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Freshman Tutorial Serial Part 4: The cost of bitcoin mining

2014-9-13 09:36 | admin

Roundup:Abstract:In case of your believe of the bitcoin currency's price, you have the reason to invest it. Since it is investment, it is necessary to calculate costs and benefits. To calculate costs and ben ...

Abstract:In case of your believe of the bitcoin currency's price, you have the reason to invest it. Since it is investment, it is necessary to calculate costs and benefits. To calculate costs and benefits, you need first to understand bitcoin mining difficulty and stress,,,
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In case of your believe of the bitcoin currency's price, you have the reason to invest it. Since it is investment, it is necessary to calculate costs and benefits. To calculate costs and benefits, you need first to understand bitcoin mining difficulty and stress, and through the difficulty and stress, calculate your future yield, or outcome. In addition, investing in bitcoins mining, electricity costs must also be taken into the account, because the machine power consumption determines its service life.

Often hear this argument; there are 3600 new bitcoins be produced every day, if these coins are dump sold, if everyday things going, the bitcoin price will never go high. To such a suppose, I can only have a disdain smile. To you, you think all these coins fall from sky? You know how much cost of a bitcoin production now?

In this paper try to tell you is that how to calculate the bitcoin production costs. Since its cost changes from day to day, in this paper, we can only provide a simple and convenient method.

Total costs can be divided into 3 parts: the machine cost, electricity cost and maintenance cost. Maintenance cost include labor, fault repair fee, miner ship or parts fees if your machine broke down. Because the expenditure of maintenance depends on a miner operator's experience and luck, different people has a huge difference. Therefore, we leave out maintenance expenditure.  That is say, we calculation cost contains only machine costs and electricity costs, which is the very least cost of bitcoins manufacture.

Bitcoin mining difficulty
Before calculating the bitcoin cost, we must understand the bitcoin mining difficulty. If you already understand the concept, you can skip this section.

First let me tell you a story; My English teacher, who try keep me learning English one hour, gave me 1000 word translation work every day. He knews that would take me 1 hour to finish the work. After a period of time, I feel boring. So I ask my friend Xiao Zhao work together. We finish 1000 word translation in half hours since we are two. Of course, this skill can not escape from the teacher's eyes. The next day he arranged 2000 word translation, which also take me and Xiao Zhao work together in 1 hours. In such a way, no matter how much I find more partners to help me, the teacher always let me work 1 hour for the job by adjusting the workload. I have to always spend same time to finish such a translation.

Bitcoin mining process has similar story which my English teacher give me. The mining is actually trying to solve a math problem. The bitcoin protocol hope average  time to resolution each math is 10 minutes. So how is it done? It set mathematical difficulty degree for the problem. After finished 2016 block comuting, it check out how much time the total worker used for the job. To keep the same problem solving time, if the miners work is less than 10 minutes, it will increase the difficulty; on the contrary, to reduce the degree. In a word, it is to ensure that the average solution time near to 10 minutes. Because the problem solving time also depends on the total miners work gether, so when the total computing ability  continued to rise, the average problem solution time is always less than 10 minutes. That is why the exact time is hard to know if the total computing power keep rise.

You can query bitcoin mining difficulty and the total net computing power at the bitwisdom.com website. Today (April 18, 2014), the difficulty is 6978842650, the net power is about 51PH/s.

Bitcoin miner machine cost
How much bitcoins a machine is able to dig out? That does depend on three factors; its computing power, bitcoin mining difficulty degree during machine work  peroid, and when it begin harvest. From the March 2013, bitcoin mining difficulty has been steadily go up, it will go higher 20% in each 12 days, which we assume that it will continue in this trend. You might say, bitcoin mining difficulty is floating, so this trend may not be continued. According to the forecast, this trend will maintain at least half a year. I will explain how to the calculate power cost in the next section. Please accept this hypothesis temporarily.

In difficulty trend  growth rate of 20% constantly, if a bitcoin machine start work today, how much money it can dig out only depends on its computing power. Because the difficulty of every 12 days growth of 20%, means that every 12 days, the profit will reduced to the original 1/ (1+20%) = 5/6. If at first 12 days, a total out put of its currency is N1 , then the second 12 days, altogether, dig coins N2 = N1 * 5/6, the machine can dig coin tatol N = N1 + (5/6) x N1 + (5/6) 2 * N1 + (5/6) 3 × N1............ 

This is a geometric sequence summation. We know it has a limit, which is N = 6 × N1.
This means, if the machine can dig out N coins during its life cycle, at the first 12 days it should dig out of 1/6 = 16.7%, At first 36 days, it will  dig out 16.7% + (5/6) * 16.7% + (5/6) 2 * 16.7% = 42.1%.

Taking Ajie 1T mining machine as an example, we calculat total number of bitcoins that it can dig out, working from today.
(1) As we can check out, 1T machine can harvest 0.072 bitcoin/days now, that we know by go to check in the bitcoinwisdom.com web site. So we can calculate the money which it get at first 12 days is N1 = 0.072 * 12 = 0.864BTC. 
The difficulty degree of the mining keeps adjusting after 12 days, so 

(2) To calculate the total money it can dig out, That is N = 6 × N1 = 5.184 BTC.
Now Ajie's 1T machine is 15800 yuan, that is say, for each bitcoin cost, it is  15800/5.184 = 3048yuan /BTC
For antminer , which has computing power of 180G, price is 2400 yuan. It can find the coin is 0.18 x 5.184 = 0.933 BTC, which each coin cost: 2400/0.933 = 2572 /BTC

If you don't want to know the calculation process, you only need to remember this conclusion: To start mining today by 1T, it can only dig out total 5.2 coins. The first 12 days it can dig out 16.7%, after each 12 days, it can dig  5/6 * (last 12 days).

The cost of electricity bitcoin
To calculation of power cost is relatively simple, 1T machine can dig 0.072 dollars each day, at power consumption of 1kW, so a day of power consumption is 24 degrees. Costing at 0.6 yuan / each watt, it is 14.4 yuan/day. Then the total cost of its electricity for each coin is; 14.4/0.072 = 200 yuan. Similarly, using an antminer, the cost of electricity for each coin is 400 yuan.

(1) Considering of electricity, the power cost in each bitcoin is quite low now. But for each machine, its cmouting power is constant, with the dig difficulty go  upgrade so that the cost of electricity go relatively go higher. At its difficult growth rate of 20% in every 12 days,the cost of electricity will increase 2.5 times every two months.  Ajie 1T machine can works 6 months before its retired, at which point its income is less than its electricity consumption. If bitcoin price rise 2.5 times, it can prolong its working lifetime for more 2 months.

(2)That the same reason of the cost of electricity bitcoin is relatively low, the bitcoin mining machine, as long as they are made, will be used for mining. Even if it is in the maker's hand, it will not be idle. This is why the net computing power have a constantly growth rate, which reflects the new machine has been out of production line.

The total cost of the currency.
The lowest cost of one bitcoins:
For Ajie's miner: 3048 + 200 = 3248 yuan
For Ant miner 180G machine: 2572 + 400 = 2972 yuan
Therefore, we have the reason to believe that, at present, the bitcoin's lowest production cost is around 3000 yuan. 

(1) It looks that ant miner 180G has more cost-effective. But its power consumption double, its life is shorter for almost 2 months.
(2) The total cost for one bitcoin seems as same as its price now. But notably, the cost does not include maintenance costs, and sometimes the maintenance fee is quite high. Such as mining pool collapse,  parts missing or  delivery time delay, machine fault repair etc..

Mining machine pricing
Mining machine pricing , which business is based on the mining difficulty and on the bitcoin price, is very exquisite. Makers of machine try to sell it at highest price in order to get profit.

Currently, technology development for bitcoin miner machine has reached a bottleneck. I personally feel that, in a short term of time, it will not have great breakthrough. If in the near future the bitcoin price does not go rise, makers will only to gain more marketing by reducing mining machine prices. 

Recently, Gridseed Litecoin blade machine has a pricing which cause aroused widespread spit groove by these miner operators. It has a pricing, obviously not according to the difficulty and the Litecoin's price. For me, standing in the point of view, I think it's pricing is one of excusable. Because it is the first Litecoin ASIC miner machine, its only opponent, is the computer graphics card actually. So even the maker set its pricing as same as graphics cards, it also  able to win, because it has much less power consumption than a graphics card.
Summary: Even we use of 1T mining machine from today, we can not dig out more than 5.2 coins. We dig out 16.7% in the first 12 days. Then in each every 12 days following, we can get 5/6 * last one. At the present, the lowest production cost of bitcoin is around in 3000 yuan. The cost does not include the machine maintenance cost. That is say, if the mineral pool collapse, missing parts, delivery or machine fault and so on, the more cost should be.

Translated from: http://www.cybtc.com/article-849-1.html
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