Topic: Why do people think mining is less risky than buying, anyway? - page 2. (Read 3345 times)

You'd have to deal with exchanges earlier or later anyway, unless you want to just pile up Bitcoins or keep buying socks with them. Maybe your power company will accept monthly installments in socks, too.

I don't mine, but here's some comments..

If the goal is simply to obtain bitcoins, then buying is simpler.  I don't really think anyone considers mining less "risky".  On what scale of risk would we be judging it?  At the end of the process you have bitcoins in your wallet.  The risk is that they will fall in value relative to what you invested to obtain them.  That's true however you got them.

Perhaps the argument is that obtaining coins via mining is "cheaper".  Don't really see it.  As soon as that is true, there will be more miners.  For an individual, it's better to let comparative advantage do its work.  You earn your money in the most efficient way you can, and let those most efficient at mining create coins that you buy with your efficiently earned money.

If we're simply talking about profit making, then you might be cashing out instantly if you are a miner.  In that case, it's just a business and nothing to do with bitcoin's directly.  The same business analysis would be done if you were harvesting corn.  Capital, risk, and return.

There is one factor I can think of that might change the equation: the capital invested in mining equipment retains some value (although it is depreciating daily).  If you invest $1000 in an efficient mining rig to make $1000 worth of bitcoins, you still have the mining rig at the end (in other words, your rig only has to keep up with its own depreciation and running costs to be profitable, you'll get a portion of the capital back).  If you simply bought $1000 worth of bitcoins, all you have is bitcoins.  Of course, there is a risk that your mining rig will not generate enough coins to pay for itself -- so there are two sides to that situation as well.

Do it! People will make market for profit for sure.

Actually three things: price (exchange rate), difficulty, and your own costs (capital+electricity).

You can hedge out price -- short the coins, which is just another way of selling them before you mine them.

Costs are something to compete on: it's the only one of these three axes where one miner is different from the next.  Unfortunately you can't compete without exposing yourself to difficulty risk -- it can't be hedged out.

Farmers have a similar problem: if you can grow corn more efficiently than your neighbor, you sell corn futures so you aren't exposed to sudden changes in the demand for corn.  Then you can just focus on being a good corn producer.

Blockchain difficulty futures would be really useful, especially as we get closer to the block reward halving -- let's be honest, nobody really knows how that's going to play out.  Or, if you think you know, you ought to be trading difficulty futures to make money off of your foresight.

I've contemplated setting up a blockchain difficulty futures market a couple of times now.  I think miners would use it, but I'm not sure there would be enough people taking the other side: effectively betting that a certain difficulty growth rate won't be exceeded.  The end result would be a uselessly-large bid/ask spread.

Buying bitcoins is more like gambling (although it is an intelligent bet, IMHO). Mining is more like insurance (worst case scenario you can sell your hardware).

You do realize you don't need to pay your capital off before you can make a profit right? What you should be trying to figure out is how long it takes to mine so that selling your capital + mining profit = profit.

Both are risky, but mining is perhaps more "concrete". You set up your rig, work out your electricity costs, and instantly have a RELATIVELY predictable trickle of income.

There are heaps of "mining income" calculators out there.. but not so many "how much will I make buying and holding bitcoins" calculators.. maybe this is for a reason.

I think people should be buying bitcoins to use, not to sit on anyway 

Neither is really what I would consider safe, but they are different. Mining profitability doesnt depend solely on difficulty or price. It depends on the ratio of both, and in theory they are linked. So as long as you invest in hardware that makes you more efficient than the average miner, prospects of earning back your investment are relatively good.

Buying bitcoin otoh.. is a pure gamble on its price and price only.

The price of BTC doesn't need to rise for a miner to be profitable. 

There are risks to both methods but the risks are different. 

I was considering this today when I realized there are still people purchasing equipment to mine in larger and larger amounts, sometimes dropping tens of thousands of dollars on equipment to do so.

So today I considered what it would be like to purchase a batch of 30 Icarus boards, arguably one of the most efficient miners and hook them up to a router running DD-WRT and cgminer.

I went to this page:
http://bitcoinx.com/profit/index.php

I filled in the following fields with the following values:
Electricity rate: $0.10
Power consumption: 600 Watt (19w * 30 + a router)
Hash rate: 11400 (380 * 30)
Initial cost: $14250 ($469 * 30)

The time to pay it off was 2 years. (account for block reward halving)

Now, even assuming the difficulty does not increase *at all*, what would you rather rather do:
1) Buy BTC with ~$15,000 with the chance of say a 20% increase, or
2) Buy hardware with the idea of only breaking even only two years from now.

It would seem to me that you would only be "safe" buying hardware if you thought that advancements in FPGA/ASIC design were not going to eclipse or significantly change any time within the next year.