Cryptocoin Mining?

[Chiropteran]

I'm not sure what's the logic behind thinking it will double.

Well, the logic plays out like this:

Right now, you can buy a coin on mtgox for $11~, or you can mine a coin... with a net cost of slightly less than $11 given cheap hardware and reasonable electricity costs. It would be absurd to pay significantly more than $11 for a coin, since you can mine them yourself for about that much.

After the bounty is cut in half, this changes. It may well come out such that mining effectively costs $20 per coin to mine after the halving. If this is true, there is no longer an upper bound price on coins around $11, and the value will rise, because you are forced to pay the market rate for coins, there is no choice to mine as an alternative until the market rate is much higher.



That is to say, the argument is not that the demand will increase after the halving, the argument is that existing demand is castrated because if price rises above $11 it just encourages more mining and that keeps things stable, but if mining is no longer a viable option the demand can freely push the value higher.


Or, to break it down:

Right now, you can buy a coin for $11 from mtgox, or for $10.50 from AMD.

After the halving, the price to buy a coin from AMD for $21, so mtgox pricing is no longer constrained to the $11 range, and can rise.

 

[Mir96TA]

Nope. They've been pushed even further back now. Good news for us

kick Arse!
My 7970 is paid 75% as of now,
If things stay same way, I would free heat as a side benfit, and soothing FAN nosise (Lullaby for me now )
I guess by next month my 7970 would have off set its price comepelty.

 

[blastingcap]

Or, to break it down:

Right now, you can buy a coin for $11 from mtgox, or for $10.50 from AMD.

After the halving, the price to buy a coin from AMD for $21, so mtgox pricing is no longer constrained to the $11 range, and can rise.

Worst argument I have ever heard (not saying you believe such a silly argument, but by repeating it without breaking down the caveats is... something).

1) You can buy coins from others as well, including FPGAs and eventually ASICs, and FPGA/ASIC is what will come to utterly dominate the market so the supply of coins you can get from AMD will become quiet small. FPGA and ASIC mining costs are well below $10.50 and halving the reward will not change FPGA/ASIC behavior because what else are you going to do with specialized devices? You must mine with them until they drop dead or you hit negative returns, but even then you may have free power or want the waste heat.

2) Even if you pretend FPGA/ASIC did not and will not exist, some GPU miners mine with free electricity or vow to keep mining even at a loss due to heat being a positive for the time being. So the cost of mining a BTC for them is very low and possibly zero. Halving the reward will not change that.

3) You can also buy coins from among the 10.5 MILLION coins that have already been mined, some of which are owned by people who will be willing to sell at lower than $10.50. In fact, many of those 10.5 million coins were mined at less than $10.50 cost and the seller could still make a profit. Others were bought off someone else (mtgox/etc.) for less than $10.50 and the seller could still make a profit. Still others may have paid more than $10.50 from them or generated them at more than $10.50 in hardware costs, but are willing to take a loss.

4) As I've stated repeatedly in this thread, people need to stop focusing so much on supply, which is quiet predictable due to the BTC protocol itself; we all know that we're in an inflationary mode and that 7200 BTC will be mined each day (soon to be 3600); we also know that 10.5 million coins have been mined and each additional day of mining doesn't change the supply of BTC in the short term. With such predictability on the supply side, regardless of the cost to mine one BTC, demand is what drives price of BTC and if demand goes down for whatever reason that will put negative price pressure on BTC value. For instance Silk Road is something like 20% of the BTC economy and their going down permanently would open up a huge gash on BTC demand. A 20% drop in demand doesn't necessarily mean 20% lower BTC price, it can mean a decrease of less or more than 20% due to the nonlinear relationship between quantity demanded vs. price.

 

[Chiropteran]

Worst argument I have ever heard (not saying you believe such a silly argument, but by repeating it without breaking down the caveats is... something).

1) You can buy coins from others as well,

Yes, but virtually everyone uses mtgox prices as a baseline. It doesn't matter what your source is, if you are buying coins from an individual you are limited to the going rate for coins. If it is more than 10% lower than the going rate, it's probably a scam.

On the other hand, mining is NOT limited to the going rate for coins. If the number of miners suddenly fell off enough, you could mine a coin for $1 net cost. This number is harder to calculate, you need to consider labor cost, hardware depreciation, cost of electricity + waste heat, etc, but in the end there is an actual real cost to produce 1 bitcoin through mining.

If this cost is significantly lower than the cost to obtain a bitcoin through the market, it's more rational to mine than to buy coins.

If this cost is significantly higher than the cost to obtain a bitcoin through the market, mining is irrational and smart miners should cease immediately.

The point is, mining sets an upper limit to the value of a bitcoin. If you wanted 10 bitcoins, the smart way to obtain them is as cheap as possible. You look at the options: buy 10 on mtgox, mine until you have earned 10 bitcoins, buy them from individuals, etc. If one options is far cheaper than any other option, you will almost certainly pick that option. In this way, mining limits the value of a bitcoin. The value can't rise much higher than the cost to produce through mining, because the potential buyers will mine rather than purchase.

If the overall cost to mine 1 bitcoin is $11, then mtgox price can't rise much above that cost, as the buyers will switch to mining rather than paying too far above cost. But if the cost to mine 1 bitcoin is $22, and the mtgox value is $11, the mtgox value can rise an awful lot before it hits this soft limit.


Edit:

Don't get me wrong, all I am saying is that this *might* cause the value to go up, because it removes one constraint on the value of a bitcoin. There are other scenarios- miners quit en masse, difficulty drops, so the cost to mine/buy stays in relative equilibrium. Or the price could even drop further, which would make mining even less profitable, and possibly cause a huge stall for awhile as difficulty can't drop fast enough and blocks take ages to complete. There could be some wild speculation, speculators buying coins prior to the halving and driving price up simply with the intention to sell them after the halving, and cause the value to increase prior to the halving and drop after instead of the predicted other way around.

 

[gorobei]

people have already gone over this.

the amount of coins produced by mining is trivial compared to the float(number of coins in circulation and available to trade), probably in the less than .0004% range. the cost of mining has no effect on the price of coins at this point in time.

claiming that is does would be like saying adding a teaspoon of boiling water would somehow raise the temperature of an olympic swimming pool.

the only thing that will increase prices is if someone buys a large position of coins with real money. and conversely if someone sells off a position the price will plummet.

i wrote about this before: there are users, speculators, and miners. the users and speculators dont care about mining costs and only evaluate market price(what they can buy or sell coins for).
-users dont care about the price as long as it is stable. they get their money in and out and as long as they dont lose value in the time it takes to carry out the transaction, they are indifferent to mining costs. do you care how much it costs the us mint to make a penny? you only care that it retains its value long enough to buy a pack of bubblegum.
-speculators care about value going up but have no interest in mining costs. since the btc system is hyper deflationary, the speculators will be much happier when no new coins can be minted so they have no motivation to drive up prices artificially by buying coins(investing real dollar).

as blastingcap indicated there are already tons of people with plenty of coins to sell at any range of prices. the .0004% being produced by miner will never affect the price of all the coins already mined and available for trade.

 

[Vesku]

Yeah, cost of mining is definitely a minor factor in the current bitcoin exchange market. Main driving factors seem to be speculation regarding future value and secure online value transfer.

Edit: The speculation on future value will have some correlation to perceived future mining costs but that is overshadowed by the 21 million BTC ceiling built into the current BTC network.

 

[blastingcap]

...rational...

OK I think I understand. I also think that a lot of people who think halving of rewards will lead to doubling of surprise are.. how shall I put this politely... not geniuses.

EVEN IF we were to believe their logic and ignore the four points I wrote in my previous post in this thread, there is one word I took out of your post that is critical. Rational. People haven't been terribly rational when it comes to BTC, so the market is very hard to predict. I agree with you on that, just not that mining costs set any floor or ceiling on BTC. Cost of production is not a major factor in determining BTC price right now and will be less and less of a factor going forward, as more and more BTC are mined such that each day's production represents a smaller and smaller fraction of the cumulative-mined total.

In addition to the scenarios you laid out, I'd like to remind us that for the first what, 18 months or so, people were mining bitcoins even though it cost them more in electricity than what they could buy them for outright. Then there was the 6-month span of time where bitcoins went to $30 and then back down to something like $3. In six months. Rationality is a foreign concept in BTC-world.

people have already gone over this... snip.

Well said, succinctly put. BTC forums have gone over this thousands of times already, the value of a BTC is not the value of the inputs but the value of the medium of exchange and value storage. Hell, even BTC's own FAQ says:

https://en.bitcoin.it/wiki/FAQ#Where_does_the_value_of_Bitcoin_stem_from.3F_What_backs_up_Bitcoin.3F

Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are useful and because they are scarce. As they are accepted by more merchants, their value will stabilize. See the list of Bitcoin-accepting sites.
When we say that a currency is backed up by gold, we mean that there's a promise in place that you can exchange the currency for gold. Bitcoins, like dollars and euros, are not backed up by anything except the variety of merchants that accept them.

It's a common misconception that Bitcoins gain their value from the cost of electricity required to generate them. Cost doesn't equal value – hiring 1,000 men to shovel a big hole in the ground may be costly, but not valuable. Also, even though scarcity is a critical requirement for a useful currency, it alone doesn't make anything valuable. For example, your fingerprints are scarce, but that doesn't mean they have any exchange value.

 

[Chiropteran]

the cost of mining has no effect on the price of coins at this point in time.

Nonsense. Here is as analogy for you. There are millions of 7900 video cards out for sale at retailers, auction sides, and in individual sales, at some average value X. AMD releases a brand new card series, 8900, and prices them extremely aggressively, such that a brand new card is priced below X. Now, since the card is just released, there is limited availability, maybe only 500k cards compared to the millions of 7900 cards already out on the market.

Your argument seems to say that the value of existing cards on the market will not change at all, I call BS. It would be ludicrous to pay X for a 7900 when a faster newer 8900 is cheaper, so the retailers and aftermarket sellers will drop the price of their 7900 cards.

Now, change the situation. The 8900 cards are a colossal failure, they are the exact same performance as the previous generation 7900, but they cost TWICE AS MUCH. Also, nvidia is gone and there is no other source for high end video cards. While the retailers and individual sellers might not raise prices over time, demand will go up as buyers realize that the previous generation is as good as it gets and anything newly made just costs more for the same thing. Over time the cheap older cards are all bought up and the expensive ones remain, but still sell, as long as they are cheaper than the overpriced brand new 8900 cards.



Also, look at history. Blastingcap points out the fall from $30 to 0 to $~2-3 we had the end of summer '11. Look at what happened to mining difficulty! It dropped like a rock,

8/15/2011 141120 1265615 1,805,701 -4.40% -0.30% 14.65 12,925,710 193,885.7 -83,086 $11.3
8/30/2011 143136 1229409 1,777,774 -1.55% -0.11% 14.23 12,725,805 190,887.1 -27,926 $8.78
9/13/2011 145152 1225013 1,755,425 -1.26% -0.09% 14.18 12,565,824 188,487.4 -22,349 $5.84
9/27/2011 147168 1257308 1,689,334 -3.76% -0.26% 14.55 12,092,727 181,390.9 -66,091 $4.92
10/14/2011 149184 1393051 1,468,218 -13.09% -0.81% 16.12 10,509,913 157,648.7 -221,117 $4.01
10/31/2011 151200 1475859 1,203,480 -18.03% -1.06% 17.08 8,614,847 129,222.7 -264,738 $3.19
11/14/2011 153216 1221236 1,192,498 -0.91% -0.06% 14.13 8,536,231 128,043.5 -10,983 $2.51
11/29/2011 155232 1322650 1,090,716 -8.54% -0.56% 15.31 7,807,647 117,114.7 -101,782 $2.79
12/12/2011 157248 1142535 1,155,038 5.90% 0.45% 13.22 8,268,086 124,021.3 64,323 $3.18
12/26/2011 159264 1206050 1,159,929 0.42% 0.03% 13.96 8,303,099 124,546.5 4,891 $4.04
1/8/2012 161280 1122171 1,250,758 7.83% 0.60% 12.99 8,953,273 134,299.1 90,828 $7.05

Despite what blastingcap says about rationality, a lot of miners were rational enough to realize mining at a huge loss was a bad idea. And then when the market recovered, a lot of miners realized that mining was profitable again and it was time to get back into the game. Yes, past performance doesn't guarantee future results, but in the absence of any real hard information this is the best we have to go on.

but that is overshadowed by the 21 million BTC ceiling built into the current BTC network.

They are one and the same. It's not like there is going to be an abrupt end where we go from mining out tons of bitcoins and then suddenly it stops. The step before the bitcoins stop being produced is the step where each reward block offers .00000001 BTC. In other words, based on current valuation, nothing. The step before that is the step where each block rewards .0000002 BTC, nothing. Before that, is .00000004, aka NOTHING. Keep working backwards and eventually you reach blocks where the reward is the equivalent of 1/10 of a cent. The point is, either value goes up massively, or the cost of mining will outstrip the value of the rewards years and years before we reach the last bitcoin.

 

[blastingcap]

I didn't mean to say miners could not be rational. I did say that the BTC market has huge swings and historical trends that make one wonder. And please don't take my quip about rationality being a foreign concept in BTC world literally.

I think we can all agree that correlation is not the same as causation. This is critical. Mining doesn't drive price; it's the other way around: price drives mining. In the short term, price drives mining, not the other way around. If price falls enough then miners quit. If price rises enough, people start mining again. Subject to lag time, of course. There are exceptions but generally that is what happens. In the LONG run there is more room to discuss how mining may affect price, but with ~10.5 million coins mined and the factors I already discussed in play, it's really hard to say that mining drives prices in the short run.

Let me put it this way: if the demand for bitcoins doubled overnight, you'd see a HUGE spike in price. But if the *mining* supply of bitcoins halved overnight, you probably wouldn't see as much of an effect. Mining coins aren't that big a part of the daily market in the first place, plus there are already 10.5 million coins mined which completely dwarfs any one day's mining supply... among other factors which I won't repeat for the third time here.

Demand matters a HELL of a lot more when it comes to setting price, than changes in mining supply. And price drives mining, not the other way around. Therefore demand drives price drives mining. All eyes should be on demand. If Silk Road goes down permanently for instance, we will see major negative pressure on BTC prices, since Silk Road has been estimated to represent about 20% of the entire BTC economy.

snip

 

[rayf01]

I have a i5-2500k and 2 x GTX-560's. I leave my PC on all the time as it is, so I could mine while I am out I guess. Any ideas on how much bitcoin I would make a day?

 

[MrK6]

I have a i5-2500k and 2 x GTX-560's. I leave my PC on all the time as it is, so I could mine while I am out I guess. Any ideas on how much bitcoin I would make a day?

Probably not enough to be profitable unless you're subtracting heating costs. I estimate <0.05 BTC a day if you want a number. CPU's are very poor miners due to their architecture and turn out insignificant numbers. Although nvidia cards are at least an order of magnitude faster than a CPU, they're still put out about 1/4 the mhash/sec of a comparative AMD part. This puts them at less than profitable in most areas of the world if you're accounting for electricity costs. Here's a good chart for comparison: http://www.hardocp.com/article/2011/07/13/bitcoin_mining_gpu_performance_comparison/2 . Newer AMD parts are proportionally faster, a 7970 puts out ~560 mhash/sec stock (750+ overclocked), Kepler parts are roughly the same as their comparative Fermi parts (~105mhash/sec on a GTX 680).

 

[IGemini]

I have a i5-2500k and 2 x GTX-560's. I leave my PC on all the time as it is, so I could mine while I am out I guess. Any ideas on how much bitcoin I would make a day?

~0.03 BTC/day with current rates, give or take. Not factoring in electricity cost. Not really worth it on nVidia hardware.

 

[pm]

The part that I disagree with is that the total number of coins mined is determined algorithmically to fall over time. There's a fixed cap of 21 million, and the first sharp decrease in production should occur soon (the first sharp bend at ~end of 2012 in the graph)
http://en.wikipedia.org/wiki/File:Total_bitcoins_over_time.png

As of right now, coins are mined, adding to the total circulation but the price doesn't change. Which implies that when fewer coins are mined, it's possible the price could go up.

Although that said, I think the reason that the price is fixed in time despite mining is that most miners - like me - are just holding onto their mined coins either in the hope that the value will rise, or just out of laziness (or ignorance) about how exactly to sell them.

 

[Chiropteran]

I think we can all agree that correlation is not the same as causation. This is critical. Mining doesn't drive price; it's the other way around: price drives mining. In the short term, price drives mining, not the other way around. If price falls enough then miners quit. If price rises enough, people start mining again. Subject to lag time, of course. There are exceptions but generally that is what happens. In the LONG run there is more room to discuss how mining may affect price, but with ~10.5 million coins mined and the factors I already discussed in play, it's really hard to say that mining drives prices in the short run.

I agree with almost all of that, but you aren't disputing my point.

Lets make it clear-

My theory is that mining is limiting the value of bitcoins. You can't expect people to pay $20 per BTC on the market when they could mine BTC for about $10 each in total overall cost, as an example.

I am not trying to say that increased mining costs will cause market price of BTC to increase. I am saying that the existing mining costs are so low that they do not allow the market price of BTC to increase. A subtle difference, which you haven't addressed.

It could be that market pressure would push the value of BTC up, but it's being held back because potential big investors would rather focus on mining coins than buying them when the mining cost is lower than the market price.

All in all, this is new ground. There hasn't been a halving yet. I don't know what will happen, you don't know what will happen, nobody does.

 

[blastingcap]

OK, sorry if I didn't address it clearly either. To some extent what you say is like saying people are not willing to pay for convenience, which is untrue. THEY ARE. There are plenty of people who either can't or don't want to mine coins themselves and would rather just speculate directly on the markets, or if they need a lot of coins NOW for a transaction. Plenty of people pay a premium for prebuilt computers, or pay for auto mechanics to do things that actually don't require that much skill or effort. And the cost of mining varies wildly anyway. And speculators can do pretty much whatever they want, they all figure they will make money and bail out before things get too crazy, like all the greedy people who bought into Bitcoin Savings and Trust. Plus there is definitely a lag time between price signals and how that translates to a mining uptick. Plus all of my previous points. Plus this: for long periods of time, the price of BTC has been greater than the cost of mining a BTC. I think you're arguing that this is not possible in the long run though you seem to agree that it's possible in the short run. But I think even in the long run that's a dangerous statement to make; demand drives price drives mining, not mining drives price. I will refer you to the FAQ about how the value of a BTC is not the cost of generating it. You can disagree with it if you want, but you may want to think it over: https://en.bitcoin.it/wiki/FAQ#Where_does_the_value_of_Bitcoin_stem_from.3F_What_backs_up_Bitcoin.3F

Considering that we've all known about the halving problem since day one, I think that's been priced in already. Especially if you figure that some speculators (both the mining and non-mining type) have been hoarding coins for weeks or months already in preparation for this day. Also the loco people who have been hoarding forever because they figure that BTC is inherently deflationary over decades of time, ignoring the risk that BTC will crash due to various possibilities. But without hoarders the price will likely be suppressed anyway due to the continual stream of sales. Sure potential mining sales per day are halved but the percentage of mined coins that go for sale immediately will likely rise due to factors I have already named (e.g., rise of FPGA/ASIC and how people are chomping at the bit to recover at least their initial outlay). But the biggest reason for price suppression is the fact that there are over 10 million coins ALREADY mined, waiting on the wings to sell into a major market rally. MtGox BTC 24-hour average price will NOT double on the day mining rewards are halved later this month. I will bet you 20 BTC on this if you want, at a reputable BTC betting site, but all bets are off if there are glitches or hack jobs that day.

I agree with almost all of that, but you aren't disputing my point.

Lets make it clear-

My theory is that mining is limiting the value of bitcoins. You can't expect people to pay $20 per BTC on the market when they could mine BTC for about $10 each in total overall cost, as an example.

I am not trying to say that increased mining costs will cause market price of BTC to increase. I am saying that the existing mining costs are so low that they do not allow the market price of BTC to increase. A subtle difference, which you haven't addressed.

It could be that market pressure would push the value of BTC up, but it's being held back because potential big investors would rather focus on mining coins than buying them when the mining cost is lower than the market price.

All in all, this is new ground. There hasn't been a halving yet. I don't know what will happen, you don't know what will happen, nobody does.

 

[Chiropteran]

Nice little bump in value today after the WordPress announcement. Or maybe it's because silkroad is working again. Either way it's nice to see.

 

[blastingcap]

Nice little bump in value today after the WordPress announcement. Or maybe it's because silkroad is working again. Either way it's nice to see.

Thanks for the news. Demand drives price. A major site like Wordpress accepting BTC when even the EFF won't touch it, is a big confidence-booster re: legitimacy that may help drive demand up overall, not just for people intending to actually pay that way. Silkroad has been estimated by some guy writing a Ph.D. paper on it to be a fifth of the entire Bitcoin economy so it's a huge source of demand. If we want to see BTC rise in value, we gotta get demand up.

Edit: Actually WP is using BitPay, perhaps as a legal shield. Everything hinges on BitPay then; if they go broke or get shut down by law enforcement or something, then we're back to square one.

 

[Mir96TA]

Man at 1300 Mh/s I can't even get a coin in 24 Hrs............
Talk about sweat shop!

 

[Elfear]

Man at 1300 Mh/s I can't even get a coin in 24 Hrs............
Talk about sweat shop!

At 2000 Mh/s I'm only earning ~.5BTC per day.

 

[wbynum]

At 2000 Mh/s I'm only earning ~.5BTC per day.

Ha. Same here. Got two 7950's and two 7970's going. Get maybe .6 BTC per day. Roughly $6 per day minus ~$2.50 in electricity equals $3.50 per day in profit for over $1k in hardware running. Whoooohooooo!!!!!

 

[MrK6]

770 Mh/s and I'm barely getting 0.22BTC/day.

Rewards halve in less than two weeks, right? End of an era gents, it was good while it lasted. :thumbsup:

 

[IGemini]

Ah, I'd really like to update my 6870 to something with a bit more (efficient) crunching power. 7870s hit the sweet spot for price in the last drop, but it's basically not worth it with the mid-range 88xx Radeons being released around the time of Haswell, when I plan to build an all-new machine after tax season. At least the mining value takes a good chunk out of my electricity bill for now.

 

[Mir96TA]

I just want to lower the cost of my GPU.........
So far 75% price of 7970 is paid off......

 

[thilanliyan]

I'm into pure profit now since mining from last year...2x6950s and a 7950 already paid for.

 

[gorobei]

about 9 days left until 210000th block