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Freshman Tutorial Serial Part 5: The Opportunity Cost of Bitcoin

2014-9-15 10:58 | admin

Roundup:Abstract: If you already know how to calculate costs and benefits, then you may try to start to be a miner, but please don't hurry. Prior to this, you must also know, mining industry has not formed th ...


Abstract: If you already know how to calculate costs and benefits, then you may try to start to be a miner, but please don't hurry. Prior to this, you must also know, mining industry has not formed the clear industry standard. There are still have a lot of pit and lot of scam waiting for you. Of course all these lose I have not experienced, but I can make a summary from these sad story of some old miners.
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After had the bitcoin's production cost calculation, you maybe on whether to participate in its mining base on your own judgments. But now, that bitcoin currency price even lower than the cost of its production, so it is not worth for you to involved to the bitcoin mining. Li Xiao once said that; regardless of bitcoin price goes up or down, buy the coins is cost-effective [1]. I have different views. I think, when the bitcoin price falls, a rational decision is to buy bitcoin; when the currency price rises, a rational decision is to buy mining machine. Through the calculation, we know that is the best time to participate in the currency mining.

Opportunity cost
Before the calculation, let us first understand the concept of "Opportunity cost". If you already understand the concept, you can skip this section.

First, several problems:
(1) I buy a chicken at 8 yuan, sell it at 9 yuan, then buy it again at 10 yuan, sell at 11 yuan. How much money I make buy such two business?

(2) Tiger Woods do not only play golf very good ,  he also cut grass very well. He is one of best in the world for both works. There is  a piece of grass in his backyard. If he do grass cut job himself, it will take him about 1 hours to complete. If the job is down by a  gardener, cost is $120 and it will take 2 hours. So, is Tiger Woods for his own lawn cut cost-effective?

(3) Land requisition takes place by the government near my house, that is for  a school builting. My daughter can go to the school, which is convenient for our family. So is it very beneficial to our family?

To answer these questions, the concept of "Opportunity cost" should be understand. That is this; you have to give up something else, for you are going in order to get something.  About the problem of (1), if I buy it at 8 yuan and sell it at 11 yuan directly, I can earn 3 yuan. So the opportunity cost is 3 yuan, which I only make 2 yuan after such a two step operation. I actually lost 1 yuan. About the problem of (2), Even if Tiger Woods is the world's best lawn work, he should not personally mowing. He spent 1 hours playing golf to earn money, enough to hire a lawn worker 1 year. He personally mowing opportunity cost is very high, which is not worthwhile. About the problem of (3); It seems that a school near my house is very good, but maybe not as good as for construction of a hospital or a supermarket. Most favorable to our home is to build a supermarket. Schools is good to me, but certainly is not very good.

Beware that, everything has its opportunity cost. For example, I'm going on holiday on the weekend, I'm writing this article, all of these make me sacrifice the opportunity of doing something else.

The miner's opportunity cost
So, what is the opportunity cost of the miners? It is bitcoin trade. Because miners, who spend his money to buy machine,  cann't use same money to trade. Let us compare the difference between miners and coin trade:

Miners: money0 - machine - bitcoin1 - money1
Trade: money0 - Bitcoin2 - money2

Miners buy machines first, and then use it to mining bitcoin, then sell  the coins for profit; Trader use money to buy currency directly, and then trade it for profit. To compare this two manner more revenue,  noted that the last step of miners and trade are the same that make bitcoins convertible into money, so which is bigger, money1 or money2, which is better.

Now, suppose I spend 15800 yuan to buy the Ajie 1T miner, according to the calculation of  which we can get total  5.2 coins in its 6 months of mining life cycle. The power consumption is 14.4 yuan/day x 180 days = 2592 yuan. That is say that my total investment is 18392 yuan. I will get total  5.2 bitcoin.

So, what is the opportunity cost? If I use 18392 yuan to buy the bitcoin directly in the bitcoin exchange marketing, by its price of 3100 yuan today, I can get 5.9 bitcoin. See, if I buy Ajie 1T mining machine, I only get 5.2 bitcoins, but the opportunity cost is 5.9, that is a net loss of 0.7 bitcoin.

The best time to take part in mining
Through the calculation, we know that now is not a time for miners. which opportunity cost bigger than its income.  It is not a time for large-scale investment in mining. So, when is the best time to mining investment? Another moderator qqqpeter had asked me same question. When we will participate in mining? I announced the answer here; At investment to mining can make more than 20% dollars than buy bitcoins directly, in that time I will participate in the mining only.

That is say, if I buy Ajie 1T mining machine can get total 5.2 bitcoins, if the opportunity cost is only at 4.3 bitcoins, I will make the investment to it. To meet the worth requirement, or now bitcoin's price rising to 18392/4.3 = 4277 yuan, or Ajie 1T mining machine price down to 4.3 × 3100 - 2592 = 10738 yuan, which is only for me to take part in mining.

Why I set profit at 20%? For an investment, if it can not make even 10%  profits, it is simply not worth doing. I just put the money into "Yu Ebao", which make 6% profit. The remaining 10% of revenue is to cope with risk and loss, such as the mineral pool, the delay of delivery, mining pool collapse failure.

In short, in any case, only in the mining can make money to meet the worthy of investment, I will take part in. Otherwise, I should make trade, which is the reason why I choose to buy the currency now.

Advantage of the miners
The first advantage of the miners is that you do not worry about "short". Just think, if the coin prices suddenly rose to 4300 yuan, as speculation trader, should you buy or not to buy? This is hard choice because currency price has both crash or soare tomorrow. Why so many trader withdraw at November last year, had their chose wrong? However, for miners, this is not a question. Miner do not need to hesitate. They can sell coins for machine directly. Regardless of currency price, buying machine mining to make money, there is no short problem for miners.

The second advantage for miners is that they know bitcoin price very well. They not to be hear around others. Just imagine, if today has a bitcoin price at 10000 yuan, which make a large V jumped out and said;  holding your bitcoins. Will the miners listen to him? Absolutely not, miners can sell currency for machines. It can earn more coins. If now bitcoin price today is only at 2500 yuan, large V tell the miners selling their bitcoins, will them be? No. For instance, at the 4.15 event not long ago, when the trade is panic, when there are so many shaman says, such as the price will down below 1500 yuan, even to 500 yuan. Will the miners  listen to them talk? Absolutely not. They know the bitcoin price well.  Far early to reach hunters yuan, at 2500 yuan, the price is go up again.

So, being a miner is definitely worth for bitcoin love. The majority of bitcoin loyal are miners. What we need to pay attention to is, find the time to be a miner.

They are most lovely people.
Who is the most lovable person in bitcoin field? Here them are,undoubtedly.
(1) They have made great contribution to the security and stability of the bitcoin network. Why we dare to  holdings bitcoin in large number, is that because of the currency network calculation power is more higher to any other super computer. It cannot be successful attacked.

(2) They are the most low-key group.  Loyal has chance to be famous, application maker can be famous, trader can also be famous, even the shaman is possible being known, only the miners still unknown to the public. How many people really care about this group?

(3) Many miner are very loyal to bitcoin, even at a loss when mining. You think they won't get? You're wrong. Many of them, knowing that they will lose, but also go to mining. Not for make money, but for really love this thing and like the working on mining.  Like Tiger Woods occasionally to weeding, is pure love, has nothing to do with the opportunity cost.

However, in 2013, we saw many mining machine maker take advantage of people's honest feelings. They set all kinds of traps and tricks, let some miners lost. The mining machin industry has no specification and rule so far. It is impossible for workers to start claim . In the next article, I'm going make a summary base on history of tears and bloods of the old miner's. I hope it should warn future generations.

Translated from:http://www.cybtc.com/article-851-1.html


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