5 ms·

I believe this refers to the TCO which includes the up-front purchase cost as well as the operating costs, over the lifetime of the equipment. The up-front cost

I believe this refers to the TCO which includes the up-front purchase cost as well as the operating costs, over the lifetime of the equipment. The up-front costs are already sunk and need to be repaid, hence they have to keep paying the ongoing costs in order to recoup as much as possible of their up-front debt. Of course sooner or later, due to Moore's law and the way bitcoin works, the operating costs themselves will exceed the value of bitcoins mined. But that is years into the future.

wmf 12y ago
sooner or later the operating costs themselves will exceed the value of bitcoins mined. For many people that is already happening, which is what the article is trying to say. cex.io and Cointerra already shut down.
tlrobinson 12y ago
That's one interpretation, but he did say "running their supercomputers", which implies they're running machines they already own at a loss. It's obvious that you'd run a machine you already own as long as it's profitable to do so. "Of course sooner or later, due to Moore's law and the way bitcoin works, the operating costs themselves will exceed the value of bitcoins mined. But that is years into the future." I'm not sure what you're referring to. The block reward schedule (halving every 4 years)? How does Moore's law come into play?
nostromo 12y ago
I suspect this is happening to some oil producers as well. Ex: if a large portion of an operation is a sunk cost, a producer may respond to lower prices by producing even more oil, in an attempt to maintain revenue (particularly if the producer is leveraged and has debt to maintain). Edit: oops, busted for not RTFA
- cwyers 12y ago
  From the article: "(This, coincidentally, is the same dilemma that oil drillers who borrowed a lot during the boom face now during the bust)."
- benjaminjackman 12y ago
  Yes I think it is. Quoting http://en.wikipedia.org/wiki/Economic_bubble http://en.wikipedia.org/wiki/Economic_bubble "Net Result of a Bubble: The one true constant with all bubbles is that they create excess demand and production. Once the bubble deflates, which it always does, a contraction or consolidation has to occur to alleviate the excess. Two examples are the dot-com bubble and the current housing bubble. In both cases there were huge consolidations, bankruptcies, and deterioration of asset values." This statement sounds a bit more authoritarian on the topic than I like, but the "excess demand and production portions" are demonstrably true, in fact, I would almost take them to be a better definition of what a bubble is than "trade in high volumes at prices that are considerably at variance with intrinsic values", which is a difficult definition because what determines an intrinsic value? I don't think such a thing really exists for several products that can experience bubbles.
jrochkind1 12y ago
> Of course sooner or later, due to Moore's law and the way bitcoin works, the operating costs themselves will exceed the value of bitcoins mined. But that is years into the future. That point depends on the value of the bitcoins too. What the exchange rate is for USD if you're paying for electricity in USD, or how much electricity you can get for a bitcoin if you are able to pay for electricity in bitcoins. (Which I guess has to do with the cost of electricity too, of course). These are not predictable things. Especially, apparently, the value of bitcoins lately.
dllthomas 12y ago
But if the marginal cost is still less, they should still be mining regardless of whether there are debts.
rnbrady 12y ago
Sunk costs have no bearing on the logic that "if miners are spending more on electricity than the Bitcoins they mine are worth then they should immediately stop mining". You're falling for the so-called "sunk cost fallacy". http://en.wikipedia.org/wiki/Sunk_costs#Loss_aversion_and_the_sunk_cost_fallacy http://en.wikipedia.org/wiki/Sunk_costs#Loss_aversion_and_th... What does have a bearing is whether they intend to sell or hold those Bitcoins. If they believe the value go up before they sell, then they would continue to mine speculatively.

wmf 12y ago

sooner or later the operating costs themselves will exceed the value of bitcoins mined. For many people that is already happening, which is what the article is trying to say. cex.io and Cointerra already shut down.

tlrobinson 12y ago

That's one interpretation, but he did say "running their supercomputers", which implies they're running machines they already own at a loss. It's obvious that you'd run a machine you already own as long as it's profitable to do so. "Of course sooner or later, due to Moore's law and the way bitcoin works, the operating costs themselves will exceed the value of bitcoins mined. But that is years into the future." I'm not sure what you're referring to. The block reward schedule (halving every 4 years)? How does Moore's law come into play?

nostromo 12y ago

I suspect this is happening to some oil producers as well. Ex: if a large portion of an operation is a sunk cost, a producer may respond to lower prices by producing even more oil, in an attempt to maintain revenue (particularly if the producer is leveraged and has debt to maintain). Edit: oops, busted for not RTFA

cwyers 12y ago
From the article: "(This, coincidentally, is the same dilemma that oil drillers who borrowed a lot during the boom face now during the bust)."
benjaminjackman 12y ago
Yes I think it is. Quoting http://en.wikipedia.org/wiki/Economic_bubble http://en.wikipedia.org/wiki/Economic_bubble "Net Result of a Bubble: The one true constant with all bubbles is that they create excess demand and production. Once the bubble deflates, which it always does, a contraction or consolidation has to occur to alleviate the excess. Two examples are the dot-com bubble and the current housing bubble. In both cases there were huge consolidations, bankruptcies, and deterioration of asset values." This statement sounds a bit more authoritarian on the topic than I like, but the "excess demand and production portions" are demonstrably true, in fact, I would almost take them to be a better definition of what a bubble is than "trade in high volumes at prices that are considerably at variance with intrinsic values", which is a difficult definition because what determines an intrinsic value? I don't think such a thing really exists for several products that can experience bubbles.

jrochkind1 12y ago

> Of course sooner or later, due to Moore's law and the way bitcoin works, the operating costs themselves will exceed the value of bitcoins mined. But that is years into the future. That point depends on the value of the bitcoins too. What the exchange rate is for USD if you're paying for electricity in USD, or how much electricity you can get for a bitcoin if you are able to pay for electricity in bitcoins. (Which I guess has to do with the cost of electricity too, of course). These are not predictable things. Especially, apparently, the value of bitcoins lately.

dllthomas 12y ago

But if the marginal cost is still less, they should still be mining regardless of whether there are debts.

rnbrady 12y ago

Sunk costs have no bearing on the logic that "if miners are spending more on electricity than the Bitcoins they mine are worth then they should immediately stop mining". You're falling for the so-called "sunk cost fallacy". http://en.wikipedia.org/wiki/Sunk_costs#Loss_aversion_and_the_sunk_cost_fallacy http://en.wikipedia.org/wiki/Sunk_costs#Loss_aversion_and_th... What does have a bearing is whether they intend to sell or hold those Bitcoins. If they believe the value go up before they sell, then they would continue to mine speculatively.