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From: Jonathan Toomim <j@toom.im>
In-Reply-To: <22e401d161cc$66af6b50$340e41f0$@xbt.hk>
Date: Sun, 7 Feb 2016 09:56:48 -0800
Message-Id: <7D9FA815-D816-4DFD-B96A-469C9051885F@toom.im>
References: <CABsx9T1Bd0-aQg-9uRa4u3dGA5fKxaj8-mEkxVzX8mhdj4Gt2g@mail.gmail.com>	<CABm2gDoungCbB22_SKHcedBKegWEPpjeM2woxLGchC4=om8BrA@mail.gmail.com>	<1804222.7gVHPiWqto@kiwi>
	<201602062046.40193.luke@dashjr.org>	<CABsx9T0N_TBbmy3xr-mqNDdKVF_3_QHYA1W2ttsZBQnt4dWxgw@mail.gmail.com>	<20160207151927.GA14750@sapphire.erisian.com.au>
	<57C403C6-2680-4C3D-8860-E33A525A99D4@toom.im>
	<22e401d161cc$66af6b50$340e41f0$@xbt.hk>
To: jl2012@xbt.hk
Cc: Bitcoin Dev <bitcoin-dev@lists.linuxfoundation.org>,
	Anthony Towns <aj@erisian.com.au>
Subject: Re: [bitcoin-dev] BIP proposal: Increase block size limit to 2
	megabytes
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On Feb 7, 2016, at 9:24 AM, jl2012@xbt.hk wrote:

> You are making a very na=EFve assumption that miners are just looking =
for profit for the next second. Instead, they would try to optimize =
their short term and long term ROI. It is also well known that some =
miners would mine at a loss, even not for ideological reasons, if they =
believe that their action is beneficial to the network and will provide =
long term ROI. It happened after the last halving in 2012. Without any =
immediate price appreciation, the hashing rate decreased by only less =
than 10%
>=20


In 2012, revenue dropped by about 50% instantaneously. That does not =
mean that profitability became negative.

The difficulty at the time of the halving was about 3M. The exchange =
rate was about $12. A common miner at the time was the Radeon 6970, =
which performed about 350 Mh/s on 200 W for about 1.75 Mh/J. A computer =
with 4 6970s would use about 1 kW of power, once AC/DC losses and CPU =
overhead are taken into account. This 1 kW rig would have earned about =
$0.22/kWh before the halving, and $0.11/kWh after the halving. Since =
it's not hard to find electricity cheaper than $0.11/kWh, the hashrate =
didn't drop much.

It's a common misconception that the mining hashrate increases until an =
equilibrium is reached, and nobody is making a profit any longer. =
However, this is not true. The hashrate stops increasing when the =
expected operating profit over a reasonable time frame is no longer =
greater than the hardware cost, not when the operating profit approaches =
zero. For example, an S7 right now costs a little over $1000. If I don't =
expect to earn more than $1000 in operating profit over the next year or =
two with an S7, then I won't buy one.

Right now, an S7 earns about $190/month and costs about $60/month to =
operate, for a profit of $120/month. After the halving, revenue would =
drop to $95/month (or less, depending on difficulty and exchange rate), =
leaving profit at about $35/month. The $120/month profit is good enough =
motivation to buy hardware now, and the $35/month would be good enough =
motivation to keep running hardware after the halving.

I know in advance when the halvings are coming. There's going to be one =
in about 5 months, for example. I'm going to stop buying miners before =
the halving even if they're very profitable for a month because I don't =
want to be stuck with hardware that won't reach 100% return on =
investment (ROI).


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<html><head><meta http-equiv=3D"Content-Type" content=3D"text/html =
charset=3Diso-8859-1"></head><body style=3D"word-wrap: break-word; =
-webkit-nbsp-mode: space; -webkit-line-break: =
after-white-space;"><div><div>On Feb 7, 2016, at 9:24 AM, <a =
href=3D"mailto:jl2012@xbt.hk">jl2012@xbt.hk</a> =
wrote:</div><div><br></div><blockquote type=3D"cite"><div style=3D"margin:=
 0cm 0cm 0.0001pt; font-size: 12pt; font-family: 'Times New Roman', =
serif;"><span style=3D"font-size: 11pt; font-family: Calibri, =
sans-serif; color: rgb(31, 73, 125);">You are making a very na=EFve =
assumption that miners are just looking for profit for the next second. =
Instead, they would try to optimize their short term and long term ROI. =
It is also well known that some miners would mine at a loss, even not =
for ideological reasons, if they believe that their action is beneficial =
to the network and will provide long term ROI. It happened after the =
last halving in 2012. Without any immediate price appreciation, the =
hashing rate decreased by only less than =
10%<o:p></o:p></span></div><div><span style=3D"font-size: 11pt; =
font-family: Calibri, sans-serif; color: rgb(31, 73, =
125);"><br></span></div></blockquote></div><div><br></div><div><div><div>I=
n 2012, revenue dropped by about 50% instantaneously. That does not mean =
that profitability became =
negative.&nbsp;</div></div></div><div><br></div><div>The difficulty at =
the time of the halving was about 3M. The exchange rate was about $12. A =
common miner at the time was the Radeon 6970, which performed about 350 =
Mh/s on 200 W for about 1.75 Mh/J. A computer with 4 6970s would use =
about 1 kW of power, once AC/DC losses and CPU overhead are taken into =
account. This 1 kW rig would have earned about $0.22/kWh before the =
halving, and $0.11/kWh after the halving. Since it's not hard to find =
electricity cheaper than $0.11/kWh, the hashrate didn't drop =
much.</div><div><div><div><br></div></div></div><div>It's a common =
misconception that the mining hashrate increases until an equilibrium is =
reached, and nobody is making a profit any longer. However, this is not =
true. The hashrate stops increasing when the expected operating profit =
over a reasonable time frame is no longer greater than the hardware =
cost, not when the operating profit approaches zero. For example, an S7 =
right now costs a little over $1000. If I don't expect to earn more than =
$1000 in operating profit over the next year or two with an S7, then I =
won't buy one.</div><div><br></div><div>Right now, an S7 earns about =
$190/month and costs about $60/month to operate, for a profit of =
$120/month. After the halving, revenue would drop to $95/month (or less, =
depending on difficulty and exchange rate), leaving profit at about =
$35/month. The $120/month profit is good enough motivation to buy =
hardware now, and the $35/month would be good enough motivation to keep =
running hardware after the halving.</div><div><br></div>I know in =
advance when the halvings are coming.&nbsp;There's going to be one in =
about 5 months, for example. I'm going to stop buying miners before the =
halving even if they're very profitable for a month because I don't want =
to be stuck with hardware that won't reach 100% return on investment =
(ROI).<div><br><div><br></div></div></body></html>=

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