Topic: Bitcoin Mining Coop (GLBSE Investment Op) (Read 2379 times)

Yeah - that's the sort of projections I was thinking about, though there's a few errors in them at moment.

Before you try to put them right you may want to wait to see if there's any interest from others in investing - as so far noone else seems to show much interest. Think most people here are more interested in speculating than investing.  Do note that whilst I AM making all these posts as a potential investor you're not likely to see a huge investment from me - probably only about $500ish - so you definitely need a bunch more interest.

Here's what I spotted as needing fixing so far:

1.  AS you already noted, hardware valuations are off.
2.  Electricty usage is wrong - look at first table month 2.  You add one rig but electricty cost drops by 5%+.  Even without adding any rigs it would only go down 1%ish due to BTC/US$ rate only going up by 1%.
3.  Net profit looks off to me after 1st month - e.g. in month 2 it's greater than gross earnings and in no month other than 1st is it equal to net earnings-elect cost.
4.  For comparison to wallet performance you need to compare it to 3500 BTC not 2500 BTC (and use a base value of 3500 BTC for project).  That's because investors are investing 2500 BTC but profits are shared as though there was 3500 BTC (due to you having 10k shares at start).  Obviously your own 2kBTC worth of hardware that's being added to the project should be included in initial hardware value.  That means that the project will start off being 800BTC in the red - which is correct, as if it was immediately liquidated you'd get 1/3.5 of the proceeds meaning investors would have taken a hefty loss (the projections need to value things from an investor's perspective).

Few other points:

1.  Looks to me like you're assuming about 900W/hr per rig power usage - is that correct?

2.  Cases I'd say to focus modelling on realistically are the feasible ones (e.g. I wouldn't worry about difficulty going up a lot AND BTC falling). No point doing ones with +/- 1% of either as it really won't change anything much and just makes verifying figures harder.  Here's the ones I'm most interested in:

a) Steady State - no real change in anything.  0% diff increase, 0% change in exchange rate. 
b) Increased mining but no growth.  10% diff increase, 0% change in exchange rate.  This one represents other people doing what you're doing but no real growth in BTC.  I'm not actually fussed about diff increase AND drop in exchange rate as I don't see that as likely.
c) BTC growth (exchange driven) : 10% exchange increase, 5% diff increase.  Would expect this one to be fairly good and if exchange rate starts to go up decently it's likely diff increase will lag behind.  I don't personally expect any huge increase in BTC exchange rate in the short-medium term but steady growth wouldn't surprise me.  This is my realistic optimistic view of things.  Better is obviously possible - but not worth modelling as we already know if this one's good anything better will be even better.
d) Slow BTC decline.  -10% exchange, -5% diff.  Both across all months.  If BTC value keeps falling I'd expect diff to drop as well - but nothing like as fast.
e) BTC Crash. -25% exchange, -5% diff.  Both across all months.  I wouldn't be surprised if this actually outperforms wallet - even though I'd guess it would end up with the rigs being turned off.  This one really represents one or more early adopters giving up on BTC and offloading - with the downward trend continued by miners selling off rather than hoarding.  This is pretty much the worst I'm interested in looking at - and I don't see this as too likely tbh.

3.  You may want to include insurance premiums into expenses - doubt 40 rigs would be covered on household insurance.
4.  You need to consider currency exchanging - not sure how you plan to turn BTC unto USD but likely some % of value will be lost doing so (both in having to sell below mid-rate and possibly then in withdrawal fees).  Have you actually planned how you'll be able to withdraw $22.5k from 2500 BTC?  Pretty sure MtGox (for example) only allows some small amount per day.

Anyway, I'm off out for rest of day - will check back tonight for updates.

Equipment valuation looks way off. I'll try again tomorrow.

http://www.tweakedgeek.com/bitcoinminingcoop.pdf

Is something like that what you're thinking of?

Basically I did not take into consideration the hardware replacement costs for failed cards, as I do not intend on significantly overclocking the chosen cards to achieve the performance. There should be no problem with getting warranty replacements for any failures.

The numbers at the top are what I change to see what different outcomes are:

DIFF INCR: The increase in difficulty
(Note, difficulty decreased 4% last two weeks, and is expected to decrease again next go around)

BTC INCR: BTC to Dollar increase per month

CAP DEP: Percentage to depreciate assets per month

As far as how long you can run systems - in the HPC clusters I work on we anticipate running systems at full throttle (100% cpu all the time) for 4 years, although we really only retire them at that time typically due to more energy efficient and faster technology being available (Moore's Law). Now that SSD is so inexpensive (for small drives, which is all a HPC or bitcoin node would need), those are used rather than traditional drives which are typically what we see fail.

So long as you keep systems cool, solid state devices (including CPUs / RAM) typically don't fail. Mechanical devices (fans, hard drives, etc) are normally the culprits. Scripts will be written to monitor the GPU temps, and notify me of any over-temp situations, for example if fans on the cards fail.

If anything looks off, let me know. It's pretty late here, so it's possible I've made some errors.

Honestly, the answer is that you need some sort of model built which will show the likely returns from initial investment.  Then you just tweak that as things progress - and the output from that would give a pretty clear answer (hopefully) of what to do each month.

For #2 the question is how long, on average, do we think mining rigs will run nonstop before they pack in and have to be junked.  Because that's the period of time in which they need to have covered their costs for this to have any viability.  Not only is that the case - but there's also only a period of time before they become obsolete/innefectual.  i.e. if new motherboards/graphics cards come out with more GH/s than ours for similar power consumption then we become inefficient.

I'd make a guess at around 2 years covering both of these possibilities.  So, in two years we have:

24 months * 300BTC profit per month = 7200 total BTC profit.

Less the 3500 inital BTC investment (yes it was less but we have to use 3500 to get investors back their capital) and that's an overall profit of 3700 BTC over 2 years.

That's still a pretty good return.  BUT it relies on a few assumptions, mainly that the profitability of mining won't drop.  And that's the real big issue.

And there's also a second issue - which needs proper modelling to work out.  Our investment would be tied up in computers which have a fairly fixed value in US$ but a value in BTC which alters as BTC value varies.  So if BTC rise then the (BTC) value of our investment is falling whilst we'd have been making a gain (in US$) had we just left our BTC in wallets rather than investing.

That's why I'd like to see models for varying exchange rates and difficulties - as without such models it's really hard to work out quickly how, for example, investing in your project would compare to keeping funds sat in BTC if the exchange value of BTC rose over 2 years whilst difficulty rose at a similar rate (such as to produce a similar US$ profit per month - but a lower BTC profit per month).

Points taken. Do you think it would be better to have a monthly financial statement, then decide on dividends via simple majority vote?

EDITED to fix simple mathematical errors in number of shares.

Last post from me for now.  Going to do some quick math on profitability/return for investors.  Will be doing it as I type - so don't actually know the results yet

With 35,000 shares that equates to 3,500BTC in capital for the purposes of working out returns to investors.

We can treat all profit as actual profit for simplicity, so 342 BTC profit per month equates to a bit under 10% gross profit per month for investors.  Very nice!

However, that's not the whole story.  As there's two additional things which need to be taken into account:

1.  Equipment is going to fail and need replacing from time to time.
2.  There's only a certain period of time before the computers/cards will totally fail anyway.

Pretty hard to assess either of these - but let's try anyway.

For #1 let's assume 42BTC per month in repair costs - leaving a round 300 BTC profit per month.  You'd have 2,750 BTC worth of computer gear total - so that's only assuming a 1.52% failure-rate of equipment per month or that on average cards etc will last 5 years before breaking.  That's optimistic - but not totally unreasonable as it's not covering case 2.

(TBC - as have display issues editing long posts so wil ldo this in 2 parts).

As a (potential) investor I'm not sure of the logic in this.  In a nutshell if mining became more profitable I'd want ALL profit to go to expansion - whilst if mining became less profitable I'd be more inclined to want less investment and more dividends.  Pretty much the reverse of what you're saying.  Here's why:

The profit made as a % of capital investment is essentially fixed irrespective of scaling.

i.e. if X GH/s makes Y profit per month then 2X GH/s makes 2Y profit per month.

If Y gos on a downwards trend (either by increasing difficulty and/or decreasing BTC value) - and it's been on one for a while - then extrapolation of that graph would indicate that at a certain point it'll head into the area of making a loss at some point in the future (i.e. the cost of electricty + the cost of writing off hardware will exceed the value of produced BTC).

At the point at which new hardware won't be paid off before that point is likely reached then there becomes no point expanding - as it probably won't make a profit any more.  Where that point lies depends upon your cost of power.

Once the point of no profits is reached then doubling, trebling, or multiplying by 100 your hardware won't turn a loss into a profit - it'll just multiply the loss in proportion to the expansion.

And it kind of gets worse - as the real point at which further expansion ceases to be worthwhile is before that.  Specifically, if I have a target ROI% (R) that I want on money then it's reached where buying new hardware won't achieve R+(return of capital less resale value of hardware) before mining becomes unprofitable.

I don't have much info on the trend of mining returns - but I'd definitely want any mining pool proposal to show models based on existing trends and ones either side of the trend before I could seriously consider investing.

I assume you want clarification of what the issue I had was.  So here gos:

Simiplified explanation.

Assume there were 100 shares and you held 51 (51%) but were only entiteld to 20% of dividends (i.e. dividends on 20 shares) - which is what your initial suggestion proposed.

Now you have 10 BTC to give out in dividends.

Usually you'd do a dividend of 10BTC profit here and give 0.1 BTC dividend per share (10BTC profit/100 shares).  But you can't do that as that would short-change investors (as there's only 70 shares actually entitled to dividends - 50 of other people's + 20 of yours).

So you have to declare an amount being paid as dividends of 142.82857142 BTC so that investors get the right dividend each.  And if this is being done through that stock-exchange place then that means you likely have to actually deposit that amount there rather than the 100BTC actual profit to be distributed (depending on how they do dividend payments - e.g. whether you have to have the full payment there or just the amount less what would be due to shares in your own name).

And now records show a total dividend payment of 142.8etc being made - so you have to then edit your accounts to show the 42.etc excess payment to yourself being returned.

All because you allocated yourself shares on which no dividend was due.  Hope that explains it a bit.

Basically, my concerns have been that one person would hold enough stock to make vital changes such as changing the payouts of dividends, stopping liquidation in case mining became unprofitable (sticking me with the overages in electricity), or liquidating the capital assets.

I agreed with the comment from Deprived - having a 70/30 split would help reimburse me for the time I spend maintaining the cluster and giving it 160 sq. ft. of space. But to protect from the concerns I have above, the contract would require a supermajority of 80% to change voting rules, payouts or to liquidate the Coop. With me holding 30%, I can veto it. So basically the IPO will be for 25,000 shares, and I will keep 10,000 shares. 

So the math... say that all 25,000 shares sell at 0.1 BTC. At $9US / BTC, that would be $22,500 to add capacity to what I already have. With that much, I could add  14 additional systems to bring the cumulative hashing power of the cluster up to 26 GH. At the current difficulty, that would result in 440 BTC per month gross. Power would cost (at most) 98 BTC per month, leaving a net profit of 342 BTC. Out of that, 171  would be used to increase cluster hashing power, and 171 would be equally shared among all shares as a dividend.

As upgrades are made, the hope is we can keep up with the difficulty changes (at least). If we outpace the difficulty, we will get more profits. If we don't, we can vote (with a 80% majority) to change the dividend payout percentage to allot more funds for cluster expansion to keep pace with the difficulty.

Any suggestions are greatly appreciated.

I'm having a hard time following this one.

4.  If the 51% is reflected in share allocation then all dividends payment etc will be somewhat opaque as you'd have to dividend off an amount larger than you actually intended to and then give back most of the dividend that went to yourself.

Can you elaborate?

Thanks for the input... this is exactly the type of input I'm looking for. I'm definitely not out to rip anyone off, but of course don't want to be put into a position where I could be on the losing end either.


That sounds very reasonable. At least that way the investors do get more than me (which is important as they'll be fronting a significant portion of the hardware cost for building out phase 1 of the cluster), and equal voting rights. And nobody could come in, buy up the shares and liquidate the assets.That's the main thing I really want to protect myself from - I don't want to build this magnificent creation then it just gets ripped out from under us.


I can definitely do something like this. I'll try to get something up this evening, will be interesting to see.


I'd prefer to mine whatever earns us the most ROI, but don't want to take risks like mining new chains and ending up getting stuck with a lot of worthless coins. Most likely we'd put things like this up for a vote, if the majority wants to take the risk of mining the forks with all or part of the cluster, we do it.  Definitely open for discussion.

Guys, keep these good ideas coming if you're interested. I'll keep updating the contract as good ideas are put forth. My current plan is to IPO on 09/05 as I'm still mining the coins for the cost of the ticker symbol on GLBSE, and also want to make sure to give enough time for others to chime in with ideas.

A few things seem strange about this - especially the share distribution.

First off here's what's dodgy about the current proposal:

1.  You don't appear to be gaining anything for your labour.
2.  You're way under-valuing your initial contribution.  Not only are you contributing your existing computer(s), you're also giving the infrastructure and a rent-free office.
3.  You could do a quick pump-and-dump on this and be entirely in accordance with your documented proposal.  i.e. collect investment, get computers, use your 51% to vote to close the company and then pocket 51% of the proceeds of selling assets.
4.  If the 51% is reflected in share allocation then all dividends payment etc will be somewhat opaque as you'd have to dividend off an amount larger than you actually intended to and then give back most of the dividend that went to yourself.

Here's how I think you SHOULD do it:

1.  Give yourself more shares to start with - to reflect you providing the initial infracture and to pay for your ongoing effort in running the business.
2.  You would then receive all dividends on all shares in your name.
3.  All votes would be based on actual holdings of shares.
4.  A vote of 80% in favour would be needed to end the company OR to change the voting rules.

I'd suggest something like you having 10k shares with 25k more sold.  That would mean you could veto any vote requiring an 80% majority.

If you actually want investment then, as a potential investor, I'd be wanting to see spreadsheets showing likely profits based on various difficulty ranges/BTC exchange rates.

Do you intend only to mine BTC or to mine whichever of BTC/forks gives the best return (and presumably convert the others into BTC immediately)?

No problem at all. Guess a drivers license / utility bill is OK? It'll be a few days (probably a week) before I set up the IPO, but I'll go ahead and send the docs now so you'll have them.

You should note that its now a requirement to email a scan of your ID and proof of address to be able to list.

Send it to [email protected], if you care about your privacy then uses gpg to encrypt.

This information will be kept personally by me an not shared with anyone (governments included) unless there is an attempt to scam. In which case I will release the information to the general public and throw you to the wolves.

Nefario.

Makes sense. I'd really like to give the shareholders a say in how the operation is run. So I've updated the contract terms to state that I will abstain from voting with the exception of votes related to disolving the coop.

There's a few other mining operations that are operating in a similar manner using GLBSE, and they're selling shares somewhat regularly, so it would seem like there are definitely interested investors.


Yea, as I said, I don't really disagree with it, I was just wondering why you would bother holding an official vote at all, since none of it would matter; your 51% would prevail every time unless you abstained from a particular vote.

Nope - haven't put it into the contract yet... just wanted to see what kind of response I could get on the forum before I spend the 3 BTC.

I understand the control 51% of the voting shares thing... seems to be pretty standard though. I think I'm being really fair regarding the dividends though - I'm only going to take the dividends equivelant to my initial investment. I'm open to suggestions, though - that's why I'm posting it here first.

In other words, you decide, as you control 51% of the voting shares (:  Not saying I disagree with this, but why bother voting at all if whichever way you vote determines the direction?

Do you have a GLBSE ticker symbol yet and have you put all of this information in the asset contract for such?

Sounds good, just don't grow faster than you can handle.  Seems like that happens alot round here. 

I'll be following your progress.  I say go with it.