ASICMINER: Entering the Future of ASIC Mining by Inventing It

[binaryFate]

I think patience is the biggest obstacle that AM investors need to overcome. People act like putting together a 50 THs farm is nothing more than pre-ordering 100 baby-jets.

well, we had that done some time ago.  It seems like getting a 50 TH/s farm up isn't too much of an issue for FC and team, but keeping it at 50TH/s and expanding beyond that is a significant hurdle.

FC has been planing expansion from the beginning and has been doing great.

up until about a month or so ago, and expansion has completely stagnated. 

The bears have been loud recently and have used this two weeks of lower hash-rate to get the lowest share price, but I don't think it will last long.

based on what?  I don't see any signs of the mining operation improving, and hardware delivery has been stalled waiting on the new blades. 

Has anyone considered what 60 TH/s of 130nm tech uses in power?  If FC knows superior tech is coming and they are close to their limit on power why lease an entire second building to build out massively using 130nm tech which will be obsolete soon.  Just maintain the network, sell off the excess and prepare to move to a more efficient processing node.

65 TH/s @ 8.5 J/GH is ~ 550KW or >2200 Amps @ 240V.  The existing hashrate provides insight into the fact that AM has facilities which can handle 550KW of direct power and more importantly the ability to remove 550KW of heat (which likely means up to another >200KW of AC).  Say AM's 2nd gen chips are ~0.6 J/GH at the wall.  The same amount of facilities could handle > 900 TH/s of capacity and that is just an estimate based on know hashrate.  I doubt they are running to the last milliamp so the goal of 1 PH/s makes sense. 

However to expand significantly before the next gen chips arrive may require additional facilities.  Have you looked at the selling prices AM gets for their gear.  I mean by my math it is pretty close to the NPV of the lifetime revenue stream based on difficulty growth.  AM isn't leaving that much on the table by selling the hardware rather than self mining.  If they are near capacity (for 130nm) why spend money on more facilities you don't need to get to 1 PH/s and mine when you can get almost the same net revenue by selling the gear to someone else?

Interesting hypothesis, this sounds plausible indeed. But gen2 is not expected before November, that would imply we will stay at 60TH/s until November/December, and hardware sells will need to be enormous to compensate the lack of mining dividends. 60TH/s in 2 months will be nothing, maybe 2%.

[DeathAndTaxes]

Interesting hypothesis, this sounds plausible indeed. But gen2 is not expected before November, that would imply we will stay at 60TH/s until November/December, and hardware sells will need to be enormous to compensate the lack of mining dividends. 60TH/s in 2 months will be nothing, maybe 2%.

Agreed and maybe they have some excess capacity to expand marginally between now and then  but I don't see AM hashrate going to say 120 TH/s using 130nm tech.  That would mean doubling power to over a megawatt.  One other factor is that "something" happened in the farm over the last month.  Looking at the 3 day average ( http://asicminercharts.com/ ) on 8/23 the 3 day average rate peaked at 53 TH/s and then over the next 4 days declined to half that.   Now say you are FC and you have 60 TH/s of hardware deployed but are running into problems getting 60 TH/s out of your 60 TH/s of hardware and another 10TH/s of boards arrive does it really make any sense to install them and possibly compound your problems.   AM Blades somehow still sell very close to their expected net revenue so just sell the hardware (for roughly the same amount as you would get mining from them over the next couple months) while you can still get a good price.  

Having run a 10KW GPU farm for over a year, if FriedCat can successfully manage 50x the power AND has a plan to more efficient tech, well that is worth more than a stable dividend in the long run.  I think many of these other mining ops have no idea the complications that "real" power loads bring to the table.    Going from 200W to 1K of mining gear is pretty simple just plug it in and go; going from 100KW to 500KW isn't quite the same thing.   I would like to see the hashrate stabilize north of 50 TH/s for more than a week and some communication on the plan to migrate to 2nd gen.

[Ytterbium]

  If people are willing to devote so much time to hacking hardware to play cheap video games, how much time do you think they would devote to hacking hardware which makes free money?

Because those systems weren't all integrated onto a single die. Right now the tech to 'hack' a single chip doesn't really exist (or at least, it costs more then just making your own chips)

You could do a DRM miner, essentially you'd just have it check a digital signature on the block header, and require it to do 20 signed work units for every unsigned one (or whatever).

But the problem is you'd need to add a lot of transistors, more then the number required to simply hash the block header.

[Ytterbium]

Having run a 10KW GPU farm if FriedCat can manage 50x the power AND has a plan to more efficient tech then that is worth more to me than a stable dividend in the long run.  I think many of these other mining ops have no idea the complications that "real" power bring.    Going from 200W to 1K of mining gear is pretty simple just plug it in and go.  Going from 100KW to 500KW isn't quite the same thing.   I would like to see two things though.  The first is that the hashrate stabilize north of 50 TH/s for more than a week and some communication on the plan to migrate to 2nd gen.

Freidcat can probably afford his own coal plant at this point. (Coal being the go-to fuel source in China at the moment.  In the US natural gas is now more popular)

[binaryFate]

Agreed and maybe they have some excess capacity to expand marginally between now and then  but I don't see AM hashrate going to say 120 TH/s using 130nm tech.  That would mean doubling power to over a megawatt.  One other factor is that "something" happened in the farm over the last month.  Looking at the 3 day average ( http://asicminercharts.com/ ) on 8/23 the 3 day average rate peaked at 53 TH/s and then over the next 4 days declined to half that.   Now say you are FC and you have 60 TH/s of hardware deployed but are running into problems getting 60 TH/s out of your 60 TH/s of hardware and another 10TH/s of boards arrive does it really make any sense to install them and possibly compound your problems.   AM Blades somehow still sell very close to their expected net revenue so just sell the hardware (for roughly the same amount as you would get mining from them over the next couple months) while you can still get a good price. 

About this "something" that happened this month, when the hash rate was low, it was about half the "normal" one. Maybe they were moving to a different location, moving half of the hardware at a time? It would be possible that the initial location does not fit the needs for further expansion, be it in terms of space or electricity, or even safety or whatever may not be super urgent at the beginning of the operation but becomes relevant when the company consolidates.

I would like to see two things though.  The first is that the hashrate stabilize north of 50 TH/s for more than a week and some communication on the plan to migrate to 2nd gen.

I doubt that we will get much communication about 2nd gen at all. This would be very valuable to competitors, actually I prefer not to have this information... If friedcat does it purely "friedcat's style", we will get an unexpected message one day that announces some awsome specs and that gen2 hardware is in stock ready to ship. 

[velacreations]

Woah woah woah.....Velacreations is going bearish on AM?!

I really need to reconsider my position.

well, maybe a little.  I'm still long-term AM, but short term has me wondering wtf? I know there's a lot of shit FC doesn't tell us, and that's fine, but the last month hasn't been a great one.  

And, I think we have some rocky weeks ahead of us, unless FC surprises everyone with something big.

This is actually pleasing to read, I was starting to not take him seriously. Even though I'm bullish.

please don't take me seriously, that would hurt my feelings.

[lucasjkr]

With the price of shares of AM so closely tied to the btc/fiat rate, it is becoming difficult to calculate the correct ROI, and to determine if it is in fact positive.

At $90 per bitcoin, AM shares averaged around 4.5 each. 4.5 * 90 = $405.

At $120 per bitcoin, AM shares averaged around 3.3 each. 3.3 * 120 = $396.

At $130 per bitcoin, AM shares average around 2.9 each. 2.9 * 130 = $377.

Today:

At $140 per bitcoin, AM shares average around 2.5 each. 2.5 * 140 = $350.


This apparent loss of fiat purchasing power as the price of btc increases may be replaced by the dividends. They are only a few dollars at best per week, but  there are multiple dividends per price period so the accumulation of dividends might  offset most of it. Of course, there are other factors such as other IPO, breaking news, FUD, etc. But a clear pattern is establishing itself. Could it be possible that, just like buying an asic (in most cases anymore), you are better off just sitting on your BTC than you are in investing? Help me out here and show me what I am missing.

You're looking for correlation where none exists.  The markets (bitcoin, asicminer) are far too illiquid to draw anything meaningful from it.

Tell me this, what's the total market cap of bitcoin? And what do you think woul happen to that market cap if a single large participant needed to exit TODAY, by placing a market order to sell even $10mm of bitcoins? Or vice versa, we see what BTC trades at, could someone reliably buy $10mm of bitcoin across even an entire day and not move the market more than a little? Either case is doubtful. There is zero liquidity, for either bitcoins or for its largest trading security.

Ie; this morning, I sold $200k of a single tickers share from a clients portfolio. The ticker involved was fairly thinly traced; however, I was able to do so across an hour and the share price fell by 3 cents during that time. I would have taken longer, but was told they had to be out ASAP. By thinly traded I mean total market cap, couple hundred million dollars, and a few thousand shares traded per day.

That sort of trade isn't possible to do in BTC, let alone a BTC denominated security without having a major impact on the market. Welcome to the world of no liquidity. It works now because most people are holding their BTC expecting higher prices. It won't work at all if something forces a major movement out.

Same for asicminer shares; most are held on friedcats person ledger. Should anyone attempt a large purchase or large sale, they quickly burn through the open orders and force huge price movements.

Asicminwr trades at an incredible yield. That its as low as it is is testament to people's uncertainty about bitcoin, about asicminers ability to deliver what was hoped, and more importantly, the sentiment of the last person seeking to make a large purchase or sale.

There's lots of moving pieces, but none of them are based on the correlation between BTC/usd, and all to do with the moves of the last few big players that push prices in extreme directions by doing trades that would be considered to be very small in any other market.

[lophie]

There's lots of moving pieces, but none of them are based on the correlation between BTC/usd.

Very informative and rational post and I really agree with most points, However I humbly and respectively disagree with this point.

[romerun]

I do like the franchise thing though. The issue of trust is not much of an issue. Say you run away with a bag of blades, fine you won't get another bag of next gen. The mining technology is moving quick, you won't make a lot for one time scam. Or say a franchisee dies, FC won't care either since the cost of making them is so tiny for manufacturer.

It would scale quicker, if the franchise is done in multi-level model.

[kano]

Having run a 10KW GPU farm if FriedCat can manage 50x the power AND has a plan to more efficient tech then that is worth more to me than a stable dividend in the long run.  I think many of these other mining ops have no idea the complications that "real" power bring.    Going from 200W to 1K of mining gear is pretty simple just plug it in and go.  Going from 100KW to 500KW isn't quite the same thing.   I would like to see two things though.  The first is that the hashrate stabilize north of 50 TH/s for more than a week and some communication on the plan to migrate to 2nd gen.

Freidcat can probably afford his own coal plant at this point. (Coal being the go-to fuel source in China at the moment.  In the US natural gas is now more popular)

Well the markup of way over 1000% on the hardware he's been selling he should be able to ...
My guess the tiny USBs are finally now only in the range of 200%-500% markup at 0.17 BTC ...

[jboogie]

There's lots of moving pieces, but none of them are based on the correlation between BTC/usd.

Very informative and rational post and I really agree with most points, However I humbly and respectively disagree with this point.

I was skeptical too, but if you look at charts, from last month it would seem AM price is negatively correlated to BTC/USD, but from March to June AM's price grew totally unaffected by the BTC/USD bubble

[Rival]

The models for a deflationary currency are really not as established as inflationary, so people tend to not really understand the differences.  When the value of a unit of currency is continually rising, one of the best investments will always be buy the currency and hold. This is because the prices of everything as priced in the defationary currency will continuously drop, as opposed to always rising as in an inflationary currency. You can get more for the same unit of currency next week than you can by spending it this week. Savers get wealthier every day by doing nothing.

In an inflationary currency the opposite is true. The only way that your currency can be out there working for you is if you exchange it for something else. You must hold an asset, such as land, commodities, equities, bonds, anything that will generate an additional cash flow to at least compensate for the lost value of holding the currency. Infaltionary currency was designed to be spent, and deflationary currency is designed to be held.

Equities are not immune to this fundamental feature of a deflationary currency. If a stock costs 1 btc and the value of btc doubles, all things being equal the stock price should move to 0.5 btc. This is a simple concept that everyone should agree upon. The problem once again, is that you went nowhere. Had you held btc your wealth would have doubled. But since you are holding an asset, you gained nothing. This is fundamentally true in a deflationary currency system. You see this problem every day when people purchase asic miners, although it is magnified and masked by difficulty increases.

The deflation is like and endless juggernaut, it never stops, and the base prices of everything priced in it must by definition drop and drop and drop. Market fluctuations and speculation can mask it for a time, but in the end it is relentless as gravity and it will reign supreme in the end.

Equities can certainly counteract this effect, by the inherent creation of value by the underlying company. A company may for example cost 1btc per share, and return 0.01 btc per week. This is enough to account for a 1% per week increase in the value of btc. If you purchase this stock for 1btc, hold it for a week, get your dividend, and the value of btc increases by 1% you are exactly where you would have been if you had just held btc, because the value of the stock should have decreased in a rational market by 1%.

Rumors, announcements, FUD, competition, momentum, perception,these things can also affect price. They can cause big moves and make everything look crazy to an analyst trying to sort it out. But working steadily and continuously in the background the gravity that is deflation will eat the value from any held asset. Even an asset such as ASICminer. In infaltionary currency, any asset that is not increasing in value is dead money. In a deflationary currency, an asset that that is not decreasing in value is a win, and if it rises at all you have really really really done well.

So, in conclusion, any equity that can consistently provide dividends to the shareholder at at rate that exceeds the rate of increase in the currency is better than just buying coins and holding. If it cannot, it needs to be taken out in the yard and shot because you are losing value every day you hold it.

[Ytterbium]

Equities are not immune to this fundamental feature of a deflationary currency. If a stock costs 1 btc and the value of btc doubles, all things being equal the stock price should move to 0.5 btc. This is a simple concept that everyone should agree upon. The problem once again, is that you went nowhere. Had you held btc your wealth would have doubled. But since you are holding an asset, you gained nothing. This is fundamentally true in a deflationary currency system. You see this problem every day when people purchase asic miners, although it is magnified and masked by difficulty increases.

The deflation is like and endless juggernaut, it never stops, and the base prices of everything priced in it must by definition drop and drop and drop. Market fluctuations and speculation can mask it for a time, but in the end it is relentless as gravity and it will reign supreme in the end.

Bitcoin is in an inflationary phase, dumbass.

Also, because mining shares pay out the same amount of bitcoin no matter the the exchange rate, the value, in bitcoin is constant with regard to the exchange rate.  Only the block reward, and hashrate share matters

[binaryFate]

The models for a deflationary currency are really not as established as inflationary, so people tend to not really understand the differences.  When the value of a unit of currency is continually rising, one of the best investments will always be buy the currency and hold. This is because the prices of everything as priced in the defationary currency will continuously drop, as opposed to always rising as in an inflationary currency. You can get more for the same unit of currency next week than you can by spending it this week. Savers get wealthier every day by doing nothing.

In an inflationary currency the opposite is true. The only way that your currency can be out there working for you is if you exchange it for something else. You must hold an asset, such as land, commodities, equities, bonds, anything that will generate an additional cash flow to at least compensate for the lost value of holding the currency. Infaltionary currency was designed to be spent, and deflationary currency is designed to be held.

Equities are not immune to this fundamental feature of a deflationary currency. If a stock costs 1 btc and the value of btc doubles, all things being equal the stock price should move to 0.5 btc. This is a simple concept that everyone should agree upon. The problem once again, is that you went nowhere. Had you held btc your wealth would have doubled. But since you are holding an asset, you gained nothing. This is fundamentally true in a deflationary currency system. You see this problem every day when people purchase asic miners, although it is magnified and masked by difficulty increases.

The deflation is like and endless juggernaut, it never stops, and the base prices of everything priced in it must by definition drop and drop and drop. Market fluctuations and speculation can mask it for a time, but in the end it is relentless as gravity and it will reign supreme in the end.

Equities can certainly counteract this effect, by the inherent creation of value by the underlying company. A company may for example cost 1btc per share, and return 0.01 btc per week. This is enough to account for a 1% per week increase in the value of btc. If you purchase this stock for 1btc, hold it for a week, get your dividend, and the value of btc increases by 1% you are exactly where you would have been if you had just held btc, because the value of the stock should have decreased in a rational market by 1%.

Rumors, announcements, FUD, competition, momentum, perception,these things can also affect price. They can cause big moves and make everything look crazy to an analyst trying to sort it out. But working steadily and continuously in the background the gravity that is deflation will eat the value from any held asset. Even an asset such as ASICminer. In infaltionary currency, any asset that is not increasing in value is dead money. In a deflationary currency, an asset that that is not decreasing in value is a win, and if it rises at all you have really really really done well.

So, in conclusion, any equity that can consistently provide dividends to the shareholder at at rate that exceeds the rate of increase in the currency is better than just buying coins and holding. If it cannot, it needs to be taken out in the yard and shot because you are losing value every day you hold it.

I disagree with the bolded part. While your reasoning makes perfect sense to me, I don't think it applies to an equity that pays dividends that are only in BTC, coming from revenues that are only in BTC.

[Rival]

It was pointed out in a PM that an equity could avoid the fate of being taken out in the yard and shot if consistent increases in price per share accompanied the dividend in such a way that it compensated for the increase in btc value. I stand corrected.

[Ytterbium]

It was pointed out in a PM that an equity could avoid the fate of being taken out in the yard and shot if consistent increases in price per share accompanied the dividend in such a way that it compensated for the increase in btc value. I stand corrected.

If the price per share is in BTC, then all it has to do is stay fixed in order to make money when the price of bitcoin goes up.

[Rival]

It was pointed out in a PM that an equity could avoid the fate of being taken out in the yard and shot if consistent increases in price per share accompanied the dividend in such a way that it compensated for the increase in btc value. I stand corrected.

If the price per share is in BTC, then all it has to do is stay fixed in order to make money when the price of bitcoin goes up.

Assuming it pays no dividends, then yes, you are correct. You will make the same amount as if you had bought and held btc. It would be a reflection that the value of the equity had increased at the same rate that the value of bitcoins did. (in a rational market)

[Vycid]

It was pointed out in a PM that an equity could avoid the fate of being taken out in the yard and shot if consistent increases in price per share accompanied the dividend in such a way that it compensated for the increase in btc value. I stand corrected.

If the price per share is in BTC, then all it has to do is stay fixed in order to make money when the price of bitcoin goes up.

Assuming it pays no dividends, then yes, you are correct. You will make the same amount as if you had bought and held btc. It would be a reflection that the value of the equity had increased at the same rate that the value of bitcoins did. (in a rational market)

A) This market has clearly demonstrated a variety of characteristics not present in a rational market.

B) You are then needlessly assuming counterparty risk for no benefit over counterparty risk-free BTC.

[Rival]

It was pointed out in a PM that an equity could avoid the fate of being taken out in the yard and shot if consistent increases in price per share accompanied the dividend in such a way that it compensated for the increase in btc value. I stand corrected.

If the price per share is in BTC, then all it has to do is stay fixed in order to make money when the price of bitcoin goes up.

Assuming it pays no dividends, then yes, you are correct. You will make the same amount as if you had bought and held btc. It would be a reflection that the value of the equity had increased at the same rate that the value of bitcoins did. (in a rational market)

A) This market has clearly demonstrated a variety of characteristics not present in a rational market.

B) You are then needlessly assuming counterparty risk for no benefit over counterparty risk-free BTC.

Both assertions are accepted as correct. I would suggest that as the market matures and grows it should more closely resemble a rational market. There are certainly many opportunities for short-term profits by exploiting that irrationality today. A year from now, probably not quite so much. As far as AM is concerned, I feel confident enough in the abilities of FC that his company will be capable of overcoming the deflationary pressures of the currency as well as the increasing global hash. For those reasons I continue to accumulate shares, only time will tell if my guess is correct. If AM fails to be a viable investment vehicle in a deflationary currency, I have serious doubts that anyone else will ever be able to be one.

[Vycid]

It was pointed out in a PM that an equity could avoid the fate of being taken out in the yard and shot if consistent increases in price per share accompanied the dividend in such a way that it compensated for the increase in btc value. I stand corrected.

If the price per share is in BTC, then all it has to do is stay fixed in order to make money when the price of bitcoin goes up.

Assuming it pays no dividends, then yes, you are correct. You will make the same amount as if you had bought and held btc. It would be a reflection that the value of the equity had increased at the same rate that the value of bitcoins did. (in a rational market)

A) This market has clearly demonstrated a variety of characteristics not present in a rational market.

B) You are then needlessly assuming counterparty risk for no benefit over counterparty risk-free BTC.

Both assertions are accepted as correct. I would suggest that as the market matures and grows it should more closely resemble a rational market. There are certainly many opportunities for short-term profits by exploiting that irrationality today. A year from now, probably not quite so much. As far as AM is concerned, I feel confident enough in the abilities of FC that his company will be capable of overcoming the deflationary pressures of the currency as well as the increasing global hash. For those reasons I continue to accumulate shares, only time will tell if my guess is correct. If AM fails to be a viable investment vehicle in a deflationary currency, I have serious doubts that anyone else will ever be able to be one.

Those that come to mind:

Coinbase
Bitpay
SatoshiDice

Public securities come with market maturity. EVERY Bitcoin company is currently a startup, so why would you expect them to be publicly traded?