Topic: What assumptions are people using to justify adding mining rigs? - page 3. (Read 5158 times)

Here are some scenarios where this can happen:

• The Dwolla/MtGox BTC <--> $$$ link breaks, perhaps due to pressure from bank regulators in response to Paypal or VC/MC lobbyists.
• The speculators who are buying BTC run out of money/the bubble bursts, as Genrobo mentioned
• Someone hacks MtGox or some other key BitCoin participant to steal BTC balances
• Someone identifies a cryptographic fault with the Bitcoin scheme

All of these scenarios would cause a crash in BTC values.  I guess you can argue they are unlikely - at least the first two seen quite plausible to me.

Here are the assumptions I used.

BTC is still in its infancy. If successful it will most likely replace the entire world's currency supply. There is almost not believable way that doesn't sound arrogant or deluded to put the price into perspective once this happens. It might be akin to a land grab in the old west, but with the land values rising to their fair value in a matter of years.

Between now and then one of the following will happen to the price.

1.It will collapse for a while. This drives people out and pushes difficulty down, it has happened before and might very well again. Typical causes might be a negative court ruling in the US or some other jurisdiction. In the long run BTC will probably survive this since not every place on earth is likely to make it illegal and due to its nature, if not every place on earth has it illegal, it will have value everywhere.

So you mine easy for a while and hold the BTC and maybe conduct some of your own business in BTC. Waiting for the value increase to resume.

2. It will stabilize. If this happens only the rigs with high Mhash/Watt are worth investing in. This would have to persist for very long to be a concern. FPGA rigs might become very attractive here and become the norm. This is bad for me, as I'm investing in a GPU miner.

3. It will continue to rise in a relatively uninterrupted fashion and S curve to it's true value, which if it succeeds is a number difficult to wrap one's brain around when compared to $10. In this scenario miners keep piling in, increasing difficulty but are rewarded by increasing prices. This is equivalent to betting that if you can get some number of BTC in the future at the future price AND a machine that will give off bitcoins for some extended period after that point, it is worth more than simply converting all that cash into Bitcoins today.

Not been into economics long, eh?

I've seen more bubbles burst than a kid chewing bubble gum.

Your calculation only takes in account the current spot price, just as calculations a month ago were made assuming $4 or lower spot price, and 3 months ago a fraction of that.

I don't deny the profitability is volatile at best if you are starting out just now. I just don't see a likely scenario where the price will suddenly start plummeting or simply stagnating at $9-$10 when mining becomes harder & more users become aware of bitcoin every day.

I started nearly a year ago but I can perfectly see the rationale behind adding more rigs today. It still pays itself back relatively fast, and could even accelerate at an unknown pace.

Nope, you're right on.
The only thing people are using to justify investing large amounts of money into this...
Is Bitcoin price speculation.

I put together my own Google spreadsheet to examine whether it makes sense to add to what I am currently using to mine, and the numbers keep looking bad.  E.g. for a triple 5830 system:

Days to next reset:5.0, based on http://blockexplorer.com/q/eta
Difficulty of next reset: 513600, based on http://blockexplorer.com/q/estimate
Days per difficulty increase after the next one: 8
Difficulty increase factor after the next one: 1.3 (30% average increase)
Watts: 550
$/KWh: 0.12
MHash/Sec: 840 (3 * 280 per 5830)
$/Bitcoin: 10

Running the above numbers, on August 18 the electric cost exceeds the generated bitcoin value. Total income at that point (assuming selling bitcoins at $10 apiece) is $492 - putting together a 3-way 5830 system for $492 is pretty tough (used parts maybe?)

Are other people using more optimistic numbers?