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The only way to make money is to be able to mine more than your costs. A small USB ASIC miner is now around $30-40 for 330 Mhash/sec and the 2-3Ghash/sec USB models are ~$200 on ebay. You'd have to make more than that much money with your mining. At current exchange rates, you can make about 50-75 cents a week with a 330 Mhash/sec miner. That would require 40-60 weeks to pay back the costs. And that's not counting the electricity that you're using, which is small, but is probably more than 50 cents a week in some areas of the country. And that also doesn't then into account the expected drops in mining rewards.

At some point when you are scaling, your costs are lower than your expected income. You have to be doing this at scale in order to break even, let alone make money. And, if you have a sufficiently large setup, you aren't talking about mining in pools, you have your own pool, where you keep the rewards for each mined block.

Little guys mining get minuscule rewards for negligible costs. You aren't going to make any significant money with it.

Source: I've been running a 330Mhash/sec USB ASIC miner for the past two weeks :) I'm a total newbie, but the economics of it aren't good.

When people calculate the economics of mining they inevitably forget to take into consideration the future value of the coins they are mining.

Because they shouldn't. If you want to speculate on BTC, just buy it. If the cost to mine each BTC today is higher than the cost to buy it today then mining doesn't make sense regardless of future price.

the real economics of buying Bitcoin mining rigs should be as follows:

If the cost of the mining unit will buy more BTC than it will generate, just buy the bitcoin. So a 2.2ghash miner (e.g. Blue/Red Fury from BPM) will generate 0.1BTC over 6 months. That miner would cost you approx $280. That would buy you 0.35BTC at a price of $800 per BTC.

There is obviously a point at which these would be economical to buy but that price point is less than $80, which is just over a quarter of their current price and that is probably close to what the manufacturer is paying for the production of them (including chip costs etc).

Source - I resell a lot of mining equipment on ebay, I charge approx 2 - 3 times what I pay for the units in bitcoin and i sell out of stock usually within 48-96 hours.

Now it may be that obtaining bitcoins is more difficult that obtaining mining equipment, or the fact that you can buy them on ebay (a site people are familiar with) as opposed to a site like localbitcoins (where people are not familiar with it and it requries sending money direct from your bank account) means people prefer to buy miners instead of BTC. The argument that coins will be worth more does not factor in as you can buy more coins now whoch will also be worth more.

Final point I would make on this is that mining has not been a profitable endeavour for most of bitcoins history. Anyone who mined from 2009 to late 2010/early 2011 will probably have done so at a loss, based ont he understanding that coins would be worth more later on down the road. The big difference however is that obtaining coins now is much easier than it was in 2009/10 if you are looking to obtain them without mining.

Hmmm. Regarding the "relative profit" of small scale mining: There must be some gain in efficiency to moving to these largescale mining systems. Or everyone would just make lots of the small scale systems, right?

I think you misunderstand me. By "large scale" I mean people having 10,000 watt or more of mining hardware. It doesn't matter for my argument how these 10,000 watts are deployed (5,000 USB thumbdrive-sized miners, or 500 large water-cooled PCBs).

Obviously, someone with 10,000 watts of USB thumbdrive-sized miners would run into the same costs eating his profitability: 10,000 watt of electricity bill, 10,000 watt that need to be cooled, etc.

I think I get your point now: As an example, if I could somehow distribute a million USB sticks to a million different people and get them to mine for me (using their electricity and PC at no cost), I could more efficiently mine bitcoins because my lower costs would exceed the gains in processing efficiency that the largescale miners achieve?

Exactly!

But that's actually less efficient! You are making negligible amounts for each small USB miner, and whoever you are giving them to is probably spending more in the electricity than you are making! It would be just as profitable to ask those million people to just give you a penny every day or two.

At least with larger setups, you get to pool your costs, and your power usage would be more efficient.

Now, the counter to this are the micro-mining setups where you are using very little electricity, such as using a flashed router or Raspberry Pi to host your USB miners. In this case, you could even probably run it off of solar in most places to make running costs actually zero. You'd have maybe $100 more in initial costs (for solar), but you'd have no ongoing costs, only profit.

BTW, your username is funny to me - those are my initials. It's like I'm having an argument with myself. It's been known to happen.

I doubt the bitcoins mined via raspberry pi would ever cover the sunk cost of $100. When it comes to mining bitcoins ASICs are a millions times more power-efficient than the raspberry pi.

Perhaps I wasn't clear...

I meant a Raspberry Pi running as the host for a bunch of USB ASICs. This way you are effectively reducing the power requirements of the host to the minimum amount. You could do the same thing with any low-power embedded system that could run bfgminer or cgminer and keep up with the network.

This would be opposed to running a Linux or Windows desktop system as a host.

There is some scale level where you've captured all the manufacturing efficiencies (e.g. the asicminer boards in those pictures are only 10GH/s per board), and once you've crossed that it's generally more efficient to distribute the hardware because you can make better use of low level waste heat as home heating (or at least not having to actively cool it).

Note that most of the ASIC makers are selling them, not operating data centers; this supports mrb's point.

Steady income (as an ASCI manufacturer) vs a gamble (as the consumer).

Do you want to be the punter or the house?

Actually there are rather vicious allegations that some of the ASIC manufacturers do mine with their own designs for some time before shipping them to customers and moving onto hardware rev+1.

Allegations which are just that. They're unsubstantiated, not even supported by the hashrate visible on the network. People are trying to rationalize out how someone they though was trustworthy would be so overdue in delivering.

People actually went as far as to sneak into Butterfly Labs' facilities and found no evidence of it.

Thanks for the follow-up!

> Whether you spend $50 to mine at 3 gigahash/sec, or $50,000 to mine at 3,000 gigahash/sec

You forget to take into account that cost per GH plotted against volume is non-linear. At $50,000 investment one won't see much difference and the graph will look linear. At $500,000, though, one can design and manufacturer their own ASIC and purchase everything in high volume. Then the cost plummets like a rock. And I would argue $500k is where large scale mining starts these days, not $50k.

Yes, but there is so much competition between ASIC manufacturers that eventually (in the next 6-12 months), the profit margin of mining hardware vendors will drop to typical high-volume electronics industry levels: 5-10% or so.

When this happens, all a large scale miner can hope to accomplish by manufacturing his own ASICs is to save that 5-10% which is going to be insignificant compared to the free power/cooling from small scale miners.

Good point. But the margin between cost of goods and MSRP is much larger than 5-10% for consumer electronics. Distributors and retail stores take a large chunk. Nobody in particular makes a large profit, but all those chunks from factory to store shelf add up to a huge percentage, 50% and up. Those are the costs small scale miners will have to overcome.

I am interested to see how the dynamics play out, but find it hard to believe that they will be much different than anything else.

Take home gardening, for example. It's easy to say that it's cheaper, and pretend the food is free, but it isn't. The biggest cost there is time. People are willing to discount the time spent gardening, because they get pleasure out of it. But it's a real cost, and that time could have been more profitably spent doing contract work (for example).

If you sum up everything one gains from having a home garden, will the consumer see a net gain? Probably not. But people do it anyway, because they don't see it as work. They'd rather do that, than fill their time with another job. That's where mining will end up in the long run, in my opinion. And I have my doubts that that sector will be large enough to prevent centralization.

P.S. I appreciate the discussion. Speaking honestly, I'm still close to the fence on this one. I hope my remarks don't come off as rude; I enjoy seeing the arguments made for one side or the other.

So are you saying that someone could mine bitcoins from their day-to-day MacBook Pro and actually see a return on that?

Edit: I get that I would need a USB miner. I could pick up a 12 port USB HUB from Amazon and 12 USB Miners for a few hundred dollars of an investment.

Not by itself, but with a USB miner.

As long as you have some mining ASICs attached to it and you can buy the ASICs at cost.

No.

You'd need ~ $500 in upfront costs (12*~$40 + $20 USB hub, plus cooling - unless someone knows where to get USB ASICs cheaper - if so, I want to know!), and you're probably not going to make that back in any reasonable amount of time.

There are online calculators to tell you what the time to get a return on your investment is, but ballpark, you'd be looking at 30-50 weeks minimum to get back your money. And that's factoring in running the system for 24 hours, which would put extra wear and tear on your MBP. And by that time, your effective rewards would be less for mining... etc...

so it would be better to plug in this setup to a CentOS server that I have running all the time anyway which has a faster internet, 32gb ram, etc, etc

Yes. If you have a setup where the extra cost of power and cooling is negligible, then you would be able to mine effectively for free.

But then you still have the issue of buying the mining gear. And you'll probably never mine enough Bitcoins to ever pay back the initial purchase price. You'd be better served to just buy some coins from an exchange.

I have a 330Mhash/sec USB ASIC miner running right now on an old netbook, but I'm just doing it for fun. It's been running now for the past 2 weeks, and I've made less than $2. I spent only $20 for my ASIC though, so it's not too bad. A similar miner today would cost $35-$40 on ebay.

This seems incredibly similar to the claim that: all can make money, as long as you work hard! Is that really true? Think again...