I think we're starting to talk in circles. I'm not saying pbmining is legit or ponzi. Nobody knows the answer for sure, we can only speculate. I am going under the assumption that they have a legitimate business model.
This is real world thinking not bitcoin world thinking. In the bitcoin world you are guilty until proven innocent. Due to the scammy/irreversable/untracable nature of bitcoin you don't have the luxury of throwing up a website in an afternoon and expecting everything to be taken at face value.
That's a good point.
The admin has a formula that he uses to calculate the price of a contract. He knows the formula, and we can only speculate. The price drop when difficulty increases doesn't necessarily mean that hardware has gotten cheaper. Most likely, it is because difficulty has increased and profit margin must decrease in order to remain competitive.
Not sure what you mean exactly. The price should not drop when there are huge difficulty increases, only when the price of hardware drops. If it's difficulty dependent, it's a ponzi.
It makes sense for the price to drop when the difficulty increases. If the price does not drop, then a new investor would be less likely to consider a purchase, since the odds of breaking even drop. Yes, if it is operating as a ponzi, the price has to drop to keep money coming in, so that the operation does not collapse. If it is operating legitimately, then it's a good business decision to lower prices upon difficulty increases, as long as the cost of a contract covers all current and future anticipated costs.
I'm assuming that they have a super good deal with a mining equipment manufacturing company.
Which company? He could let us know which manufacturer they buy from in one sentence (maybe even one word) and we could easily verify it with the company.
It may not be a well known company, or it could be custom made equipment. It's a trade secret. Sure, I would like to know, but doing business with pbmining requires us to leave things to our imagination.
The average person must pay $2/GH for equipment alone these days, but that's retail.
From where? Butterflylabs? These days everyone is paying ~$0.6-$0.9/gh but pbmining doesn't reflect the huge drop in HW prices in the past few months of low difficulty increases.
LOL Butterfly Labs? Are they even shipping anything currently? Oh, looks like they have a used 200GH/s miner for $399.
Actually, I was looking at
https://tradeblock.com/mining/ and the $/GH column. The cheapest equipment there shows $2/GH. After doing the math on the column, it doesn't look accurate, and the prices haven't really changed in a couple of months. On eBay, it looks more like 60-90 cents per GH.
In any case, I'm glad to see that equipment prices have come down. If pbmining can buy equipment today for 60 cents/GH, and they're charging about $1.23/GH now (0.0026BTC * 475USD), and each GH is about 0.5 watts or 4.4kW/year (let's say 44 cents a year if it is 10 cents/kW), then they are charging enough to cover their costs for the first year with 19 cents left over. If Bitcoin gets back up to 600USD, then they'll have 52 cents left over. After the first year, the cost of maintaining 1 GH/s becomes negligible if technology continues to improve and/or the value of Bitcoin increases. I think the company is speculating that Bitcoin will increase in value and that technology will get cheaper, however, if that doesn't materialize, the company could fold.
You're also correct that the cost per GH on new contracts has not fallen fast enough to keep up with difficulty increases. A contract that I bought at the end of July might only give me back 85% of my money if difficulty continues to increase at an average of 16%. If it is indeed a ponzi, then that would be good news / profitable for them.
Typically wholesale is 50% of retail, and pbmining could be buying or leasing the equipment wholesale due to large volume pricing.
Petamine, a real mining operation, recently bought 1PH worth of hardware from bitfury and hosts it in their 20PH farm. They paid $1.8/gh + $0.07/kwh at the same time pbmining was charging $2/gh+free electricity. Do you really think pbmining can buy 5-50TH at a time for half the price real bulk buyers pay?
Pbmining charged us for electricity. We paid for it up front, so it isn't free. I'm sure pbmining positioned themselves as a long-term customer of a supplier. Petamine may have just negotiated a single purchase at a slight discount. I'm not sure what to think about Petamine. They charged high maintenance fees, the dividends suffered, and the stock price fell way too fast. I think someone mining at home could have probably done better than Petamine.
