Bitcoin News
Daily diary of what's happening with Bitcoin.
Motherboard’s Alec Liu (@sfnuop) interviews Yifu Guo, creator of the Avalon ASIC — one of two reasons Bitcoin mining capacity has been coming online at a faster pace than ever. Excerpts:
“And quietly in the background, a company called Avalon shipped the first ASIC-based bitcoin miners, custom-built rigs with specially-designed chips for efficiently printing the market’s hottest commodity, ushering in what can be considered the internet’s first gold rush. (Someone recently paid $20,000 for a $1,500 miner from batch two on eBay. At the time of this writing, another auction has a batch two Avalon miner going for over $19,000.)”
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“After opening up its third batch of 600 miners for sale yesterday, customers from around the world from countries like Argentina, the UK, and even Egypt (although the majority of orders came from the big three of the U.S., Russia, and China) made sure Avalon’s units sold out in fifteen minutes. We had the chance to sit down with Avalon’s founder, Yifu Guo to talk bitcoin, mining, and the future.”
“If bitcoin is a $1 billion market, and it only takes less than $1 million to secure the network right now, that’s not a lot of money for someone to try and take over the mining scene. The faster the technology progresses, the more secure the network is, because it will be that much harder for a malevolent entity to mess with the system. We want to [improve performance …] The sooner the better so we’ll never again have this scenario where one company like Avalon essentially controls more theoretical computing power than the entire network’s hash rate. This will never happen again.”
- http://bit.ly/14lT6cd
- http://bitcointalk.org/index.php?topic=159125.0 (Further discussion of the article)
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Adrianne Jeffries (@ADRJeffries), writer for TheVerge, provides a summary of the one-two punch facing Bitcoin miners. Excerpts:
“O’Shea’s backyard [Bitcoin mining] operation brings in about $3,000 a month, he estimates, although the take is always changing because the price of Bitcoin is extremely volatile. He’s spent more than $60,000 on equipment, and his electricity costs run between $2,200 and $2,400 a month. He’s defrayed his cost significantly but has yet to break even.”
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“There is money to be made. Last year, miners generated $16.7 million worth of Bitcoins, using the price at the time the coins were created. But miners’ margins are getting thin.”
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“I’d say that the majority of miners, especially large-scale ones that I know, including myself, are not paid off,” said Jeff Brandt, who makes about $2,000 a month mining Bitcoin on the $40,000 worth of equipment he keeps in an 1,800-square-foot barn.”
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“The mining industry is about to be thrown into turmoil due to two major changes expected to hit, entirely coincidentally, around the same time. One is the introduction of application-specific integrated circuits, or “ASICs,” designed specifically to mine Bitcoins up to 1,000 times faster than current technology. The other is a deadline hard-coded into the Bitcoin software. When the total number of Bitcoins reaches 10.5 million in about one week, the block reward will suddenly be cut in half.”
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“Most miners are in it for profit, but many don’t know how tough it is to make money, Guo said. ‘A lot of them are uninformed,’ he said. ‘If you don’t have cheap power, don’t go into mining long-term.’ When the new chips come online, he expects miners will have to go pro or go home. ‘A lot of people are going to stop mining,’ he said.”
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“[Bitcoin startup CoinLab] pivoted to a new model which matches Bitcoin miners with universities and other entities that need distributed computing power. CoinLab also runs a mining pool of more than 1,000 miners.”
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“‘The amount of growth we’ve seen in the last year just in the Bitcoin market as a whole, then in the mining market, is staggering. I can compare it to the beginning of the dot-com era,’ said Josh Zerlan, COO at Butterfly Labs.”
- http://vrge.co/T5sDbP
- http://bitcointalk.org/index.php?topic=125494.0 (Further discussion of the article)
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A blog post by David Perry (@KJ6CCZ) gives a thorough explanation of how mining works without any of the specific details that “might scare the non-techies”. Excerpts:
“Core concepts and terms:
“Hash - I tell you that I added two numbers together and the result was 14,862. Given only that number there’s no way you could tell me what two numbers I added to get that total, but it would be easy to reproduce my result if I asked you to add 3,608 and 11,254.
Block - Transactions are bundled up into big chunks of data called blocks. These blocks are linked together in such a way that each one proves that the block before it was valid.
Difficulty - Ensures that [Bitcoin’s] math problems are hard enough that it always takes the combined efforts of all the miners around 10 minutes to solve a block.”
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“The more miners there are, the higher the difficulty goes. The higher the difficulty goes, the harder it is to commit fraud on the Bitcoin network.”
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“Sudden changes in the value of a bitcoin can make or break mining operations. Granted if a drop in price knocks some miners out of the picture, difficulty will decrease to accommodate, but that takes time. Miners follow the market - the market does not follow the miners.”
- http://bit.ly/Q3v5i9
- http://news.ycombinator.com/item?id=4488047 (Additional comments)
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A post on Bitcoin Miner blog (@BitcoinMiner) describes how landlords are unwittingly becoming an integral part of a mining operation. Excerpts:
“Never before has there been a cottage industry that simply monetizes electricity. Mining consumes power in a manner in which it can nearly directly be converted to cash.”
“There is still a healthy market for this used GPU hardware from those operators whose electric costs are much lower and from those whose power consumption is included in their residential or commercial lease.”
“This in effect transfers much of the cost of mining to the landlords who receive none of the benefit except, perhaps, in the greater likelihood that the mining operator pays the rent on time.”
“While smart meters provide landlords with the technical ability to do utility submetering, rent controls and housing regulations often prohibit the use of submetering.”
“Because Bitcoin mining is a 24/7 operation, it can easily represent half or more of a residence’s power consumption.”
- http://www.bitcoinminer.com/post/25945886269
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A post on Bitcoin Miner (@BitcoinMiner) looks into whether this is the end for the GPU used for mining. Excerpts:
“In less than six months, block 210,000 will be reached and with that event the block reward will drop by half, to the level of just 25 BTC.”
“Mining operators are preparing by either switching over to more efficient mining equipment or are liquidating operations outright — oftentimes due to the higher capital requirements needed to acquire the modern forms of mining hardware.”
“Even though the GPUs from this post’s photo are offered for sale as being used previously for mining (presumably for many months) they still have a relatively high market value compared to the price when they are purchased brand new.”
“There will be a rotation of hashing equipment. GPUs are being decommissioned where power is expensive and those same cards remain a valued commodity to those with access to power that is relatively cheap.”
Available for download on CoinDL (@CoinDL) is a 30-page guide (eBook PDF). Subtitled “A Guide for Gamers, Geeks and Everyone Else”, the eBook explains the background of mining, the tools used, and a few techniques that help get the most for your efforts.
Though the eBook is free, the author, David R. Sterry (founder of CoinDL), is requesting donations, as was stated in his forum post announcement of the eBook. The proceeds will be used towards the purchase of an ISBN so that the additional marketing and sales channels.
- https://www.coindl.com/page/item/201
- http://bitcointalk.org/index.php?topic=82428
A post on the Bitcoin Miner (@BitcoinMiner) blog features a photo from a commercial mining operation which helped to contribute to the latest difficulty adjustment increase. Excerpts:
“The leading GPU farms use economies of scale combined with low power costs to solve blocks at a lower cost than any solo miner paying residential rates could ever hope for.”
“The recent difficulty threshold for generating bitcoins went from 1,508,590 to 1,733,208, representing nearly a 15% increase in just over 12 days.”
“This increase is the biggest, in percentage terms, since June, 2011.”
“The capitulation by the small miners suffering electric utility bill pain is benefiting these commercial operators whose facilities can accommodate further expansion and letting the overhead costs be spread out over a growing number of producing rigs.”
“If hardware costs are amortized much past when the upcoming drop in the block reward is expected to occur (sometime around December), then these commercial operators could be facing a rude awakening.”
Jon Matonis (@JonMatonis) shares more details on the CoinLab seed funding announcement in an article in Forbes. Excerpts:
“Draper Associates partner Tim Draper explains the allure of the decentralized bitcoin, ‘The idea of a private currency has always been appealing to me as a way to diversify away from holding currency in irresponsible governments. It is more relevant now than ever.’”.
“Like DropBox, the CoinLab app will reside in the background so that the players are not even aware of the mining that occurs during the gaming session. To the gamer, certain virtual items or level upgrades would be obtained”.
“Vessenes doesn’t want to refer to CoinLab as ‘just another mining pool’ because they have a distinctly different type of payout, but you can certainly imagine some non-gaming miner opportunities entering the CoinLab platform”.
A post by Amir Taaki (genjix) on Bitcoin Media (@BitcoinMedia) describes how and why bitcoin mining performs “work”. Excerpts:
“Another property of a good hash function is small changes in input lead to large changes in output. This makes it difficult (practically impossible) to reverse a hash function”.
“A bitcoin miner is constantly hashing a block to see if it passes the above check. If not then it slightly modifies the block and tries again. It keeps doing this until it finds a block that passes. A valid block has been found, and the miner will broadcast this block to the network”.
“A miner’s task is to make a block and keep modifying that block so that it produces a different hash, until that hash passes a [specific] test”.
“Creating a block is not easy. It takes computational processor cycles. Ergo it takes electricity. Ergo it costs money. Creating a block usually has miniscule profit or even negative expected value. As more people mine and create blocks, the network drives up the difficulty squeezing out all the profit”.
The latest post on Bitcoin Miner blog (@BitcoinMiner) computes the revenue to miners for 2011. Excerpts:
“About 2.98 million BTC were issued. With the average daily price (exchange rate) of $5.60, that means Bitcoin mining is roughly a $16.7 million industry when considering just the value of the coins as they were mined”.
“Total investment in mining hardware over the year likely was a multiple of that $16.7m number as [miners replace hardware with more efficient hardware and because some miners retire while others are new to mining]”.
“Even when mining yielded profits, mining may not have been an activity truly as lucrative as was first imagined — particularly when tax consequences are considered”.
