Why would someone sell mining equipment for less then the equipment can generate

[vssa]

After a quick profitability check of the new asics on http://bitcoinx.com/profit/index.php
It looks like after 2 days you break even on the  BitForce ‘Jalapeno’ which costs 150 USD
So why butterflylabs selling this mining equipment if they can make more money by using it ?
I personally think that they are not real and it is just some type of manipulation to lower the price of bitcoin or just a fraud.

Do you really think that because of this press release on yahoo(http://news.yahoo.com/butterfly-labs-announces-next-generation-asic-lineup-054626776.html) you can be sure that it is real?

[1713573919]

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[1713573919]

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[Nyhm]

I was contemplating the same thing myself. Thanks for actually doing the calculation. Presuming these things are real:

Scenario A: Suppose they just manufacture a relatively few units for themselves (at high investment cost), then dominate the mining process (to some degree; it's still random search, so other rigs will still win often enough, hopefully). The block difficulty then goes way up, and they'd have to produce even more units (small batches = high cost per unit). All the while, they're competing with themselves to produce blocks, which soon produce half as many BTC per block.

Scenario B: Suppose, on the other hand, they get thousands of pre-orders and can run a large production batch (cheaper/unit cost = more profit each). Meanwhile, the block difficulty is still "low" (by the speculated capability of these units), which fuels a frenzy of buyers who want to be the first to fire one (or a dozen) up. Then, they can keep selling these to the public, as an arms race of how many cubes you have ensues.

I haven't run any numbers, but Scenario B does sound like a plausible business strategy, which could be more profitable than Scenario A. In any case, I'd rather see these things in the hands of the masses, rather than all sitting in one company's datacenter.

[556j]

You cannot use numbers with today's difficulty as time until ROI for this new hardware. So that estimate is useless, not at all based in any reality.

If they dropped a couple million and were only ones mining on ASIC, what if something happen to BTC before they get their return (block reward half, fork blockchain, change algorithm, government takeover/banning, catastrophic flaw in sha256 or bitcoin itself, and so on) For every machine they turn on all their other machines make less money. So they will also be competing with themselves.

Not to mention any competitor can make ASIC and cut BFL labs return. There are some things that could happen, where if BFL just keeps these private and mines themselves, it won't really go as smooth as you want to imagine.

The safe bet for BFL is to sell these. They have a market already. Then if something catastrophic happens to btc then can sell another circuit to us. They won't have a couple million in worthless ASIC, we will.

[sadpandatech]

aye, wait until they roll out a few runs of these. Then your question will change to "Why is BFL charging so much for these thing?" The ROI will be like 300+ days. ;p

[Shadow383]

I think the more interesting questions will be:

1-Will BFL deliver on their estimates?

2-Will they test their hardware mining? If so for how long? How many BTC will BFL mine for themselves before shipping their units?

[Dargo]

BFL may ship 50 Th or more in the first batch alone, and if so difficulty will shoot up at least 6x what it is now in a matter of days. Still, those getting units in the first batch should do pretty well. I think BFL will deliver. Sure, maybe their estimates on specs and delivery will be off a bit, but they'll deliver. And a lot of people will wish they had been buyin rather than naysayin. 

[LoupGaroux]

The probable scenario is that the asics units will ship right into the reward halving which looks to be mid-December. That first group of 50 THash will come right as the market is trying to stabilize with the new world of 25 btc blocks, and the natural upward pressure on value that will create. Suddenly there will be a massive increase in hashing, difficulty will skyrocket, and those 50THash of first-adopters will try to dump enough coinage to make their investment back in a matter of hours.

Which will collapse the market for a period, shut off most all mining except for the 50 THash, kill the market for lesser asics hardware sales to the hoi polloi (like those Jalapenos) and eventually create a stability around the new 8700 pound gorilla- the 50 THash. Traditional miners will slowly come back, the markets will recover, and we will be looking at a bright new dawn in which the hash rate of the entire community has jumped exponentially, but everything will pretty much stabilize, as difficulty slowly settles after the spike.

Look for a lot of mining power to leave the grid as they come online, and monitor the buying opportunities as asics kills the exchange value of btc for the first few weeks of THash mining. Stock up on those entities that are involved in early THash delivery, and wait to come back in once the excitement wains, and every miner who wants to chase very expensive hardware gets his rig online.

This is a paradigm shift in terms of production numbers behind the market, but markets are very, very good at adapting to decimal point adjustments. The core result will be essentially the same trading value for the same investment of electricity, as there is no pent up demand for very expensive bitcoins, just a nice steady demand at around the current investment of electricity to produce them. That same amount of investment will yield bitcoins worth essentially the same amount of dollars or euros of rupees when all is said and done, it will just take a much more expensive set of hardware to stay competitive in the production part of the economy. If your strategy includes working the exchanges and the markets, or using bitcoin as a means of real world exchange for hard goods you will be just fine after the initial roller coaster ride of asics.

[disclaimer201]

Or, there may a whole other game changer than Asics. What will happen if every GPU miner switches to Litecoin first and BTC will lose one of its most precious values, its vast user base? Then, you Asic-sellers and lovers can continue to mine BTCs on your own, huh? And when the price of Bitcoin crashes, the more reason to switch over to LTC.

[DeathAndTaxes]

Or, there may a whole other game changer than Asics. What will happen if every GPU miner switches to Litecoin first and BTC will lose one of its most precious values, its vast user base? Then, you Asic-sellers and lovers can continue to mine BTCs on your own, huh? And when the price of Bitcoin crashes, the more reason to switch over to LTC.

Miners* aren't the most precious "values" (sic I assume you mean assets).   The first mover status has created a whole host of services and products using Bitcoin; that is what creates the value.  That is why nobody wants or need LTC.  That is why LTC will never go anywhere.  Switching to ASICs won't cause blockchain.info or the major exchanges, or bitmit.net or the dozens of wallets, android apps, and other products and services to disappear.


*Before some miner gets "but hurt" as a miner myself the value miners bring is the security of the network.  They allow consensus to be reached and attempted to spoof that consensus costly and futile.  So the network does need miners but that being said 10TH/s is likely MORE miners that Bitcoin needs RIGHT NOW.  I am not saying stop mining but honestly if network dropped to 5TH/s it would have essentially the same level of security. There is no eonomic value in attacking a 5TH/s network that isn't there in a 10TH/s network.  Anyone with the ability to destroy a 5TH/s network can likewise destroy a 10TH/s network.  Currently the level of security significantly outstrips the amount of economic activity that needs protecting.

[disclaimer201]

Yes, assets. Since LTC and BTC can be easily converted, what's to stop services to accept LTC? It's basically the same infrastructure... A few months ago I would have thought it's crazy to support another cryptocurrency. Now, with all those changes (FPGA, ASIC, block reward halving) coming up, what do I as a small time miner have to lose? I'd be out of business entirely either way.

[zvs]

Or, there may a whole other game changer than Asics. What will happen if every GPU miner switches to Litecoin first and BTC will lose one of its most precious values, its vast user base? Then, you Asic-sellers and lovers can continue to mine BTCs on your own, huh? And when the price of Bitcoin crashes, the more reason to switch over to LTC.

Miners* aren't the most precious "values" (sic I assume you mean assets).   The first mover status has created a whole host of services and products using Bitcoin; that is what creates the value.  That is why nobody wants or need LTC.  That is why LTC will never go anywhere.  Switching to ASICs won't cause blockchain.info or the major exchanges, or bitmit.net or the dozens of wallets, android apps, and other products and services to disappear.


*Before some miner gets "but hurt" as a miner myself the value miners bring is the security of the network.  They allow consensus to be reached and attempted to spoof that consensus costly and futile.  So the network does need miners but that being said 10TH/s is likely MORE miners that Bitcoin needs RIGHT NOW.  I am not saying stop mining but honestly if network dropped to 5TH/s it would have essentially the same level of security. There is no eonomic value in attacking a 5TH/s network that isn't there in a 10TH/s network.  Anyone with the ability to destroy a 5TH/s network can likewise destroy a 10TH/s network.  Currently the level of security significantly outstrips the amount of economic activity that needs protecting.

specialized equipment will result in these services and products getting zero new customers

[DeathAndTaxes]

specialized equipment will result in these services and products getting zero new customers

I hate to break it to you but miners != bitcoin.  miner != bitcoin user.  miner != only hold of bitcoins.

[disclaimer201]

specialized equipment will result in these services and products getting zero new customers

I hate to break it to you but miners != bitcoin.  miner != bitcoin user.  miner != only hold of bitcoins.

BTC theory: Fewer miners = fewer bitcoin users, fewer users = less interest, less interest = less services, less services and fewer new users = lower bitcoin prices

Then add block reward halving, and add lower overall mining costs for Asics = Bitcoin price may come under pressure

LTC theory: more miners = more interest in LTC = higher difficulty -> what do people do when something is rising in value and you can't mine enough -> more buying pressure -> higher LTC prices

However: You may end up with more BTC that will be worth less in the near future.

[Striker]

Ummm ... I also caught the news and I think that in case this FPGA actually delivers the promised pric/performance and can be used in a stable way mining bitcoins then the folks using GPU's will be out of business in no time.
That together with the halving of block prices ... it is the end for GPU mining.
The MH/s/$ is about twenty times that of the best GPU's  ...
There is no way a GPU could ever compete against this price/performance numbers.

Regards.

[jjiimm_64]

in the California gold rush. The guys that sold shovels are the ones that made the most money!!

[Vladimir]

Question:

Why would someone sell mining equipment for less then the equipment can generate

Answer:

Because it is likely in reality more than the equipment can generate.

[John (John K.)]

specialized equipment will result in these services and products getting zero new customers

I hate to break it to you but miners != bitcoin.  miner != bitcoin user.  miner != only hold of bitcoins.

BTC theory: Fewer miners = fewer bitcoin users, fewer users = less interest, less interest = less services, less services and fewer new users = lower bitcoin prices

Then add block reward halving, and add lower overall mining costs for Asics = Bitcoin price may come under pressure

LTC theory: more miners = more interest in LTC = higher difficulty -> what do people do when something is rising in value and you can't mine enough -> more buying pressure -> higher LTC prices

However: You may end up with more BTC that will be worth less in the near future.

If LTC prices rises enough it wouldn't be hard to produce ASIC's for LTC either. Look at what happened when LTC was originally designed as a 'CPU coin'. So are you moving to CoiledCoin or SolidCoins afterwards?

[disclaimer201]

As far as I read it would cost much more to integrate cache to Asics and though I doubt it's not impossible, Asics for LTC would be far less likely to appear for a long time. Several reasons for that.

[Stephen Gornick]

Ummm ... I also caught the news and I think that in case this FPGA actually delivers the promised pric/performance and can be used in a stable way mining bitcoins then the folks using GPU's will be out of business in no time.
That together with the halving of block prices ... it is the end for GPU mining.
The MH/s/$ is about twenty times that of the best GPU's  ...
There is no way a GPU could ever compete against this price/performance numbers.

FPGA hardware costs are more per Mhash/s than those for GPU hardware. 

Some people get electricity at either a tremendously low rate (e.g., those near hydro generation might pay as little as $0.05 per kWh or less even) or there is no marginal cost for consumption (e.g., included in the lease of an apartment or other facility).  For them, GPU is more profitable than FPGA due to the difference in price for the hardware.

Now BFL's ASIC changes the game though.   The cost of the hardware per Mhash/s is so much lower than GPU (under the assumption that BFL can actually deliver these and at the prices they've listed for sale).  Each $100 of BFL's ASIC produces as many hashes about at much as $1,000 worth of GPU hardware.   Thus the skyrocketing difficulty from even a marginal amount of ASICs delivered will make GPU mining yields so trivially low as to not be worth the effort.

Adding capacity now with GPUs hits physical limits, ... removing excess heat and access to electric circuits with enough amps.  Using FPGAs though allows a greater level of Ghash/s without hitting those heat and power problems for most.  Those might continue to at least be worth left running once ASICs arrive, at least for a little while longer.

The one-two punch to knock out GPU mining would be volume ASIC shipments and the arrival of the block reward drop (to 25 BTC, expected in December).