Topic: Is rig building still profitable? - page 3. (Read 41318 times)

With current difficulty plotted to go up 100% this morning - anyone who is building a rig for mining is going to have a long wait to pay it back.

I know that alot of people don't quite grasp the power of doubling - but it's real. I'm fairly certain most of this capacity is being brought online by those that do the simple calculations without really looking at difficulty increases, trade differences, etc.

I have been in business for myself for the last 15 years, working in the networking/technology centers. I have a datacenter and thought to myself - well things have gone well - this looks like a nice little side income - so I started to crunch the numbers and came up with the fact that if you want to build rigs as a business, or are continuing to buy them *right now*. If our present course stays true, you will be waiting a long time to get your money back.

If you think that rig building is still going to be lucrative enough to continue to fund new hardware purchases with a reasonable ROI time, you might be suprised. Taking the 50%-100% difficulty increases we have (and will) continue to see in the coming months - I would like to present some basic numbers:

Let's take an example $6000 investment I was contemplating to get ~5000MH up and running for a period of 6 months (with .09kwH commercial electricity) from today.

First some assumptions:

Mining Rigs Cost: $6000
Electricity Cost for 6 months: ~$1000
Weekly Bitcoin Rise: 8%
Weekly Difficulty Rise: 100% (based on our next difficulty projection continuing from 500000+ as seen at bitcoin.sipa.be)

At the end of 6 months difficulty is @: 999424000 and Bitcoins are trading against the USD for: 1 Bitcoin=16.49626495810

Assuming you don't sell your bitcoins early and wait for the 16.49 price you will yield: $5628 Gross

Subtract: your $6k in equipment, $1k in electricity and you end up with a loss of $1372 - lets say you sell the rigs for $1500, well you just made $128.

Shorter times don't help - they just make the hurt worse - assuming 3 months your total value of generated bitcoins is ~$2032USD - it doesn't take a genius to figure out that spending $6500k over 3 months to yield $2032 does not == profit.

Perhaps you say 100% difficulty increase isn't realistic, ok take the numbers down to 50% and your 3 month profit is: $5079 - still short of the $6500. Again this assumes that bitcoins continue to go up in price.

This of course assumes that Bitcoins rise *every week* by 8%. That means in 6 months bitcoins are trading at ~$45 USD per bitcoin. If you are relying on bitcoin trading stronger against the dollar to float your mining business model - my suggesting would be to buy bitcoins instead of rigs.

If you took that $6000USD you would have spent on hardware and instead put it into coins RIGHT NOW - then you would have bitcoins worth ~$45,000USD in 6 months and ~$17,000 in 3 months. A far better profit margin, with alot less work.

Me personally, I'm spreading my bets by reducing the size of the hardware to something I could use as a decent gaming rig when I'm done and putting the rest in bitcoins. To help the economy along, I will also be accepting bitcoins at my business (currently customizing a shopping cart for it).

Mining power will not drop...
People are not smart...
When it comes to economics...
You are dreaming...

Every day new people find BTC...
Mining is very tempting...
Get money for free...
Most don't consider electricity...

Building rigs are still profitable...
If you get super cheap components...
The losers will be those who overpay...
For nice case, mobo, CPU and RAM...

Assuming the following numbers, which I feel are more or less average (correct me if I'm wrong):
Rigs costs $1/Mhash, and hashes 2Mhash/W
Electricity costs $0.15/KWh
Rig depreciates in resale value 50% during the first year

I buy a rig that does 2Ghash for $2000, which uses 1000W of energy. Electricity costs over the year are 0.15*24*365=$1314, and during the first year my rig depreciates in value $1000, making the total $2314. So if I wanted to have a nice ROI of say 30%, I would need to earn 2314*1.3=3008 yearly and 3008/12=$250 monthly. Assuming current BTC value ($7.32), (according to http://www.alloscomp.com/bitcoin/calculator.php) my 2Ghash rig would do that at 1800000 difficulty, which is about 7 times higher than it is now. So while the difficulty has still a lot of room to grow, assuming the BTC value stays where it is, I would be VERY surprised if the difficulty stays above something like 2000000 for any significant period of time. And considering that I didn't count in all kinds of additional expenses like time you have to put into it, or risks like hardware failure and others, I believe that the threshold where a lot people stop adding rigs and/or quit mining is actually going to be well below 1800000. Changing BTC prices will naturally move that threshold up or down.

Point being that any calculations based on exponential growth of difficulty to the foreseeable future are nonsense. It will grow (exponentially or not) while there are profits to be had, but no more.

Bitcoin mining is not a get rich quick scheme.
Profit margins like you can get today will NOT last, and are shrinking VERY quickly. It's only possible with a really quick rise in BTC value while the hashing power is playing catchup, like right now.
If you build a rig now that does way less than 2Mhash/W in a place where electricity costs more that $0.15/KWh, you might be in for a rude awakening in a few months.
However, if you concentrate on being more cost efficient than an average miner, you should get a reasonable ROI, assuming that significant portion of miners refuse to mine at loss.
Your definition of reasonable ROI may of course differ from mine.

I'm thinking that once it becomes uneconomical to operate a miner, a lot of people are going to drop out of the game. When this happens, we'll likely see a mass exodus of miners. What will then likely happen is that we'll have less computing power to discover blocks and the difficulty will have to decrease. The people who never stopped mining following the exodus would then be in prime condition to take advantage of the rebound would they not?

People think that the difficulty can only increase, but it's possible for it to decrease in order to meet the block production rate is it not? We're also assuming that the value of the coins doesn't increase. If the value decreases AND the difficulty increases, then we'll definitely see an exodus and the greater likelihood of a corrective decrease am I right? It might be a matter of who can operate at a loss the longest.  

It's like the stock market, if you really think bitcoins have a lot of value and will eventually increase, you'll be able to hold onto your shares as opposed to selling them off.

Hi tread starter. I hope you don't mind me linking my tread to yours. I'm consolidating build discussions

There is still the potential to multi-purpose assets in environments where the cost of electricity is externalized. 

Exactly, which is what you would expect to see, because obviously the state of affairs where new hardware pays for itself just in BTC generation was never going to last indefinitely.  Eventually the rewards for mining should go down to around the cost of electricity.

I fear we are already at the point where if you bought a new rig today you would never break even.

Total mining n00b here, so please correct me if I'm way off...

If the 50% difficulty jumps continue, what number of BTC's and/or $'s will your brand new rig generate in it's mining lifetime?
Suppose you start it up just after a difficulty jump - in the 10 or so days until the next jump, you will generate X number of BTC's per day for a total of 10*X BTC.
Then the difficulty jumps by 50%, so in the next 10 or so days, you will be generating (2/3)X BTC's per day for a total of 6.67*X BTC. This will then drop to 4.44*X BTC, 2.96*X BTC, 1.97*X BTC, and so on, every 10 days.
Summing it all up, you come to a grand total of 30*X BTC. That's it. That's what your rig will generate in it's entire lifetime. 90% of that will be generated in the first 2 months - after that, you might as well unplug it, because it will no longer cover the cost of electricity.
I think it's worth emphasizing one more time: if the 50% jumps continue every 10 days, your brand new rig will only ever generate 27 times the BTC's it generates on its first day!

So, if you just got a new rig with a pair of 6990's on May 19th, you are probably generating something like 6.4 BTC/day. By mid-end July, you'll have generated some 170 BTC's, at which point it will become uneconomical to operate. Selling those BTC's at current rates will net you about $1100. Subtract electricity costs of $100+ for a total profit of some $1000. Of course, you will also lose something like $500 on selling your rig (you'll have spent about $2000 on it and maybe sell it for $1500 after two months), so that further reduces your net profit.
Now suppose you're just thinking about building your rig; it might take a couple of days to get the parts together and set it up... just in time for the May 27th jump. Your rig will now be good for just 2/3 of those 170 BTC's, so about 113 BTC/$750. After electricity costs and devaluation of your rig, your practically down to break-even!


Now, of course there were a lot of assumptions in this scenario:
- difficulty jumps continue by 50% (when in fact they seem to be getting even worse)
- difficulty jumps continue every 10 days (when it's currently more like 8-9 days)
- BTC/USD remains stable (it could go either way really)

Realistically, the exponential growth of the network's hashing strength will not continue indefinitely. But it doesn't have to - just a couple more 50%/10 days difficulty jumps will mean the currently added rigs will never break even. The fact that the jumps might even exceed 50% and/or be fewer than 10 days apart just makes the problem (exponentially) worse.

Suppose your employer has unmetered electric (office park rental).
If your employer pays you $1000 it will cost him $1073
After taxes you will see $900.

If your employer spends $1000 on a graphics card + case + power supply instead of paying you, he saves $73.
If your employer lets you use the GPU to mine for your own address then you can generate 2-3 BTC a day with a ATI 5970.
At todays prices that would be $20/day or $7200/year.  Of course difficulty will go up and price may vary.  If we use your numbers then $1100 over the life of the rig.   

Now if you factor in that every employee already needs a case+power supply + graphics card, the real cost to the employer is only the delta
between the $200 graphics card and the $750 graphics card.  I suspect that the net cost to the employer is $600 to turn your desktop into a mining computer.

So if you approach your employer with the offer to take a $1000/year pay cut in exchange for $1000 worth of "upgrades" to your office computer then your employer saves $73 dollars and you earn $200 extra using fergalish's numbers and if the price/difficulty works in your favor then potentially much more.

Now if your spousal support payment is based upon your W2 income, then this is a clear win for the employee and always a win for the employer.

The difficulty has been increasing more-or-less exponentially since the first increase 30/Dec/09, see http://forum.bitcoin.org/index.php?topic=43.0

http://forum.bitcoin.org/index.php?topic=1918 In this thread I calculated the expected number of blocks you can ever generate, assuming an exponentially increasing difficulty.  I've refined the calculation a bit - the original didn't take into account the fact that the time between difficulty increases was not 14 days, but shorter, depending on how fast the 2016 blocks between increases are generated.

I won't go into the details, but the equations are:

E = Ch/((a-1)D)
P₀ = exp(-E)
h_0.5 = -(a-1)D ln(0.5)/C

Where:
C = 0.0002818  is a constant
h is your hashes-per-sec:  1Ghps = 1x10⁹
a is the difficulty increase factor, i.e. if difficulty goes from 20 to 30, then a=1.5
D is the current difficulty
P₀ is the probability that you will never (never ever ever) generate another block. See note 4 for the meaning of "never".
h_0.5 is the hashes-per-sec that you would need to have a 50/50 probability of generating just one block.
E is the total number of blocks you can expect to ever generate, ever.  See noe 4 for the meaning of "ever".

Current values are:
D = 244139
a = 1.3435 (see note 1)

Therefore, with 1Ghps:
E = 3.36 blocks
P₀ = 0.0347
h_0.5 = 206 Mhps

So, if you do buy the rig, you have a 3.5% chance of never ever generating another block.  You can expect to create 3.36 blocks = 168 BTC = $1092 at current exchange rates.  To have a 50/50 chance of creating a block, you'd need to have 206Mhps (this has nothing to do with you and your rig, it just gives an idea of what the entry-level Mhps is - a top CPU now would generate at most, I expect, 10-12 Mhps).

On the other hand, if you buy $700 of bitcoins now, then you'll have 100 bitcoins right now.  That's about 2/3 of what you can expect to get spending on a rig and generating.  All depends on whether you think the price is gonna go up or down.  Good luck.

Notes:
1. Difficulty is assumed to rise exponentially forever.  This is incorrect, but it's holding up much better than I would have expected - see attached graph.  The inset to the graph shows the difficulty increase factor.  If we average this value over all blocks since the first actual increase in difficulty, we obtain the value a=1.3435
2. Eventually the reward for a block will halve, then halve again and so on.  You can expect 3.36 blocks, but if they happen to be generated after the reward halves, then you'll get less than 168BTC.
3. If you mine solo, then you won't get 3.36 blocks, it'll obviously be either 2,3,4,5 or whatever.  If you mine in a pool, then you can expect a reward equivalent to 3.36 blocks, less the pool's fee.
4. You will receive these bitcoins slowly.  When I say "all you'll ever expect to generate", I really mean "ever" - from now until the sun goes nova and swallows the earth. However, I expect that the exponential increase will stop before then, for one reason or another. Likewise "never".
5. You'll have to add in electricity costs.
6. These values for E, P0, h0.5, assume you start mining *now*, if it takes you a month to get started, then adjust for the difficulty at the moment you start.

If this post saves you money: 15BHRM52yuzjNyvkrdu8dcWFnfpK6eWsXm

I tried to upload a graph, but a message says the upload folder is full, please contact an admin.  Any admins listening?  In the meantime, I've put it on ubitious: http://ubitio.us/file/download/328   I can't help that you have to pay for the file (BTC 0.02), but as soon as I can, I'll attach it here.

EDIT: the graph is simple really, it's just a graph of difficulty Vs time, with an exponential fit, and also another curve showing the difficulty increase factor.  All info for it was taken from blockexplorer.com.

There value is enhanced with relatively low exchange volatility.  With low volatility the demand comes from anonymous exchange outside the banking system.

If the exchange rate is relatively stable then it does not matter what the US$ "price" is for BTC to have value in trade.

Do you have any hard technical data you'd like to share to support this assertion or is it all from your rectal knowledge base?


Since there are no futures contracts and the prices on the exchange are what people are actually trading BTC for cash, speculation doesn't have anything to do with it. It may or may not be overvalued but the market will determine that.

they are if you require them.

All excellent qualities but do you think they are worth 95% of the value of the bitcoin?

Anonymity.

Transfer of value without fees to central (i.e., banking) authority.

Unstoppable transfer across borders.

A penny is part of the reserve currency of the world, gold is a physical limited resource that has manufacturing value, bitcoins are neither of these, it is a made up virtual notion and exists only in theory.  Other than speculation why does anyone 'demand' a bitcoin?

Is the value of a penny based on the cost to produce the penny? No.

Is the value of gold based on the cost to mine the gold? No.

So why do you assume the value of bitcoins will be equal to the cost to produce them? The value of bitcoins are based mainly on supply and demand.

Eventually demand will catch up and prices will skyrocket again. Remember that there will only be 21 million BTC out there EVER.

My gut feeling tells me that the cat is already out of the bag and that price will not go below $1 again.

I agree, the supply can't increase, but the value is going down, as more people mine in the background because they already have the hardware the price will go to the cost of power required to make the coin, since difficulty is going to increase as you pointed out, the price will increase over time, but from the base cost of $0.25, not from where it is today.  Anything over the base cost, plus some profit, plus the freedom of anonymous payments, puts the bitcoins real value at somewhere around $0.25 to $0.50, the $5 - $8 figure we are seeing is because of pure speculation, it has nothing to do with 'demand' of bitcoins since anything you can buy with them can be bought with normal dollars.