[Cryptography] Bitcoin compute power (was Re: Aggregate signatures)

Phillip Hallam-Baker phill at hallambaker.com
Wed Jun 11 10:25:18 EDT 2014


On Wed, Jun 11, 2014 at 9:49 AM, John Kelsey <crypto.jmk at gmail.com> wrote:
> On Jun 11, 2014, at 8:53 AM, "John Levine" <johnl at iecc.com> wrote:
>> It is my impression that mining has been unprofitable for at least a
>> year.  People keep doing it because they hope the coins they're
>> hoarding will increase in value enough to be retroactively profitable.
>
> Is this just a matter of fixed vs marginal cost?  (Once you have bought the rig, your marginal cost for continuing to mine coins is more or less the cost of power.)


Yes, there are two breakpoints and that is where the incentive to
default comes in.

A guy who spends $1 million on a rig that is only producing $500K/year
worth of coins at a cost of $250K/year is not going to see a return on
his investment. But he is going to keep mining to limit his loses.

If someone then comes in with a new $1 million rig that produces twice
the coins for the same electricity it is going to look like a great
investment.

But as soon as that rig is in service (and everyone else upgrades
likewise) the difficulty goes up, lets say it doubles.

So now the old rig is only making $250K worth of coins and the new one
is just as unprofitable as the old. But it has to be run just to
mitigate the loses.

Unless the owner of that old rig shuts it down as it is now breakeven at best.


But what if one of those groups that has got close to 50% of the
mining pool suddenly brings a large quantity of its dark mining power
online? They can make money in the interval between starting to mine
with it and the point where the difficulty is increased.

BitCoin isn't a currency, its a free money scheme.


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