I have been thinking a bit about bitcoin investments, and about AM in particular. I think there is a common misconception that fails to take into account the Observer Effect.
Suppose I decide to purchase a 50Gh/s miner from BFL today. Most people would base this decision in large part by when they expected to receive it. Once ordered, they are in a great hurry for it to arrive, trying to get it up and running before the difficulty gets insane. The problem is, from a certain perspective, it matters less when they get it than they think. The reason is, there are already thousands of people ahead of them in the queue. The very fact that their miner arrives means that all of these others have been delivered, guaranteeing the very difficulty increases they are racing against. They were doomed before they ever made the purchase. Of course, there are other factors, such as the possibility of other companies delivering additional hash. Getting your hash on line before theirs is certainly advantageous. But If I were to bring online a hashing power equivalent to the current global hash tomorrow, I would effectively double the difficulty, devaluing the very hashes I want to profit from.
For companies in the business of hashing (or at least the prospect of hashing someday) the Observer Effect if ignored can dash any potential they may have of surviving. As I noted in a previous post if one would add up the projected hash totals of all of the mining outfits on BTC-TC, it would equal more than 200% of the global hash. Most of these outfits will fail miserably to obtain their projected percentages of global hash, and they most certainly will drive the difficulty through the roof, making it even harder for themselves to attain the percentages they desire. They are all in effect eating their tails.
It has been almost axiomatic that early adopters pay the development costs. The first guy who bought a cell phone paid thousands and thousands, today they can be had for free. A successful venture in the bitcoin mining space must certainly avoid this. It was easy initially, when there was no real competition, and AM was able to claim a large chunk of hash for himself and his shareholders. The profits available just from being the hash bully were easily able to recoup development costs. Once other players arrived, FC shifted strategies, and sold large hash in small packages to the public in general, and as usual the early adopters shouldered the weight of development costs. Just look at those who paid 1.99 btc per USB a scant few months ago. If FC was a fool, that added global hash distributed across the world would have beaten down his share of global mining hash. But it did not. It did not because he held more in reserve in anticipation of the Observer Effect. I think it is safe to believe that FC accounts for this, and accounts for it quite well.
When I see other groups projecting target percentages of 20% or 30% of the global hash, I have to wonder if these projections are even remotely based upon the inclusion of their own hash's contribution to the difficulty. Perhaps they just see an infinite number of chips pouring off assembly lines into their farms, never realizing that every chip they produce devalues the one before it. They are constantly in the process of making their own equipment worthless. I am looking forward to seeing how FC perseveres in this new environment where the "first mover" power factors less.
This is a really great post.
I wanted to quote a specific part, but then I wanted to quote some more, and some more, and some more, so I just gave up and quoted it all.
It is a great post because while it says obvious things, it manages to say them very clearly, and easily shows them up for anyone who happened not to notice them.
