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Mark_Friedenbach comments on Open thread, Sept. 29 - Oct.5, 2014 - Less Wrong Discussion
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4+ years? Bitcoin.
Much more than 4 years and you're getting dangerously close to the points when the production drops off and the supply of new coins dries up, which will trigger a partial or total burst of the Bitcoin bubble. That might not render the Bitcoin valueless (though I think it will), but will certainly make them bad investments.
I consider this a near-certainty within 8 years, and a significant risk starting around 5 years from now. It's a minor risk even now, but I don't expect it to blow up until at least the next reward-halving.
That doesn't make any economic sense. Right now bitcoin is being inflated, which means people are spending hundreds of millions of dollars a year to keep the price stable (or not, as it is dropping). Get rid of the subsidy and demand would drive the price up, not down.
I disagree. The reward halvings cannot come soon enough for bitcoin. Right now bitcoin (the community of bitcoin holders) is spending hundreds of millions of dollars a year in order to secure the network (in the form of new coins being created and sold onto the market). This has been pressuring the bitcoin price all year. Hundreds of millions in would-be bitcoin investment, sucked into mining hardware and electricity costs.
Here is a excellent video discussing this: https://www.youtube.com/watch?v=_-TLA3j-ic4
There's definitely some risk here, but if you invested $3000 in buying ASIC bitcoin miners and joined a mining pool right now, you'd make returns of at least $10/day. That's about 10% return / month. You can even do this entirely on the cloud without having to set up or host any hardware yourself. The main risk is your hardware becoming obsolete and losing value before you can sell it. But if the value of your miner holds constant for 3 months, you'll have picked up a cool thousand. (This option warrants active management of the bitcoin mining market).
Believe it or not, there's actually a full-on market (order book and everything) for cloud mining hardware at that you can use to track the value of cloud mining hardware and buy/sell them. I'm not sure I'd recommend hosting with them, but you can use the market to track the value over time of active mining hardware. I have about $400 worth of cloud miners going on cex.io as a test and it earns about $2/day at the current (low) bitcoin price, but their maintenance fees eat up almost half of that (I'm not sure how that compares to the cost of running one yourself). It's nice to know that I can sell at any time though.
The other option is, of course, just buying 3k worth of bitcoin and waiting for it to appreciate. (Price was down to ~$375 as of yesterday from its previous average of around $450, so could be a good time to buy. I bought $1k worth of BTC yesterday)
Don't buy bitcoin miners. I know a lot about this industry. It is basically impossible at this point in time to buy off-the-shelf miners and outperform simply buying bitcoins right now. It is certainly impossible without sweet deals from the manufacturers that you only get by buying in bulk, much larger than $3k. Cloud hashing is an order of magnitude worse.
Absolutely do NOT buy mining equipment right now. Every miner that you could buy right now is operating at a loss.
Buy bitcoin, or some altcoins, or put it in index funds in the stock market, but do NOT invest in mining. The only possible way you could make money doing this right now is if bitcoin increased significantly, but if that happened then you would have made much more money just buying bitcoins.
At the present time buying bitcoin mining equipment is strictly worse than buying bitcoins.
Is that before or after the cost of electricity, and if after, at what price?
That's after the cost of power (estimated at $0.20 / kWh) has been deducted with current mining difficulty and price. Even at cex.io, with my current rate of return after their almost 50% fees, I'm still picking up about 6%/month. If I can sell my computing power on their market for the same price I bought it after a month, that's a good return.
And again, I'm not necessarily recommending this. I'm sure Mark_Friedenbach knows way more about this stuff than I do (I certainly wouldn't say I know "a *lot" about this industry) so you should probably listen to him. Solvelt asked for unconventional ideas and this is definitely one of them. I've just been playing around with it and it's all money I can afford to lose.
Thats the problem: you cannot sell your computing power in the market at the same price you bought it at, because the value of the miners is rapidly decreasing (as more and better miners are released onto the market, and the hash rate increases, causing your equipment to mine less bitcoins per unit of time).
So what actually happens right now when you buy mining equipment is that you spend that $3000, and the first month you get 6% back, and the next month you get 5.5% back, and the next month you get 5% back, and so on. At some point the electricity cost to run that miner becomes greater than the value of the bitcoins it produces, at which point you must shut it off or lose money. If the amount of bitcoins you generated during that time was equal to or greater than the amount of bitcoins you could have purchased for the cost of the miner, then you did well.
However, at present this is not the case. If you calculate out the expected returns for the current generation of available mining equipment, is has just gotten worse and worse over the past several months, as the mining difficulty has continued to increase rapidly and the bitcoin price has greatly declined.
It has gotten so bad at the present time, that even if you assume that the difficulty will not increase AT ALL anymore, it would still take you 6-12 months to recover the cost of the ASIC. (This is a very unrealistic assumption. The difficulty has not actually had a period where it declined in about two years. While we may see a few periods where the difficulty stayed at current levels, expecting this to occur for 6+ months is highly unrealistic).
The present time is looking a lot like late 2011/early 2012 in terms of the viability of investing in mining equipment. This is a signal of a bottom in the bitcoin market, imo, but at market bottoms the correct plan is to buy bitcoins, not miners. The correct time to buy miners is after the bitcoin price has increased very rapidly, but the hash rate has not yet had time to catch up. Right now, because the bitcoin difficulty has increased by a factor of ~30 over the past 10 months, and the bitcoin price has decreased 65%, the result is that any miner you buy right now will result in a loss.
In the last three months, the mining ability of a piece of hardware went down by more than 60%. Why would you expect it hold constant for the next three months?
Exactly. And to put things in even more perspective, if you bought a piece of mining hardware twelve months ago, today it would produce 1/200 as much as it did when you bought it. That is, it's mining ability would have decreased by 99.5% in one year!