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Some of the top-rated comments make me wonder whether the authors have even read the article. This isn't about whether PoW or cryptocurrencies as a whole make s

by t_mann 4y ago

Some of the top-rated comments make me wonder whether the authors have even read the article. This isn't about whether PoW or cryptocurrencies as a whole make sense, but strictly about the economics of mining, and how standard accounting practices might obfuscate miners' true profitability. The author sounds like an investor who would be equally happy to hold long instead of short positions in those stocks if their prices were different.

wmf 4y ago
Of course they haven't read the article and even if they did, most people won't discuss the details of something if they object to the fundamentals.
- pennaMan 4y ago
  So, wilful ignorance via political stance? Nice.
SilasX 4y ago
On that note, I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of asset. The author mentions that oil well already have this issue and so you could just see if their method works. Wikipedia gives a list of the other ways: https://en.wikipedia.org/wiki/Depreciation#Methods_for_depreciation https://en.wikipedia.org/wiki/Depreciation#Methods_for_depre... (I also vaguely remember a lot of people screaming bloody murder about how it's unfair to oil wells to get accelerated depreciation.)
- josu 4y ago
  > I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of asset Of course there are, and they should actually be using them. But then fundraising would be harder. They are cheating on accounting, in order to raise equity capital, and hoping that the price of bitcoin will go up in the future and cover the losses.
- FabHK 4y ago
  > if there are any other (standard) methods of depreciation accounting IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes. There is thus an incentive for firms to tweak depreciation and pull it forward, to either concentrate it in relatively more profitable years, or generally push tax payment further back into the future. To counteract that, tax authorities often specify an upper limit on how much you may depreciate every year. These limits often distinguish by type of asset, and allow for faster depreciation for shorter-lived assets, but I could imagine that the tax code makes no provision for ultra-short-lived crypto mining equipment.
  - t_mann 4y ago
    Great point. Most profitable companies try to minimize their taxable profits, and the same rules that are in place to counteract that can have the effect of overstating the profitability of other firms.
  - SilasX 4y ago
    > IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes I think that’s overstating it. You’re always going to depreciate to 100% eventually[1], so faster depreciation just means you realize a loss (and reduce the tax bill) sooner rather than later. [1] or sell for actual value, in which case you adjust the books to the actual loss of value which may before or less than the depreciation formula estimated.
    - SilasX 4y ago
      Follow-up: Keep in mind, the depreciation schedules can also understate how fast the good loses value. See also my lay explanation of why depreciation in tax law exists [1] and why it eventually gets resolved on sale or disposal[2]. [1] https://news.ycombinator.com/item?id=15061439 https://news.ycombinator.com/item?id=15061439 [2] https://news.ycombinator.com/item?id=26674984 https://news.ycombinator.com/item?id=26674984
    - 4y ago
- anamax 4y ago
  Depreciation is only relevant if you keep the asset. If a crypto-miner becomes unprofitable to run, selling it for less than the "after depreciation basis" effectively accelerates the depreciation.
mattwilsonn888 4y ago
What are you talking about!? You failed the simplest test of not reading the article! You didn't read the last line! > I don’t think it ends well. That last line renders your whole point about the author simply being interested in the economics of mining for the sake of mining (rather than economic sustainability of the practice) inaccurate as well as making you a hypocrite!
- t_mann 4y ago
  You seem confused - the it clearly refers to what he said in the previous para, namely that investors haven't been paying attention to what those companies actually do. That rarely ends well indeed, especially during times of rising interest rates.
  - mattwilsonn888 4y ago
    It's still based on the assumption that Bitcoin is not a growth asset, and that those investors believe it is. If the investors believe it is a growth asset there is no problem - they knew exactly what they were buying into. In fact, it is probably a proxy for a Bitcoin ETF or outright ownership of coins; in that case it is doubly true they understand the risk. The argument falls apart without Bitcoin stagnating into obscurity, so the same point is (less) obviously implied.
    - t_mann 4y ago
      The hint is in the other part of the paragraph - investors were likely looking for exposure to Bitcoin (implying that they have positive expectations for its price). Some investors are constrained in what kind of assets they can invest in, so buying stocks of Bitcoin miners might seem like a reasonable proxy for buying Bitcoin outright (similar to how some investors looking for gold exposure actually buy gold mining stocks). The point of this article is that that strategy might be inferior to buying Bitcoin outright because the stocks are overvalued compared to their intrinsic capability of producing Bitcoin (note how Bitcoin price predictions aren't even discussed). It's a classical value-based investment thesis that might lead to the opposite conclusion at different stock prices. The author says that he holds short positions, and I can imagine that he's probably used derivatives to hedge out BTC price movement risk and purely bet on his thesis that those miners' stocks will perform worse than the price of Bitcoin itself.
hn_throwaway_99 4y ago
I have one of the other top comments where I argue that PoW is fundamentally unsustainable, and I assure you I did read the article. What the article is saying is that standard accounting practices might obfuscate miners true profitability over the lifetime of depreciable hardware. My argument is basically that, as I believe PoW is guaranteed to be unsustainable in the long run, all of the miners who are eventually left "holding the bag" when the music stops (and by holding the bag I mean have invested millions in mining equipment that is suddenly worthless) will be unprofitable at that point. To argue it somewhat differently: systems like Ethereum have essentially come to the same conclusion I have, and will be phasing mining out altogether for PoS. The reason Bitcoin isn't doing that is because miners have considerable more power over the direction of the protocol. Which might be fine if PoW we're long-term sustainable, but it's not.
- SilasX 4y ago
  Fair enough, but I think the parent was right to object that the comments were not talking about mining in the context of the depreciation accounting issue that the article focuses on, but just giving their hot take on mining in general, and doing the latter (when the article's focus is something else) makes the forum worse.

by t_mann 4y ago

wmf 4y ago

Of course they haven't read the article and even if they did, most people won't discuss the details of something if they object to the fundamentals.

pennaMan 4y ago
So, wilful ignorance via political stance? Nice.

SilasX 4y ago

On that note, I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of asset. The author mentions that oil well already have this issue and so you could just see if their method works. Wikipedia gives a list of the other ways: https://en.wikipedia.org/wiki/Depreciation#Methods_for_depreciation https://en.wikipedia.org/wiki/Depreciation#Methods_for_depre... (I also vaguely remember a lot of people screaming bloody murder about how it's unfair to oil wells to get accelerated depreciation.)

josu 4y ago
> I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of asset Of course there are, and they should actually be using them. But then fundraising would be harder. They are cheating on accounting, in order to raise equity capital, and hoping that the price of bitcoin will go up in the future and cover the losses.
FabHK 4y ago
> if there are any other (standard) methods of depreciation accounting IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes. There is thus an incentive for firms to tweak depreciation and pull it forward, to either concentrate it in relatively more profitable years, or generally push tax payment further back into the future. To counteract that, tax authorities often specify an upper limit on how much you may depreciate every year. These limits often distinguish by type of asset, and allow for faster depreciation for shorter-lived assets, but I could imagine that the tax code makes no provision for ultra-short-lived crypto mining equipment.
- t_mann 4y ago
  Great point. Most profitable companies try to minimize their taxable profits, and the same rules that are in place to counteract that can have the effect of overstating the profitability of other firms.
- SilasX 4y ago
  > IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes I think that’s overstating it. You’re always going to depreciate to 100% eventually[1], so faster depreciation just means you realize a loss (and reduce the tax bill) sooner rather than later. [1] or sell for actual value, in which case you adjust the books to the actual loss of value which may before or less than the depreciation formula estimated.
  - SilasX 4y ago
    Follow-up: Keep in mind, the depreciation schedules can also understate how fast the good loses value. See also my lay explanation of why depreciation in tax law exists [1] and why it eventually gets resolved on sale or disposal[2]. [1] https://news.ycombinator.com/item?id=15061439 https://news.ycombinator.com/item?id=15061439 [2] https://news.ycombinator.com/item?id=26674984 https://news.ycombinator.com/item?id=26674984
  - 4y ago
anamax 4y ago
Depreciation is only relevant if you keep the asset. If a crypto-miner becomes unprofitable to run, selling it for less than the "after depreciation basis" effectively accelerates the depreciation.

mattwilsonn888 4y ago

What are you talking about!? You failed the simplest test of not reading the article! You didn't read the last line! > I don’t think it ends well. That last line renders your whole point about the author simply being interested in the economics of mining for the sake of mining (rather than economic sustainability of the practice) inaccurate as well as making you a hypocrite!

t_mann 4y ago
You seem confused - the it clearly refers to what he said in the previous para, namely that investors haven't been paying attention to what those companies actually do. That rarely ends well indeed, especially during times of rising interest rates.
- mattwilsonn888 4y ago
  It's still based on the assumption that Bitcoin is not a growth asset, and that those investors believe it is. If the investors believe it is a growth asset there is no problem - they knew exactly what they were buying into. In fact, it is probably a proxy for a Bitcoin ETF or outright ownership of coins; in that case it is doubly true they understand the risk. The argument falls apart without Bitcoin stagnating into obscurity, so the same point is (less) obviously implied.
  - t_mann 4y ago
    The hint is in the other part of the paragraph - investors were likely looking for exposure to Bitcoin (implying that they have positive expectations for its price). Some investors are constrained in what kind of assets they can invest in, so buying stocks of Bitcoin miners might seem like a reasonable proxy for buying Bitcoin outright (similar to how some investors looking for gold exposure actually buy gold mining stocks). The point of this article is that that strategy might be inferior to buying Bitcoin outright because the stocks are overvalued compared to their intrinsic capability of producing Bitcoin (note how Bitcoin price predictions aren't even discussed). It's a classical value-based investment thesis that might lead to the opposite conclusion at different stock prices. The author says that he holds short positions, and I can imagine that he's probably used derivatives to hedge out BTC price movement risk and purely bet on his thesis that those miners' stocks will perform worse than the price of Bitcoin itself.

hn_throwaway_99 4y ago

I have one of the other top comments where I argue that PoW is fundamentally unsustainable, and I assure you I did read the article. What the article is saying is that standard accounting practices might obfuscate miners true profitability over the lifetime of depreciable hardware. My argument is basically that, as I believe PoW is guaranteed to be unsustainable in the long run, all of the miners who are eventually left "holding the bag" when the music stops (and by holding the bag I mean have invested millions in mining equipment that is suddenly worthless) will be unprofitable at that point. To argue it somewhat differently: systems like Ethereum have essentially come to the same conclusion I have, and will be phasing mining out altogether for PoS. The reason Bitcoin isn't doing that is because miners have considerable more power over the direction of the protocol. Which might be fine if PoW we're long-term sustainable, but it's not.

SilasX 4y ago
Fair enough, but I think the parent was right to object that the comments were not talking about mining in the context of the depreciation accounting issue that the article focuses on, but just giving their hot take on mining in general, and doing the latter (when the article's focus is something else) makes the forum worse.