Topic: Mining too profitable? (Read 4412 times)

I would also say that difficulty follows price.  Bitcoin adoption increases price then more miners come in and difficulty goes up to take most (but not all) of the profit out of it. 

If the adoption rate continues go grow mining will remain profitable as there is a lag for the difficulty adjustment. 

look at this http://bitcoin.sipa.be/speed-lin-2k.png
the crash of mtgox price has scared away alot of capacity already.

I think you mean beautiful!

2THash/sec is heady volume of computation. That is like cracking any 10 character password digest using full alphabet in seconds!

Hopefully a sharp price drop also scares the "kiddie-miners" away, that are just looking for free money and phantasizing about hosting a datacenter in their basement...

The growth figures on http://bitcoin.sipa.be/ are outright scary... 

We can't know, but for sake of argument consider previous peak and correction, $4.15 to $2.75, then we're looking at 33% shave single day. Sitting right around that mark now.

What is really impressive is market volume: almost half a million USD in bitcoins traded in single day! (Not long ago that was entire month's worth of volume)

For longs it is a great time to buy. By Monday we'll be back on the upward path to the next temporal bubble...

And as I said, that is exactly what happened to the difficulty when the price fell back for a while.

looking at the numbers at mtgox we might have it the tip of the xmas tree bubble at around 9, lets see how far down it falls.

Bitcoin mining is becoming more popular as more people are hearing about it (for example, I stopped paying attention to Bitcoins long ago but heard about it again a couple weeks ago which, along with potential profits now, sparked my interest in it again), and because of the price of BTC is way above the cost to produce it in USD (for example, I'm making roughly $45/day off of a $500 PC). Bitcoins themselves are extremely volatile and at a very high price (very possibly a huge bubble) which I think restricts the typical person from considering it as an alternative to their country's legal tender, leaving only the miners and speculators to be very involved in BTC.

People are mining more because mining is more profitable which leads to a higher difficulty. I don't deny that - but, if the price of BTC did not increase with difficulty, people would not continue investing money in mining, which would mean the difficulty of BTC mining would increase much, much slower.

So why do the big increases in difficulty come shortly after the big increases in price?

Absolutely. I believe that the mining difficulty increase signals to people that BTC will become more valuable because BTC will be mined at a lesser rate for the same hardware in USD. This requires BTC to increase in value over the USD because BTC will cost more in USD to produce. Smart traders recognize this, and realize the FV of BTC makes it well-worth buying up BTC at its current prices because difficulty will continue increasing, increasing the USD cost to produce BTC, and thus leading to an increase in the price of BTC.

Consider this: You produce toys (or, BTC). Let's say commodities (may help to think of them as video cards) to produce toys is limited (for example, only 21m toys can ever be produced with the Earth's reserves of resources). As commodities become more and more scarce, and thus more difficult and expensive to harvest, they will increase in price. The toy-makers will have to respond by increasing their own prices to keep a decent profit margin while cost of production increases. Traders, with knowledge that toys (and the commodities to produce them) will become increasingly difficult and expensive to produce, buy up the toys and commodities creating a speculative bubble where toys become outrageously expensive to anyone not holding or producing the toys. However, those trading and producing toys know commodities are ever-still becoming more scarce, and continue buying up toys & commodities to produce toys, creating a self-contained market where kids looking to actually use the toys either fork over outrageous sums of money, or just decide against using toys.

i think the current bubble is just people not understanding the system. some people make nice profit for a few days and as soon as difficulty adjusts itself the people are stuck with no profit for their hardware.

No, you do. Do you really think that when if people see that the difficulty increase, they think "wow, now I've got to buy hundreds of thousands of dollars worth of bitcoins, so the price keeps up with the difficulty". The miners consider the price, and if they think it's profitable enough to mine they will buy more mining hardware, which will push up the difficulty.

Just look at the difficulty after the price sky rocketed to $1. The difficulty jumped from about 30 000 to about 75 000 in three jumps, and then pretty much leveled out while the price fell back.

It will be interesting to see the impact on exchanges and network hash rate when large scale adoption begins in earnest... Poker, Porn, something useful and popular denominated in bitcoins and we'll really have a rally!

Everyone needs to stop buying mining rigs.


Leave something for me. 

You have it backwards. The price began skyrocketing right about the time of (when everyone knew it would be imminent), and even moreso AFTER the last difficulty increase. The market is adjusting (and over-compensating) for difficulty increases, not the difficulty adjusting for the market prices (though that may happen indirectly).

This suggests nearly the whole of Bitcoins' value is based on how difficult they are to produce and not, for example, its adoption as a currency.

QFT

Q: the difference between a slot machine and a mining rig?
A: With the slot machine, you put $1 in, and it gives you $0.90 back. With a mining rig, it gives you $1 back, and again, and again, and again...

The beautiful thing about the design of Bitcoin is that the difficulty automatically adjusts itself to account for the total mining output of the entire Bitcoin ecosystem.  So if mining is too profitable, then the difficulty level will rapidly squash it back down.  Which is happening.

1) ATI cards everywhere are going out of stock, or are selling for huge markups.
2) It takes awhile for that ATI card you bought to get to you

You could almost meta-speculate on bitcoins by buying and selling ATI cards

Prediction: Within a couple years we will see hardware designed specifically for bitcoins.

they coming, they coming fast... keep in mind that until april 27th btc was worth little under $2
and since then difficulty and network hashing power is rising quickly