Why would it? Those who have invested in dedicated mining hardware aren't going to switch it off just because the reward has halved. At least not until mining fails to pay for the electricity that goes into it (but I don't expect that will ever happen.)
This is what I don't understand about bitcoin. With my extremely small amount of knowledge about it, I thought the idea was to make it so that the rewards for mining were aligned closely with the price of electricity.
But is this the price of electricity in the USA? What about hiring people to do mining in countries with cheaper electricity?
What about if some miners had a solar panel on the roof? Although, as I write this, it occurs to me that at some point, it would be more economical to sell the solar generated electricity back to the grid, rather than use it for mining hardware...
... GPU mining is still fairly profitable with the half reward for ~most people (those who don't have electricity over $.15/kwh or so). My expectation is that the difficulty is currently lower than its proper equilibrium because people have opted to not purchase more GPUs while anticipating the introduction of ASIC devices.
Where do you get the $0.15/kWh figure from? I am curious, since this seems to make it sound like there is a stable formula for converting kWh's to BTC's. That will of course depend on the exchange rate, but I'd like to see the figures.
Why do you put a hardware cost of 0? If you put the true cost, let's assume $1000, it'll take you 273 years to make your money back. I assume the value of the currency will increase, but still... am I missing something as it seems a pretty flawed way to make money.
I put no hardware cost because I'm looking at the instantaneous profit function (or close using a 24 hour window) for hardware owned prior to the reward reduction. The comment was referencing whether or not it is still profitable to mine given a certain electric rate. Also understand that some people will continue to mine even at a slight loss during the winter for free heat, while others will sell their hardware and put the money to better use.
So, if you want to amortize the loss of hardware value over 24 hours be my guest. If you want to purchase hardware to (profitably) bitcoin mine, then (as you clearly recognize) you need to get the new specialty hardware not an off the shelf video card.
Bear in mind that most people's GPU mining rigs use cards that are a lot less efficient than the 7970, especially any remaining large-scale GPU miners.
Anticipation could have affected exchange rates earlier. Also affected: prior investment in rigs given expected-payback and risk levels.
But the decision "with my current fixed plant, do I mine this hour, or not?" is unaffected by anticipation. Either the expected-reward is enough to pay incremental costs, or not.
The expected reward for the same hashing power is now half what it was. Surely, some marginal miners who were only slightly profitable before are now non-profitable. It may take them a while to notice, but when they do, they're likely to drop out. But this is far from half of the mining capacity, and other rigs that are still profitable at the new reward rate are still coming online.
I expect difficulty to trend down a bit in the very short term... but not by half, and not for long as lower-power rigs continue to come online.
>But the decision "with my current fixed plant, do I mine this hour, or not?" is unaffected by anticipation. Either the expected-reward is enough to pay incremental costs, or not.
Some people use mining as a way to privately purchase Bitcoins, and/or are speculating that the value will rise long term. Some would rather pay $105 of power and not have a banking paper trail connecting them to their coin purchases (usually because they are kind of paranoid or doing something legally questionable) than pay $100 to purchase the coins on an exchange.
Also, if you've never mined, there is something kind of geek-magical about creating money with your computer.
Yes, sure. I've mined, and even mined for a bit at an occasional loss after hitting punitive over-baseline electric rates).
But it's farfetched to predict that everyone who was willing to do something when the bitcoin reward was X will still be willing to do it, in the exact same amount, when the reward is reduced to X/2. (Even if the goal is 'anonymous bitcoins' at above-market rates, they've still become twice as costly.) Demand curves slope down, supply curves slope up, exceptions are rare and not in evidence here.
Comments
Looks like the exchange rate didn't fluctuate too much during this time:
http://bitcoincharts.com/charts/mtgoxUSD#rg5ztgSzbgBzm1g10zm...
I wonder what will happen to the difficulty over the next couple days:
http://bitcoin.sipa.be/
Considering the exchange rate remained stable, I expect the difficulty to halve.
> I expect the difficulty to halve.
Why would it? Those who have invested in dedicated mining hardware aren't going to switch it off just because the reward has halved. At least not until mining fails to pay for the electricity that goes into it (but I don't expect that will ever happen.)
This is what I don't understand about bitcoin. With my extremely small amount of knowledge about it, I thought the idea was to make it so that the rewards for mining were aligned closely with the price of electricity.
But is this the price of electricity in the USA? What about hiring people to do mining in countries with cheaper electricity?
What about if some miners had a solar panel on the roof? Although, as I write this, it occurs to me that at some point, it would be more economical to sell the solar generated electricity back to the grid, rather than use it for mining hardware...
I think US has incredibly cheap electricity.
>(but I don't expect that will ever happen.)
You mean happen again? Like it did last summer?
I expect the moon to be made of green cheese.
... GPU mining is still fairly profitable with the half reward for ~most people (those who don't have electricity over $.15/kwh or so). My expectation is that the difficulty is currently lower than its proper equilibrium because people have opted to not purchase more GPUs while anticipating the introduction of ASIC devices.
Where do you get the $0.15/kWh figure from? I am curious, since this seems to make it sound like there is a stable formula for converting kWh's to BTC's. That will of course depend on the exchange rate, but I'd like to see the figures.
http://bitcoinx.com/profit/
Settings: Profitability decline = 1, Hardware Cost = 0, Time Frame (months) = .033333 (1 day), Electricity Cost = $0.15
Profit: -0.56 USD/day
For this example (1200MH @ 750W) you need electricity to be <$0.12 to be profitable.
My rig (2x7970) does about (1400MH @ 650W) and electricity @ $0.16 is my break even point (Profit: 0.01 USD/day)
Why do you put a hardware cost of 0? If you put the true cost, let's assume $1000, it'll take you 273 years to make your money back. I assume the value of the currency will increase, but still... am I missing something as it seems a pretty flawed way to make money.
I put no hardware cost because I'm looking at the instantaneous profit function (or close using a 24 hour window) for hardware owned prior to the reward reduction. The comment was referencing whether or not it is still profitable to mine given a certain electric rate. Also understand that some people will continue to mine even at a slight loss during the winter for free heat, while others will sell their hardware and put the money to better use.
So, if you want to amortize the loss of hardware value over 24 hours be my guest. If you want to purchase hardware to (profitably) bitcoin mine, then (as you clearly recognize) you need to get the new specialty hardware not an off the shelf video card.
Bear in mind that most people's GPU mining rigs use cards that are a lot less efficient than the 7970, especially any remaining large-scale GPU miners.
Difficulty would only halve if none of the miners had anticipated the block reward halving.
Anticipation could have affected exchange rates earlier. Also affected: prior investment in rigs given expected-payback and risk levels.
But the decision "with my current fixed plant, do I mine this hour, or not?" is unaffected by anticipation. Either the expected-reward is enough to pay incremental costs, or not.
The expected reward for the same hashing power is now half what it was. Surely, some marginal miners who were only slightly profitable before are now non-profitable. It may take them a while to notice, but when they do, they're likely to drop out. But this is far from half of the mining capacity, and other rigs that are still profitable at the new reward rate are still coming online.
I expect difficulty to trend down a bit in the very short term... but not by half, and not for long as lower-power rigs continue to come online.
>But the decision "with my current fixed plant, do I mine this hour, or not?" is unaffected by anticipation. Either the expected-reward is enough to pay incremental costs, or not.
Some people use mining as a way to privately purchase Bitcoins, and/or are speculating that the value will rise long term. Some would rather pay $105 of power and not have a banking paper trail connecting them to their coin purchases (usually because they are kind of paranoid or doing something legally questionable) than pay $100 to purchase the coins on an exchange.
Also, if you've never mined, there is something kind of geek-magical about creating money with your computer.
Yes, sure. I've mined, and even mined for a bit at an occasional loss after hitting punitive over-baseline electric rates).
But it's farfetched to predict that everyone who was willing to do something when the bitcoin reward was X will still be willing to do it, in the exact same amount, when the reward is reduced to X/2. (Even if the goal is 'anonymous bitcoins' at above-market rates, they've still become twice as costly.) Demand curves slope down, supply curves slope up, exceptions are rare and not in evidence here.