Bitcoin Miner does the math, calls it quits

http://www.bitcoin-board.com/index.php/Brand-new-Sapphire-5830-on-NewEgg-which-Im-passing-up

by mef • 15 years ago

94 99 15 years ago

wccrawford2• 15 years ago

This isn't really news. I did the math a month ago and came to the same conclusion. That I could probably make a little money if I don't mind heating up my house (costing more in AC costs) and dealing with the noise of the computers running all the time.

The projected profits, at the prices that day, were pretty sad.

A week later I learned that the better the machines and programs get at producing bitcoins, the harder it is to actually earn one, so the machine works harder for the same output. (The whole market is in on this, not just 1 machine, so it's possible to be ahead of the pack... But they -will- catch on eventually.)

At that point I realized that even if I built a perfect rig that paid for itself every 3 months, I would have to continuously upgrade it to keep up with the market.

It's simply not worth it.

MichaelApproved3• 15 years ago

Why buy a new machine after 3 months? Once it makes back it's cost, wouldn't you still be able to earn money from it so long as it can cover the cost of running and storing it?

inportb• 15 years ago

No, because of the increased difficulty. However, nobody said anything about buying a new machine. It should be sufficient to upgrade the graphics processor...

clawrencewenham• 15 years ago

Because as everyone else joins and upgrades, the difficulty of mining gets increased to match, and after a few months that machine is no longer efficient enough to pay for its electricity and cooling.

podperson• 15 years ago

Only if more performance/watt machines haven't driven the output of your machines below the cost of electricity.

Tichy• 15 years ago

Those BitCoin miners could also be good gaming PCs. Once I take mine out of action, it will simply be a gaming PC that paid for itself. I actually bought a gaming PC off ebay for mining - of course if you just bought a crappy PC with a fast graphics card it might be different.

JonnieCache2• 15 years ago

>...if I don't mind heating up my house (costing more in AC costs) and dealing with the noise of the computers running all the time.

Have there ever been any cases of miners being raided by the police? Because these sound like similar problems faced by another profitable cottage industry that crosses my mind...

joejohnson• 15 years ago

Yeah, at least one: http://esspe.net/bitcoins-and-weed

Synaesthesia2• 15 years ago

I also did the math - figured I was better off buying Bitcoins than mining them. It's marginal though.

gravitronic3• 15 years ago

Out of interest - why did you buy bitcoins? For purchasing goods? Or for speculation (to re-sell when, you hope, the price goes up)?

Synaesthesia2• 15 years ago

Well I mined about 10, bought another 10, it's just speculation right now.

pavel_lishin2• 15 years ago

> The fact that every 2016 blocks (about 11 days), 100,800 new BTC are minted. That means that, to maintain the CURRENT price of $13.50, we'd need $1,360,000 of NEW MONEY entering the system every 11 days.

I don't know anything about economics - literally nothing - but that doesn't seem right to me.

parfe• 15 years ago

I think generating bitcoins is a way to have controlled inflation and to distribute new bitcoins into the economy as fairly as possible.

The value of bitcoins should (and hopefully eventually will) be worth their value in work/productivity/product beyond the effort it takes to create a new one.

Yes, bitcoins are overvalued due to media hype the same way hot IPOs are. Eventually the price will settle and the value will be determined by market conditions rather than gold rush demand.

Then again, I would never waste my time.

pavel_lishin2• 15 years ago

I meant specifically, when he said that for a currency to stay at a certain rate, it means money must be flowing into it.

fr0sty2• 15 years ago

It isn't right. It would only be true if every miner was immediately liquidating the bitcoins they were awarded. Such a massive oversupply would likely overwhelm demand and push the price much lower.

In reality this is not what BTC miners are doing (from what I can see). They are mining and hording BTC for later use meaning that the mined coins require $0 to enter the system to maintain equilibrium.

ohashi2• 15 years ago

That doesn't mean the math is wrong. What he's saying is each day the total value of bitcoins is going up by that amount because # of bitcoins * current price. He's also saying that it doesn't make sense, he sees irrationality in the behavior. If more bitcoins are added than value created, prices should go down, but aren't, they are stable. Something seems to be out of whack, the market isn't behaving rationally. Essentially bitcoins are becoming more overvalued as more get unlocked because supply is increasing faster than demand but the exchanges aren't reflecting that (yet).

ahi2• 15 years ago

The main currency exchange does about $1 million in volume daily. Getting $124k in new money in there doesn't seem so difficult to me.

3pt14159• 15 years ago

The Mtgox hack has kept BTC prices fairly depressed, but in my opinion that is a good thing. There was never a good reason to build something around the BTC currency before because it was going up so fast that you were better off billing a client half your normal rate, convert it into bitcoins and end up with 4x the money in a month or so.

Hopefully BTC will see some medium term stability around the 10 to 20 mark while actual, usable clients get made, and actual stable markets get setup.

(Disclosure I own a nontrivial, although nonmassive amount of bitcoins, but I've broken even by selling some while it was over 30)

tibbon• 15 years ago

What's interesting, is that this is what should happen. Since Bitcoins are generated at a constant rate (from my understanding) regardless of how many people are working on them, the market should eventually even out so that its a break-even at best. Likely it will be a little worse than break-even, because there are always some people out there willing to attempt to generate coins even if what they are doing doesn't financially make sense, breaking the market.

Just because you've got a competitor in business, doesn't mean that they are profitable or running good business. Trying to meet them can easily run you into the ground. It just happens in bitcoin-world, everyone has the same 'product'.

sp332• 15 years ago

In fact, it's worse than that, because the global rate of BTC production goes down over time. After 2025, hardly any new bitcoins will be generated. https://secure.wikimedia.org/wikipedia/en/wiki/Bitcoin#Monet...

nextparadigms• 15 years ago

That's the whole point. As the amount of Bitcoins gets closer to the maxim, it will become harder and harder to mine them. But ideally, this should be overcome by Bitcoin's increasing popularity and value.

This isn't happening right now, and it appears to have stagnated, but that's not a problem for Bitcoin's future, because the continous mining of Bitcoin is not necessary to ensure its success.

This simply means that there has to be a bigger real economy behind Bitcoin's value, and once that economy is strong enough and catches up with Bitcoin's inflated value, the value should start rising again, and miners will appear again as it becomes profitable to mine them.

weavejester• 15 years ago

Beyond a certain point the majority of the mining reward will come from transaction fees.

tomp• 15 years ago

If I remember correctly, they are being generated at an (decreasing) exponential rate, i.e. first n years 7 million, next n years 3.5 million, etc...

gravitronic3• 15 years ago

Bitcoins are not generated at a constant rate. The difficulty of generating bitcoins increases exponentially over time, so the number of bitcoins generated by the pool (assuming the pool remains the same size) will decrease accordingly.

However the pool didn't remain the same in the past. All the BTC press (and $10 USD rate) substantially increased the number of people mining. This sped up the discovery of bitcoins but it also gave each miner a smaller cut.

At this point the only way to mine a non-trivial amount of BTC is to invest $ in a GPU-heavy mining rig.

DarkShikari2• 15 years ago

The difficulty of generating bitcoins increases exponentially over time

No, it changes in proportion to the number of blocks generated in the past week or two. This could even result in a decrease if the number of miners decrease.

tghw• 15 years ago

The goal of changing the difficulty is to maintain a constant rate. As the computational power dedicated to mining Bitcoins increases, the difficulty increases proportionately, to keep the overall rate of Bitcoin discovery more or less constant.

If tomorrow, everyone agreed with this guy and quit mining, the next difficulty adjustment would make it easier to mine Bitcoins, to keep the constant rate with a smaller pool.

jonnathanson• 15 years ago

Likely it will be a little worse than break-even, because there are always some people out there willing to attempt to generate coins even if what they are doing doesn't financially make sense, breaking the market.

I'd guess that the percentage of miners and speculators in the BTC market who are economically irrational in their activities is a lot higher than most of us think it is. Ergo, I don't place too much faith in any models, theories, or projections about this market that lean heavily on assumptions of rational actors.

Following from this logic, I can't justify taking a significant position in this market. The risk is enormous, and as risk goes, it's not incredibly attractive compared to alternative investment vehicles or strategies.

teadrinker• 15 years ago

Not to mention the lack of proper regulation. Particularly at the exchanges: http://nerdr.com/bitcoin-exchange-scam-bitcoins-are-worthles...

I was days away from entering the Bitcoin marketplace until I read that. Now I realize it's speculation propping up an artificial market price. Saying that, I would be open to hearing opinions on estimates of the true value of a Bitcoin, based on it's use cases and value proposition if anyone has any...

fr0sty2• 15 years ago

> Likely it will be a little worse than break-even

Only if you are marking against the current market price for bitcoins, which is not necessarily the best way to look at this.

1. Conversion Costs: Converting USD->BTC is currently very cumbersome so it may be worthwhile to go USD->Mining-Rig->BTC instead if only to avoid the hassle (as well as securing a low-cost source of BTC going forward after the Rig has paid for itself.

2. Market impact: Buying BTC on the open market will put short-term upward pressure on the price which is bad if you are trying to accumulate a position (especially in the aggregate). Mining them nets you an increasing BTC position without this impact.

3. Pricing against expected value: Many miners likely believe that the current market price is artificially low and are not 'marking' their mining efforts against this. Unless the miners are simply churning their BTC into other currency at the spot price this is entirely reasonable[1]. If/When the exchange rate goes up to the effective price the mined bitcoins will be 'worth it'.

[1] This only really holds if you don't have an alternative way to convert USD->BTC (see #1) or don't have any USD to convert. If you did you would buy the cheap BTC with cash instead of paying to mine.

iter8n2• 15 years ago

Now that the hype is dying down, maybe people will start thinking more about how to make bitcoin easier and more available and less about how they can profit off of mining and trading.

wladimir2• 15 years ago

Start? People have been thinking (and working) on that even before the hype began (see for example the Android client now on the frontpage, or the new client UI being developed, wallet encryption being tested now, and various web payment services), it just gets drowned in all the trolling, mining related talk and price speculation.

eropple• 15 years ago

What you call "trolling," others call "pointing out the obvious flaws in an unsustainable system."

JulianMorrison2• 15 years ago

Seems pretty obvious to me that "mining" is a loser's game, you are fighting over what slice you get of a fixed size pie. By contrast, selling stuff for BTC actually grows the "market cap" of coins, that seems a lot more sensible.

That said, I have a technical question. What happens to the BTC system if people mostly quit mining?

stonemetal• 15 years ago

The system contracts and it becomes easier to mine. As long as the number of clients doesn't approach zero, transactions should be OK.

JulianMorrison2• 15 years ago

What about when the number of BTC has gotten close enough to 21 million that mining nearly never returns any new ones? The number of miners could fall to something approaching zero.

khafra• 15 years ago

Power and wifi are free at many coffee shops and fast food joints. When I'm in one, spending the time between my work and martial arts training group, I mine on my laptop. If I were especially ambitious, I'd bring a tower with a bunch of ATI cards in it; but the McDonalds manager might complain when the lights dim.

hollerith• 15 years ago

This is why we can't have nice things (e.g., free power in cafes and fast-food places).

klhutchins• 15 years ago

It seems like a shame that all that computational power is being wasted. I mean other than generating some hashes, what good does that really do? I think it'd be cool if somehow it tied into the folding@home type of stuff. Where the computations solved something meaningful, but there could also be some "monetary" incentive.

maaku2• 15 years ago

Already working on that ;) I have a working prototype of a "bitcoin" client that replaces the hash generating function with completing a workunit of a BOINC project (the various @home stuff). It required some modification to the bitcoin protocol as the two tasks are not exactly analogous, and there are some different security implications.

Watch for it on HN soon...

cabalamat• 15 years ago

It seems a shame that all the effort that people put into making padlocks is being wasted, what good does that really do?

Answer: padlocks, like bitcoin hashes, are a way of allowing people to collaborate without having to trust each other.

kd0amg• 15 years ago

The rate of padlock production doesn't stay approximately the same when people double the amount of resources they put towards producing padlocks.

ceejayoz2• 15 years ago

> It seems a shame that all the effort that people put into making padlocks is being wasted, what good does that really do?

Sure, but if you could make it so a byproduct of the padlock manufacturing process was ice cream, wouldn't that be worth doing?

bestes• 15 years ago

The time and energy used to mine is what provides the security of bitcoins and transactions. I would not call it a waste; it is what enables bitcoin to exist as a currency.

Another way to think about it is to imagine that each of these GPU rigs is like a branch office of the Fed. (yes, I'm kind of joking here)

teralaser• 15 years ago

The bitcoin miner's experiences can also be found in the world of gold mining: http://www.economist.com/node/18774624

sireat• 15 years ago

I should point out that this is classic blogspam: You can see that the forum linked is dead except this one link.

Original post where the text was copied from is this: https://forum.bitcoin.org/index.php?topic=26099.msg325505#ms...

Incidentally, the original poster is fairly infamous troll/critic in the biggest bitcoin forum. (Sadly, I agree with most of his conclusions and pessimism).

Pretty sure it is NOT original posters forum, someone just took his text to stir up some traffic for his forum.

swishercutter• 15 years ago

I thought I recognized this rant...same one that has been repeated for the last 2 months in the BTC forums. Miners don't care...I should know, I am one...and given my current power cost I may be one of the last. I will start worrying about mining profitability when Vladimir starts shutting down one of his 3 data centers...since he pays 7 times the power I do. At that point folding@home or seti gets my GPU cycles...that is if nobody figures a better way to profit from leasing these machines for other than bitcoin use (legal ways that is).

prsimp2• 15 years ago

Actually, I'm almost certain that AngelusWebDesign (on Bitcoin.org) and Matthew (on Bitcoin-Board.com) are one-in-the-same. As I understand it, he runs Bitcoin-Board and simply cross-posts all his stuff.

btilly• 15 years ago

No surpriseWhen you're competing against people who are doing bitcoin mining using someone else's resources (eg http://thenextweb.com/au/2011/06/23/abc-employee-caught-mini...) then bitcoin mining will not be cost effective for you unless you are using someone else's resources as well.

encoderer2• 15 years ago

I'm a bitcoin speculator. So far, I've made a very good ROI on a relatively small (4 figure) investment. It's been a lot of fun, really.

MtGox, and other exchanges (though I've got less experience with them) publish raw market data. I've written some analysis tools using mongo and python, they run on an Ec2 instance and buy/sell automatically. I send myself an SMS when I make a trade.

It's been so much fun to build. It's like SimStockMarket (or SimForex) to me. I've always been fascinated by the high frequency trading platforms. Obviously mine isn't high frequency, but it was a chance to build a trading system that had enough skin in the game to be interesting but little enough to be a hobby and not a stressful investment.

I really don't see myself mining at all. That part has never interested me.

akanet2• 15 years ago

I'm a programmer with some liquid cash and an interest in doing things exactly like this for fun. Can you recommend any resources for getting started?

thesis2• 15 years ago

Mt Gox has an API: https://mtgox.com/support/tradeAPI

joe_the_user• 15 years ago

Sure, sounds like fun...

I hope people understand that the success of bitcoin speculation in no way demonstrates bitcoin's practicality as a currency. A currency doesn't benefit from being the subject of speculation - it benefits from having a stable value so you can just use it to buy and sell stuff.

mellis• 15 years ago

Currencies (and other assets) benefit from liquidity: someone willing to buy it when you want to sell and to sell when you want to buy. It can be difficult to distinguish beneficial market-making activity (which still involves turning a profit) from harmful speculation, regardless of the way it's described by the person doing it.

kragen• 15 years ago

As a market approaches being perfectly competitive, risk-adjusted profits approach zero. If I understand correctly, that's basic economics, and it's not limited to just Bitcoin. If you want to make money in a market, you either need a sustainable competitive advantage or non-average risk tolerance.

What could amount to a sustainable competitive advantage in Ⓑ? Reputation isn't it: the whole point of Ⓑ is that Ⓑ100 is computationally infeasible to counterfeit and equivalent to any other Ⓑ100. If you developed an especially money-efficient SHA-256 chip, or for that matter a pure Ⓑ-mining chip, you could perhaps remain profitable mining with it for a while, until the market caught up with you. (Does that depend on whether you use the chip yourself or sell it into the mining market where people compete with each other?)

thesis2• 15 years ago

Wouldn't more people joining your pool increase your chances of more bitcoins? I know your % in the pool will go down, but your pool has a better chance overall.

prsimp2• 15 years ago

More people joining a pool doesn't increase your personal Bitcoin production (in theory), it simply lowers your variance. That is, your payments will become smaller but more steady.

lurkinggrue• 15 years ago

I always did prefer tulips.

btclove• 15 years ago

do you think the bitcoin mining chip will become a reality? Is this http://asicminer.net a scam?

stayjin• 15 years ago

To be honest, when I read the original idea behind the bitcoin, I was thrilled. I thought This Is It (TM).

The monetary system, as it exists today is based on debt as a lever for growth. Banks can get a deposit of 1$ and God/King/Char/President/Whatever gave them the right to lend 5$ with it, and hold the 5th person under obligation of debt, to pay back that one dollar which the bank that gave it to him DIDN'T HAVE in the first place. You have to give back that 1 dollar or you will lose what you bought with it. Proponents of this practice call it "value" of potential, they argue that banks can do this because if they lend 5$ for every 1$ they have, people who borrow these 5$ will really work their asses off and pay 5$ back, which means that banks valuate the "potential" of the market to create 5$ out of 1$. Then come investors, speculating the value of this "potential", buying the debt and selling it again for 12$ this time etc.

I thought that bitcoin was a chance to fight back the economy of debt. Every coin is 1BTC, no bank would be able to get it and magically transform it to 5BTCs any more. Potential would once again be expressed as ability to produce more or better of your products made for the same cost and EXCHANGE them for more or better products made by someone else, REAL things as assets against REAL things as liabilities exchanged through a non manipulatable medium.

Then, I woke up :) Bitcoin adopters and proponents are so unbelievably vested in the current status quo that they managed to create a caricature of the same, old monetary system replicated in the bitcoin world: exchanges that don't exchange bitcoins but integers, speculators, market crashes... like Wall Street No.2... and naturally "It is not profitable any more, sell"...

ignifero• 15 years ago

  unbelievably vested in the current status quo

Maybe because the current system, "based on debt as a lever for growth" did actually give much higher growth than the old currency which, like bitcoins, was based on a commodity and manipulated by those who owned it.

ww520• 15 years ago

It's a nice thought but BitCoin doesn't change the debt-leveraged practice of the banks. Sorry to rain on the parade.

The fractional reserve requirement allows the banks to lend multiples of their incoming deposits no matter what the currency. BitCoin is just another currency, like the dollars. M1/M2 in circulation is much smaller than the actual money used in the economy. BitCoin will be the same way.

The banks can very well open BitCoin accounts, allowing people to deposit actual BTC. The bank then lends the BitCoin out in multiple of deposit, like 5BTC lent out for 1BTC deposited. The BitCoin lent out are not delivered in actual BTC, just some numbers in the borrowers' accounts. Only when the borrowers withdraw that they get back BTC. Like the dollar accounts, most people don't withdraw large amount of dollars; they just write checks or wire transfer them. Same way for the BitCoin accounts. Thus the debt-leverage economy with BitCoin will arrive.

If everyone withdraws from the BitCoin accounts, there would be a run on the bank and the bank won't have enough BTC reserve to meet the demand and collapses. Banks can put daily withdraw limit like ATM and tell people to write BTC check. It's just as good as BTC.

The digital nature of BitCoin will probably allow people to withdraw more easily and thus lower the possible leverage multiplier.

nazgulnarsil• 15 years ago

also a public ledger of all transactions.

politician• 15 years ago

It will be possible to audit BitCoin banks in a way that's not possible for today's banks. Specifically, transactions are public, although anonymous. Even so, it ought to be possible to perform a kind of traffic analysis against the public block chain to determine whether a group of addresses are participating in fraud (in the form of fractional reserve banking) given that initially a customer has to send their BitCoins to some address owned by the bank.

inoop• 15 years ago

This comes to mind: http://www.reddit.com/r/Bitcoin/comments/i0r4o/ready_for_a_l...

iwwr• 15 years ago

The hardware doesn't have to pay for itself, just the discount if you want to resell it. So maybe 20-30% of the initial cost.

Vitaly• 15 years ago

I dont know... 79 days to return your investment is a nice deal in my book.

Bitcoin Miner does the math, calls it quits

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