ASICMINER: Entering the Future of ASIC Mining by Inventing It

[velacreations]

I wonder why Friedcat still hasn't announced to his loyal shareholders yet some things he announced days ago in Shanghai.

cause he doesn't want the share price to hit 10 btc today...

[1714034913]

1714034913

[huhai0978]

The value of ASICMiner:

The value of ASICMiner depends on the total profit it can generate. Let's do some math.
Total bitcoins to be mined: 9,600k
ASICMiner takes 20% of total hash power. This will generate 1,920k.
Assuming hardware sale income is 30% of mining profit, so this part is 576k.
(1920k+576k)/400k=6.24B/share
This is the total profit one can expect for 1 share of ASICMiner in the next 20 years.

value of 1 share of ASICMiner = share price + dividend = 6.24

How will the 6.24B be distributed between share price and dividend? Well, this depends on the investors' emotion and their view of the risk of future income. The gap between 6.24 and share price is risk compensation.
IMO, the share price will fluctuate between 3.x and 4.x in the future. 5+ price is too risky.

My 2 Satoshi.

Transaction Fees.

TX fee is negligible. Note, there is also cost of running a company,electricity, chip design, manufacture,etc.
TX fee encourages hoarding, punishes spending, which is bad.

1) in your own #s, then at the current price of 4.7BTC AM is still undervalued if it will generate 6.4BTC.
2) If you apply that type of reasoning to real life companies then you would rarely invest - APPL was likely never going to survive the 90s because its stock was overpriced right?
3) Buying AM is believing friedcat & Co. can do more with BTCs than you can. They might open new services or create new income streams (meanwhile reducing income seem unlikely.)
4) Txs, Txs Txs. By the time all Bitcoins have been mined, the transaction fees will make it worthwhile for the miners (Satoshi's white paper)

Here are my answers:
1) It's not called "undervalued". It's called "risk compensation" as I said. The question is, do you want 4.7BTC now or do you want to wait 20 years to get 6.24BTC?
2) I'm not in US.  I have no idea about how APPL survived 90s. APPL sounds like a miracle, but miracles do not happen everyday. BTW, 40x of value increase of AM is already a miracle. Do you expect one miracle after anther one?
3) Your third point sounds so religious. I'll not going to touch this one.
4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

[velacreations]

Or, perhaps, mining equipment will be more expensive because maintaining 20% of the hashrate will be much more difficult, and solar panels will still be as unreasonable in a few years as they are right now? Understand: his operation already gets $0.06/kWh, but that can't compete with upper Washington state ($0.01/kWh). Also, solar panels sorta don't work at night, and I bet you don't want to give up half of your income.

well, my house is powered by solar, has been for 12 years, and I run power 24/7.

Granted, I am not running a data center, but saying solar is unreasonable is just false.  There are data centers powered by solar/wind, and in China, those resources are cheaper than anywhere else.  Still, you're looking at a 3 year ROI for a solar system, though wind can be 1-2 years in the right place.

Think about this:  solar cost $5/watt 12 years ago.  It costs $.5 a watt today.  You can expect it to continue to decrease as production and technologies improve.  It will easily half before the bitcoin reward does.

back to the other stuff you were discussing...

[nubbins]

Also, solar panels sorta don't work at night, and I bet you don't want to give up half of your income.

 

[JimiQ84]

4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

Because BTC is opposite to FIAT money and that's exactly what FIAT is NOT doing - it's punishing hoarding and rewarding spending. Satoshi wanted something different.

[TsuyokuNaritai]

Why should we encourage hoarding?

It's called saving, and it's not a dirty word, or at least it wasn't till it became so much in the interests of the government central bankers to justify them robbing savers blind as a side effect of their shenanigans.

[Vycid]

The value of ASICMiner:

The value of ASICMiner depends on the total profit it can generate. Let's do some math.
Total bitcoins to be mined: 9,600k
ASICMiner takes 20% of total hash power. This will generate 1,920k.
Assuming hardware sale income is 30% of mining profit, so this part is 576k.
(1920k+576k)/400k=6.24B/share
This is the total profit one can expect for 1 share of ASICMiner in the next 20 years.

value of 1 share of ASICMiner = share price + dividend = 6.24

How will the 6.24B be distributed between share price and dividend? Well, this depends on the investors' emotion and their view of the risk of future income. The gap between 6.24 and share price is risk compensation.
IMO, the share price will fluctuate between 3.x and 4.x in the future. 5+ price is too risky.

My 2 Satoshi.

Transaction Fees.

TX fee is negligible. Note, there is also cost of running a company,electricity, chip design, manufacture,etc.
TX fee encourages hoarding, punishes spending, which is bad.

1) in your own #s, then at the current price of 4.7BTC AM is still undervalued if it will generate 6.4BTC.
2) If you apply that type of reasoning to real life companies then you would rarely invest - APPL was likely never going to survive the 90s because its stock was overpriced right?
3) Buying AM is believing friedcat & Co. can do more with BTCs than you can. They might open new services or create new income streams (meanwhile reducing income seem unlikely.)
4) Txs, Txs Txs. By the time all Bitcoins have been mined, the transaction fees will make it worthwhile for the miners (Satoshi's white paper)

Here are my answers:
1) It's not called "undervalued". It's called "risk compensation" as I said. The question is, do you want 4.7BTC now or do you want to wait 20 years to get 6.24BTC?
2) I'm not in US.  I have no idea about how APPL survived 90s. APPL sounds like a miracle, but miracles do not happen everyday. BTW, 40x of value increase of AM is already a miracle. Do you expect one miracle after anther one?
3) Your third point sounds so religious. I'll not going to touch this one.
4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

1) This also ignores the present value of money. NPV + risk easily explains that differential. I think the risk is currently not fully appreciated, either: what would you peg the chances of AM getting shut down by the Chinese or friedcat getting hauled off to jail in the next 20 years? What would you peg the chances of being outcompeted by a major company at? How about Chinese nationalization?

2) What? It's easier for overpriced companies to survive because they can liquidate shares as a source of capital. By the way, many of the most celebrated and successful investors in the world (Buffett, Lynch) buy undervalued companies and then wait for the correction. Apple is an example of growth. It may well have been overvalued in the 90s! (Aside: AM doesn't have much room for growth, since the block reward is fixed, unless you're counting on transaction fees with little indication of materializing any time soon)

3) Yeah, this sentiment is why buying AM seems like such a risky proposition: people are buying blindly.

4) So, by most estimates, Bitcoin has on the order of a million serious users now. Would you mind telling me how much the transaction fees have gone up per block?

My 2 mBTC.

Vycid

[Vycid]

Or, perhaps, mining equipment will be more expensive because maintaining 20% of the hashrate will be much more difficult, and solar panels will still be as unreasonable in a few years as they are right now? Understand: his operation already gets $0.06/kWh, but that can't compete with upper Washington state ($0.01/kWh). Also, solar panels sorta don't work at night, and I bet you don't want to give up half of your income.

well, my house is powered by solar, has been for 12 years, and I run power 24/7.

Granted, I am not running a data center, but saying solar is unreasonable is just false.  There are data centers powered by solar/wind, and in China, those resources are cheaper than anywhere else.  Still, you're looking at a 3 year ROI for a solar system, though wind can be 1-2 years in the right place.

Think about this:  solar cost $5/watt 12 years ago.  It costs $.5 a watt today.  You can expect it to continue to decrease as production and technologies improve.  It will easily half before the bitcoin reward does.

back to the other stuff you were discussing...

The 3 year ROI on solar is based on typical US costs for electricity at ~$0.15/kWh. Friedcat gets ~$0.06/kWh. His solar ROI is too far out to make sense, especially since he's going to need to have a bunch of UPS so he can switch back over to the grid at night without everything going down.

(By the way, the 3 year ROI is really good - something I'd consider for my own home. Can you get me a source for that? Last I'd heard was 9-10 years, with subsidy.)

[huhai0978]

4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

Because BTC is opposite to FIAT money and that's exactly what FIAT is NOT doing - it's punishing hoarding and rewarding spending. Satoshi wanted something different.

FIAT means inflation. And inflation is not that bad. Inflation is compensated  by interest. Have you ever thought where the interest come from? What we want is not deflation, what we want is freedom.

[Vycid]

4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

Because BTC is opposite to FIAT money and that's exactly what FIAT is NOT doing - it's punishing hoarding and rewarding spending. Satoshi wanted something different.

This is a terrible argument, sorry. A kneejerk "we should do the opposite" because "fiat is bad, mmkay" is not compelling. Even if you took as axiom that fiat is bad, you're still on the hook for demonstrating why punishing hoarding and rewarding spending is a bad thing.

Economists - yes, including the Austrian ones like Hayek and von Mises - agree that you need to penalize hoarding and encourage spending to boost the velocity of money and create a healthy economy. This is the primary reason why deflation is viewed more negatively than inflation.

It is clear that Satoshi wasn't an economist.

[JimiQ84]

4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

Because BTC is opposite to FIAT money and that's exactly what FIAT is NOT doing - it's punishing hoarding and rewarding spending. Satoshi wanted something different.

FIAT means inflation. And inflation is not that bad. Inflation is compensated  by interest. Have you ever thought where the interest come from? What we want is not deflation, what we want is freedom.

Interest is reward for lending money. That works even in BTC world, just look at loan section of this forum. It has nothing to do with inflation. If anything, it's other way around.

[JimiQ84]

4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

Because BTC is opposite to FIAT money and that's exactly what FIAT is NOT doing - it's punishing hoarding and rewarding spending. Satoshi wanted something different.

This is a terrible argument, sorry. A kneejerk "we should do the opposite" because "fiat is bad, mmkay" is not compelling. Even if you took as axiom that fiat is bad, you're still on the hook for demonstrating why punishing hoarding and rewarding spending is a bad thing.

Economists - yes, including the Austrian ones like Hayek and von Mises - agree that you need to penalize hoarding and encourage spending to boost the velocity of money and create a healthy economy. This is the primary reason why deflation is viewed more negatively than inflation.

It is clear that Satoshi wasn't an economist.

Whoa, whoa there. You mean economist like Keynes agree that you need encourage spending to create a healthy economy. And that's just plain wrong (on which Hayek and von Mises agreed).

[velacreations]

The 3 year ROI on solar is based on typical US costs for electricity at ~$0.15/kWh. Friedcat gets ~$0.06/kWh. His solar ROI is too far out to make sense, especially since he's going to need to have a bunch of UPS so he can switch back over to the grid at night without everything going down.

(By the way, the 3 year ROI is really good - something I'd consider for my own home. Can you get me a source for that? Last I'd heard was 9-10 years, with subsidy.)

Cost of solar in China is $500/kW.
His cost is $.06/kWh

So, he needs 8,333 hours for ROI. @ 7 hours a day for sunlight, that's 1190 days, or 3.26 years.

If he buys in bulk, he can get it considerably less than $500/kW, cause those are retail prices, and for a data center, he can get wholesale.  If he does a wind/solar hybrid in a suitable location, the ROI will be closer to 2 years.

For buying for your home in the US, this site has a decent cost comparison: http://www.ecobusinesslinks.com/surveys/free-solar-panel-price-survey/  

[huhai0978]

4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

Because BTC is opposite to FIAT money and that's exactly what FIAT is NOT doing - it's punishing hoarding and rewarding spending. Satoshi wanted something different.

FIAT means inflation. And inflation is not that bad. Inflation is compensated  by interest. Have you ever thought where the interest come from? What we want is not deflation, what we want is freedom.

Interest is reward for lending money. That works even in BTC world, just look at loan section of this forum. It has nothing to do with inflation. If anything, it's other way around.

Look at those guys in the loan section of this forum. They are going to bankrupt. Lending an deflation money is a Ponzi scheme!!!

[Vycid]

4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

Because BTC is opposite to FIAT money and that's exactly what FIAT is NOT doing - it's punishing hoarding and rewarding spending. Satoshi wanted something different.

FIAT means inflation. And inflation is not that bad. Inflation is compensated  by interest. Have you ever thought where the interest come from? What we want is not deflation, what we want is freedom.

Interest is reward for lending money. That works even in BTC world, just look at loan section of this forum. It has nothing to do with inflation. If anything, it's other way around.

Okay, let me break this down:

If you're using a currency with 10% annual inflation, and Joe wants to lend Bob 100 currency units, then Joe will make no profit if he lends at 10% APR, since 110 units in a year will be equivalent in value to 100 units now. Does that make sense?

So Joe would have to lend at, say, 15% APR, and 15 - 10 = 5% profit that Joe wants. 15% looks like a lot to Bob, so he says "I'll borrow from someone else". Joe is in trouble; if he sits on his 100 currency units, they'll be worth less in a year. He agrees to loan for 10% APR so that he doesn't lose any money. Bob is happy because 110 currency units will be easy to pay off in a year.

Let's suppose we're now using a currency with 10% deflation. Joe wants to lend Bob 100 currency units. In order to make a 5% profit, this means Joe must lend at -5% APR.

Wait - that doesn't work! Bob could borrow 100 units, sit on them for a year, and return 95. Joe has made a 5% profit, but Bob has actually come out ahead!

So Joe could simply sit on his currency for a year, and make 10% profit instead of the 5% he'd make from a loan with 5% inflation-adjusted APR. In the inflationary scenario, Joe would have been willing to lend out his money at 0% inflation-adjusted interest just to avoid losing money from inflation!

Realistically, in a deflationary economy, this means that nobody wants to make loans, and in an inflationary economy everyone wants to make loans. Of course, too much inflation is bad because it destroys value, so the ideal situation is close to what you see in the fiat of most major, stable countries: a few percent (I personally would rather see 0%, but that's not practical for a number of reasons). It's enough to discourage hoarding and encourage lending (which enables business); but low enough not to seriously damage money as a store of value.

[Vycid]

4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

Because BTC is opposite to FIAT money and that's exactly what FIAT is NOT doing - it's punishing hoarding and rewarding spending. Satoshi wanted something different.

This is a terrible argument, sorry. A kneejerk "we should do the opposite" because "fiat is bad, mmkay" is not compelling. Even if you took as axiom that fiat is bad, you're still on the hook for demonstrating why punishing hoarding and rewarding spending is a bad thing.

Economists - yes, including the Austrian ones like Hayek and von Mises - agree that you need to penalize hoarding and encourage spending to boost the velocity of money and create a healthy economy. This is the primary reason why deflation is viewed more negatively than inflation.

It is clear that Satoshi wasn't an economist.

Whoa, whoa there. You mean economist like Keynes agree that you need encourage spending to create a healthy economy. And that's just plain wrong (on which Hayek and von Mises agreed).

http://en.wikipedia.org/wiki/Deflation

Nobel laureate Friedrich Hayek, an Austrian Economist, stated of deflation during the Great Depression:
I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression.
Interview with Diego Pizano (1979)[23]

...

They are therefore rewarded by holding money. This "hoarding" behavior is seen as undesirable by most economists, as Hayek points out:
It is agreed that hoarding money, whether in cash or in idle balances, is deflationary in its effects. No one thinks that deflation is in itself desirable.[24]

[huhai0978]

http://en.wikipedia.org/wiki/Deflation

Nobel laureate Friedrich Hayek, an Austrian Economist, stated of deflation during the Great Depression:
I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression.
Interview with Diego Pizano (1979)[23]

...

They are therefore rewarded by holding money. This "hoarding" behavior is seen as undesirable by most economists, as Hayek points out:
It is agreed that hoarding money, whether in cash or in idle balances, is deflationary in its effects. No one thinks that deflation is in itself desirable.[24]

I think Friedrich, Friedman and Friedcat are related in some way.

[Jake McVitie]

Maybe it's possible to have both inflationary and deflationary currencies running side-by-side within one economy.

Then people can chop and choose which one they use and eventually a self-sustaining equilibrium will be achieved.

There'll be no more arguing about which system is better because both systems are available and a healthy balance is maintained.

[JimiQ84]

4) Satoshi is great. He solved one important technical problem. But, trust me, he doesn't know how money works. Why should we encourage hoarding? Why should we punish those who is spending? We, as bitcoiners, would someday come to a conclusion that let the total number of bitcoins increases 3% every year and make the mining a sustainable career.

Because BTC is opposite to FIAT money and that's exactly what FIAT is NOT doing - it's punishing hoarding and rewarding spending. Satoshi wanted something different.

This is a terrible argument, sorry. A kneejerk "we should do the opposite" because "fiat is bad, mmkay" is not compelling. Even if you took as axiom that fiat is bad, you're still on the hook for demonstrating why punishing hoarding and rewarding spending is a bad thing.

Economists - yes, including the Austrian ones like Hayek and von Mises - agree that you need to penalize hoarding and encourage spending to boost the velocity of money and create a healthy economy. This is the primary reason why deflation is viewed more negatively than inflation.

It is clear that Satoshi wasn't an economist.

Whoa, whoa there. You mean economist like Keynes agree that you need encourage spending to create a healthy economy. And that's just plain wrong (on which Hayek and von Mises agreed).

http://en.wikipedia.org/wiki/Deflation

Nobel laureate Friedrich Hayek, an Austrian Economist, stated of deflation during the Great Depression:
I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression.
Interview with Diego Pizano (1979)[23]

...

They are therefore rewarded by holding money. This "hoarding" behavior is seen as undesirable by most economists, as Hayek points out:
It is agreed that hoarding money, whether in cash or in idle balances, is deflationary in its effects. No one thinks that deflation is in itself desirable.[24]

Once Crash occured deflationary policy was wrong. High inflation and high deflation are wrong. Right, I agree. But Bitcoin's programmed deflation after adopton is lower (created only by lost coins, otherwise is BTC inflation/deflation neutral) than current 3-5% annual US dollar inflation. Bitcoin wins.

And if you think that Bitcoin's deflationary nature is bad than I don't see a point of you staying invested in bitcoin business.

[Vycid]

The 3 year ROI on solar is based on typical US costs for electricity at ~$0.15/kWh. Friedcat gets ~$0.06/kWh. His solar ROI is too far out to make sense, especially since he's going to need to have a bunch of UPS so he can switch back over to the grid at night without everything going down.

(By the way, the 3 year ROI is really good - something I'd consider for my own home. Can you get me a source for that? Last I'd heard was 9-10 years, with subsidy.)

Cost of solar in China is $500/kW.
His cost is $.06/kWh

So, he needs 8,333 hours for ROI. @ 7 hours a day for sunlight, that's 1190 days, or 3.26 years.

If he buys in bulk, he can get it considerably less than $500/kW, cause those are retail prices, and for a data center, he can get wholesale.  If he does a wind/solar hybrid in a suitable location, the ROI will be closer to 2 years.

For buying for your home in the US, this site has a decent cost comparison: http://www.ecobusinesslinks.com/surveys/free-solar-panel-price-survey/  

Ahhhh... I see the problem, here. You assume that for all 7 hours of sunlight, the power output will be at the maximum possible. This is false, of course. The workaround is to use insolation times area times external quantum efficiency.

http://en.wikipedia.org/wiki/Insolation

So we'll use the Canadian Solar panel from the website you linked as an example. It has an EQE of 15.23% (here: http://www.solarsystems-usa.net/solar-panels/#.UdXTxPm1Eqg). Its area is (60 cells x 156 × 156 mm), or 1.46 m². You said $0.5/W, so we'll stick with that; the cost of the panel is $166/panel in bulk, for a cost of $0.72/W; we'll assume serious bulk and Chinese discounts, so the actual cost will be computed $166 * 0.5/0.72 = $115.28. Hopefully you agree that price is reasonable.

So here are the characteristics so far:

Area: 1.46 m²
EQE: 15.23%
Price per 1.46 m²: $115.28

Now, we look up the insolation in Shenzen province, China.

http://www.greenrhinoenergy.com/solar/radiation/empiricalevidence.php

This looks like about 1500 kWh/m²-year to me. If you can find a better source, that'd get a more accurate calculation.

So, the energy output per year is

1.46 m² * 1500 kWh/m²-year * 0.1523 = 333.537 kWh/year

Now, since we're using a power cost of $0.06/kWh,

333.537 * $0.06 = $20.01 worth of power per module per year.

At a cost of $115.28 per cell, that's on the order of 6 years.

Insolation is enormously important in any solar calculation. If you use maximum wattage all the time, you're gonna end up getting screwed by people looking to sell you solar power.

I also am compelled to point out that I assumed your figure of $0.50 was correct. If we used the original $0.72/W value, the ROI would be about 9 years, like I thought (also: installation is not free).

EDIT: Found a better map. I'm sticking with 1500 kWh/m²-year.

http://solargis.info/doc/_pics/freemaps/1000px/ghi/SolarGIS-Solar-map-South-And-South-East-Asia-en.png