073
After taxes you will see \$900.

If your employer spends \$1000 on a graphics card + case + power supply instead of paying you, he saves \$73.
If your employer lets you use the GPU to mine for your own address then you can generate 2-3 BTC a day with a ATI 5970.
At todays prices that would be \$20/day or \$7200/year.  Of course difficulty will go up and price may vary.  If we use your numbers then \$1100 over the life of the rig.

Now if you factor in that every employee already needs a case+power supply + graphics card, the real cost to the employer is only the delta
between the \$200 graphics card and the \$750 graphics card.  I suspect that the net cost to the employer is \$600 to turn your desktop into a mining computer.

So if you approach your employer with the offer to take a \$1000/year pay cut in exchange for \$1000 worth of "upgrades" to your office computer then your employer saves \$73 dollars and you earn \$200 extra using fergalish's numbers and if the price/difficulty works in your favor then potentially much more.

Now if your spousal support payment is based upon your W2 income, then this is a clear win for the employee and always a win for the employer.

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smoki
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 Re: Is rig building still profitable? May 22, 2011, 09:02:29 PM

Total mining n00b here, so please correct me if I'm way off...

If the 50% difficulty jumps continue, what number of BTC's and/or \$'s will your brand new rig generate in it's mining lifetime?
Suppose you start it up just after a difficulty jump - in the 10 or so days until the next jump, you will generate X number of BTC's per day for a total of 10*X BTC.
Then the difficulty jumps by 50%, so in the next 10 or so days, you will be generating (2/3)X BTC's per day for a total of 6.67*X BTC. This will then drop to 4.44*X BTC, 2.96*X BTC, 1.97*X BTC, and so on, every 10 days.
Summing it all up, you come to a grand total of 30*X BTC. That's it. That's what your rig will generate in it's entire lifetime. 90% of that will be generated in the first 2 months - after that, you might as well unplug it, because it will no longer cover the cost of electricity.
I think it's worth emphasizing one more time: if the 50% jumps continue every 10 days, your brand new rig will only ever generate 27 times the BTC's it generates on its first day!

So, if you just got a new rig with a pair of 6990's on May 19th, you are probably generating something like 6.4 BTC/day. By mid-end July, you'll have generated some 170 BTC's, at which point it will become uneconomical to operate. Selling those BTC's at current rates will net you about \$1100. Subtract electricity costs of \$100+ for a total profit of some \$1000. Of course, you will also lose something like \$500 on selling your rig (you'll have spent about \$2000 on it and maybe sell it for \$1500 after two months), so that further reduces your net profit.
Now suppose you're just thinking about building your rig; it might take a couple of days to get the parts together and set it up... just in time for the May 27th jump. Your rig will now be good for just 2/3 of those 170 BTC's, so about 113 BTC/\$750. After electricity costs and devaluation of your rig, your practically down to break-even!

Now, of course there were a lot of assumptions in this scenario:
- difficulty jumps continue by 50% (when in fact they seem to be getting even worse)
- difficulty jumps continue every 10 days (when it's currently more like 8-9 days)
- BTC/USD remains stable (it could go either way really)

Realistically, the exponential growth of the network's hashing strength will not continue indefinitely. But it doesn't have to - just a couple more 50%/10 days difficulty jumps will mean the currently added rigs will never break even. The fact that the jumps might even exceed 50% and/or be fewer than 10 days apart just makes the problem (exponentially) worse.
epi 1:10,000
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 Re: Is rig building still profitable? May 23, 2011, 12:26:25 AM

I fear we are already at the point where if you bought a new rig today you would never break even.
CydeWeys
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 Re: Is rig building still profitable? May 23, 2011, 12:54:34 AM

I fear we are already at the point where if you bought a new rig today you would never break even.

Exactly, which is what you would expect to see, because obviously the state of affairs where new hardware pays for itself just in BTC generation was never going to last indefinitely.  Eventually the rewards for mining should go down to around the cost of electricity.
bytemaster
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fractally

 Re: Is rig building still profitable? May 23, 2011, 12:58:07 AM

There is still the potential to multi-purpose assets in environments where the cost of electricity is externalized.

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SchizophrenicX
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 Re: Is rig building still profitable? May 23, 2011, 02:15:09 AM

Hi tread starter. I hope you don't mind me linking my tread to yours. I'm consolidating build discussions

amazingfunksta
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 Re: Is rig building still profitable? May 23, 2011, 07:09:54 AMLast edit: May 23, 2011, 07:28:29 AM by amazingfunksta

I'm thinking that once it becomes uneconomical to operate a miner, a lot of people are going to drop out of the game. When this happens, we'll likely see a mass exodus of miners. What will then likely happen is that we'll have less computing power to discover blocks and the difficulty will have to decrease. The people who never stopped mining following the exodus would then be in prime condition to take advantage of the rebound would they not?

People think that the difficulty can only increase, but it's possible for it to decrease in order to meet the block production rate is it not? We're also assuming that the value of the coins doesn't increase. If the value decreases AND the difficulty increases, then we'll definitely see an exodus and the greater likelihood of a corrective decrease am I right? It might be a matter of who can operate at a loss the longest.

It's like the stock market, if you really think bitcoins have a lot of value and will eventually increase, you'll be able to hold onto your shares as opposed to selling them off.
Zibbo
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 Re: Is rig building still profitable? May 23, 2011, 07:42:00 AM

Assuming the following numbers, which I feel are more or less average (correct me if I'm wrong):
Rigs costs \$1/Mhash, and hashes 2Mhash/W
Electricity costs \$0.15/KWh
Rig depreciates in resale value 50% during the first year

I buy a rig that does 2Ghash for \$2000, which uses 1000W of energy. Electricity costs over the year are 0.15*24*365=\$1314, and during the first year my rig depreciates in value \$1000, making the total \$2314. So if I wanted to have a nice ROI of say 30%, I would need to earn 2314*1.3=3008 yearly and 3008/12=\$250 monthly. Assuming current BTC value (\$7.32), (according to http://www.alloscomp.com/bitcoin/calculator.php) my 2Ghash rig would do that at 1800000 difficulty, which is about 7 times higher than it is now. So while the difficulty has still a lot of room to grow, assuming the BTC value stays where it is, I would be VERY surprised if the difficulty stays above something like 2000000 for any significant period of time. And considering that I didn't count in all kinds of additional expenses like time you have to put into it, or risks like hardware failure and others, I believe that the threshold where a lot people stop adding rigs and/or quit mining is actually going to be well below 1800000. Changing BTC prices will naturally move that threshold up or down.

Point being that any calculations based on exponential growth of difficulty to the foreseeable future are nonsense. It will grow (exponentially or not) while there are profits to be had, but no more.

Bitcoin mining is not a get rich quick scheme.
Profit margins like you can get today will NOT last, and are shrinking VERY quickly. It's only possible with a really quick rise in BTC value while the hashing power is playing catchup, like right now.
If you build a rig now that does way less than 2Mhash/W in a place where electricity costs more that \$0.15/KWh, you might be in for a rude awakening in a few months.
However, if you concentrate on being more cost efficient than an average miner, you should get a reasonable ROI, assuming that significant portion of miners refuse to mine at loss.
Your definition of reasonable ROI may of course differ from mine.
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 Re: Is rig building still profitable? May 23, 2011, 08:05:01 AM

Mining power will not drop...
People are not smart...
When it comes to economics...
You are dreaming...

Every day new people find BTC...
Mining is very tempting...
Most don't consider electricity...

Building rigs are still profitable...
If you get super cheap components...
The losers will be those who overpay...
For nice case, mobo, CPU and RAM...

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miner249er
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 Re: Is rig building still profitable? May 23, 2011, 03:04:49 PM

With current difficulty plotted to go up 100% this morning - anyone who is building a rig for mining is going to have a long wait to pay it back.

I know that alot of people don't quite grasp the power of doubling - but it's real. I'm fairly certain most of this capacity is being brought online by those that do the simple calculations without really looking at difficulty increases, trade differences, etc.

I have been in business for myself for the last 15 years, working in the networking/technology centers. I have a datacenter and thought to myself - well things have gone well - this looks like a nice little side income - so I started to crunch the numbers and came up with the fact that if you want to build rigs as a business, or are continuing to buy them *right now*. If our present course stays true, you will be waiting a long time to get your money back.

If you think that rig building is still going to be lucrative enough to continue to fund new hardware purchases with a reasonable ROI time, you might be suprised. Taking the 50%-100% difficulty increases we have (and will) continue to see in the coming months - I would like to present some basic numbers:

Let's take an example \$6000 investment I was contemplating to get ~5000MH up and running for a period of 6 months (with .09kwH commercial electricity) from today.

First some assumptions:

Mining Rigs Cost: \$6000
Electricity Cost for 6 months: ~\$1000
Weekly Bitcoin Rise: 8%
Weekly Difficulty Rise: 100% (based on our next difficulty projection continuing from 500000+ as seen at bitcoin.sipa.be)

At the end of 6 months difficulty is @: 999424000 and Bitcoins are trading against the USD for: 1 Bitcoin=16.49626495810

Assuming you don't sell your bitcoins early and wait for the 16.49 price you will yield: \$5628 Gross

Subtract: your \$6k in equipment, \$1k in electricity and you end up with a loss of \$1372 - lets say you sell the rigs for \$1500, well you just made \$128.

Shorter times don't help - they just make the hurt worse - assuming 3 months your total value of generated bitcoins is ~\$2032USD - it doesn't take a genius to figure out that spending \$6500k over 3 months to yield \$2032 does not == profit.

Perhaps you say 100% difficulty increase isn't realistic, ok take the numbers down to 50% and your 3 month profit is: \$5079 - still short of the \$6500. Again this assumes that bitcoins continue to go up in price.

This of course assumes that Bitcoins rise *every week* by 8%. That means in 6 months bitcoins are trading at ~\$45 USD per bitcoin. If you are relying on bitcoin trading stronger against the dollar to float your mining business model - my suggesting would be to buy bitcoins instead of rigs.

If you took that \$6000USD you would have spent on hardware and instead put it into coins RIGHT NOW - then you would have bitcoins worth ~\$45,000USD in 6 months and ~\$17,000 in 3 months. A far better profit margin, with alot less work.

Me personally, I'm spreading my bets by reducing the size of the hardware to something I could use as a decent gaming rig when I'm done and putting the rest in bitcoins. To help the economy along, I will also be accepting bitcoins at my business (currently customizing a shopping cart for it).

amazingfunksta
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 May 23, 2011, 03:54:42 PM

With current difficulty plotted to go up 100% this morning - anyone who is building a rig for mining is going to have a long wait to pay it back.

I know that alot of people don't quite grasp the power of doubling - but it's real. I'm fairly certain most of this capacity is being brought online by those that do the simple calculations without really looking at difficulty increases, trade differences, etc.

However, a lot of the more effective mining gear for the price (I.E. 5850s, 5870s, etc.) have gone out of stock and/or greatly increased in price. I recently bought two 5850s for 140 dollars and one 5850 for 180 dollars. I have them overclocked to obtain around 960 Mhash/sec total. Since I bought them, they're now back to selling for ~300 dollars if you can even find them. This is going to edge people out of the game.

I have been in business for myself for the last 15 years, working in the networking/technology centers. I have a datacenter and thought to myself - well things have gone well - this looks like a nice little side income - so I started to crunch the numbers and came up with the fact that if you want to build rigs as a business, or are continuing to buy them *right now*. If our present course stays true, you will be waiting a long time to get your money back.

If you think that rig building is still going to be lucrative enough to continue to fund new hardware purchases with a reasonable ROI time, you might be suprised. Taking the 50%-100% difficulty increases we have (and will) continue to see in the coming months - I would like to present some basic numbers:

Let's take an example \$6000 investment I was contemplating to get ~5000MH up and running for a period of 6 months (with .09kwH commercial electricity) from today.

First some assumptions:

Mining Rigs Cost: \$6000
Electricity Cost for 6 months: ~\$1000
Weekly Bitcoin Rise: 8%
Weekly Difficulty Rise: 100% (based on our next difficulty projection continuing from 500000+ as seen at bitcoin.sipa.be)

At the end of 6 months difficulty is @: 999424000 and Bitcoins are trading against the USD for: 1 Bitcoin=16.49626495810

Assuming you don't sell your bitcoins early and wait for the 16.49 price you will yield: \$5628 Gross

Subtract: your \$6k in equipment, \$1k in electricity and you end up with a loss of \$1372 - lets say you sell the rigs for \$1500, well you just made \$128.

Shorter times don't help - they just make the hurt worse - assuming 3 months your total value of generated bitcoins is ~\$2032USD - it doesn't take a genius to figure out that spending \$6500k over 3 months to yield \$2032 does not == profit.

Perhaps you say 100% difficulty increase isn't realistic, ok take the numbers down to 50% and your 3 month profit is: \$5079 - still short of the \$6500. Again this assumes that bitcoins continue to go up in price.

This of course assumes that Bitcoins rise *every week* by 8%. That means in 6 months bitcoins are trading at ~\$45 USD per bitcoin. If you are relying on bitcoin trading stronger against the dollar to float your mining business model - my suggesting would be to buy bitcoins instead of rigs.

Oh, there's definitely no doubt that buying bitcoins is greatly more profitable than buying mining hardware. However, I feel as though the difficulty is going to level out or drop as people begin to realize it's not profitable. Those people will then drop out and there will probably be a mass sell off of hardware I would figure. The difficulty would then adjust for those people that are still hanging on I feel. Again, the bitcoin price is what is going to dictate if people deem it is profitable or not to mine.

I do feel as though a 100% weekly increase is somewhat unrealistic. The difficulty is probably going to level off. People are simply getting into mining now because bitcoins are 7 dollars apiece.

If you took that \$6000USD you would have spent on hardware and instead put it into coins RIGHT NOW - then you would have bitcoins worth ~\$45,000USD in 6 months and ~\$17,000 in 3 months. A far better profit margin, with alot less work.

Me personally, I'm spreading my bets by reducing the size of the hardware to something I could use as a decent gaming rig when I'm done and putting the rest in bitcoins. To help the economy along, I will also be accepting bitcoins at my business (currently customizing a shopping cart for it).

That's a good idea, I'm going to consider doing this as well.
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 Re: Is rig building still profitable? May 23, 2011, 06:34:15 PM

Rig building can still be profitable. Right now it appears that it may not be as profitable as purchasing Bitcoins directly, but these conditions may change. We do not know for certain how market conditions will change. I look at mining as a means to acquire Bitcoins, just as purchasing Bitcoins is a means of acquiring them. The actual trade-off between the two acquisition strategies my seem a bit counter-intuitive... As price increases difficulty increases even faster, this advantages purchasing Bitcoins and dis-advantages mining, but as price drops the rate of Difficulty increase will also adjust downward over time, which favors mining.

These two scenarios will always be in tension. Instead of betting whole-hog on one or the other I think a balanced approach is best. If rig building is negatively impacting your ability to make sufficient purchases of Bitcoins then scale it back and use available capital to purchase Bitcoins. A good place to start is an even distribution, for every unit of your local currency you spend on mining spend an equivalent amount on the purchase of Bitcoins, it will become apparent to you over time where the optimal distribution is for your particular risk/return needs...

In order to make this decision it can be useful to limit the number of variables you are looking at, one of these variables is time horizon. Pick a point of time in the future and set some goals for what you want your portfolio to look like on that date. My analysis of the way Bitcoin markets may behave favors looking at January, 2013 as an important time horizon because this is when the block bounty is due to be slashed in half. At this point in time I want as much of my local currency converted into as many Bitcoins as I can manage. The reason I want this is that I think that the sudden constraint on the number of new Bitcoins entering the economy will contribute to a higher exchange rate. I also think that the reduced block bounty will lead to a decrease in the rate of growth in Difficulty, and that after a few months of this we will be primed for a renaissance in mining with new, more efficient technology, and I want to be prepared with enough capital to get into it... This is an event I do not see will be repeated with subsequent halving in the block bounty, it will be a unique event that will definitely separate the professionals from the hobbyists, as only professional miners will be prepared for it.

I like your strategy, hope you don't mind if I adopt it :-P.
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 Re: Is rig building still profitable? May 23, 2011, 07:07:10 PM

Anything over the base cost, plus some profit, plus the freedom of anonymous payments, puts the bitcoins real value at somewhere around \$0.25 to \$0.50

Do you have any hard technical data you'd like to share to support this assertion or is it all from your rectal knowledge base?

the \$5 - \$8 figure we are seeing is because of pure speculation, it has nothing to do with 'demand' of bitcoins since anything you can buy with them can be bought with normal dollars.

Since there are no futures contracts and the prices on the exchange are what people are actually trading BTC for cash, speculation doesn't have anything to do with it. It may or may not be overvalued but the market will determine that.

I don't need to post technical data, any idiot can calculate the raw value of a bitcoin at any time, simply use your hash rate, difficulty, and the price of electricity you pay, \$0.12/KWh and 360Mh/s works out to be around \$0.25 per bitcoin, given that the other features of bitcoin must have a value of something, I put the value slightly higher, of course those same feature may be a negative to many people.

Knowing this and that nothing of value is sold exclusively in bitcoins leads me to believe the rest of the value is purely speculation (people buying them in hopes they will rise in value).  A huge price correction is on the horizon as others in the post have spelled out (amazingfunksta).  As soon as people realize the nonvalue in bitcoins and mining them, you will see a huge dropout, followed by a huge price decline.

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 Re: Is rig building still profitable? May 23, 2011, 07:29:23 PM

With current difficulty plotted to go up 100% this morning - anyone who is building a rig for mining is going to have a long wait to pay it back.

I know that alot of people don't quite grasp the power of doubling - but it's real. I'm fairly certain most of this capacity is being brought online by those that do the simple calculations without really looking at difficulty increases, trade differences, etc.

excellent post and my same conclusion, I have been in the tech biz for 20 years, 15 years of that on my own biz, I think a lot of the recent price increase came from people not really analyzing the data and understanding the returns over months.  when i first heard about bitcoin last week i was super excited about it and fired up my 6950 immediately while i crunched the numbers for a planned roll out of several machines with 4 5850s each, there are still many available (8 on craigslist in my area) after some rather simple analysis there is no way in hell i would do it, there are simply too many unknowns and all profit is dependent upon bitcoins value increasing by a lot, and if that is the case simply buy bitcoins...

my predictions:
bitcoin value goes to cost of electricity over the next 45 days
mass exodus on market and fallout of bitcoins value thereafter
excellent time to buy bitcoins as value should increase back to electricity cost
bitcoin market slowly recovers or entire bitcoin market is gone
flood of 5850, 6990 hit ebay, great time to upgrade your card
Satoshi Nakamoto releases iCoin project to replace bitcoin

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 Re: Is rig building still profitable? May 23, 2011, 07:29:28 PM

Anything over the base cost, plus some profit, plus the freedom of anonymous payments, puts the bitcoins real value at somewhere around \$0.25 to \$0.50

Do you have any hard technical data you'd like to share to support this assertion or is it all from your rectal knowledge base?

the \$5 - \$8 figure we are seeing is because of pure speculation, it has nothing to do with 'demand' of bitcoins since anything you can buy with them can be bought with normal dollars.

Since there are no futures contracts and the prices on the exchange are what people are actually trading BTC for cash, speculation doesn't have anything to do with it. It may or may not be overvalued but the market will determine that.

I don't need to post technical data, any idiot can calculate the raw value of a bitcoin at any time, simply use your hash rate, difficulty, and the price of electricity you pay, \$0.12/KWh and 360Mh/s works out to be around \$0.25 per bitcoin, given that the other features of bitcoin must have a value of something, I put the value slightly higher, of course those same feature may be a negative to many people.

Knowing this and that nothing of value is sold exclusively in bitcoins leads me to believe the rest of the value is purely speculation (people buying them in hopes they will rise in value).  A huge price correction is on the horizon as others in the post have spelled out (amazingfunksta).  As soon as people realize the nonvalue in bitcoins and mining them, you will see a huge dropout, followed by a huge price decline.

Bitcoins value is not linked in any way to the amount of electricity it takes to generate it.

The long term success of Bitcoin will depend on an economy being created around it. There are people trading BTC for goods and services. Go read the Buying and Selling threads. If you believe that it's mostly speculation, that's your opinion. If you are so sure that the price is going to bottom out then you should find someone willing to make an options contract with you. You'll be speculating too.

BTC value is not linked to difficulty either. A huge dropout would cause difficulty to lower and make it easier for the miners still mining to get more BTC from their mining operations. The only way that would effect the market would be the miner that gave up selling their coins. The chances of someone dropping out at this point from being fed up and having enough coins to flood the market and crash the price is most likely pretty low. The miners with the most coins are the ones who either have been around since the beginning or the ones who put a huge amount of capital into mining. Either way they have a vested interest in taking a long term outlook.

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 Re: Is rig building still profitable? May 23, 2011, 07:32:21 PM

Such a calculation completely ignores money and opportunity costs, which are not trivial. It would be better to take the cost of building and operating your rigs priced in Bitcoins, and compare the ROI in Bitcoins mined to the ROI in Bitcons purchased directly. You will come up with a very different result.

I 100% agree, but this is my machine, not a dedicated mining rig, therefor there is no costs involved with it as pertains to mining, I am going to have the machine no matter if I mine or not, so only the energy costs are extra.  Also the opportunity costs are very trivial, they are much easier to estimate than any 'value' associated with bitcoins.

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 Re: Is rig building still profitable? June 08, 2011, 07:31:36 PM

Anything over the base cost, plus some profit, plus the freedom of anonymous payments, puts the bitcoins real value at somewhere around \$0.25 to \$0.50

Do you have any hard technical data you'd like to share to support this assertion or is it all from your rectal knowledge base?

the \$5 - \$8 figure we are seeing is because of pure speculation, it has nothing to do with 'demand' of bitcoins since anything you can buy with them can be bought with normal dollars.

Since there are no futures contracts and the prices on the exchange are what people are actually trading BTC for cash, speculation doesn't have anything to do with it. It may or may not be overvalued but the market will determine that.

I don't need to post technical data, any idiot can calculate the raw value of a bitcoin at any time, simply use your hash rate, difficulty, and the price of electricity you pay, \$0.12/KWh and 360Mh/s works out to be around \$0.25 per bitcoin, given that the other features of bitcoin must have a value of something, I put the value slightly higher, of course those same feature may be a negative to many people.

Knowing this and that nothing of value is sold exclusively in bitcoins leads me to believe the rest of the value is purely speculation (people buying them in hopes they will rise in value).  A huge price correction is on the horizon as others in the post have spelled out (amazingfunksta).  As soon as people realize the nonvalue in bitcoins and mining them, you will see a huge dropout, followed by a huge price decline.

Bitcoins value is not linked in any way to the amount of electricity it takes to generate it.

The long term success of Bitcoin will depend on an economy being created around it. There are people trading BTC for goods and services. Go read the Buying and Selling threads. If you believe that it's mostly speculation, that's your opinion. If you are so sure that the price is going to bottom out then you should find someone willing to make an options contract with you. You'll be speculating too.

BTC value is not linked to difficulty either. A huge dropout would cause difficulty to lower and make it easier for the miners still mining to get more BTC from their mining operations. The only way that would effect the market would be the miner that gave up selling their coins. The chances of someone dropping out at this point from being fed up and having enough coins to flood the market and crash the price is most likely pretty low. The miners with the most coins are the ones who either have been around since the beginning or the ones who put a huge amount of capital into mining. Either way they have a vested interest in taking a long term outlook.

Gameover you have it all wrong. I couldn't agree more with grndzero.

Cost of producing a bitcoin is as relevant to its value as the value of paper the dollar or euro are printed on is to their value.

I'm very new to bitcoin. What brought me here is not speculation but the realization that this is an awesome way to transact.

The future life and future value of bitcoin will entirely depend on whether there will be demand for it to buy and sell stuff.

It is this demand that will make or break BTC. Is BTC easy to transact? Is it easy to tranfer? Is it cheaper to keep? Is it more secure to keep than other payment means? How many products / services will there be to accept BTC? Will it be easy to exchange with "regular" currencies at will? At what cost? These are the parameters that will determine its value and not cost of electricity, h/w cost or internet connectivity costs.

By the few things I have learned so far about BTC, it looks like we have a paradigm changing transaction token in our hands and its value may very well climb drastically in the long run.

If you take this outlook, mining could be profitable as long as you don't kill your hardware by extreme overclocking or wrong cooling. If I buy a 2,000 Eu rig and don't kill it by next week then my h/w costs to produce coins are not the full 2k but the depreciating value over time.
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 Re: Is rig building still profitable? June 16, 2011, 07:58:06 AM

Cost of producing a bitcoin is as relevant to its value as the value of paper the dollar or euro are printed on is to their value.

there sure is some kind of link: who would buy something that he could produce for less? the rise of the bitcoin price is limited by the rise of mining cost.
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