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Financial Aspects: Income And Profitability

All About Bitcoin Mining: Road To Riches Or Fool's Gold?
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Income = Revenue Minus Expenses

Don’t neglect your costs when calculating income. As explained above, what you pay out of pocket includes one-time charges (typically, what you pay for the mining hardware) and recurring costs, like electricity and/or rent on a dedicated space.

More important, don’t forget to anticipate the relentless rise in mining difficulty, and thus dwindling revenue. A profitability calculation should be done at least once a month. After all, it doesn’t make sense to keep mining at a loss, unless of course you expect the exchange rate for Bitcoins to rise in the future. Since the latter is far from certain, you’re then gambling.

Efficiency (Power Draw vs. Hash Rate)  

As the mining difficulty increases, mining efficiency becomes more and more important.


HD 5830
HD 6990
BFL Single
BFL miniRig
Avalon Box
BFL Jalapeno
ASICminer USB
ASICminer Blade
Hash Rate
250 MH/s
700 MH/s
830 MH/s
25.2 GH/s
66 GH/s
5 GH/s
300 MH/s
10 GH/s
Power Draw
153 W
357 W
80 W
1200 W
620 W
30 W
2.6 W
100 W
MH/s Per W
1.63
1.96
10.4
21
106
167
115
100

Upgrading from GPUs to FPGAs reduced the power draw by an order of magnitude. Likewise, upgrading from FPGAs to ASICs again slashes power consumption by another order of magnitude.

Is the Bitcoin Currency Experiencing a Bubble?

Surprisingly, there isn’t an easy answer to this question. Generally, in economics, the money supply should keep pace with economic growth or a society’s productivity gains, and neither outpace it nor lag behind. If the money supply is increased faster than the economic growth, this results in too much money chasing too few goods, and consequently prices for goods will rise. This is called inflation, and more than a few percentage points of annual inflation is generally considered harmful to an economy, leading to gradual loss of savings, impoverishment of retirees, and even social unrest. However, some slight inflation is generally considered beneficial for an economy, acting as a disincentive to hoard money (as opposed to investing savings back into the economy), and as a gradual reduction of labor costs. On the other hand, if the money supply is increased slower than the economic growth, this tight monetary policy leads to less demand for goods, and hence it can harm the economy. Worse, if a glut of goods develops, the price of goods will inevitably drop due to the law of supply and demand, and a deflationary spiral can result.

Satoshi opted for a slowly paced increase of the money supply. And when 21 million Bitcoins have been minted, the money supply will come to a halt. New blocks are generated every 10 minutes, on the average. While the reward for finding a block was initially 50 Bitcoins, the block reward was halved to 25 Bitcoins in late November 2012. This reward halving will happen every four years, thus gradually reducing the money supply to a trickle.

This leads us to the conclusion that the Bitcoin currency is intentionally deflationary. If Bitcoins become more and more adopted, while on the other hand the money supply faucet is gradually turned off, the Bitcoin exchange rate to the dollar can go nowhere but up. While the incredibly quick run-up to $266 in the second week of April was, in fact, a speculative bubble, a gradual rise in the value of Bitcoins is almost assured.

There is one element of uncertainty: if all governments were to outlaw Bitcoin exchanges, it would become impossible to exchange normal currency into Bitcoins and vice versa. But there are almost 200 countries in the world, and it seems unlikely that all countries will outlaw Bitcoin exchanges.

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  • 12 Hide
    dannyboy3210 , June 9, 2013 10:39 PM
    A very interesting read. I had been reading about Bitcoins (mainly because I just couldn't figure out what they were exactly), but this clears a lot of things up.
    Also, at the bottom of page 5, in the Comparison of FPGA and ASIC Chips table it says "Power Fraw".
  • 12 Hide
    phenomiix6 , June 9, 2013 11:37 PM
Other Comments
  • 8 Hide
    Darkman69 , June 9, 2013 9:49 PM
    Finally a proper write up on Mining Bitcoin with the good the bad and the reality.
  • -9 Hide
    esrever , June 9, 2013 9:54 PM
    How does mining new coins make sense if there will ever only be 21 million? I am so confused by that point.
    Another thing is, with an economic system like this, a billionaire can easily manipulate market prices and make extremely large amount of money and still be completely fine due to this being in a grey area of the law. You can't pump and dump stocks legally but it seems pretty easy for something like this considering you can dump the bit coins off as currency in any country.
  • -5 Hide
    s3anister , June 9, 2013 10:00 PM
    Quote:
    How does mining new coins make sense if there will ever only be 21 million? I am so confused by that point.


    To quote the Bitcoin wiki page: "The last block that will generate coins will be block #6,929,999 which should be generated at or near the year 2140."

    So to directly answer your question, the whole reason for mining bitcoins is because you'll most definitely be dead before the last block chain is even completed.
  • -6 Hide
    smeezekitty , June 9, 2013 10:14 PM
    Shitcoins definitely = fools gold!
    Huge waste computing power IMO
  • 1 Hide
    vmem , June 9, 2013 10:27 PM
    Quote:
    Shitcoins definitely = fools gold!
    Huge waste computing power IMO


    someone needs to rewrite the algorithm and somehow hook up block generation to folding@home or some similar constructive use of the computational power.
  • -1 Hide
    smeezekitty , June 9, 2013 10:28 PM
    Quote:
    Quote:
    Shitcoins definitely = fools gold!
    Huge waste computing power IMO


    someone needs to rewrite the algorithm and somehow hook up block generation to folding@home or some similar constructive use of the computational power.

    That would be a great idea. Verifying a relatively small hash to screen out the cheaters then perform something useful like F@H.

  • 12 Hide
    dannyboy3210 , June 9, 2013 10:39 PM
    A very interesting read. I had been reading about Bitcoins (mainly because I just couldn't figure out what they were exactly), but this clears a lot of things up.
    Also, at the bottom of page 5, in the Comparison of FPGA and ASIC Chips table it says "Power Fraw".
  • -8 Hide
    slomo4sho , June 9, 2013 11:02 PM
    Fiat currencies... I guess for some people the dollar wasn't worthless enough.
    It is amazing how you can lose your "wallet" and your funds permanently disappear from the pool.
  • -9 Hide
    toarranre , June 9, 2013 11:02 PM
    Never heard of this and I'm quite confused by it. Use graphics cards to find units of a currency that from what I can tell must be extremely succeptable to artificial inflation or all out collapse.
  • 12 Hide
    phenomiix6 , June 9, 2013 11:37 PM
  • 9 Hide
    csf60 , June 10, 2013 12:53 AM
    In 2010 I started bitmining and reached 3 bitcoins in 2 months with a 5850. Each bitcoin was worth 3$ at that point so I just gave up and lost my wallet. If I only knew 3 years later they would change for 150$ each... :face palm:
  • 3 Hide
    choz , June 10, 2013 12:58 AM
    Thanks for your calculations. I now have more things to laugh about here in Australia when I read about bitcoin "miners" setting up multi-gpu rigs when our power price is around the 25c per KWh mark and rising by 5% annually.
  • 0 Hide
    ET3D , June 10, 2013 1:16 AM
    I've only skimmed the article, but I didn't see a good discussion of mining pool, trading and all the DDoS, phishing and hacking that goes with it.
    The technical aspects and financial calculations are one thing, but going bitcoins is somewhat of a hornets' nest, and it's really worth discussing this stuff.
    I haven't mined seriously, but the first time I tried (for two weeks, generated half a bitcoin), I left the bitcoins in the pool and one of the pool's founders embezzled and took what was there and left. I've seen other pools hacked, and there are regular DDoS attacks on them, changes in the terms, all kinds of things you really need to follow carefully if you want to mine effectively. Just leaving your miner running and hoping that you'll get the expected coins eventually doesn't cut it.
    I currently mine a little LTC for fun (partly because after installing Catalyst 13.4 I can't mine BTC and can only mine LTC with an old cgminer version I have installed). I'm not sure that it's worth it financially, and I'll probably shut down mining in the not too far future.
  • 4 Hide
    Madn3ss795 , June 10, 2013 1:19 AM
    Quote:
    I bought a few Radeon HD 7790 graphics cards

    7790 already out in June 2011 ? :lol: 
  • 2 Hide
    immanuel_aj , June 10, 2013 2:28 AM
    Quote:

    Or better yet, enjoy this crazy sideshow from the bleachers.


    Yup, that's exactly what I'll be doing! There's always something in the news about it every month these days. :) 

  • 5 Hide
    uruquiora , June 10, 2013 3:05 AM
    this is why i think TH is one of the best IT news website around nowadays... thanks for a very interesting article and for sharing the good and the bad with newbies like me on that subject.
  • -1 Hide
    somebodyspecial , June 10, 2013 3:29 AM
    Maybe now we won't have to see this in benchmarks. It's over for gpus.
  • 0 Hide
    tlg , June 10, 2013 4:17 AM
    I am also wondering how he got the HD7790 in June 2011, except if this is a typo because later on in the same page he talks about November 2012.
  • 0 Hide
    dalmvern , June 10, 2013 6:05 AM
    Great article, I have been wondering what the fuss was all about. Now the only question I have is:
    What is all this processing power being used to do?
    As it was mentioned in an earlier comment, it would be great to use it for something like scientific research like F@H...but I have never seen anything explaining IF it is being used, and if it is, what it is being used to do.
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