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How To Use Bitcoin – The Most Important Creation In The History Of Man

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Bitcoin Miner Taps Dad’s Power Plant in Virtual Money Hunt: Tech

In the five years since bitcoin was created, the hunt for them has consumed enough electricity to keep the Eiffel Tower lit for 260 years. One man’s way around the utility bills: the family power plant.

Alex Wilhelm is a bitcoin miner, one of thousands who use computers to solve complex math problems and get their hands on the digital currency. The expatriate living in Tokyo has 30 remote-controlled servers mining virtual gold in an old brick building in the Austrian countryside. His father is donating the electricity, which comes from a water-driven turbine that survived a World War II bombing raid and once powered the entire village of Tattendorf, where Wilhelm grew up.

While the operation is modest as mining farms go -- this year’s yield may total no more than $12,500 -- it illustrates a basic point: the race to uncover cyber cash has become so energy intensive that power bills now make it mostly unprofitable.

“Basically you’re turning electricity into money,” Wilhelm said, sitting in jeans and a red sweatshirt in front of a flat-screen monitor in his Tokyo study. “If the electricity price goes up the math stops working.”
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Yes, the price of electricity going up has the exact same effect as the price of bitcoin going down or more people taking part in mining. It makes mining bitcoin less profitable, or even loss-making for those already operating on the borderline of profitability.
 
psionl0 said:
Puppycow said:
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“Basically you’re turning electricity into money,” Wilhelm said, sitting in jeans and a red sweatshirt in front of a flat-screen monitor in his Tokyo study. “If the electricity price goes up the math stops working.”
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That part's not right.
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How so? He's saying if the price of electricity goes up up enough, it's not profitable to mine. How is that incorrect?
 
AdMan said:
How so? He's saying if the price of electricity goes up up enough, it's not profitable to mine. How is that incorrect?
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I thought Brian-M clarified it nicely.

Anyhow,
* The price of electricity goes up.
* Some miners bow out because of the higher cost.
* The mining difficulty goes down and hence the electricity cost (somewhat).
* The remaining miners are able to continue mining profitably.
* Bitcoins continue to be mined at the same rate.
 
psionl0 said:
I thought Brian-M clarified it nicely.

Anyhow,
* The price of electricity goes up.
* Some miners bow out because of the higher cost.
* The mining difficulty goes down and hence the electricity cost (somewhat).
* The remaining miners are able to continue mining profitably.
* Bitcoins continue to be mined at the same rate.
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That's not answering my question.

You're assuming that the price of electricity going up is going to be balanced by miners dropping out, hence mining difficulty will go down to balance out the higher cost, so mining will still be (as?) profitable.

Has this been proven to happen? I have just read of mining costs going sky high, so mining is barely profitable, if at all. Am I wrong?
 
AdMan said:
That's not answering my question.
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Of course it is. It's the classical "price mechanism" that economists use to explain supply and demand.

The higher the cost of mining, the fewer miners who can mine profitably but there will still be miners who can do so. What's so hard to understand about that?
 
AdMan said:
That's not answering my question.

You're assuming that the price of electricity going up is going to be balanced by miners dropping out, hence mining difficulty will go down to balance out the higher cost, so mining will still be (as?) profitable.

Has this been proven to happen? I have just read of mining costs going sky high, so mining is barely profitable, if at all. Am I wrong?
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He's not saying that it will be just as profitable, only that it will still be profitable to the remaining miners.

Different miners will be operating at different profit margins (depending on their individual equipment, overheads and operating costs). As operating costs increase, those only making borderline profits start to make a loss, and drop out (because there would be no point mining if you're losing money on it). Since bitcoins are being distributed at a fixed rate, this means more bitcoins for the remaining miners. Maybe not enough to completely offset the increased electricity costs, but enough to significantly mitigate it.

Mining is always going to be barely profitable, because as soon as people start making more profit at it for one reason or another (such as rising bitcoin prices or cheaper electricity) more people are going to start mining in order to make some profit themselves. But since bitcoins are being distributed at a fixed rate, this means everybody gets fewer bitcoins for the same work, and mining is no longer as profitable anymore.

Bitcoins are being released at a rate of 25 coins every ten minutes, no matter how much money people are spending on mining them. It's basically a lottery drawn every ten minutes, with X amount of processing power buying you one chance at getting those 25 coins.
 
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It's probably worth adding that if the cost of electricity rose, then the cost of mining wouldn't rise as much as it otherwise would if the mining difficulty was constant. However, as the unprofitable miners bail, the mining difficulty reduces.

This is no different to any system whose equilibrium has been disturbed.
 
With the hefty power requirements, I wonder if there will be mining-related brownouts come summer.
 
The only 'Brownouts' will be in the trousers of those that paid over $1000 each for their Bitcoins.
 
psionl0 said:
Of course it is. It's the classical "price mechanism" that economists use to explain supply and demand.

The higher the cost of mining, the fewer miners who can mine profitably but there will still be miners who can do so. What's so hard to understand about that?
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But then the mining (and therefor the supply) becomes concentrated among fewer "superminers". We're more likely to see another DeBeers or OPEC emerge to artificially keep the price high.
 
Donal said:
But then the mining (and therefor the supply) becomes concentrated among fewer "superminers". We're more likely to see another DeBeers or OPEC emerge to artificially keep the price high.
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I see it heading that way myself.

That's why I think it would have been better for miners to invest bitcoins rather than CPU cycles to do their stuff.
 
Now vouchers are no longer being accepted. This was the workaround for deposits. The PBOC is closing all the doors. They are challenging the idea of bitcoin for bitcoin and whatever people will give for it. No speculation in bitcoin for other currencies. If that fails, bitcoin is going to have to survive as a currency in it's own right. Then we will see what it's purchasing power is.
 
wrs said:
If that fails, bitcoin is going to have to survive as a currency in it's own right. Then we will see what it's purchasing power is.
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Given that the number of vendors who accept payment in Bitcoin are few and far between, Bitcoin is effectively useless as a currency at present.
 
Brian-M said:
Given that the number of vendors who accept payment in Bitcoin are few and far between, Bitcoin is effectively useless as a currency at present.
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Unless you'd like to buy VPN subscriptions, drugs, file-sharing services, or botnet/DDoS time. Surely those are mass-appeal markets* right?


* well actually 'drugs' is, which is why the 'war on drugs' is LOLFAIL. but that's a totally different topic.
 
Bitcoin transactions could be subject to GST in Australia

http://www.mondaq.com/australia/x/300182/sales+taxes+VAT+GST/GST+and+Bitcoin+potential+pitfalls
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In a worst case scenario, a GST registered entity that makes a taxable supply in consideration of a Bitcoin payment could be liable for GST twice. Once when the Bitcoins are received as consideration for a taxable supply, and secondly when the Bitcoins are exchanged for Australian currency. This is illustrated through an example in section 8 below.
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8 EXAMPLE OF GST APPLYING TWICE WHERE BITCOINS ARE ACCEPTED AS PAYMENT

White Co has sold equipment worth $11,000 (including GST of $1,000) to an Australian customer. White Co has agreed to accept an equivalent amount of Bitcoins instead of Australian currency in payment for the equipment.

White Co will have a GST liability of $1,000 on the sale of the equipment, notwithstanding that it has received Bitcoins instead of Australian currency.

Following the sale, White Co decides the convert the $11,000 worth of Bitcoins that it has received to Australian currency. White Co sells the Bitcoins to a purchaser within Australia for $11,000. The sale of the Bitcoins may be treated as a taxable supply, triggering a second $1,000 GST liability for White Co.

Had White Co accepted Australian currency at first instance, there would not have been any need to convert the Bitcoins and the second potential GST liability would not have arisen.
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