A question about Bitcoins and other digital currencies

So, as far as I understand the market the major input cost is electricity. Sure, you need a mining rig and these days that means ASICs etc.

However, again as I understand it, the major variable cost is the electricity required to power such a machine.

So, if you\’re in an office environment where electricity is a standardised part of your rent, attracting no additional costs as consumption rises, does this mean that running a mining rig thereby becomes profitable?

15 thoughts on “A question about Bitcoins and other digital currencies”

  1. In short…eh I guess. Kind of. Free leccy helps of course (though the ASICS are far less thirsty than the previous generation rigs of 40 GPUs held together with spit and gaffa tape), but you’re still unlikely to make much, if anything, due to the network difficulty going through the roof since the latest rigs hit the scene. The whole Bitcoiner mining story has been one of a giant arms race, where getting your hands on the latest goodies a few weeks before anyone else was the difference between loss and profit.

    Don’t do it Worstall! There are giant, enormous flaws in the whole thing; the crippling security vulnerabilities, massive fluctuations in the exchange rate to USD, the user-unfriendliness (remember, that a single transaction can take 10mins+ to complete), total lack of insurance,etc,etc.

    Always remember that this ‘currency’ (is it a currency? idk) is absolutely being kept afloat due to a) speculators b) The Silk Road (the deep web site of choice for all your nonce porn and heroin by mail needs).

    The best description of Bitcoin I ever saw was this Venn diagram;

    http://www.google.co.uk/imgres?imgurl=http://springfieldpc.dyndns.org/shimmie/_images/b5128a7fff3b2022f111066ecdf7d6f9/544%2520-%2520bitcoins%2520currency%2520diagram%2520investing%2520math%2520venn.png&imgrefurl=http://springfieldpc.dyndns.org/shimmie/post/prev/543&h=400&w=400&sz=17&tbnid=o_LqwXLsjHq2pM:&tbnh=93&tbnw=93&zoom=1&usg=__tjU1F4bVCOrlqlc9dZKpDGHtCCM=&docid=TrxdnDXJ7WDKiM&sa=X&ei=S1nyUdjuJ6PT0QW8kICQBQ&ved=0CDQQ9QEwAQ&dur=3288

  2. Just as one can run an Amazon second-hand book business on the side by using ‘free’ postage at one’s employer’s office, there will no doubt in the future be closeted Bitcoin ASIC rigs under desks and in cupboards at the office.

  3. However, again as I understand it, the major variable cost is the electricity required to power such a machine.

    If your computing power as a proportion of the total world computing power devoted to bitcoin mining was constant, that would be true. But it’s not, because other people are upgrading their rigs, so you have to include upgrades as a running cost instead of a single fixed cost.

  4. It means that your rental contact may get reviewed pdq.

    Do it using soar panels and a feed in tariff.

  5. @Bob Thacket It is all porn and criminals and if you try to buy something you will lose all your money …. That is what people said about the Internet in the 1990’s and you see similar stories about Bitcoin today. There are issues but your post is pure FUD.

  6. In fairness to the TOR site “Silk Road”, they restrict their offerings to get-off-your-face products rather than p0rn of any particular variety.

  7. “…It is all porn and criminals…”
    As an alternative to TV talent shows & politicians it lacks what?

  8. The thing I love about the Bitcoin debate compared to your normal internet argument is that it has an end with winners and losers. In ten years time they’ll be those who were wrong and those who were right. And those who were right will be rewarded and those who were wrong will lose out.

    Personally, I think it’s a watershed technology. The ideas is out there now and it will grow and grow and grow. I’ve put my money where my mouth is, paid off my original investment, had access to marijuana and modafinil, kept a little and donated money to open source contributors where that would have previously been difficult. Plus I get a disruptive technology that I hope will make a freer and fairer society. I think it’s fair to say that I LOVE bitcoin. Even if it failed, I would appreciate the audacity and inventiveness of the idea.

    To answer the question in the post about electricity costs – I’ve seen people use mining rigs to heat their house in the winter. It’s not as cost effective as gas CH obviously but maybe it gives you a comparative advantage and that’s all that matters. If you really want to make money then sell shares in a mining syndicate to run ASICs in a country with low electricity costs. I stay clear of mining because it reminds me of the financial software industry with the big rewards but you’re competing with the brightest people in the world and likely to lose. Interesting intellectual challenges attract very smart people and you can guarantee they’ll be some nerd working in an Intel fabrication plant with a pet project on the go. Better to make your money in a boring industry where the rewards are more modest but better spread.

    The bitcoin profits are real because I’ve smoked it.

    PS. If you put a bitcoin tip jar on here Tim I’ll put some money in. I’ve been meaning to buy you a beer when we make our trips to Portugal but due to some family health problems we’re not going as much any more.

  9. @IanB

    That’s why they call it “mining”. In any case, I think I read that there was a limit to the amount of bitcoins that can exist equal to something like 21 million. And the size of the money supply gets to this level very slowly as the mining algo gets harder to solve over time.

  10. Kevin Monk: “The thing I love about the Bitcoin debate compared to your normal internet argument is that it has an end with winners and losers. In ten years time they’ll be those who were wrong and those who were right. And those who were right will be rewarded and those who were wrong will lose out.”

    That’s what they said about the socialism debate.

  11. Personally I would bet that investors in Bitcoins will do well. Sure it is backed by nothing but belief but then so, ultimately, is gold and the ultimate number of coins is fixed at 20 million.

    Not particularly happy about that because it isn’t investing in anything productive. If we could trust our politicians not to inflate conventional currencies there would be no market for this.

  12. Pingback: I walked into a bar and watched as people swapped thousands of dollars… | BitcoinMagazine.org

  13. Electricity is a big part of mining cost, however, I don’t think this is main cost. As some people discussed above, one of the main problems with mining is exchange rate. Other than that, bitcoin mining blocks becoming more and more complex as mining pool increases, which eventually will cost you more to maintain the equipment than you can mine. When bitcoins were first mined, a simple computer was able to mine a decent amount of them, but right now you see all those mega mining rigs that consume hundreds of thousands of dollars worth of electricity. The guys with those mega rigs probably mining as many bitcoins as a few simple computers could have mined a while back. In other words, if you buy the latest, superpower rig to mine, within a year or less it could become obsolete.

    If you interested to find out more about what bitcoins are, how they mined etc. you can check out this infographic: http://www.cashstore.com/blog/understanding-bitcoin-mining-and-its-effect/

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