Topic: The mining market balance - page 3. (Read 6710 times)

So is your idea that the contract would state that they won't exceed X production rate? I can see how that would allow miners to make more informed purchasing decisions, but it isn't appealing from BFL's viewpoint to artificially cap their sale rate. Personally, I'm not too worried about this. Given their track record, it is somewhat doubtful that BFL will flood the market with ASICs - it will probably be more of a trickle as we've seen with their FPGA units, and I doubt their prices will drop so rapidly that early buyers will be screwed. Sure, it could happen, but if we are going to sweat over remote possibilities, we might as well sweat the possibility that Bitcoin price will crash to a buck too. I'm not aware of any investments that promise a high return that don't also carry the risk of substantial loss. If BFL implemented your idea, it would make the investment safer, but it would also reduce the potential reward for early adopters. So your idea only makes the situation "better" for those looking for a safer investment. It's not good for those looking to gamble more for a bigger win.

None, if maximizing profit even at the expense of miners profitability is their only motive.  But auctioning off a predictable supply would allow them to maximize their profit without tricking their customers in to losses, so if for some reason they care about miners, this would be a good way to do it.


If they produce less than promised, Im sure customers would forgive them Well, at least as long as they only accept money for the rigs they can actually ship.

I think you nailed it.

Like I said before, BFL, by being a manufacturer, is not stuck behind the 51% rule. They can sell to 100% of the miners, and aim at the same profit pie than the miners. I didn't knew about this glove game, but it's probably the best mathematic problem found so far to explain that situation. Dollar auction was interesting, but it doesn't have a hard limit (the auction can go to infinite) while the mining market have a limit.

What motivation would BFL have to do that? They probably can't estimate their production very precisely, it partly depends on the manufacturers they rely on, and there are bound to be unforseen snags. And given how they are treated on this board, the slightest deviation from their stated plans would raise a chorus of bitching, accusations of foul play, conspiracy theories, and calls for lawsuits (which might turn into viable lawsuits since they have bound themselves contractually). It would not be smart for them to bind themselves contractually to this, especially with a community that has treated them like crap from day one. But even if they did, we would be foolish to take the projected plans seriously. We already know they are not good at estimating the specs of their equipment, and even worse at estimating ship times. It would be nice, though, if they could give us more information that might allow a very rough calculation of their production rate. But it would probably be unwise for them to do even this, since if the information turned out to be off by a factor of even 2, the inevitable bitching would fire up. So I seriously doubt we are going to be able to make informed purchasing decisions - early adopters of ASIC mining equipment will be taking a big risk, but the big risk does carry the possibility of bigger reward IMO.  

This got me thinking about a different model: The glove game. BFL has the right glove and each of its potential customers has a left glove (BFL doesn't have a left glove because it doesn't want to speculate on Bitcoin). With n customers, the Shapley value for each customer is 1/(n(n+1)) of the total reward, and for BFL it is 1-1/(n+1). Meaning that with 100 customers, BFL should be getting about 99% of the reward.

Again this is highly simplified, but it does indicate that BFL may have more leverage than we'd like.

Even if we assume BFL ship after the reward halving, their hardware should be able to mine almost $8M per year at todays price. If they manage to only get $5M revenue from selling, they are doing it  wrong.

Using a very plain interpretation my opinion is that the price to pay is one that anticipates conversion of ~80% of the mining base to SC, and all the re-investment by miners that entails, and allowing a modest profit.

The question is the $38 dollar per GH question.  My estimation is at that price BFL stands to have minimum revenue of $5 million.

Put yourself in BFLs place and think about it.  As difficulty goes up because of these asics, its inevitable that future prices per GH will come down, pretty much proportionally. What you are suggesting boils down to BFL getting cash up front,  but really selling at the lowest future price from day one, and therefore assuming all the miner risks (while selling the opportunity). If they want to assume these risks, they would be better off mining themselves, then at least they get to keep the opportunity.

Your suggestion would be dangerous and likely very expensive if they maintain a monopoly, it would be financial suicide if a competitor (or large asic miner) would appear.

Much simpler would be for BFL to make public their production planning and simply state how many TH they will ship over what time period and contractually bind themselves to that. If they do that, they could auction off their hardware to the highest bidder to maximize their revenue, while buyers would still be able to make an informed purchase decision.  The problem when a potential competitor emerges remains though.

What about a limited lifetime price protection ?

Say a manufacturer drop the price on ASICs from 300$ to 280$ at a later date they would have to offer a 20$ in refund or credits for future purchases.

A more complex formula could be devised to account for production cost, USD devaluation and miners profits.

Such a scheme would give much more confidence to investors who wouldn't fear the lowering prices and reduced profits.

Right, it's not easy to decide how much to pay, but there is an equilibrium and whoever makes the best job estimating the future wins.

I don't think BFL has much reason to artificially limit supply, demand should be high enough as it is. If they wanted to do that they'd be better off investing in something with a smaller NRE in the first place.

As far as verbal analogies go, a dollar auction has some resemblance but the quantitative difference means not much of the intuition is transferred. A classic example of time-sensitivity is negotiation between two people dividing a pie, where the pie slowly rots/eaten away by someone else while they're arguing. They'd prefer to make some fair division early on rather than constantly making counter-proposals which will end up with each of them getting less.

Im not sure $\sum_{X=N}^{\infty}7200*0.999^X/(X+12)$ is an analogy that helps me explain it to someone who doesnt get it. I was rather hoping something involving nickels,  dice or playing cards

That said, you are assuming you know BFL production and sales rate and you assume its constant; that is the key factor. In reality we have no clue. We can only find out roughly, after the fact, once those machines start hashing. Moreover BFL can vary supply as they see fit. Start with a trickle and gradually increase it, constantly fooling its customers who are trying to guesstimate the speed at which hashrate will increase.

I think the stated problem is exaggerated. There is an equilibrium where the rig price is so close to the marginal cost that it's not profitable to reduce it further. This can work with 1 manufacturer but the more manufacturers, the more stable the equilibrium. Without fixing prices, no manufacturer can arbitrarily increase prices too much. The equilibrium also shouldn't be too sensitive to the BTC rate - doubling the rate won't cause the rig prices to double, as the difficulty will also increase so they won't generate twice as much revenue.

The healthiest way to converge to this equilibrium when there's just 1 manufacturer which is leaps and bounds ahead of everyone else, is to start by pricing it similar to the competition, and gradually decreasing the price. Based on their announcement BFL don't plan to do it responsibly in this way, which is a cause for some concern.

That said, I will support an initiative to develop an ASIC mining solution which is not by a company who tries to hide the fact that their target market is Bitcoin miners on one hand, or that plans to centrally do all the mining itself on the other.

There's a very simple game-theoretic model for this, and the key factor is time. Someone who buys a rig knows his profits will decline as more rigs are bought, but he hopes to make up for it in the time until this happens. This leads to a natural and steady decline in prices and increase in difficulty.

Let's assume that the current network hashrate is 12 TH/s and BFL starts churning out 1 TH/s rigs at a rate of 1 per day. After X days, there will be a total of X+12 TH/s, so let's assume the profit per day for a rig is 7200*0.999^X/(X+12) (the exponential factor is to account for reward halving etc.) Then a potential buyer at day N expects to receive $\sum_{X=N}^{\infty}7200*0.999^X/(X+12)$. That's a nonelementary expression but the first 10 values are 28410.8, 27810.8, 27257.5, 26744.2, 26265.7, 25817.5, 25396.1, 24998.4, 24622.1, 24265. So a buyer on day 0 can expect to get 28410.8 BTC out of the rig, so that's what he should pay for it, and that's more or less what BFL should charge for it; on the next day it should charge 27810.8 BTC, and so on.

Of course the offered model is extremely simplified but it demonstrates the point. Additional factors such as differing skills and opportunities among potential buyers, uncertainty regarding delivery times, and a bit of irrationality for good measure just enhance the possibility of a stable equilibrium.

It is possible to make permutating algorithms for FPGAs rendering ASICs pointless.

Like this thread stated earlier, FPGAs and GPUs are not driven by the bitcoin related market.
This means that for each new process node (28nm, 14nm etc) the generic hardware is available to all and prices are not influenced by bitcoin mining.

For the ASIC market to function properly there would have to be a lot of competition to drive down margins.
They must also make enough money to follow the advancements of the silicon industry at all times.
Currently bitcoin is nowhere near the size needed to support this.
This fact makes it much easier/cheaper for irrational players to attack the network compared with a system where ASICs didn't have any advantage.

With the current algo bitcoin really needs ASICs to protect itself.
If there is a 51% attack,  I think algorithm changes are inevitable.
 

Wonderful example.   There is another zero-sum game that comes to mind.  Its in a book in my library, let me see if I can find it online, if not, I will just type it up.

Don't bother respecting Kano. He's a crybaby at best. He called for my BAN from the forum for posting a fake screenshot of my CGMiner performance and talking about a Malware app that was circulating around the bitcoin world (THAT I NEVER EVEN HAD, OR POSTED A LINK TO).
I can think of far better reasons to BAN me, than THAT....LOL

If he's not crying about, or fighting, in regards to the development of CGMiner/BFGMiner....then he's up on 'his soapbox' about something else.

He's done great work for CGMiner and it's backend, but at the end of the day, he's just a little girl.

+1

You could make an argument that it would be in the best interest of miners if BFL has a monopoly on the bitcoin mining hardware business.  Ideally the price of the mining hardware would remain as stable as possible.  Yes, it may drop over time, but hopefully not too quickly.  If there's an ASIC competitor, then it could end up being a race to the bottom.

So if you think BFL will have no competition, ASICs might be a good investment.  If you think they will have competition, maybe not such a good investment.

The idea is already germinating:

"So, in this arena - price wise what would be a very reasonable estimate of how much it would cost BFL?
(so I know if the major effort to very slightly possibly invalidate sha256 would be worth the while to kill their company)"
-kano (posted in "Lancelot" official discussion thread)

Much as I like and respect kano, this is the attitude that has me slightly concerned.

And you have my best wishes on that. I'm all for the balance of power. I do worry that it will be hard to catch-up, but i'm totally behind the intended result. Would I be willing to put some coin behind a project like this? Maybe, but I guess I'd want to see which showed the most promise of success first. Will be following. Also, I'm glad this isn't simply motivated by the reactionary "BFL is evil" attitude that seems so prevalent on this board.