Moore's Law on Steroids: Bitcoin Mining

Any expat related issue or comment.

Moderators: Sometimewoodworker, MGV12, BKKBILL

Moore's Law on Steroids: Bitcoin Mining

Postby MGV12 » Fri Dec 06, 2013 3:47 pm



Bitcoin.jpg


WTF is Bitcoin? Many will ask.

Bitcoins are not a joke, they do exist [in a virtual and apparently literal sense] and I bought something with them [before Thailand became the only country in the world to make them illegal] only because I was offered a 40% discount on the [genuine] price for doing so. It was a low cost look at what all the fuss was about. I received the goods, they were genuine and genuinely 40% below the normal market price. Why? How? I had no idea at the time but it worked for me and I currently own no Bitcoins. Bitcoins have been around since 2009 and are becoming more and more accepted by more and more companies .... Donald trump will happily sell you a Penthouse Suite for Bitcoins [allegedly] ... doubt it will be at a 40% discount though :lol:

'They' say it will be the new world currency in time. Of course it won't unless governments can legislate it and banks can make exorbitant profits from them ... but does it have a future?. Or is it a giant scam? The emperor has no clothes? Time will tell.

Firstly ... if you have the time and interest to go any further ... try to get your head around how it works. You could say it's a little bit involved and complicated :)

A little light reading on the subject

http://en.wikipedia.org/wiki/Bitcoin_protocol
http://en.wikipedia.org/wiki/Bitcoin_pr ... oin_mining


Moore's Law on Steroids: World Computing Power for One Type of Calculation is Doubling Every Three Weeks

As recently as June of this year, just five months ago, the total worldwide computing capacity dedicated to Bitcoin mining was something like 100 terra-hashes per second (more on these units in a moment). This week, the number hit 5000, an increase of over 50x in worldwide computing horsepower dedicated to this one task in just a few months. In only three weeks between October 12 and November second, the total doubled. Even for those of us jaded by the pace of modern computing and technology advancement, this is simply astonishing.

Looking back on the development of personal computers, we are rightly amazed at the progress of computing power. Those of us who are old enough can remember a number of technology transitions from 8-bit all the way up to 64-bit computing, then multi-threading, and now multiple cores. Each of these generations, occuring every 5 years or so, took PC’s up another level in power.

But bitcoin miners have seen four generations of technology in just a couple of years. Technologies that might have earned a profit just 3 months ago are virtually useless today. It is the most amazing technology race I have ever seen.

Since most articles on Bitcoins (BTC) are written either by wacky libertarians or paranoid Neal Stephenson Cryptonomicon fanboys, you might expect me to be one of these. And actually, you would be right — I fit in both categories. But neither of these interests are at the heart of my fascination. While others write about Bitcoins and privacy and law enforcement, my interest lies more with the technology and economics of the relatively arcane world of Bitcoin mining. And to explore that, we need a short tutorial.

Of course, no one is actually digging in the ground for Bitcoins. Bitcoins are a virtual currency developed using cryptography and peer-to-peer network principles such that no one actually controls Bitcoins or their network. There is no Fed or central bank. They are not hosted on or controlled by or even tracked with any one person’s server.

Instead of having a central banker managing (or manipulating) its money supply, Bitcoins use a fixed algorithm. To create new Bitcoins, Bitcoin miners essentially do math. They use computers to grind through calculations until they reach a certain difficult and unlikely outcome (these calculations are each called a hash, so bitcoin computing power is listed as the number of hashes that can be completed in a second). When miners’ calculations are successful, they are awarded a certain number of newly created Bitcoins.

But there is a catch. After every 2016 such successes, the difficulty of the computation is reset (generally increased) based on recent changes in computer power dedicated to mining. When this happens, individual computers can hash just as fast, but a successful outcome is made more unlikely, so on average more hashes are required for a success. To give you an idea just how difficult, the Eclipse mining cooperative (since mining has an element of luck most of it is done in coops that smooth the luck effect among all participants) is hashing over 130 trillion times per second, and is getting a success every 3-1/2 hours or so.

I entered Bitcoin mining in an unlikely way about a year ago: I wanted to justify an expensive new graphics card. This may seem like a non-sequitur at first, but it made perfect sense at the time.

As you might guess, when Bitcoin mining first began, miners used really fast PC’s to hash their way to Bitcoin riches. A good PC might do 10 million hashes a second.

But then someone figured out that graphics cards actually had the ability hash much faster than even the fastest Pentiums — over an order of magnitude faster, cranking out 300-600 million hashes per second (graphics processors have highly parallel architectures that are perfect for this kind of raw number crunching). This is how I found myself justifying a hot new Radeon graphics card (it has to be Radeon, Nvidia cards do not work even a tenth as well). I talked myself into believing that I could pay for my graphics card upgrade with Bitcoin mining .

But the technological arms race was only just heating up. Just after I bought my card, hardware companies began flooding the market with purpose-built Bitcoin hashing machines based on field-programmable gate arrays (FPGAs). FPGAs are chips whose logic paths can be customized by users. Bitcoin equipment manufacturers were using FPGA technology to custom create chips that did one thing and only one thing: Bitcoin mining hashes. When packaged into large arrays of multiple parallel chips, devices started to appear that could do 5,000-30,000 million hashes per second (5-30GH/s).

But FPGAs were but a temporary solution. Their advantage was that they were quick to market, a critical factor in the hashing arms race. But while these stopgap chips were being marketed, a new generation of purpose-designed and built RISC chips were working through development. Today, devices are just coming to market that do up to 3,000,000 million hashes per second (3 TH/s). This is more than 100,000 times faster than the fastest PC can hash.

At first, one might think that those of us who got in early with the first and second generation technologies were still making money, just not as much as the big boys with the new technology. But that is not how Bitcoin mining works. Remember that every week or two, the difficulty is reset based on total Bitcoin computing power. So when total computing power increases by a factor of ten, then the difficulty goes up by 10x as well. Everyone has to sprint to remain in place. And the returns for the older technology drop rapidly through the floor.

As an example, at the beginning of 2013 my home graphics card (plus a lesser card running at night at work) could mine something like 1-2 Bitcoins a month. Just for fun, I revved my graphics card miner back up earlier this week. Over five days I mined a whopping 0.002 Bitcoins, worth about a dollar at current exchange rates, certainly not enough even to pay the power bill for running the calculations (the heat signature from my computer when mining can be seen from orbit).

Even a year ago when mining was much more productive, I would never have gotten a return from my graphics card purchase had it not been for the astonishing rise in BTC exchange rates over the last few months (in 2013 Bitcoin exchange rates to the dollar have risen from $10 to something over $600). But for the older technologies, this failure to pay for itself was perhaps not a total loss. After all, a PC and a graphics card still have a lot of other uses, and so as bitcoin mining became unprofitable, one could always go back to, say, Minecraft.

The same is not true for FPGA- and RISC-based mining. These rigs are like thoroughbred horses — when they are done racing, they can’t go back to the farm and pull a plow for you. So they have to earn their purchase price back in mining revenues, and they have to do so fast, running to stay ahead of competitors. But do they?


One fact made me immediately suspicious that maybe they do not: If the equipment’s return were so good, why don’t specialty BTC mining equipment makers just use their own product to mine? Why do they sell the machines at all?

I can understand why, say, Caterpillar does not get drawn into the coal mining business just because it makes equipment for it. There is a LOT to succesful coal mining beyond just having a good dump truck. But in Bitcoin mining, the equipment is literally everything. These devices are essentially plug and play — plug them into the network and point them to a mining coop and one is earning Bitcoins

And perhaps this is what happens in the back rooms with the first production units of a new generation. But as far as public availability is concerned, it turns out that most of these devices are priced such that they do not make money for the buyer at current Bitcoin exchange rates. Essentially, the manufacturer has built the expected value of the equipment’s mining output into his equipment price, and thus the only way to make money is to bet on rising BTC exchange rates. These manufacturers remind me of folks like Mark Hopkins and Collis P. Huntington during the California gold rush, who recognized that the best way to make a fortune was to sell goods and equipment to the miners rather than mine themselves.

But to make the purchase decision even dicier, next generation technology, such as the new 2TH/sec machines, are typically sold on 3 month advance purchase contracts. This creates another interesting dilemma for the buyer. On the day that one pays for them, these machines look like the road to riches at current mining difficulty levels. But one does not actually take delivery for 3 months, over which time mining difficulty rates will have steadily climbed.

Let’t take an example, and consider the Cointerra TerraMiner IV, a 2TH/sec machine priced at about $6000 which if purchased today would be delivered sometime in February, or about 3 months from now. At current difficulties and exchange rates, such a machine would pay back its purchase price in less than a week, producing over $25,000 a month in Bitcoins.

A no-brainer, right? But Bitcoin mining difficulty has been going up of late by a factor of 10 every 3 months. Based on a mining difficulty ten times greater than today and current exchange rates, we could expect instead to be making at delivery something more like $575 a week. Three months later we would be making a tenth of that. If we factor in the costs of electricity, this machine will never cover its costs at current Bitcoin exchange rates.

I do not think I have ever seen a business technology obsoleted so quickly. Essentially, the next generation of mining processors will be virtually obsoleted between the time of its sale and its delivery 3 months later. Every three months one has to reduce his production costs by a factor of 10, in a business where cost reduction basically means throwing out all one’s existing capital assets and buying expensive new stuff.

This arms race is driving tens of millions of dollars of new equipment investment every month. If the return on these purchases is so chancy, then the obvious question is why are people still buying? One possible answer is that miners are essentially speculating on Bitcoin exchange rates. And there is certainly a land rush aspect to Bitcoins. Just as people often say, “they aren’t making any more land”, there will never be more than 21 million bitcoins. There is a capped supply that will never be inflated or fudged by Ben Bernake, and there is a growing worldwide demand to find hedges for and alternatives to traditional currencies.

But the problem with this answer is that if I want to speculate, I can go out and exchange physical currency for Bitcoins today. It is a simple process, far more simple than paying cash for a machine that will not arrive for three months.

So what other explanations can there be? Here are a few ideas:

Mining uses spare computing capacity that exists already. This in fact was what lured me, briefly, into the mining community. But as Bitcoin difficulties have increased and purpose-built mining equipment has become the norm, this explanation no longer holds.
People are fooled by what are effectively teaser rates. As mentioned above, new equipment bought on advanced purchase contracts looks very profitable at current difficulty rates. It turns out that few people really have a good intuition about compounded rates, and so may underestimate difficulty changes in the future. Heck, until the pace slowed down a bit over the last few weeks, the graph of Bitcoin mining capacity was upward curving on a logarithmic scale. No one has an intuition for that.
Mining fulfills an age old fantasy of printing money. There is something oddly compelling about having a box in a closet that runs for 24 hours and just finds money for you.
In certain countries, mining may have tax and secrecy advantages over buying Bitcoins directly. And if there were ever a community that would be willing to pay a premium for secrecy and lack of traceability, this is it.

http://www.forbes.com/sites/warrenmeyer ... ree-weeks/
You do not have the required permissions to view the files attached to this post.

“Some days I am an optimistic pessimist ... other days I am a pessimistic optimist”
User avatar
MGV12
 
Posts: 5350
Joined: Wed Jan 23, 2008 4:23 pm
Location: Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby MGV12 » Fri Dec 06, 2013 5:56 pm

Sensible people would listen to Warren Buffet of course ... as he's shown he knows a good investment when he sees one.

"Be fearful when others are greedy and greedy when others are fearful”

According to the media WB owns not one single Bitcoin.

http://www.moneynews.com/MichaelCarr/bi ... /id/538915

https://medium.com/money-banking/2b5ef79482cb

http://www.danwei.com/li-xiaolai-bitcoin-millionaire/

http://www.theguardian.com/business/eco ... estruction

“Some days I am an optimistic pessimist ... other days I am a pessimistic optimist”
User avatar
MGV12
 
Posts: 5350
Joined: Wed Jan 23, 2008 4:23 pm
Location: Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby Roger Ramjet » Fri Dec 06, 2013 6:23 pm

MGV12,
If you change your browser to TOR when purchasing, you can use bitcoins to purchase anything, even in Thailand.
User avatar
Roger Ramjet
 
Posts: 5282
Joined: Tue Apr 27, 2010 12:55 pm

Re: Moore's Law on Steroids: Bitcoin Mining

Postby BKKBILL » Fri Dec 06, 2013 6:31 pm

Might want to take a look at the worlds most populated country with over 19% of us.

China bans banks from handling Bitcoin trade

http://www.bbc.co.uk/news/technology-25233224

Bitcoin crashes 20% on China clampdown fears

http://www.cnbc.com/id/101249450

And what about the smell of money?

Guess we could buy the perfume

Microsoft VP creates perfume that smells of money

http://news.cnet.com/8301-17852_3-20029089-71.html

What could go wrong?
It's not who you know, it's whom you know.
User avatar
BKKBILL
 
Posts: 2946
Joined: Tue May 26, 2009 10:05 pm
Location: Mae Taeng, Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby MGV12 » Fri Dec 06, 2013 6:37 pm

Roger Ramjet wrote:MGV12,
If you change your browser to TOR when purchasing, you can use bitcoins to purchase anything, even in Thailand.


As you well know RR ... if you have the desire you can do many things in Thailand.

Have you dabbled?

“Some days I am an optimistic pessimist ... other days I am a pessimistic optimist”
User avatar
MGV12
 
Posts: 5350
Joined: Wed Jan 23, 2008 4:23 pm
Location: Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby MGV12 » Fri Dec 06, 2013 6:41 pm

BKKBILL wrote:Might want to take a look at the worlds most populated country with over 19% of us.

China bans banks from handling Bitcoin trade

http://www.bbc.co.uk/news/technology-25233224

Bitcoin crashes 20% on China clampdown fears

http://www.cnbc.com/id/101249450

And what about the smell of money?

Guess we could buy the perfume

Microsoft VP creates perfume that smells of money

http://news.cnet.com/8301-17852_3-20029089-71.html

What could go wrong?


"Bitcoins were a "virtual good"" ... that means something in the original language does it?

China = 19% of us .... size isn't everything so they say!

“Some days I am an optimistic pessimist ... other days I am a pessimistic optimist”
User avatar
MGV12
 
Posts: 5350
Joined: Wed Jan 23, 2008 4:23 pm
Location: Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby MGV12 » Fri Dec 06, 2013 7:02 pm

Remember all those naysayers who said the Internet could never work?

Of course you don't but it seemed preposterous that the 'collective we' could ever trust it enough to let it control our lives ... as to a great extent it does.

Y2K? Just a hint of the possible consequences .......

“Some days I am an optimistic pessimist ... other days I am a pessimistic optimist”
User avatar
MGV12
 
Posts: 5350
Joined: Wed Jan 23, 2008 4:23 pm
Location: Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby Roger Ramjet » Fri Dec 06, 2013 7:59 pm

MGV12 wrote:Have you dabbled?

No, but a friend in Australia uses it to buy wine around the world and then cellars the wine offshore until he resells it, either in Europe or Australia. It saves mucking around with fluctuating currencies, poor exchange rates and also paying tax three times.
User avatar
Roger Ramjet
 
Posts: 5282
Joined: Tue Apr 27, 2010 12:55 pm

Re: Moore's Law on Steroids: Bitcoin Mining

Postby MGV12 » Sat Dec 14, 2013 10:21 am

I am neither for nor against Bitcoin or any other virtual currency ... just reporting what I observe.
You should always seek qualified advice before entering into new financial ventures ... if you can actually find anyone who knows their arse from their elbow on this subject
:roll: :lol:

Bitcoin start-up raises $25m venture capital funding

Coinbase.jpg


Coinbase, a start-up that lets people trade Bitcoins, has raised $25m (£15m) in venture capital funding - the largest by a Bitcoin start-up.

Bitcoin, a virtual currency, has been attracting a lot of interest and its value surpassed $1,000 recently.

Backers of the currency, which is not controlled by regulators, have been pushing for its increased usage.

Coinbase said it will use the funding to "educate the market, and promote the mainstream adoption of Bitcoin".

"We are nearing a tipping point for broad adoption of Bitcoin - what we at Coinbase believe to be one of the most important shifts in the global economy in our lifetime," the firm said in a blogpost.

The rest at - http://www.bbc.co.uk/news/technology-25360849

http://mashable.com/2013/12/12/coinbase-funding/
You do not have the required permissions to view the files attached to this post.

“Some days I am an optimistic pessimist ... other days I am a pessimistic optimist”
User avatar
MGV12
 
Posts: 5350
Joined: Wed Jan 23, 2008 4:23 pm
Location: Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby Mike Judd » Sat Dec 14, 2013 12:15 pm

I've read all of that through and have come to the conclusion that I really must be a stupid old bastard from another age, because I haven't a clue what it's all about and how it works. I think I will stick to bricks and mortar to make a quid.
Mike Judd
 
Posts: 1403
Joined: Tue Mar 22, 2011 7:31 am
Location: Church Point Sydney N.S.W. Australia. Khon Kaen

Re: Moore's Law on Steroids: Bitcoin Mining

Postby MGV12 » Sat Dec 14, 2013 1:26 pm

Mike Judd wrote:I've read all of that through and have come to the conclusion that I really must be a stupid old bastard from another age, because I haven't a clue what it's all about and how it works. I think I will stick to bricks and mortar to make a quid.


Don't worry you "stupid old bastard" you won't be the only one.

No Bitcoin mining for you then :lol: :lol: :lol:

“Some days I am an optimistic pessimist ... other days I am a pessimistic optimist”
User avatar
MGV12
 
Posts: 5350
Joined: Wed Jan 23, 2008 4:23 pm
Location: Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby BKKBILL » Sat Dec 14, 2013 2:14 pm

Mike Judd wrote:I've read all of that through and have come to the conclusion that I really must be a stupid old bastard from another age, because I haven't a clue what it's all about and how it works. I think I will stick to bricks and mortar to make a quid.


I'm with you Mike only thing is we will have to get some young'un to pack the bricks and mortar. Not that stupid! :mrgreen: :mrgreen:
It's not who you know, it's whom you know.
User avatar
BKKBILL
 
Posts: 2946
Joined: Tue May 26, 2009 10:05 pm
Location: Mae Taeng, Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby MGV12 » Sat Dec 14, 2013 3:34 pm

Maybe you SOB's should think again about mining :P

Richard Branson: Buy your space flight with bitcoin

SpaceShipTwo.jpg


http://www.nbcnews.com/technology/richa ... 2D11641781
You do not have the required permissions to view the files attached to this post.

“Some days I am an optimistic pessimist ... other days I am a pessimistic optimist”
User avatar
MGV12
 
Posts: 5350
Joined: Wed Jan 23, 2008 4:23 pm
Location: Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby BKKBILL » Sat Dec 14, 2013 10:06 pm

Just when you thought it couldn't get more confusing.

Dogecoin digital currency takes on Bitcoin with a bit of meme flair

http://www.slashgear.com/dogecoin-digit ... -11308557/
It's not who you know, it's whom you know.
User avatar
BKKBILL
 
Posts: 2946
Joined: Tue May 26, 2009 10:05 pm
Location: Mae Taeng, Chiang Mai

Re: Moore's Law on Steroids: Bitcoin Mining

Postby MGV12 » Sun Dec 15, 2013 6:13 am

BKKBILL wrote:Just when you thought it couldn't get more confusing.

Dogecoin digital currency takes on Bitcoin with a bit of meme flair

http://www.slashgear.com/dogecoin-digit ... -11308557/


All very tongue-in-cheek .... even to the extent that the meme 'doge' begets 'dog-e-coin' ... which is pronounced phonetically doggiecoin ... which is remarkably similar to dodgycoin :roll:

http://www.geek.com/apps/the-best-inven ... n-1579442/

http://www.digitaltrends.com/social-med ... n-bitcoin/

http://dogecoin.com/

This link will make it easier for Mike to understand :mrgreen: http://www.wallstreetcrypto.com/2013/12 ... on-us.html

“Some days I am an optimistic pessimist ... other days I am a pessimistic optimist”
User avatar
MGV12
 
Posts: 5350
Joined: Wed Jan 23, 2008 4:23 pm
Location: Chiang Mai

Next

Return to general

Who is online

Users browsing this forum: No registered users and 1 guest