Topic: linearity in profitability calculations (Read 3254 times)

Perhaps you were expecting a more debate oriented back and forth, I dunno. That's not what I'm here for, but I can oblige just so there are no loose ends, then we can be done.


You make no definition for "long time". Is 1 day a long time to you, or is 1 year a long time? No one knows what ROI will be, but the most likely scenarios projected by existing supply is 6 months, assuming price remains relatively stable. This is the same ROI most people figure for GPU purchases. So why this is a point of contention is beyond me. You can check this thread and others for calculations of TH coming online from ASICs in the near future to see if you agree with this or not, that is a separate discussion.


"This eventuality" = Breaking even? Not sure what that even means.
The stale argument for buying coins rather than mining has been refuted ad nauseum, but we can go over it again. Buy coins, price goes down, you lose money. Buy coins, price stays the same, you have coins to either spend or enjoy holding. Buy coins, price goes up, you made a little profit, now you choose to sell or hold and hope for more up, speculation rules the day.
Mine coins, price goes down, mine more coins to break even / profit. Mine coins, price stays the same, reach 0 and begin to profit. Mine coins, price goes up, ROI shortened, profit sooner.
So great, both scenarios carry risk, both provide reward, there is no reason why one is superior to another that you've given. Seems a pointless discussion, given that people are interested at some level by mining, rather than trading.


Addressed the bulk of this above, as you've just restated the point I had no interest in responding to before, as it carries little merit. The only thing I can add to this is that speculative trading on the short term, day-to-day or weekly swings is far riskier than mining. It would make more sense to warn people about the risks of day-trading, than to warn them against mining and suggest they participate in day-trading.



I'm not sure I follow this one either. This is different because...? None of what follows supports this argument.
What are the logistical barriers to entry with GPU mining? Having a delivery man deliver your GPU? Putting it into the motherboard? There exists an extensive and well-established system crafted specifically to facilitate the creation, purchase and delivery of GPUs. Unless you are using logistics in some sense I'm not aware of. The technical barriers are not particularly significant either, you need to be basically computer literate, but if you are at the entry level of generating crypto-currency, I imagine you meet this requirement or can quickly do so.
If you are referring to large scale farms of scores of GPUs (which you completely fail to mention), then I suppose I can understand your statement as to difficulty, creating the infrastructure to support this is quite difficult, and this falls directly under my story about the overzealous GPU miner. Since this has been directly addressed I will not go into it further.

As to the second part, ASICs, since they require less time, space and power, that would all seem to suggest that it would REDUCE the difficulty of setting up a small, medium, or large sized mining farm. What is your point then? The difference between then and now is that it is easier to do now? This part makes little to no sense in context of "barrier to entry". Perhaps you mistyped something.

The limitation of availability makes them less available, I again don't see what that has to do with people overzealously purchasing them, or why they should rethink mining because of this. The only way this is a different situation than the limited availability of GPU hardware post bubble is that instead of people paying over inflated prices for second hand hardware in a desperate attempt to get anything is that they will be blocked from purchasing any units at all. This in fact helps protect people with $$ signs in their eyes. Not sure why that is a negative factor again.

Delay of shipping is probably the only point worth addressing, as it is slightly different from the GPU situation, and I suppose deserves some thought for people. Those who are getting in early will reap huge rewards compared to those who get in later. If those who reaped early rewards rebuy in with those profits, it can suppress the expected return for later miners I suppose. However looking at the confirmation of early orders, the TH are spread amongst jalapenos and singles, such that it's clearly small time miners, who are not turning 1 minirig into 2 into 4 into 8, etc., driving difficulty into untouchable regions. Difficulty is likely to peg at around 33mil by the time people who order today receive their rigs, and will not do anything crazy like double in the following few months. ROI is always unknown, but it should be estimable.


I believe I addressed all your points, I hope this has assuaged whatever hurt you've accrued at being ignored. I'm not terribly interested in a reply, so we can end this here, as neither of us seems to feel that the other has provided any salient points of contention. Best of luck to you in your endeavors, see you around the forums.

No, we haven't - and I explained how the situation was different. The fact that someone previously made an incorrect conclusion that "sounds" similar to my conclusion, based on completely different circumstances and information, is not an argument against what I said.

Furthermore, your comparison of the availability of GPU mining equipment to ASICs equipment is pretty weak, even if what you said was true, but much of it was not, strictly speaking. That still doesn't change the other factors I mentioned, or really alter the basic differences in the situation.

I was initially happy to discuss this, as I think it's a fairly interesting topic, but your treatment really takes away any motivation to go into any detail. Kind of disappointing.

I'm not sure you read my post either. Do you know what historical precedent means?

You make points that I address as having already been made, and as such do not require or deserve a specific response. If I need to explain the wheel every time, then I will never get to anything beyond the wheel.

It's fine though, I do not have any specific agenda to explain to you in particular. I merely present information in general, and was utilizing your post as an example. The general concept that I suppose you are unable to wrap your head around, but which I will reiterate for any subsequent reads is simply this: We've experienced a situation very similar to the upcoming switch to ASIC mining before. The losers were those who were unnecessarily bearish and bullish. The winners were those who moved forward in an optimistic, but considered manner.
That would be my advice were you to consider entering or continuing in the world of bitcoin for profit. If you have other reasons, that is entirely separate.

I didn't just make a statement, I explained why my statement was true.

You replied with "your statement is false" without addressing any of the things I said that explain why I believe it to be true.

You didn't hurt my feelings, but why would I bother to spend more time explaining things when you're not even reading or considering what I've already posted? Doesn't seem to be much point in that.

I'm not sure what you would like addressed, I told you that I disagreed with your statement and why, using historical examples. I suppose if you have no rebuttal that is fine, but you don't need to make a big deal about it. Sorry if I hurt your feelings by disagreeing.

Well - since you didn't address even one point I made, I guess this conversation is over. Cheers.

I am not misconstruing your post at all. That line is the exact same that I heard during the GPU wars. "If you want to make money then you should just buy bitcoins directly than to invest in [GPUs]".

I disagree about the situation, this is patently similar. I am in fact talking about the time AFTER the bubble burst, there was a big rush after GPU mining became an option, the network expanded like crazy, price was driven up by speculators in a pump and dump, and then cruelly crashed the market. After that point, many folks said "bitcoin is done", "dont ever invest in a single additional GPU, you'll NEVER see your money back", and so on. There were similar problems, 6xxx series GPUs were freshly out and carrying a premium price tag (and low relative hashing power), 5xxx series GPUs had been on the market for some time and were increasingly rare and hard to find. 5870s / 5970s, *the* primo card (and the only one I would have mined on), were almost impossible to find, with long delays in searching them out, delivery from unreliable buyers, etc.


In fact, in mirrors the situation quite well, except that the addage of "always being able to resell the GPUs" is no longer true, so your risk is greater in the sense that you could be stuck with a useless hunk of hardware that you can't even enjoy games on if things go really sour. But caveat emptor. I'm not saying buy or don't buy, but consider your actions prudently. It's not as good or bad as either side makes it seem.

bcpokey - you seem to have misconstrued my post.

I'm not really making any predictions about the future price. I'm saying that if you are counting on it going up significantly to break even, then it makes more sense to buy directly than to invest in ASICs. I'm also saying that if you're not counting on the price going up, you're not planning on breaking even anytime soon.

I've been around 1.5+ years as well, and this is a very different situation than the move from CPU->GPU mining. There is both a significant technical and huge logistical barrier to entry with GPU mining - if you've been down that road then you're already aware of this. ASICs are a completely different animal. Not only will they require much less time, space, power - they have a much more limited availability than GPUs did, and at the moment, there is a large gap between the time you place an order and the time you'll receive it. The combination makes for a much less even playing field and an extremely hard-to-predict ROI at the time of order delivery.

If you have already invested in Bitcoin and consider any mining investment an investment in the network architecture, then you've got nothing to lose. But this is a totally different game than it was for GPU miners jumping early last year.

I agree with thoughtfan and to a limited extent your post. However, as a "long-time" member of bitcointalk (really 1.5 years isn't that long when you think about it), I can say that all this rubric sounds mightily familiar. When the network was expanding at a healthy clip alongside the expansion of BTC price the boards were filled with thread-wars about the barrels of cash that would be flowing in, vs. the people decrying how sorry they felt for the poor fools who would soon be selling their svelte bodies on the streets in attempts to repay their ill-considered mining purchases.

Both were right and both were wrong, some folks got in over their heads in their gleeful bitcoin lust (I remember one gentleman who claimed he spent $30k retrofitting his house with high-current lines), and some people made a mint off high-power farming rigs (some of the folks running 70+GH/s to this day on GPUs, eek). I myself was a middle of the roader, I expanded myself until I was limited by my household power capacity, and I made out well enough. I had to terminate my operation due to Californias high power costs before the evil times of the $2 coin set in, but I had repaid all my equipment, made a profit, had some fun, and happily move on.


So, I certainly understand both sides having their place, and I urge considered-enthusiasm, rather than dark gloom, or unbridled gorging.

Great post, thoughtfan.

To people who want to get into mining now,  I applaud your decision to support the network. It seems very unlikely you'll break even on your equipment for a long time. If you do, it will be because you didn't cash out until the exchange rate went up significantly.

I think a lot of new miners (assuming they've read enough to understand what's going on) are counting on this eventuality. However, if your motivation is profit, it makes a lot more sense to buy directly and hold than to put yourself into a hole and hope the price goes up enough so that you get back to 0.

@ nFast,  I am also a newbie so please don't take anything I have to suggest as having any authority.  I am quoting the above back at you because that's where I suggest you put your focus then keep it there for some time.  You have correctly identified that ascertaining the figures for the future is the weakest point of your (and everybody else's) models.  Even the soundest of guestimates may be out by an order of magnitude and the difference this make to the potential profitability of your proposed venture is immense.

Remember that the starting point with anything to do with Bitcoin is that it is not impossible that the exchange rate could drop to the floor tomorrow and take years to recover.  It is not improbable that it could do something like halve and hover there for a while before going...(?).  So if you're buying your gear with fiat money that needs to be taken into consideration.  I happen to believe Bitcoin's utility is such that it will continue to rise overall for some time.  But having that belief is a different kettle of fish to using it as an assumption upon which to make any investment that risks more than I can easily afford to lose.

So to put some of your money into Bitcoin with your belief of what the market is or isn't going to do is fine if you acknowledge there is a risk involved.

To put all your own money into Bitcoin would be even more risky.

To put all your own money into Bitcoin mining gear at any time is riskier still.

To put all your own money into Bitcoin mining gear right now with all the unknown variables is riskier still.

To put all your own money into pre-orders of Bitcoin mining gear where you don't know when in relation to everybody else's you'll be able to plug it in, that's assuming the company won't run away with your money is riskier still!

It is my opinion that multiplying each of these risks gets us to the stage where even attempting calculations about return on a serious fiat investment is a waste of time.

There are many threads and huge numbers of posts with back-of-the-envelope calculations on them.  Some people such as yourself are wise enough to know the assumptions upon which the numbers you start with are sketchy at best.  The problem I see is that once we put our beliefs into a formula and explain it all in this great newly-learned terminology of gigahashrates and difficulties I think we're making it very difficult to keep ourselves focused on how unreliable any results we are likely to come up with are¹.  'It's a number that comes after the equals sign.  Of course its the right answer!'

I don't want to be one of the doom-and-gloomers saying it's all finished and not to bother.

But as humans it is far too easy for us to blind ourselves with the $$ signs and refuse to let go of our belief that what we want to see happen in the future is quite likely not to happen.  It's the same reason 9 out of 10 businesses fail.  Most don't even look at the possibility of failure other than as a precursory exercise to put in the 'business plan' and of those who do look at it more seriously many still fail to allow the reality of the risk being taken to take its appropriate place in considerations of whether to proceed.  Optimism and a preparedness to continue in the face of adversity are great entrepreneurial traits.  But they go against us when we're trying to be realistic about risk.

If you've got some money of your own, would like to be part of this and acknowledge the significant risk you might have lost it forever then why not join the party as I'm doing myself

But I get shivers when I see happy hopefuls talking about borrowing money or getting investors involved in mining operations.  Of course if it's a bank you're borrowing from, ifyou have other means of repaying and or you were honest about what you were borrowing for then go bust it's their lookout.  In a way if it's investors it is their risk to take but your responsibility, as you rightly pointed out, to give them a realistic idea of what they can expect.  The problem is I don't think you or anyone else here who has really thought this through and taken all factors into consideration can give ourselves let alone investors an honestly 'realistic' idea right now.  I would highly recommend you don't risk the friendship you have with your potential investors and at least wait until things settle down in six months or so when calculations might give you some useful figures before involving anybody else.

All the best with your decision making

¹ It is one of the reasons I attempted to write a piece explaining mining dynamics with no terminology or calculations.  Don't get lost in the detail.  Make sure you thoroughly understand and accept the reality of the big picture before making decisions that involve any more than money you can afford to lose.  I also look at it from a different angle when asking whether mining will become more or less centralised

Here's a thing to think about it ...

If everybody thinks the same, then everybody will double the hash power, then you need to double your hash power just to stay at the same level of BTC gained.

So that = a diff of about 33,108,768 with a network hashrate of 252 TH.

30,000 mh (30gh) @ 33,108,768 with BTC price @ $11 = .91BTC per day

About the same income I have with 3 gh today  

Now you need to set a goal,how many BTC/$ do you need per day  

Opps,forgot about the halving in early dec,cut that BTC in half  

Hi,
Thanks for those numbers!  Could you please tell me what is the source of them?

Your numbers are incredibly optimistic. Butterfly Labs' first run of chips is 20,000 units, most running at 7.5GH/s. They look poised to deliver most of 150TH/s by the end of December, with the rest probably online by the end of January. BTCFPGA has preorders for approximately 50TH/s worth of bASIC units that should be delivered some time in December. Avalon should deliver ~40TH/s in January. Blockerupter plans to start with 12TH/s shortly.

By the end of January, it's quite probable that the network hashrate will be over 250TH/s

Okay, the story is that I've started things just with about 6 Mhash/s and 10 days later with 30 Mhahs/s using CPUs. Yes, I know that it's ridiculous. The purpose was to measure the amount of BTCs that belongs to the hashing speed.  My initial assumption was that I can scale it up to a BFL Single 'SC's speed, but now I know that I was wrong.

I don't want to jump into GPU mining.  The plan is to get money from investors (actually we are already talking about it and I'm working on the financial plan part of the business plan) for this and skip the GPU level and jump directly to the Ghash level.  But before this I have to do an honest calculation about the profitability for the investors.  At this point I have an estimation for the overall hash rate for 2013 H1, which starts with an average of 33,2 Thash/s in January and goes up in June to 70,6 Thash/s in the last month.  These are totally subjective numbers, there's no science behind them.  It's just a guess.  But everything else in the calculation is real:  hosting prices, electricity, salary for the crew, taxes.  I'm struggling with the cost of capital a bit, but it'll be fine.  The critical part is the future hashing power...  (I'd like to know if you think these numbers are too low... and if so, why... and what do you think what would be a suitable method to somehow guess these values better - in a bit more scientific way)


The answer to your questions is:

1)  How to double the hashing power...  Well, in my case I have virtually no hashing power now, so it's not a big deal to double it. (The 30 Mhash comes form 3 HP servers, but it's just an own measurement, just for myself, just to see how mining works, and see a few real numbers. 6 servers woluld just double the hashing power, but the plan is something else.) In case of spending venture capital for mining hardware it does not look so hard to achieve a few hundreds of Ghash/s speed.  At his moment bASIC01 and BFL's Mini Rig seems to be a good solution, and scaling such a system up is just not a problem. If we need double power, we'll double the number of devices. The bASIC device needs an erhernet switch to go online, the other type has USB connector, and all I need is a relatively cheap PC.  Scaling up to the right size at the beginning is just a number:  how many devices will we buy, how much money will the investors bring in.  Scaling it up later will be another challenge.  What I do in my calculation is that I keep back money for that event.  I think after N months all the devices should be replaced with new ones that are the most efficient (I mean speed/price is the highest on the market) available at that future time.  I know that I won't be able to sell the old ones later.  The N month period unfortunately depends on the investors too, I would say 6 to 10 months would be real (yet another guess), but it depends on the amount of money they want to get back monthly.  (The larger this amount is, the later I can afford to upgrade the system.)

2)  Yes, I'm aware of the historical data, and I straggle to project it to the future. That's the weekest point of the whole thing. That's why I try to simplify everything to just project one single variable (the overall hashing rate) to that 6 months.  If the above method in my prev. post is correct, my next exercise will be to guess the future hashing speed as good as I know, somehow in my mind that ASICs will be switched on, most of the GPUs will probably go off-line, and after a few months faster devices can come to the market driving up the overall hash rate faster.

Fine, but the real questions are ones I already asked, which you didn't answer.

You said you were interested in these calculations because you were about to start mining. So - how are you going to go about that now? What estimation are you making of future network power and how far in the future are you projecting?

Correct nFast. All other things remaining equal, the only thing that matters is your hashrate relative to the network hashrate. Unless you are a huge miner, doubling or trebling your hashrate will not significantly affect the network.

Even if you had say 100GH/s right now (~0.4% of the network assuming 25TH/s) and tripled that, you would now be ~1.19% of the network which should be a 2.976x increase in earning assuming the rising difficulty doesn't cause someone else to drop out. If you're in the single or 10s of GH/s right now your increase won't noticeably differ from linear.

Okay, you are right.  I'm sorry for my English.  ...but fortunately you've guessed what I wanted to say.

That would be an estimation. A guess. Extrapolation. Lottery numbers. A subjective opinion. However, there are things that I *can* calulate.  The average increase in percentage in the past month by month or week by week.  The cca number of sold ASIC devices multiplied by their avg hashing power. Or the average of the guesses of others.

BTW you can't calculate the future difficulty either, just make guesses on it.  What I wanted to say is that you don't need to do so. It's enough to guess the overall hashing power, nothing else is needed.

You can't "calculate" what the total network power will be in the future. You can only guess.

Thanks for the answers for everyone.


I think I've got it.  What really matters is my relative hashing power to the hashing power of the whole world.

If I mine in a pool and I double my hashing speed, I end up with a bit less than 2% (1,98% as bcpokey showed us in his example) of the hashing power of the pool.  On the other hand my pool's hashing power is now bigger (it is a little bit more likely to mine a whole block for my pool with my doubled power), so we all in the pool share a bit larger portion of the pie, so I will earn more than 1,98%.  I think it shouldn't matter that I mine in a pool or solo because of this.  So at the end of the day what really matters is my relative power to the whole world's power.  (...and not my relative power to the pool.)

To answer my own question:  I won't earn exactly double amount of BTC when I double my hashing speed, and the reason is the same why 1,98% is 1,98% and not 2%. The whole world is just a much larger pool than my mining pool.  What matters is the ration of my hashing speed to the whole world's hasing speed, but if I double it, it'll be still a bit less that double.  For instance if I would have 0.00001% of the hashing power of the whole world, and I could double it, I would have 0.00002 / 100.00001 (that is ~ 0.000019999998%).  The smaller my initial speed is before doubling, the closer I will be to the double income.

That'a why I stopped extrapolating difficulty and such things.  The base of my new calculation is that I must extrapolate the overall hashing power of all miners on the Earth (it should be an exponential curve because of the improving technology and improving popularity of bitcoin mining).


gives me a ratio that is easy to use to calculate the amount of BTC I can earn. (I must calculate it as a monthly, weekly, maybe daily average.) If X is the amount of BTC that can be mined in, for instance, 24 hours, and r is the average ratio for that day, then r*X is the average amount of BTC I'm gonna earn on that particular day.  (Of course it's not exactly the amount I'm going to earn because of fluctuation in the earnings, luck, etc., but the sum of these amounts over a future period should be quite correct in the long run, as long as my guess is good and the overall hashing power used in the valvulation is close enough to the real.)  The value of X is an easier one.  Suppose the world can mine a block in every 10 minutes, and the block reward is 25 BTC on that day, so the daily maximum is 24 * 60/10 * 25 BTC = 3600 BTC, and it will be 3600 in the next 4 years.

What I want to say is that I think there's no need to calculate anything else for a future period that the overall hash rate of the world.  That's the only value worth guessing for profitability calculations.  I would like to know if you see it in another way.

With your 1.98% example, aren't you contradicting yourself? Doubling your hash power does not double your earnings because a) 1.98% is not the same as 2.00% and b) the difficulty will increase to "match" the new total network hash rate.


I fast read / misread this as "When the reward is halved, ..." and gave a response to that question. It just happened that the correct answer is also Yes, but for different reasons.

Well, that's not really right, which is why I phrased my answer as I did earlier. To explain why your explanation isn't wholly appropriate think of it as follows:

Imagine a pool has 100 Hashing units, you control 1% or 1 hashing unit. You then double your hashing power, to 2 hashing units, giving the pool a total of 101 hashing units. 2 / 101 * 100 = 1.98% or essentially 2%.

It only breaks down when you are a significant fraction of a pools total hashing power, at which point it is quite unlikely you will be doubling your hashing power at any rate.

No it won't. Assuming you're mining in a pool, double-ing your hash rate will only double your earnings if someone else takes the same amount of power offline in order for the total hashrate to remain constant. Think of it like this: in a day your total BTC = YourHashrate / TotalHashRate x daily mined BTCs. Since the daily mined BTCs are pretty much constant ... you got the idea. This happens because the difficulty adjusts to total hashrate.


Yes. I would phrase it like this: half as many BTC can be mined in a given time period (i.e. 24h). There will be some variation until difficulty adjusts to the ASICs, but once the diff stabilizes ... you got the idea.

Definitely a good post. It's very refreshing to see a new poster asking for potential flaws in their calculations instead of proudly describing their 12 month projections.

The short answers to your questions are yes to both.

The real questions are:

1) how are you going to double your speed? I would discuss all the difficulties involved with scaling up GPU mining operations, but since it's about to be completely irrelevant, I won't bother.

2) Are you aware of how much difficulty has been increasing over the last 5 months? While not any kind of ceiling on future difficulty increases, it should at least expose you to some issues in making profit projections any farther than 12 days into the future.

When ASIC machines start being delivered, they will make all our recent difficulty increases look trivial.

Good post ^. I'd also caution the OP to heed the reward halving coming early next month. It's likely to lead to changes to the fiat/BTC exchange rate and mess with everyone's profitability models.

The amount of BTC you earn depends on the method of mining you choose, are you doing Solo mining? Are you mining on a pool? Is the pool PPS, is it proportional? Is there a fee? Etc.

Pay-per-share is the only one where you can say that your BTC earned doubles when you double your mining speed (until they change the amount they pay per share of course). Other methods typically depend on what proportion of the mining power you generate (and some luck as well). For most small time miners however, doubling your hash power will effectively double your earnings, assuming other factors remain the same.

When difficulty doubles, you will earn roughly half as many BTC, that one is more cut and dry.

So the answer is "yes" with a buncha caveats. Difficulty changes constantly, as others in the mining game add or subtract their relative hashing power.

I suggest that you pay close attention the the ASIIC discussions going on, as that has a huge impact on profitability, whether you are GPU farming, or jumping on the ASIIC bus as well

Hello,

I'm just planning to start mining and trying to do the maths before it.
While I was trying to figure out my future profit, I realized that I use
a few assumptions that are not necessarily true.  Two of them:

1) I've measured that with X Mhash/s speed I earn Y BTC/week.  Now
I'm not sure that if I can double, tripple, etc. my speed, then my
earnings will double, trippe, etc. of Y.  Is that true, that if I would
have been mining with k*X speed, k*Y BTC have been earned?

2) When difficulty doubles, half as many BTC can be mined.

Well, these are the basics of my calculations, but I'm not sure of them.
I would like to know your opinion on the above two points.

THX