Topic: The Best Mining Rigs Are Now Barely Profitable -- Now What? (Read 5878 times)

Asic technology is at point where not exponential anymore.

Scrypt will be down the same road.  By end of year too difficult.   And remember scrypt ltc is tied to btc price as alot other altcoins.  Besides other alts is high risk also, not established to anything, hard to comvert to fiat, and even so will be high conversion fee

Yes the difficulty rises all the time, but also better miners pop up all the time. I believe that mining will be profitable till the end of the world. If you can't efficiently mine BitCoins with your hardware, you can always mine altcoins.

I think as long as the price of bitcoins goes up people will continue to mine regardless of profit they will catch the "gold fever" and keep chasing profits long after the profits are gone

I like it

Updated the last line of the article and added an acknowledgement!

Not a bad article, although I dont quite follow you on the conclusion: "Ultimately it is unclear how the mining dilemma can end up having a happy ending for anyone but the energy suppliers". Pretty much all asic suppliers (that dont get sued in to bankruptcy or worse) will have their founders enjoying a happy ending sipping pina colada's on an exotic beach. Thats a happy ending in my book .

The problem is if the prices drop then more people will be enticed to buy but that pushes the hash rate up even further which in turn makes things not ROI so there will be another price drop. The limiting factor is when the ASIC vendors margins are squeezed to the point where they can't drop prices anymore, but the difficultly level changes will pretty much guarantee that that happens.

The same will be true for power costs - if mining using low-cost electricity offers a major advantage then any rational miner will move their equipment there or sell up. If they sell up then someone else can take up the slack using that lower-cost electricity instead. The same will also happen if anyone comes up with interesting ways to use waste heat (it's going to happen sometime :-)). Ultimately the difficultly level always wins.

After some of the earlier conversations in this thread I did a write-up to try to see if I could capture the essence of how this seems to play out: http://hashingit.com/14-prisoners-dilemmas.

A crash will be in the sense that mining hardware drops in price dramatically.

This will in turn make it more attractive to invest in mining again, which will contribute to an even higher hash rate. But if the crash is severe enough producers of ASICs will be in trouble, maybe even go out of business.

If the price of bitcoin drops further, existing miners will turn off their gear, reducing the hash rate.

I guess the growth in hash rate will continue. New power efficient miners will be installed in locations with cheap electricity. This will in turn make most of existing miners go out of business long before ROI.

How do you define a crash of the mining market? If you mean that hashrate will implode, fat chance . IF you mean that mining hardware sales will dry up, well, think about the consequence of that. If indeed hardly anyone were to buy miners anymore, the one thing that will surely happen is that prices will plummet, considering most mining asics are still sold at the very least 10x above marginal production cost Clearly vendors would prefer to sell at 5x, 3x, 2x marginal cost over barely selling anything at all.  And if prices plummet, miners will buy again. Its this very mechanism, a spiral of death of exploding difficulty and plummeting prices that caused this, what you call bubble (and what I warned you against if you remember). Its not stopping anytime soon.

No offense, but I think there is a miscommunication here. Maybe my first post wasn't clear.   

Bitcoin mining market and Bitcoin market are two different things. I think the Bitcoin mining market went on a bubble, too much money was entering the mining market compared to its actual value. The mining market cap is dependent on the Bitcoin market. You can't have a better infrastructure than your own economy.

It's the Bitcoin mining market that is going to crash, not the Bitcoin economy.

Btc price could easily go to 600 or 200.

Your assuming that BTC is a good investment...I think the jury is still out on that.

I doubt that. First of all, hardware manufacturers seem to instantly convert bitcoins to dollars, for obvious reasons (its not like TSMC accepts bitcoins). And do miners purchase coins to buy their gear with? Highly doubtful, since most hardware manufactures take dollars too, so I suspect almost all bitcoin purchases would be from existing stashes, so the net effect of mining hardware business, if any, is most likely that more bitcoins are being sold on exchanges, not the other way round.

As for what will happen once mining becomes a large enterprise thing; there is no way to know whether or not these companies will liquidate everything they mine, or assemble a bitcoin stash. My guess is most will do a bit of both, it doesnt seem likely you invest millions in a large mine if you do no believe in the long term prospects of bitcoin.

As for current small miners that will no longer be buying hardware; that could also mean they have more funds available to invest in bitcoins, something thats likely a better investment than mining gear anyway. Either way, the impact of mining on the BTC exchange rate is generally grossly overstated. There are nearly 13 million bitcoins. Each day, only ~3600 are mined. In two years, only half that.

When mining centralizes sometime this year it will have an effect on BTC price since the consumer market for miners will be gone.  Consumer circulation of Bitcoin to buy hardware is actually a large segment of the Bitcoin economy.

Miner manufacturers will be forced to tighten the margins on their hardware because they will be dealing with buyers that are looking for 100's or 1000's of miners as opposed to buyers looking for 10's of miners.  Less profit again means less money being injected into the Bitcoin economy.

Once distributed mining becomes impossible this will generate a ton of FUD which again will affect the speculators.

So ya, centralized mining WILL have an effect on the price of Bitcoin...its just a matter of how much and for how long.

This is correct, the price of btc has come a long way from .026 cents.

There is still strong demand as the price now is still higher than $85 last year.

That doesnt make any sense. If people overinvested in mining, it isnt going to influence the exchange rate. Why would I sell my bitcoins lower because you (hypothetically) are out of a few tens of thousand dollars or dozens of bitcoins in unprofitable or undelivered mining gear? Getting screwed, whether its in BTC or fiat doesnt really influence btc rate. This is no different than when pirate's ponzi collapsed.

If there is an impact, it will be tiny, and probably work the other way. Those that bought these unprofitable miners may hoard their mined coins hoping to eventually break even if the price goes up. But considering how few coins are mined compared to how many are traded, its not going to make a big difference.

Great discussion going on here, interesting to read.

Bitcoin mining is in a huge bubble right now. It's hard to get data to analyze that market, but how many $$$ have been injected in that market since 2012? Consider all the R&D, investments in mining business, and investments in ASIC manufacturers. I'm pretty sure the money injected in mining overshoot what the Bitcoin economy is able to support today.

Bitcoin mining can't go over what the Bitcoin economy is able to support. The better the Bitcoin economy is, the better it's network is going to be. Like any bubble, it usually ends with a crash. I think mining was temporarily saved by the Bitcoin bubble last November, but it can't grow like that eternally, not at that rate.

I'm pretty sure it's going to crash hard in the following months. The market has to correct itself, the sooner the better.

In this case we'll see market power, where bid & ask will drive hardware's price low until someone buy it.  I guess that if BTC price will dramatically fall and difficulty skyrockets, price of miners will never go to 0. Someone will use them (first of all probably as speculation mining party) as funny heater in winter, or keep them like hardware museum of one of the most interesting experiments of the modern history.

If the difficulty has been pushed to the point where no-one's making money from mining then reselling hashrate is going to require someone with the ability to sell sand in the middle of the Sahara :-)

There are a few companies around who specialize in buying up old chip designs to keep things going so perhaps one of those will pick up the slack, but they generally don't build boards, just sell silicon.

I guess if the geometry shrinks continue though then there's a 3x to 4x improvement to be had every 4 years so maybe we'll see someone enter the fray with a low margin operation to take that one generation, make what they can and then exit again, or to stockpile enough cash to survive through to subsequent generations. It feels like this probably wouldn't have many players though as it would be very hard to get VC funding for something that doesn't have huge growth opportunity.

Im sure some of these companies will continue existing as they branch out to different markets or products and most of them will probably end up mining themselves, either for their own account, like KnC, or reselling the hashrate, like BFL.

But even those that will close their doors, will probably sell their IP before doing so (assuming its a reasonably competitive design), so anyone holding it can place an order with TSMC to produce another batch of wafers should demand increase again.

I buy that in the short term but that hardware will eventually die but there's no clear means to replace it if the ASIC vendors exit the market because no-one's buying what they're selling anymore.

Thus far the ASIC vendors haven't really had to think very hard about MTBF because the difficulty has obsoleted their products long before thermal stress does. Reducing frequency and voltage levels to reduce heat dissipation problems certainly helps that longer-term stability but only works if everyone does it. The problem is that if the difficulty is even inching upwards then there's no time like the present to push a mining ASIC as hard as possible.

Frankly if I didn't know better I'd think this was some insane game theory experiment :-) (A quick Google search revealed one or two interesting comments to the same effect)


I get back to the question of who's going to be left supplying infrastructure? Certainly at a point where things are saturated it would be very difficult to start a new company to do this (how would you fund it?).

First of all, congrats davejh, you seem to be getting it now .


Whoever happens to still have a miner or mining operation. Keep in mind that as long as its operationally profitable, it doesnt make sense to turn off those machines, even though they may never ROI. And you will most likely see tons of those, in fact you already see them now, miners who will never make a BTC denominated profit, but keep mining to minimize the loss.


As above, difficulty is not likely to ever drop (assuming constant BTC value), as that requires miners to actually be turned off. Thats never going to happen on a large scale. Once we approach the point of marginal profitability, ie, mining revenue is barely above electricity cost, sales/deployment will pretty much grind to a halt, but there is still an incentive to keep the existing infrastructure running.

Before you mention reward halving, that will already be factored it when making the purchase/deployment decisions.

I think last year we saw a level of mania based on 2 large BTC price spikes - the size of them just isn't sustainable, even if you expect them to occur every 7 months :-)

I agree that retail mining is pretty-much done. Firstly I can't see any way for the difficulty levels to allow anyone to do anything useful without very large power feeds. Secondly if any ASIC vendor dropped the price sufficiently to make retail mining viable they simply drive the difficulty up faster.

Even commercial mining ops look very weak in a couple of years time. Any way I try to calculate this we get to a point where electricity costs end up dominating any mining operation (it's just a matter of when) because the difficulty changes act to swallow up any reduction in energy costs, improvements in technology or increase in the BTC price.

Certainly in the near term then there's still profitability to be had for some miners (but not many of them), but this will naturally drive anyone who wants to mine over to the same sorts of low-energy-cost locations and the advantage is quickly wiped out by the difficulty change that will ensue.

What I'm unclear on is who is going to pay to run mining hardware that takes insane amounts of power and can never ROI? It will always be someone else's problem, whereas if the difficulty were to be allowed to drop significantly in order to offset the costs then the system is too easily exposed to 51% attacks (it's almost impossible to safely de-escalate an arms race).

At the moment a large fraction of the entire BTC economy is mining-related so if there's no money in mining then something needs to fill that void quickly. I'm not saying that it can't happen, but it looks like it needs to happen in the next 2 to 3 years and I'm not seeing anything driving a 100x increase in transaction rates (not to mention that that poses additional problems).

So what? Bitcoin isnt dependent on miners or its manufacturers being profitable. All bitcoin needs is that those miners actually run, and that is guaranteed.

That said, i would expect the most power/cost efficient mining operations to be able to extract a small operational profit on average, but anyone who thinks this is a long term goldmine (excuse the pun) doesnt understand mining or is betting on BTC appreciation - which we all know can be profited from much more easily by just buying BTC.

I will try to get the results of the new simulation published over the next couple of days. There are some interesting conclusions though. The main one is that the gross margin that the ASIC vendors currently have gets eaten away completely by the need to maintain any semblance of a potential ROI. BTC price surges can hide this for a short while, as can relocating mining to cheaper locations but (as expected) any such shifts will trigger difficulty increases that in turn result in the operating costs consuming any amount of mining reward.

I know the long-term hope was that transaction fees would provide the means to escape the zero-sum nature of the game but they're not showing much sign of doing so either and the size of the game halves again in 2016.

At this point I'm somewhat struggling to see what will actually allow anyone but electricity suppliers to see any sort of profitable returns in a few years time.

Mining is the heart of the Bitcoin. If transactions are not processed then there is no coin! I wonder what the bitcoin developers think about that and most importantly what are they doing to correct the problem. I read a comment that said that Devs are working on this problem and they are working on a solution to make mining more efficient. Has anyone heard anything similar?

The latter is kinda obvious, since this mining is a zero sum game.

As for the former, they figured that out looong ago. As did I. Before the first asic was even announced I predicted the dynamics of virtually free to produce GH (especially compared to FPGA's and GPU's of that time) could only result in plummeting prices and skyrocketing difficulty for years to come, and it would have to happen at a speed that would result in a BTC denominated bloodbath for nearly all miners, and it gave perverse incentives for overpromised preorders. I was ridiculed by miners drooling over the prospects of dozens of GH for only a few thousand dollar or a few hundred BTC. I kept clear, shut down my GPU farm never ordered as much as a Jalapeno and watched the onslaught.

Several years later, perhaps confused by the BTC price spike, most people still dont seem to get it.


Yep, except if you want to make it realistic, new entrants will not be able to achieve a positive ROI. Almost no asic miner ever has (BTC denominated), and very few paying list prices ever will.

You are assuming that buyers of ASICs are rational and won't buy unprofitable hardware.   The last year has proven that completely false.  More retail hardware was sold at loss making prices that profitable ones.

Additionally you are assuming that ASIC manufacturers don't mine for themselves.  This is false as every ASIC supplier is running their own mining op.  That internal mining activity, and competition between the internal miners breaks your assumption of incentives to manage the rate of difficulty growth.

Internal mining operations incentivize the manufacturers to only sell at prices higher than the operational earnings of the equipment (or cheat you into that position through late delivery).  Basically, retail mining has become a suckers game.  It will likely remain so for the foreseeable future.

That's a very interesting insight! I'm curious to see what the implications are:

Here's a thought experiment (simplified)...

If we want to buy 0.01% of the total hashing capacity today we have to buy approximately 6 TH/s, say, 8 * 750 GH/s ASICs at $2 per GH/s and it will, say, require about 3 kW. I just reran my original growth estimate assuming a 3c/kWh, a final BTC price of $900, the same 2x improvements in power and hashing rates and get a hashing rate of 1359 PH/s in 2 years time. That's 23.8x larger than today. The projected difficulty increase today is about 18% and about 3.1% in 2 years time. In 2 years time the model assumed that we'd get 12 TH/s for the same money and that the power consumption would be 1.5 kW, but 12 TH/s would only be 0.00088% of the total hashing capacity. Clearly that is able to ROI over a longer period because the difficulty changes are much smaller but we'll need a lot more than 12 TH/s to get the same return on our $12k investment.

Let's guess that instead of 2x we need a 6x improvement in price per GH/s changes in the course of the 2 years: Now the growth is larger and we get a hashing rate of 2590 PH/s in 2 years time. The difficulty is higher at 18.2% and 4.3% respectively but we now have 0.001339% (36 TH/s) of the hashing rate. We're still not seeing the same USD returns even though the BTC price has doubled.

Going back to my original assumption of 2x hashing and 2x power improvement over 2 years but starting with new capacity being added at $0.2 per GH/s (10x cheaper) then the ASIC vendors really don't make any money, nor do any existing miners - the next difficulty jumps would be around 65% and within a few months every existing miner would be out of business and have made a loss (which doesn't really help anyone).

The implication is that the ASIC vendors planning to be in business in 2 years time have to work out what their costs are in the future and backtrack to set a price where the difficulty level is held under far more control than the technology alone would define. There's also a positive incentive for none of them to get too aggressive in pricing because the total market size is fixed; doing the least possible work wins both for them and existing miners.

I'll build a new version of the model that tracks difficulty to compute the hardware prices (essentially drop the hardware price on every difficulty change to keep new entrants able to ROI) - should be interesting! :-)

Alot of makers will stop making and mining the asics.

And then the question is, who's going to want to mine when it's not even a little bit profitable to do so then (unless you're a manufacturer)?

I stand by my estimate now that it costs manufacturers $500-600 per to produce.

In 6 months these machines will not mine much anymore but can be good space heaters or broken down for parts disassembly.

Thats only true for end users who are paying OEM's enormous gross margins. Those margins serve partly to pay for the substantial NRE, partly because they can get away with it because difficulty is still so "low". BUt dont let that confuse you. If it helps, look at KnC's datacenter. How much are they paying for their equipment? Its not going to be anywhere near $2/GH, I guarantee you that.


No, its not the cost. Its the producers gross margins. A year ago we paid $50/GH for preorders, today we are below $2 for immediate shipment and that is despite bitcoin appreciating ~5x. What changed ? Difficulty, and little else, considering I happen to be comparing 65nm (BFL) and 55nm (Bitmain) products here. If you calculate GH cost in function of BTC price / difficulty, you will see that barely budged at all.

We are not anywhere near the bottom yet. Prices will keep dropping as difficulty skyrockets as long as gross margins are still phenomenal and manufacturers have therefore no incentive to scale down production. You cant predict whats going to happen without acknowledging this reality.  



Nope.
Its clear that cointerra or HF wont get the same pricing as AMD, but even if you double AMD's wafer price, you will find their margins are stunning. Lets do some math. Hashfast golden nonce has 4 81mm² dies in an MCM. That works out to (4x) 185 candidates from a 300mm wafer. How much does HF pay for a wafer? Industry standard volume pricing for 28nm today is in the ballpark of $2500 per wafer. Keep in mind that AMD/nVidia/etc chips regularly need 15 or more metal layers, whereas Im guessing a bitcoin miner would need no more than 3. That alone should pretty much close the price gap with AMD, but lets say despite that, HF pays $6000 per wafer. Thats $32 per GN candidate. Add a few dollar for packaging and yields (which should be very high given the redundant nature), and there is no way they should pay over $40 per chip. The PCB will cost too, lets say thats also $40. And lets add $20 in operating margin and to get a nice round high end ballpark of $100.

Whats the market price for their EVO board? $1888. If you buy 5. And are gullible enough to beleve HF will ship that in June.  Note that I didnt forget cooling, it comes without cooling, much less a PSU.

Low production volume isnt a factor in current pricing. It will become a factor once prices drop another order of magnitude, at which point, bitcoin asic volume will have become non trivial even for fabs anyway.


28nm has been mature for quite some time. MCMs do cost a few dollars, but think why they are using them. If it were cheaper to use 4 smaller dies, wouldnt they? MCM packaging apparently is cheaper than what it costs to mount the chips and coolers. That says it cant be much.


Thats not someone's decision that will drive that. ITs the market that will drive that. Who's going to pay $2/GH if difficulty is 10x what it is today? No one. And likewise, what bitcoin asic manufacturer is  going to prefer not selling anything at all over selling a $100 PCB for $200?





Cooling just increases your electricity costs.

S1 has ALWAYS advertised up to 0.68w/gh at chip level and 1.2w/gh at the wall. OVERCLOCKING resulted in 200GH and 2w/gh at the wall.

Again do you have a single example that suggests any asic is capable of higher efficiency than advertised?

I don't believe so - the problem is that everyone thinks that the operating costs should dominate, but at the moment equipment/capital costs currently swamp everything else. Let's assume that the current ~ 60 PH/s requires ~ 90 MW of power. That's 2.16M kWh. At 2c per kWh that's only $43.2k per day, while at 20c per kWh that's $432k per day. If we assume the mining reward is $2M per day then the first cost leaves $1.95M to spend on other things while the second leaves $1.56M. Even with the extremely low 2c per kWh number we only get 1.25x as much to spend per day. It buys more capacity but this isn't a compound problem, it's additive. If $1.56M bought, say, 490 TH/s of capacity the $1.95 buys 609 TH/s. Assuming the costs stay the same then very simplistically after 30.5 days (a month, give or take) then we get 14.95 PH/s or 18.48 PH/s extra


If we clock slower in order to improve the W/GH/s ratio then we need more hardware. If we want to halve the W/GH/s ratio we drop the performance by about 30%. For the same amount of power we can achieve 1.4x the hashing capacity but now require 2 ASICs to do so. The hardware cost is what's totally dominating the current hash rate though.


So I definitely agree that hardware prices are high right now, but much of that has to be a factor of low production volumes. A 28 nm device of the same size will do more work but will also cost more than a larger geometry (this will change as 28 nm matures). MCMs are never particularly cheap and there's also a huge amount of variability based on the particular process being used too.

Now, could someone decide to operate at cost rather than making a profit? Yes, and that would change the numbers because more capacity could be bought. This will drive us to a point where electricity costs play a bigger factor.


My point was just the equipment cost is currently the biggest single factor - electricity can become a much larger factor.

If hardware prices dropped dramatically then this shifts the balance, but even then there are still choices. In your example it would probably make more sense to voltage/frequency scale the ASICs. In 2 years your cost would represent $462, but if we throttle back by 70% and get a 50% reduction in power consumption then each TH would cost $282 but the operating cost for 2 years would be $131 - that's $413 and so is the more cost effective approach; it's also driven the balance back towards the capital cost though.


I think if someone really wanted to do this seriously they'd go warehouse scale and fab ASICs to meet their design. That would let them increase their volumes and reduce costs but there's a major cooling problem to be solved and that would have to be amortized in too.

You moron, S1 and S2 use the same chip. So of course S1 is capable of achieving similar efficiencies if you underclock and undervolt them just like in the S2. Thats the whole point. The difference is that S1 by default uses a clock and voltage setting that results in ~2W/GH at the wall while for S2 they picked a point that roughly cuts that by half.  

It's not a large or small players affair. It's all about efficienty. Large player will never be able to get free electricity, and like someone said, they are in disadvantage in terms of efficienty due to cooling (I add + setup e maintenance costs )  Small player, watching the other hand, can mine even at loss for very very long period hopeing the BTC price will rise, can easily have free electricity and can work 'for free' in maintenance & setup.

Those are the whys miners are now trying to kill each other, but I completley agree with you that, in this rude scenario, the first thing to fall down will be investments in mining hardware, and consenquentely in mining makers margins, probably leading a situation that you describe; a strange BTC business cycle driven only by huge price rise ( small rises will be compensate by worst efficienty miners that have switch off (maybe after a redistributio/decentralization due to a try to recover initial hardware investment by both large & small players ?? ))

....what a wonderfull strange world  

You do realize bitmain s1 could achieve 1.2w/gh at the wall right? That's a tad bit more than half as efficient than an s2(1.1w/gh)..

Got any better evidence of your claims?

Which only shows your assumptions cant be right. Ultimately mining is converting electricity in to bitcoins, you would expect a near linear correlation, not a 40% increase for a 1000% decrease in elecricity rates. The only thing preventing that from being truly linear is hardware amortization. YOu must have quite unrealistic assumptions for those.


? The fact you would need more chips to achieve better efficiency doesnt again reduce the efficiency. IT does increase cost, but not compared to todays market prices, only compared to todays marginal production costs.


Im not sure you understand how mining hardware pricing works. Only two factors really matter; miners (as in end customers) breakeven point or perceived breakeven and manufacturer breakeven (on marginal costs). Currently these two are several orders of magnitude apart. As a result, miners are being sold for prices that miners perceive as potentially profitable. BUt that price point is linearly correlated with difficulty, so those prices will keep going down, way, way faster than Moore's law, at a speed limited only by manufacturing capability, until prices approach marginal production costs of the most efficient vendors. Now you can debate what those are, but asicminer claims $0.2/GH wafercost and my guess is that larger MCM 28nm devices are at least 2-4x cheaper per GH.


Actually, I dont agree Electricity cost will become the biggest single factor IMO

For a ballpark guess, lets take $0.2/GH as marginal hardware production cost and 0.5W/GH efficiency. So each TH would cost $200 to produce and draw 500W. 500W @ 3 cents per KWH (including cooling, overhead) = ~$131/year.

$200>$131, however we are looking at the "endgame" here, and therefore hardware prices will stabilize and their value loss can be written off over several years. If you just amortize over 2 years or assume a resale value of 50% of the purchase price, electricity has become the biggest factor.


If by device you mean the asic itself, then obviously that can be done easily. If you mean a complete rackmountable miner, then obviously not, but in 6 or 9 months, no one is going to be selling miners in fancy enclosures with touch screen LCDs. Look at KnC's datacenter, or bigmegapower; naked PCB's on "ikea" shelves. Thats how it will look.


Now thats something I and I presume everyone else will agree with. No one ever expected a monthly hashrate doubling to continue perpetually.

I like the chart, but I cant agree with your assumptions. IN particular electricity costs. Average electricity costs are irrelevant, what matters is lowest electricity cost (where mining is feasible). Because that is where mining will relocate, and places where electricity price is substantially higher, miners will have to shut down. Here is a read for you:

http://www.spokesman.com/stories/2014/apr/26/northwests-cheap-power-drawing-bitcoin-miners/

A map comparing energy rates led them to Central Washington, where hydroelectric dams churn out electricity that costs industrial customers less than 2 cents per kilowatt.

You are assuming 10x that price.

Secondly you are incorrectly factoring in asic "improvments". THere are two factors that matter, price per GH and watt per GH. The first one doesnt need Moore's law to improve dramatically from where we are today. ALl thats needed is difficulty going up further, and prices will come down proportionally. We are no where near asic manufacturing costs yet, in fact today marginal production cost of these chips is so low, that its irrelevant, they might as well cost nothing. Asic alone, I estimated HF golden nonce elsewhere at $0.04/GH in wafer production and packaging cost (assuming they can hit 800GH with their rev).

As for watt/GH; also there we do not need Moore's law to get a doubling in 2 years. THe very same asics being sold today almost certainly have the possibility to be downclocked and downvolted to achieve that doubling (or more), be it at the expense of performance per chip. ALmost all miners sold today are being run and sold at the top end of the voltage/clock shmoo plot, which is evidenced by the fact that they typically barely overclock at all. To see what changing of voltage and clock can do, look at Bitmain S2, which is the exact same chip as in the S1, but is twice as power efficient. Im willing to bet KnC, HF, CT, etc can easily double their power efficiency too on their existing designs, once that trade off becomes worthwhile. But since electricity cost is only a tiny fraction of most miners cost, and pricing of hardware is far more dependant on hashrate than power efficiency, it doesnt make sense for 28nm designs today. Doesnt mean they cant.

I'm not sure if we'll see an overshoot as such but I think we will see people turning off older mining hardware sooner than they'd expected as the operating costs become larger than what they generate. Newer hardware is much more capable though so we'll probably not see any actual drop. A new ASIC might be 10x higher performance (or more) for the same input power than the ones being dropped off though so we may not really notice.

As an example, in the last 2 months the new capacity is almost the same as all of the previously-existing capacity. It makes no sense to switch any of the mining hardware if it's generating more than it costs to run. The hardware may never ROI but the only sane thing to do is ignore the sunk cost, unless a buyer can be found. It makes no sense for that buyer to switch it off though as long as it generates more than it costs to run.

The single-purpose nature of the mining ASICs really does suggest that things will have to be different to when people decided to switch off GPU mining hardware that could be "repurposed" to rendering graphics :-)

Well done, davejh!

This is a pretty close match to what I'm expecting, except that I agree with rocks, in that we should expect an overshoot and then a correction in hash rate.  Don’t know how to model that realistically, though...

Difficulty will have to plateau at some point unless everyone is just mining based on future price.  Here's my historical analysis http://www.cryptocoinstats.com/difficultytracker.php

we need new good SHA-2 coin
 

Nice chart

You are assuming that miners as a whole are rational people by pricing in a 1-year break even requirement.

For my calculations I took the assumption that miners are irrational people and will continue to buy equipment up until the time the utility company's monthly bill is larger than the BTC generated. This happens when electricity cost equals revenue generated. At this point miners start to shutdown, not because they want to but because they have to since they are going broke.

If you look at the GPU era, this is exactly what happened in 2011. The hash rate overshot break even, and then started a downward slide before leveling out. At the rate people are still buying equipment today we are well on our way to doing this yet again.

Only this time there won't be a very large existing second hand GPU market for gaming to take the supply of equipment that will pop up on ebay. That's when we hit fire sale time this time around.

I work for a power utility and have a pretty good idea about what types of electrical services are available and what it takes to upgrade an electrical service.

With this in mind, I don't understand how miners are going to be able to keep plugging in increasingly more miners without paying for costly upgrades to their electrical service.

Just by running some simple difficulty growth projections I predict that miners will cease to be able to make a profit off a typical 200A residential electrical service.

Basically, the infrastructure is not in place for distributed mining.

On another note, Bitcoin mining is not the only thing challenging power commissions...grow ops and electric cars are 2 others that come to mind

I couldn’t agree more about the evils of centralization.

But we have already determined that a large number of small miners can operate more cost-effectively than a small number of large miners.  So hitting the wall of difficulty should hurt the large miners harder than the small ones.

This should actually lead to decreased centralization.

Unless I am missing something?


Yes.  And this, combined with inefficient miners going out of business, should drive the difficulty back down to the point where it makes sense for the most efficient miners to continue or resume operating...

And then there is the wild card introduced by the price of BTC, which the large players have more control over than the small ones.

So can we expect some kind of "BTC business cycle"?

How is this likely to play out?

I am this thinking that it will be like any other example of centralization.

Bad for most...good for a few and generally devastating for the economy involved.

ASICs will not be usable by anyone without a commercial or industrial service which will drive the price down.

This will in turn decimate consumer demand which is actually a massive segment of the bit coin economy.

Sit back and watch the fireworks 4th of july.

If I understand Puppet's graph correctly, each curve assumes a different cost per terrahash of mining rigs.

I do agree that even the players who make their own rigs based on their own ASICs are going to feel the crunch soon.

And that's why I ask... what now?

Something has to break.  But what?  And in what direction?

I agree there are retail miners. Commercial. And manufacturers.  I know of 1 big maker selling the farms now to exit by xmas.

ROFL. You really think those asics are made from pure gold dont you.

So...... I guess we can expect the big players to hold the price of BTC down until they're ready to liquidate their operations, then?

Thanks for the link to that other thread, Puppet!  There's lots of good information there.

In rough numbers, I agree with your calculations.

I did the excel sheet ages ago and the results are obviously not quite that simple, unless you assume free hardware (or an eternal break even time expectation).

Create an excel spread sheet that calculates the break even hash rate for a given BTC price, ASIC efficiency and cost of electricity.

Adjust each assumption up and down, you'll see the break even hash rate adjusts as described above.

He uses the word should alot.

Unfortunately miners are not always the most rational folk so I don't really buy his ideas.

I think that miners will continue to buy mining gear at a breakneck pace and keep plugging them in until they either burn their house down or the electrical inspector shuts them down.

In turn the worldwide hashrate will collapse and centralized mining operations will be left to pick up the pieces.

When one looks at the steadily increasing difficult this scenario will be happening alot sooner than people thing.

I mean how many spare 15A breakers do you think one house has?

The infrastructure is simply not in place for decentralized mining.

Where exactly did you get these numbers? and how do you know for sure if they are true?

Thanks for double checking, your calculation is right. I was going off of memory and switched the break even hash rate with break even difficulty in my head.

Just checked and my assumptions last year were $200 per BTC, $0.10 per KwH and 0.8W per GH/s. This worked out to a break even hash rate of 375 PH/s at a difficulty of 52 billion. (I remembered this as 50 PH/s). If you take your assumptions and double the price to $400/BTC and use 0.7W efficiency I got a break even hash rate of 857 PH/s, so yes that's right.

What's interesting about this calculation is you can see how the difficulty should rise or fall once the ASIC market settles down.
1) Global hash rate should go up and down with BTC price. For example if you double the price of BTC the hash rate should double.
2) Global hash rate should go up and down opposite of the price of electricity. For example if the cost of electricity doubles, global hash rate should drop by half.
3) Global hash rate should go up and down with ASIC efficiency. For example if ASIC designs improve by 10%, global hash rate should go up by 10%.

Regardless of the exact number and break even date though, the basic point still holds. Once the hash rate rise to where the most efficient ASICs are break even with electricity, "datacenter" style operations are not profitable and lose cash flow every single month. At that point the only thing for them to do is sell off their hardware and exit. Who knows how it will happen, they might get decent market prices from home users or it might be a fire sale, but my guess is mining will become more decentralized than today.

Even 875 PH/s is not that far away, probably 6 to 12 months. Here is the log chart: http://bitcoin.sipa.be/speed-ever.png. Each of those bars on the vertical axis represents a 100x increase in hash rate. We are at 50 today which is only 14x from break even using your numbers....

I might have this wrong, but 0.7W per GH/s equates to 16.8 Wh per GH/day. At 10c per kWh that's $0.00168 per day in electricity per GH/s. At 50 PH/s thats only $84k per day in electricity charges - well below the current mining reward. Assuming only 144 blocks per day and 25 BTC per block that's 3600 blocks. Assume $400 per BTC and that's $1.44M per day in mining rewards. The break-even for just electricity would be 17x higher at around 850 PH/s.

The capital cost for the mining rigs is the majority of where the mining reward is currently having to go - it's much higher than the operating cost. Operating cost only really gets interesting to decide when to switch the hardware off. If the difficulty levels out more then the balance will move much more towards the operating cost.
 

Hi rocks!  Thanks for the detailed reply.  I think you covered all the important issues.

So our strategy is:

1) Bid up the price of BTC
2) Goad the manufacturers into a price war
3) Move to Canada (or Russia…)

Having said that, has anybody heard any rumors of companies planning 14nm ASICs?

What will happen is the large centralized for-profit mining operations will close down, sell of their ASICs and mining will become decentralized again (which I predicted a year ago).

Once mining becomes break-even with electricity costs on the most efficient ASIC designs in low electricity cost regions, mining will only be viable in "home" type setups where other costs such as space, cooling and support are free. "Datacenter" style operations will become money losing operations because by design their cost structure includes more than electricity and have to cover space, cooling and IT support.

What we are going to see are the large datacenter mining operations slowly sell of their H/W at lower and lower prices and close up shop.

There are only three variables that will matter for mining:
1) $/BTC price
2) Watt per GH/s
3) $ per Kwh

For a given BTC price, an optimal GH/s per Watt ASIC design, and cost of electricity, there is a difficulty where mining becomes break even. I ran this calculation and posted a year ago assuming $200 BTC, 0.7W per Gh/s and $0.10 Kwh and if I remember correctly the break even global hashrate was around 50,000 TH/s. The inputs need to be updated to get the new break even hashrate but we are getting close.

To see what will happen just look at the GPU era. Mining difficulty overshot and then leveled off and slowly came down as some miners shutdown their operations till the effort was breakeven. Then FPGAs came online which had a higher capital cost with ~1 year breakeven timeframe but miners bought these because of the focus on electricity efficiency. I am guessing we will see the same with the highest efficiency ASIC designs selling at ~1-2 year breakeven rates.

No, it just seems that would be most logical, assuming people come back to the coin when its "profitable" again.

Are there any examples of this already happening? Or is the difficulty still raising at a steady rate?

Yup, seems most money is made in the parts where everybody is turning off there machines....

People will stop mining as much once they hit their ROI. Then the difficulty will drop, resulting in more people mining again. Vicious cycle.

Yeah, but the exchange rate can’t follow the exponential rise in difficulty – otherwise we would see $25,000 bitcoins a year from now.


Right.  That’s what prompted this thread.  I’m interested in what people think will break, and what direction it will break in.


This pretty much parallels my thinking.

Technology will improve, but it will be a while before we see, say, 14nm ASICs.  And even then, manufacturers are going to have to produce much more efficient mining rigs at much slimmer profit margins.

The current price point of $1.25 a gigahash is way too high.  And 2 gigahash per watt is also way too high.  These numbers need to come down by an order of magnitude.

Eventually, the price of bitcoin will rise.  We hope.

But in the meantime, a lot of miners are going to go broke.

What is consensus of ROI/breakeven on antminers s1's since price dropped to .63 BTC?

I really hope it will evolve into this. Antminers can perhaps be downclocked enough to run silently. Then they can be used all winter long in Scandinava, Russia, Canada and Northern US.
Maybe some producer even will make a bitcoin miner & heater hybrid. When ASICs become cheap they can sell such a heater for $100 and most of your electricity bill will be offset by bitcoins.   

Aha.  Thanks.  I've done those calculations, just didn't know the formal term for it.

http://en.wikipedia.org/wiki/Power_usage_effectiveness

Basically cooling + hardware

As soon as you need to add air conditioning and extra fans you lose efficiency.

Home miners (less than ~3KW) don't need extra cooling because they don't get too hot.

Also some people using their asics as heaters during the winter saves money where as a datacenter would waste it.

Hey, jimmothy, what does PUE stand for?

I have to disagree with everything you said.

PUE of home miners = 1.03

PUE of industrial miners = 1.3-1.5

How can you speak for "smart miners" without being one?

it has absolutely nothing to do with the exchange rate and everything to do with the number of available 15A breakers in your home.

That's what people said 3 years ago:


The big unknown - the exchange rate. If the exchange rate goes back up again, miners will continue to be profitable. If it keeps dropping, then yeah, miners are going to start shutting down their machines.

Now what?....I will tell you what.

The smart residential miners are closing up shop this summer because before the end of the year no one in a house will be able to make money.

The smart commercial miners are already planning their exit strategy for the end of 2015.

The smart industrial miners are making connections with governments and banks for when mining becomes 100% centralized.

Mining is pretty well over folks...most people just don't realize it yet.

Agree. something will have to give

Good catch, Puppet!  I calculated 1.11^36.5  ~= 45, but I forgot to multiply in the 7 billion.  When I do, it comes out to about 316 billion.

Correct. I can see myself paying electricity for the DC down the road and that's it.

What I am pondering about is that Bitcoin has only only seen one halving dro, and we are just about 5-6 years into it. If it keeps going up at this rate, it could be unprofitable in terms of electricity toward the end of this year.

Aren't you the guy posting the videos of the "biggest mining operation in Texas"? the electricity in that data center you are running in Houston is not free yet there you are.

Your math is way off. If the trend you pictured would continue we would see:
7B * 1.11^36 ~=300B

Of course it will level off at some point.


Mining hardware prices will continue to drop, and difficulty will continue to increase almost to the point where mining revenue equals electricity cost. Which is we know is really low in some places. Individual miners will continue miscalculating or betting on BTC price increase and therefore will continue getting raped.

Another way to look at it is to calculate the amount of BTC you expect from your hardware and the money you will pay for electricity.  If you pay more in electricity, then turn off your gear and buy the BTC with the cash you would have spent on electricity - still a win.  Keep your hardware for when BTC value rockets up again or to mine an alt sha-256 like terracoin or continuum.

Miners will continue to mine, even at a loss. It's hard to explain, it's like once you start you can't stop, at least, not before making back roi. I myself am still looking to at least another 3-4 months on before I can breakeven, only then whatever I mine after is profit. Fat chance that I'm shutting down my miners until I get my roi, but what else can I do, already bought into it.

I think that as long as Asic manufactures can make a profit, they will keep selling and difficulty will continue to rise. The prices of miners will continue to fall and their efficiency will rise. I keep seeing posts of people saying to put them on Ebay. When they do, the person that buys it will plug it up. Prices of miners will fall but difficulty will keep rising unfortunately. There will be more HashFasts and BFLs selling pre-orders that will be plugged up down the road.

Mining will never be profitable unless you have free electricity.

Terraminers won't but neptunes will be nearly twice as efficient so they will last longer.

In my opinion whoever has the cheapest/most efficient asic will always just barely profit.

Difficulty can only rise as much as people are willing to throw money in to it. For difficulty to follow last years rate we would need to see the value of btc increase.

If nobody is making a profit they will shut off their inefficient miners until only the most efficient miners remain.

It's like any other commodity manufacturing industry with a fixed market size. Eventually prices stabilize just above cost.

The difficulty is probably still increasing rapidly because many of those "pre-orders" eventually get delivered. They may not be cost-effective by then, but the buyer, having paid for them, will probably plug them in and run them until the power cost overwhelms the return.

(I'm in Silicon Valley, where we have Hacker Dojo, a co-working space/club. A few months back, someone bought a membership, brought in a mining rig, and plugged it in, drawing a few kilowatts. Hacker Dojo put up with this until they discovered he was using about $500/month of power. (Membership is only $100 a month or so.) Then they refused to renew his membership and threw him out.)

Har!  That's funny... but seriously, if a significant fraction of miners were to go under, then difficulty would return to manageable levels.

Or we could hope for a dramatic increase in the price of bitcoins.

Or a breakthrough in mining technology.

What other way is there to return mining to profitability?

Well, I'm just looking at historical trends in difficulty and trending them out.

Difficulty is now at almost 7 billion and increasing at 11 percent every ten days.  That puts it at 45 billion a year from now.

Unless the difficulty stops increasing, Terraminers and Neptunes won't be able to pay for their own electricity in another 12 months' time, let alone recoup the purchase price.

Even these new SP-30s are only about 3 times the perfomance per dollar, so they won't make it past 16 months from now.

And those estimates are very generous.

So... are people expecting difficulty to level off, or much more efficient technologies to emerge...

or what?

We're all hosed, time to close up shop now.   

Attention, all miners.  Turn off all your equipment now and go home.  I'll catch up with you guys later (turns miner back on).

Please share how you are able to see in to the future.

Magic crystal ball?

I guess the title says it all.

The fastest rigs from KnC and Cointerra are barely able to make back their purchase price.

Yet the difficulty keeps increasing.

If you haven’t taken delivery of your miner yet, you will almost surely lose money on it.

Is there any new technology on the horizon?

Or are we all hosed?