AM franchised mining: an insightShareholders, miners, and bitcoiners,
catching up the last few pages of this thread I realise that there is a growing interest for franchised operations - along with a bunch of inaccuracy and speculation. To reduce that noise and add some facts to the topic, I herein want to give some insight into my past franchised mining operation.
AboutWhen AM rolled out its mining farm and quickly surpassed 30% network share, in the board we discussed options on how to resolve the existing fear of AM approaching majority power. At that times I already had some experience with lending mining rig for a shared mining profit and proposed that model that later became AM's franchised mining. The idea was pretty simple: instead of growing own mines to disruptive powers, we lend rig to self-managed entities for a pre-defined share of mining income.
As one of the initial testers of blade based franchised mining I want to share some of my experience with those interested in franchising, or shareholders just wondering how that component contributed to dividend payments in the past.
Please note that all the information provided here is about past mining operations and not about those planned for BE200 and later franchising. Also, basically everything described is information publicly available (from blockchain) which I am only connecting the dots to.
The AM franchised mining modelThe established model aims to get large volumes of hashing power operational out of AM's direct control but with a guaranteed and high share of mining income at zero risk. Zero risk is achieved by requesting for collateral that covers the manufacturing and shipping costs - which can be either as a deposit of BTC at escrow, or with direct AM shares.
High share of mining income was defined as 80/20. Income is accounted at nominal values, e.g. one blade is assumed to hash with 10GHps and to consume 100W. Furthermore, it is accounted based on theoretical values, that is: for one blade AM receives the mining income of 8GHps mining 24/7 (80%PPS), remainder goes to franchisee. This gives the franchisee full control over risk/reward balancing, i.e. he could try to squeeze out the most of the blades through over-clocking to get a higher share for himself - at the same time he is in charge for loss of income of any kind, e.g. pool DDOSed, power outage, theft, whatever. Failure to pay the regular franchising fees will ultimately result in the forfeiture of your collateral and termination of franchising agreement.
Use case: AM rev1 blades franchised miningMy first installation were 30 blades that during the first difficulty cycle mined as follows:
Difficulty period 121 (243936-245952) @ difficulty=21335329
Duration 986438 seconds (from 1372515725 to 1373502163)
Period earnings 100PPS per GH: 0.2691
Period earnings 80PPS per GH: 0.2153
Period franchise payment for 300 GH: 64.5895
https://blockchain.info/tx/cdc52c9906a984ac7c8c5ef0b7213aff92d71533049e34670377f9abd60965bc
No, you are not dreaming: it is less than a year that 300GHps mined you 80BTC in one difficulty cycle
Four months later, I had my full capacity of 292 blades up and running. Notice how the 10x higher hashrate earned only 57% of what the first 30 blades made over a difficulty cycle.
Difficulty period 131 (264096-266112) @ difficulty=267731249
Duration 828484 seconds (from 1381925788 to 1382754272)
Gross mining income 100PPS per GH: 0.01801214
Expenses at y=4.17e-07 in USD per GH: 0.34547783
Exchange rate USD/BTC: 174.283
Expenses in BTC per GH: 0.00198228
Net earnings 100PPS per GH: 0.01602986
Franchise earnings 80PPS per GH: 0.01282389
Franchise payment for 2920 GH: 37.4458
https://blockchain.info/tx/e0b7dd60cc7bb6728f1f0b485300e631e30f69fb225cef41885d0d9777428ed7
Another fun fact: setting up those blades in a 80qm facility took 6 weeks installation time (customising shelves, power distribution, networking, blade set-up) and required a 30kW facility - which today is available at a desktop PC sized plug-and-mine product at 3kW.
Initially, electricity costs were negligible, but after 4 months became significant and were added to the fee calculation formula. The above output is generated by
this script I wrote that calculates the franchising payments based on the agreed formula.
Finally, rev1 blade franchising became unprofitable in April 2014:
Difficulty period 147 (296352-298368) @ difficulty=6978842649
Duration 1055529 seconds (from 1397755646 to 1398811175)
Gross mining income 100PPS per GH: 0.00088037
Expenses at y=4.17e-07 in USD per GH: 0.44015559
Exchange rate USD/BTC: 451.720
Expenses in BTC per GH: 0.00097440
Net earnings 100PPS per GH: -0.00009403
Franchise earnings 80PPS per GH: -0.00007522
Franchise payment for 2920 GH: -0.2196
- mining 292 blades generated 762.138 BTC mining income for AM
- blades were mining profitable for 10 months
- franchisee made less than 160BTC in mining, which were sold to pay operation costs for an average BTCUSD rate of ~$300 and hardly covered expenses
FutureFranchised mining will remain a core strategy for AM. Alas, with the mining profitability marginalizing down, it became restricted to those who
a) do it on large scale
b) have enough funds / shares to provide collateral
c) have access to cheap electricity
Hope this retrospective gave you some insight and a better idea on AM's franchising model.
