Topic: Finally, a correct (endgame) difficulty calculator (Read 12437 times)

Forget all these history based linear/exponential extrapolations. Now you can actually calculate where bitcoin difficulty is headed.

To be able to calculate that, you need two simple assumptions:
- overall miners are rational and will only keep buying hardware until they reach the point of marginal profitability within a given period (investment horizon).
- Likewise, ASIC vendors will keep producing and selling chips as long as  its profitable, ie, as long as miners are wiling to pay a price above their marginal costs.

To be able to calculate the point where these two cross over, you need to have an idea what the chips cost to produce (and a minimum operational profit margin), and a clear view of costs of the miner.

Fill out your own assumptions by downloading this spreadsheet:
https://docs.google.com/spreadsheet/ccc?key=0ApaVTTCEb_oudGFsUnNuQUVNUGc2Z3VUVmF3ZVBuV2c&usp=sharing

Here are mine, using Hashfasts published numbers:


Feel free to add the cost of casing/PSU/shipping/handling etc in the "per chip" field, Im assuming in the long run these things will be sold bare bones without fancy enclosures and the costs of PCB is negligible and miners already have PSUs or wont factor in that cost given they have decent resale value. Feel free to alter those assumptions.

Also note the investment horizon should NOT be compared to today, when difficulty is growing explosively. This spreadsheet calculates the "end game" where difficulty remains fiarly stable, or at least is only really influenced by BTC exchange rate and perhaps mining fees. In such environment, an investment horizon of a few years is entirely reasonable.

Finally, I did make a shortcut in the formula to calculate the cost of these chips. To accurately calculate that based on die size and wafer size, you need a special tool:
http://www.silicon-edge.co.uk/j/index.php?option=com_content&view=article&id=68

My formula uses the correct numbers for hashfasts chip size (177 candidates for a 18mmx18mm chip), but I simply extrapolate linearly for bigger or smaller chips. IN reality smaller chips will generally yield a number of chip candidates per wafers thats slightly more than proportionally to its size (up to a point), and larger chips will yield less than proportional. If you want more exact numbers, just use that calculator and redo the cost per die math yourself, but all the other assumptions are likely a much bigger variable.

In a chart:



edit: corrected yield calculations and per chip costs.

A few things;
First of all, bitcoin mining would be perfectly suitable to switch dynamically from one location to another, far easier than any other form of data processing. You are probably thinking it cant because the hardware is so expensive, but thats only temporarily. IN the long run, electricity cost will be far more important than the hardware cost.

Secondly, varying electricity costs over time for a google/facebook/ebay datacenter is something else than for bitcoin. Those companies look at 10+ years to select a location for a major DC, miners currently have an horizon of a few months and I figure, in the future of at most a few years.

Lastly; at least in Iceland they guarantee you the price for up to 20 years.
http://www.greendataisland.com/whyiceland.html

Anyway, the main point is that at current exchange rates, electricity price of all mining really isnt going to make a difference.  So what if you max out a local small hydroelectric plant causing local prices to go up (which would be unlikely already), you will just put your miners somewhere else, or if you dont, someone else will. This is about as "profound" as one particular collocation provider running out of rackspace and therefore increasing its prices. So what?

A few things;
First of all, bitcoin mining would be perfectly suitable to switch dynamically from one location to another, far easier than any other form of data processing. You are probably thinking it cant because the hardware is so expensive, but thats only temporarily. IN the long run, electricity cost will be far more important than the hardware cost.

Secondly, varying electricity costs over time for a google/facebook/ebay datacenter is something else than for bitcoin. Those companies look at 10+ years to select a location for a major DC, miners currently have an horizon of a few months and I figure, in the future of at most a few years.

Lastly; at least in Iceland they guarantee you the price for up to 20 years.
http://www.greendataisland.com/whyiceland.html

Anyway, the main point is that at current exchange rates, electricity price of all mining really isnt going to make a difference.  So what if you max out a local small hydroelectric plant causing local prices to go up (which would be unlikely already), you will just put your miners somewhere else, or if you dont, someone else will. This is about as "profound" as one particular collocation provider running out of rackspace and therefore increasing its prices. So what?

Sounds far fetched. Most of those cheap electricity area's have cheap electricity because there is an abundance of eg hydroelectric power. There are enough of such regions that I cant see bitcoin mining making a difference there, not at todays exchange rate anyway. You speak of dozens of MW, but the larger hydroelectric installations have a capacity in the thousands of MW (and are often under utilized). The entire world uses 20000TWh per year, just how much difference can you imagine bitcoin mining will make?

Makes sense for the materials, but would there be an impact on electricity prices, particularly if ASICs were centralized in a low-rate area?

BTW, googling for electricity prices, wikipedia shows rates in russia can be as low as 2.4 cents per KWH. That gives this result:



In kuwait its only 1 cent, that would allow the network to reach 1 exahash (1000 PH) if you can solve the cooling problem
Free electricity would bottom out around 1.7 EH.

Very good question as the gross margins TSMC and Global Foundries charge for Hashfast type volumes are closer to 70%. An 85% yield on a device of this size at this point on the learning curve is totally unrealistic - more like 60%. Taking these two together, the price per die should be closer to
$100, with testing and packaging on top of that.

It's not likely to change much in the near future unless huge volumes (Qualcomm scale) of wafers are ordered

Where did you get your numbers for 36$ per 28nm ASIC Manufacturing Costs?

I'd expect that to be behind several NDAs..

For some perspective, the industry ships 10 billion ARM based chips per year. Yes billion with a B. While those are much smaller, far lower power etc, they still use the same fabs, still need PCBs, need to be packaged etc, so no, bitcoin asics will never be so high volume as to cause systemic shortages anywhere.

The only place I can imagine were you might see temporary shortages is (water) cooling and highend PSU's, but those vendors should have no real problem ramping up production given a bit of time. After all, the PC industry ships a million PC's per day, so the supply chain and infrastructure is in place (and increasingly running idle as PC shipments dwindle).

At some point would the number of ASICs produced increase the price of their raw materials, silicon, PCB, power supplies, as well as the price of electricity?  Or is supply of these things so great that the increase in demand won't materially change the prices of those components? 

The silicon cost is calculated based on the price per wafer and number of candidates per wafer.  Its not like TSMC or GF have pricelists on their website, but there is plenty of industry analysis literature out there that gives an idea. Im using $4000 per processed 300mm 28nm wafer, which is last years average price. I dont have a public source for you for that, but this may show the ballpark is at least correct:
http://www.xbitlabs.com/news/other/display/20110912192619_TSMC_Reportedly_Hikes_Pricing_on_28nm_Wafers_Due_to_Increased_Demand.html
Note the articel is from 2011.

Prices may have come down further since 2012, and I strongly suspect bitcon asics use less layers than the average (making them cheaper), but otoh $4000 is a volume price that may be out of reach of bitcoin asic vendors today. Since this is an endgame calculator, that doesnt matter much. To get to the above numbers, bitcoin asics would have to become fairly big volume anyway.

As for the other costs, chip packaging is typically calculated per ball, with $0.003 per ball being a good rule of thumb. That works out to ~$3 per chip. The additional $4 per chip I used for testing and handling is probably way too much.

What happened in 2012 was different. We mined with GPU's and gpu pricing is not dependent on bitcoin profitability. AMD (and nVidia) price their products for gamers mostly. They didnt charge huge premiums when GPU mining was highly profitable, and when bitcoin mining stopped being profitable, it didnt cause AMD to lower its prices. ASICs pricing will behave very different since they serve no other market besides mining.

Still, lets see what we get. Lets take January 2012
BTC exchange rate ~$5

Assuming most people were doing GPU mining. Lets take a 5870 @350Mh @200W at the wall.
Lets say it costed $250.

If I plug those numbers in I get a network speed of 5000 GH. edit: I forgot block reward was double back then. So Id get 1000GH.
 In reality it was ~8000 GH.
If you take in to account FPGA mining, and given the range of possible outcomes of my current spreadsheet, thats close enough in my book.

I think your calculations should include ancillary pcb, power, and cooling costs as even if these items aren't sold as a package miners still have to buy them and will calculate the costs into the equation.  At some point I'm sure the extra stuff will cost more then the ASIC chips. 

THere is a reason I put that variable on an axis of the chart . In the long run, yes I assume mining will migrate to where electricity is cheaper.
The cheapest rates I found are in Kuwait at an astounding $0.01 per KwH. Not sure if anyone will want to invest in a huge bitcoin mine located there, but for sure it will move to Russia, China, certain US states where prices are lowest.

Another question - in your example you've used average miner electricity costs at 0.12c per kWh. Do you still think this is a reasonable estimate? I suppose you assume that miners will move rigs to the lowest cost areas - overseas if necessary?