It is very unfortunate that BFL is getting publicity over this article - they're a company with a terrible reputation and have treated their customers horribly. I got bitten by the mining bug recently and was stupid enough to almost buy one without doing proper research, until I ran into an issue with checkout. They were ridiculously unprofessional and rude dealing with it, and slow to get back to me, and that was a blessing, as I realized how worthless it was in the end.
What it's probably not going to say in this article is: People have been waiting to have one shipped to them for over a year. Use a calculator to find out how much lost profit that is. If you buy one now, or even if one is shipped to you in the next few months (unlikely, unless you ordered it 10 months ago), it will be basically worthless due to more and more ASIC hardware coming out on the market.
If you must go into mining, check out some of the custom Klondike K16 Boards that are being developed. These will be shipped much faster than anything BFL ships out, but even then you're looking at a few months lead time, which could be significant in terms of increasing difficult and return value.
Could someone please explain why Butterfly Labs don't mine the coins themselves, but sell their devices instead?
As far as I understand bitcoin (and please correct me if I'm wrong), bitcoin output of the system is fixed, so if you produce (or buy) a lot of super-duper fast ASICs, they will generate less bitcoins per unit. If it is correct, then butterfly labs success inversely correlates with specific miner success, as in the more ASIC-s they sell for a fixed dollar price, the less profit their buyers receive. This seems somewhat conflicting to me.
People keep repeating this meme. But in this case, setting up a mining business is trivial. If these devices will have a payback period of ~10 days in the near future, it does not make sense at all to just sell them to end-users.
I fully expect that they will start mining themselves as soon as they fulfill all the existing orders.
A peculiar feature of the ASIC market is that unless you are making really a lot of chips, it's entirely reasonable to assume that the marginal cost of creating one more chip is zero. If your production volume is below tens of thousands, almost all of your costs are going to be masks and design. In that way, selling an ASIC is like selling software -- at first you need pay huge sums for development, and then you can duplicate your product at (almost) no cost.
So what probably happened is that Butterfly labs realized a market opportunity, but they didn't have the money to exploit it. So, the presold some millions of dollars worth of hardware, used that money to design it and make the masks, and then delivered the first few batches to fulfill those orders. And at the end of the day, they don't just have whatever profit they made on the miners, they still have the masks, and can now make more miners for peanuts.
> But in this case, setting up a mining business is trivial.
Not exactly. I'm not exactly sure on the up front cost to develop ASICs, but it's definitely well into 6 figures. BFL sold millions of dollars in pre-orders 12 months ago to fund the design and development of the devices. Everyone in the bitcoin world knew where it was going technology-wise last year, but only 2-3 companies have successfully developed ASIC miners 12 months later.
There are many people who pre-ordered devices from BFL over a year ago and still haven't received them. It seems like BFL would be guaranteed a lawsuit if they started mining on their own before fulfilling those year old orders.
If you look at the market depth (the V-shaped plot at coinlab.com and elsewhere), you can see that ~$1M is sufficient to shift the price of BTC, which has a ~$1B capitalization by ~10%. Thus, if you wanted to make more than ~$1M from BTC, it would have to happen by doing something other than selling BTC itself, lest you crash the market.
The price is supported by speculators (like me; I've bought a little to play with) who think that the value of BTC at some time in the future is at least $100. If it were priced at its utility, at least in my simpleminded picture of things, a shift of 10% in the price should come only with a sale of ~10% of its capitalization.
Diminishing returns: The amount of mine-able bitcoins decreases overtime, as well as the amount of reward decreasing as the hashing power of the network increases. Assuming the price of Bitcoins does not increase accordingly, the amount of money gained will go down.
Bitcoin Collapse: If Bitcoins collapse, you now have a bunch of worthless miners. Compare this to a quick sell it and done.
God forbid you gain a significant amount of network control, because you have a problem. Miners will probably begin to reject your transactions for the sanity of the network, because you could double-spend, and virtually create infinite bitcoins.
Also, how is setting up a business like this trivial? I imagine that a huge part of it (initial investment, buying power, and maintaining all these devices) could be problematic, although I could be wrong.
The more centralized mining is, the less bitcoins will be worth. They could have accidentally killed it, if they acquired too much hashing power. A mystery why the payback period is set so generously though.
My completely uninformed guess is that they are. If I were the one selling these things, you'd better believe that I'd have a room full of them mining bitcoins, and my room would take priority over sales. But I'd also sell them, because why not?
However, those that get the richest are in fact always the mining companies.
The top miners of bitcoins have gotten radically richer than those selling mining tools ever will. In this case the mining will run out, the bitcoins will remain and grow more valuable due to supply / demand (assuming bitcoin succeeds longer term).
There are far more $5+ billion mining companies, than there are $5+ billion mining tools companies.
Go down the list of the top 20 mining or natural resource extraction companies. The tools business is always radically smaller by comparison. eg: BHP Billiton, $156b market cap; Rio Tinto, $76b market cap; Vale $68b market cap. And of course the oil industry is far more dramatic.
Selling tools like the bitcoin mining boxes is foolish, unless you're selling lemon tools that won't recoup their investment (people will stop buying them quickly), or unless you're betting bitcoin won't thrive long term. If you think bitcoin will thrive, it's far better to mine each coin yourself and own it long term, and ride that extreme appreciation. The return would be far beyond any margin you could earn on boxes.
Hindsight is 20/20: It also could have happened that bitcoin prices are down to $1 right now and then BFL and other shovel sellers would vastly outperform dedicated miners.
Another possible reason is that if a small number of companies start using ASICs, and they're the only ones that use ASICs without selling them to "regular" users too, they'll quickly gain a large percentage of the hashing power. If a company like ButterflyLabs controls a significant chunk of the total hashing power, it'll enable them to do 51% attack [1] on the network, which'll lower the trust users have in the currency, leading to decreased value.
Its a bit paradoxical - people will want as much hashing power as they can get, yet if they get too much of it they risk destroying the currency value, leaving them with nothing.
"the second reason [they aren't just mining themselves] is far more practical: bitcoins, for all their current value, are still speculative. A large amount of US dollars is a large amount of US dollars no matter which way you cut it. It can be readily exchanged for goods and services. Bitcoins themselves don't necessarily hold value, and it's difficult to exchange them in large quantities for an equivalent amount of dollars. "
BFL can't afford the NRE to develop an ASIC alone for one. Another is that if any one miner gets so big that they could 51% the network, the other network participants would likely shun them, reject their work. Another is that it isn't usually great business to compete with your customers.
Yeah... I'm very surprised that any of these have shipped at all; it seems like any MBA in charge would want to keep the devices on hand for a while longer for 'extended burn-in' You know, quality control; we can't send devices out to customers if they are going to conk out in a few months.
That's what they did. They kept them for about a year, to give them a "burning test". People who ordered last year about this time of the year, just now are receiving what the product. People who ordered on say, September, are still waiting. Nobody saw a ROI in Bitcoin with these mining boxes (though any investment related to Bitcoin will probably see a nice ROI in dollars). People would have made more profits if they invested directly in Bitcoin, instead of falling for this scam.
To be clear... this is my 'mostly joking' paranoia. I've got no evidence. The situation does seem like buyers are placing a whole hell of a lot of trust in the manufacturers.
Here are 4 simple reasons why BFL sells the devices. I explain this over and over to non-Bitcoiners who don't understand...
Developing an ASIC requires manufacturing a lot of wafers to recoup your NRE cost, mostly the mask set cost. In the case of BFL, they manufactured 75-100 thousand chips in the first batch, or a few dozen wafers. Each chip consumes ~15-25W (there are two of them in a 30-50W Jalapeno) and each chip is capable of 3-4 Gh/s.
Firstly, if you do simple math on power consumption, you find out that running 75-100 thousand chips would need a datacenter of 1.1 to 2.5 megawatt! It would take many more months to deploy and maintain up to 2.5 MW of hardware, causing BFL to be unable to generate mining profits quickly. It is a lot easier for an electronics manufacturer to merely ship hardware to end-users, than to deploy megawatts of hardware in datacenters.
Secondly, if BFL mined with 75-100 thousand chips, they would mine at 225-400 Th/s. This is 2x-3x higher than the current global hashrate (~150 Th/s as of June 2013). So they would instantly cause the difficulty level to increase by 3x-4x, therefore reducing their mining profits to only 1/3rd-1/4th of what one might naively conclude by using a Bitcoin profit calculator today.
Thirdly, there is intense competition from other ASIC manufacturers, who are already up and running! A chinese company known as ASICMINER currently already operates 40 Th/s of ASICs as of June 2013 (roughly 150 thousand of their own 130nm chips), and claims they will soon deploy 250 Th/s to keep up with the expected competition. Also, Avalon has currently shipped their first batch of 20 Th/s of devices to customers, with their second batch of 40 Th/s being shipped as we speak (as of June 2013), and a third batch of 40+ Th/s in the next months. All this to say that it would be very risky for BFL to just plan to mine for themselves, when they are already late compared to competition. Combined with my points #1 and #2, by the time BFL catch up with competition and mines with megawatts of hardware, the difficulty level will have increased by at least 10x. At this point, clearly it makes sense to sell the devices to instantly reinvest the sale proceeds to build more, rather than spending 3-6 months to mine to (hopefully) recoup the manufacturing costs.
Fourthly, mining is extremely dependent on the exchange rate of Bitcoin. If BFL sell/pre-sell a device for USD as they did, they lock their profits right away. Whereas if you plan to manufacture, then mine, then sell the bitcoins, anything that happens to the exchange rate during this timeframe puts your future profits at risk.
As someone who ordered back in August 2012 and received his 2 jalapenos a week ago I can say I'm still very happy with my order. I wouldn't advise someone to buy into it now as this article doesn't do enough to explain the geometric rise in difficulty will most likely make it difficult to recoup costs on the hardware by the time an order made today ships. BFL estimates they will clear the backlog of orders by September of this year, but their estimates are notoriously bad so take that with a grain of salt.
These units don't perform worse than what I originally ordered, in fact they hash at a rate that is 24% higher than what I ordered (5.6GH/s vs 4.5GHs). While it is true to say they use more power than promised as they were originally going to use 5 watts and instead use 30 watts saying they perform worse AND use more power is misleading.
I thought it was fairly sleazy of them to offer the hashing "upgrade" for 100 dollars when from what I can understand it's a firmware only thing, and should have been done for free for forcing people to wait anyway.
Do you feel angry at all that you lost so many months of potential income?
Back when I bought my jalapenos they were only $150 and I chose not to do the upgraded pricing to 7GH/s for $100. The speedup I was referring to was simply a bump in the base model from the original 4.5GH/s specs to what the units I received actually ran at.
Given that the units have almost paid for themselves in one week it's hard to be upset about any lost income. On the other hand I still have only received part of my order and am waiting on multiple 60GH/s units that are just now starting to ship to people who ordered in June 2012. Depending on how long it takes them to get to my order I may have some regrets I didn't just order all jalapenos instead.
It would have to go down further to be not worth doing, since he covered the cost in ten days, and the electricity cost is less than $2/week. At $7/week for example he would roughly break even over a year even factoring in the cost of the device.
You can make more money playing the ups / downs of btc (for example, right now, there is a down explicitly because gtx halted US dollar transfers so everyone is panic transferring BTC out and selling it off). Than trying to invest in a btc mining rig and playing a literal lottery with computing hashes, or joining a mining guild and making very little very consistently.
Which raises the question: what's the breakeven volume for Butterfly Labs customers? As more and more people buy their miners, how does the time to recover its cost dilate?
It's $20/day though, not $20/week. At that rate, if you can grab one right now, you don't really have anything to lose; you will have recouped your investement in about 3 weeks, maybe 4, and everything else is extra.
Sigh, more ARS blatantly advertising for BFL. If anyone is inclined to try this, buyer beware. Do some research on BFL before you spend money with them.
Depending on your graphics card, a few dollars a week sounds about right. A mid-range graphics card (eg: a 2GB 6970, $300) has a MH/s of about 400, as far as I know the top range consumer graphics cards (about $1000) top out at around 1200MH/s, which is 1/4th of what the Jalapeno has. A 6970 would probably generate about $8/week at present, but the power costs will dwarf that so it's not really worth it, unless you're not paying the power bill.
The major problem is right now mining profitability is dropping fast and is going to drop even faster as all these custom built miners ship, you might be able to make a few dollars a week at the moment with your graphics card but once all these custom built miners start to ship (and there's tens of thousands of pre-orders) it'll become pennies. You've missed the boat on mining profitability with consumer hardware and anyone looking at custom built miners is going to be losing money too unless the value of Bitcoin sky rockets.
I've been watching blockchain.info the past few weeks, and the estimated ROI has dropped from -30% to -50% in the course of about 2 weeks. A few months ago it was positive.
I'm assuming blockchain's estimates are based on standard hardware.
Most GPU miners have moved from bitcoin to litecoin or feathercoin as they use scrypt hashing instead of SHA256 so are resistant to ASIC hardware. Mining these currencies usually offer an extra 30-50% over mining bitcoin directly and can be sold for bitcoin or USD on various exchanges.
As an example for a $300 ATI 7950 card that generates ~600kH/s scrypt you will generate $1.33 per day in litecoins vs ~450MH/s with SHA256 which currently generates $1.01 per day in bitcoin.
With the onslaught of ASIC hardware coming though it's not clear what's going to happen with GPU mining. As more people move to the other currencies they will become less profitable to mine and could get to the point where they cost more in electricity than they generate in profit. Definitely bitcoin mining will be at that point by the end of the year for people without ASIC hardware.
CPU mining is pretty much pointless now. And unless you're not paying for power GPU mining is pretty much a wash. Assuming an ATI 5870 uses 200W, and can do 400MH/s (which looking online seems about correct), you can expect to generate about .01 BTC/day, which is about $1 at current rates. You'd be looking at profitability if your marginal power costs are less than $0.20/kWh. And that's not factoring in the cost of the graphics card.
For comparison, 2 USB asic miner erupters will hash at about 650MH/s, and use about 3W.
So in short, if you already have a fast graphics card and don't have to pay for power, it might be worth mining.
I was mining with a medium-low grade GPU for about 6 weeks. I ended up with 0.3 BTC which is about $30 right now. If you had a $250 Radeon you could probably have done better at the time, but this was just at the beginning of the ASIC invasion so it's probably harder now.
Based on a ATI Radeon 5870, which is an older but not "Whoa, what are you thinking!?" graphics card running on an active miner, I produce about 0.01 BTC per day. At the current exchange rates, that's...about a dollar a day.
For everyone wondering how much you'd need to mine to pay for the equipment, here is a handy calculator: http://www.bitcoinx.com/profit/
The BFL Jalapeño (5GH/s) is $274 and where I live electricity costs $0.19/kWh. From the article, the device "pulled 50 watts of power when actively hashing". So, this will pay off in 3 days, and will generate 9321.64 USD over 3 months (given 0.61 profitability decline per year).
The timing of when you get the device is crucial, check out how fast the total power of the mining network is going up: http://bitcoin.sipa.be/ (it is the 1st graph).
They are toiling for this money. Specifically, the mining system exists in order to verify transactions, put them together into a block, and distribute that block to be added to every client's copy of the blockchain. The reward for performing this very important task is a certain number of Bitcoins "generated" at present, along with transaction fees that the miner can collect from any transaction which includes them.
The reason for centralising the Bitcoin network on the miners (and for each block, one particular miner) this way is simple - consensus. It's of paramount importance that every client on the network has exactly the same copy of the blockchain, otherwise double-spending can occur - causing one half of the network to believe that some Bitcoins were transferred to one address, and the other half to believe they were transferred to another.
The easiest way to do this is to build the network in such a way that one node holds an authoritative copy of the blockchain, and distributes that out to everyone else. But that goes against the concept of a decentralised network. So instead, what Bitcoin has done is built a system where every mining node races to solve a computationally hard problem, that they can prove they found the answer to, in order to become authoritative in order to add a single block to the blockchain. The incentive to do so is the "mined" Bitcoins, along with the transaction fees for every transaction included in that block.
Without this system, Bitcoin could not exist.
For the record - even though the miner is authoritative in adding a block to the blockchain, it cannot forge transactions. It can however refuse to add a transaction to the block, which sometimes happens if the offered transaction fee is too low. The transaction might be added to future blocks if other miners are OK with the transaction fee.
Moreover, how economically viable is it for the generation of currency to be proportional to wasted wealth (i.e. electricity spent mining coins)? Isn't money supposed to track created wealth?
What it's probably not going to say in this article is: People have been waiting to have one shipped to them for over a year. Use a calculator to find out how much lost profit that is. If you buy one now, or even if one is shipped to you in the next few months (unlikely, unless you ordered it 10 months ago), it will be basically worthless due to more and more ASIC hardware coming out on the market.
If you must go into mining, check out some of the custom Klondike K16 Boards that are being developed. These will be shipped much faster than anything BFL ships out, but even then you're looking at a few months lead time, which could be significant in terms of increasing difficult and return value.