[Bitcoin-ml] Transaction mining priorities.

Andrew Johnson andrew.johnson83 at gmail.com
Wed Sep 20 18:23:15 UTC 2017


On Wed, Sep 20, 2017 at 2:02 AM Gal Buki via bitcoin-ml <
bitcoin-ml at lists.linuxfoundation.org> wrote:

>
> > Mining is actually kind of a bet that the price isn't going to
> skyrocket, since in that case you would have been better off just buying
> your position upfront rather than mining for it over time.
>
> Your assumption is that miners make less bitcoin than they invested in the
> first place. This can't be right.
> Mining is a business, meaning you want to produce more bitcoins then you
> invested.


This is true.

>
>
> With the surplus you can either speculate that the price will rise or
> reinvest. Thus a rising price is in the interest of the miners as they
> will be able to buy more gear (production costs are in fiat) or just keep
> more value in bitcoin.


It is to a point, but during large price rises you’re better off to have
bought coins up front instead of mining gear. Let me explain my position:

Let’s say the price is $100, and you spend 10BTC($1000) to buy mining gear
that will mine .1BTC per day. For our simplistic example, we’re going to
ignore difficulty increases for now and assume it’s static. Your time to
ROI in BTC terms is 100 days, right?  And now any coin you mine above that
10BTC is profit, not including electricity, of course.

Difficulty tends only to increase, so now let’s assume a 5% increase with
each adjustment period and re-run our example above.

When price is rising, so does difficulty.  The price increase incentivizes
more new miners to join the network, old gear to be turned back on, etc
etc. This decreases your revenue, and makes it harder to ROI in BTC terms.

Let’s use the current network as an example. Difficulty is about 1.1T. To
make .1BTC per day you need 472TH. Pretend price is $100/BTC, and the
equipment cost $1000.  Electricity cost is fixed at $.1/kWh and we consume
1000W.  No pool fee.

If we use the next adjustment period in about 12 days, and we assume 5% per
period, we see that this hardware remains profitable all the way out to
about 15 months from now. Difficulty has risen to 5T, and we made a profit
of 2.813BTC before the equipment cost more to run than it mined. Yay!

Now let’s change two things, price and difficulty increase rate. I’m going
to double the price to $200 immediately after we buy our gear, and only
increase difficulty rate increase to 7%.

Now we’ve turned a profit of 3.27BTC in that same period, since we had to
sell less to cover our electricity costs. Yay again!

Now let’s increase the difficulty rate a bit more to match the price rise,
to 10%. Not unreasonable since the value of what you’re mining has doubled
from when you started.  Oh no, our equipment is unprofitable at 10 months,
and we’re .9BTC in the hole!   Not even accounting for the value of our
labor, we should have just bought bitcoin....

By the way, if you’d like to play with these numbers yourself, there’s a
solid calc on bitcoinwisdom’s website.

My conclusion is that while massively rising prices do benefit miners(as
long as the price rise outpaces difficulty), they benefit speculators
more.  So a miner’s primary attention is to his current short term bottom
line, not necessarily to leaving 20%+(basing this on BTC fees as a
percentage of total rewards, not BCC) of his already constantly shrinking
revenue on the table in order to promote a somewhat nebulous and intangible
idea of network health that will somehow increase the price/value.


> --
> Gal
>
> On Wed, September 20, 2017 3:07 am, Andrew Johnson via bitcoin-ml wrote:
> > On Tue, Sep 19, 2017 at 4:26 PM Tom Zander via bitcoin-ml <
> > bitcoin-ml at lists.linuxfoundation.org> wrote:
> >
> >> On Tuesday, 19 September 2017 23:16:35 CEST Andrew Johnson wrote:
> >> > > The music industry is making the same mistake, they too say that
> >> people
> >> > > that
> >> > > copy the music without paying are actually stealing. Because, they
> >> must
> >> > > reason, we *could have* received money from them instead.
> >> >
> >> > I'm not understanding your analogy here. I think a better one would be
> >> > {snip}
> >> > That doesn't make any sense.
> >>
> >> Yours doesn’t make sense, I agree.
> >
> >
> > I know you are, but what am I?  That’s your response?  I’m trying to
> > have a
> > productive conversation with you here, perhaps I’m wasting my time.
> > I’ll go
> > ahead and respond to the rest of your message, but let’s try and keep
> it
> > rational, eh?  If you disagree with me, tell me why. Otherwise what’s
> > even
> > the point of this list?
> >
> >>
> >>
> >> > > The basic fact here is that the actual cost of mining a 1MB or a
> >> 20MB
> >> > > block has no effective difference for miners cost structure.
> >> >
> >> > Orphan risk is a huge one.
> >>
> >> Xthin / compact blocks solved that some time ago.
> >
> >
> > They reduced it, didn’t solve it.
> >
> >>
> >>
> >> > > They can’t expect to sit on those coins for the next 10 years
> >> hoping
> >> > > they
> >> > > get more profitable.
> >> >
> >> > Most don't
> >>
> >> Good we agree ;)
> >
> >
> > Do we?  It seems to me that at a high level that you’re saying that
> > miners
> > want a healthy network with more adoption in order to increase the value
> > of
> > what they mine. I’m saying that they can’t look that far ahead and
> > have to
> > focus on very short term incentives.  But you’re saying that my view is
> > too
> > simplistic and that they have a bigger picture in mind, isn’t that
> > right?
> >
> >>
> >>
> >>
> >> > Individual centralized companies running in the red for a long period
> >> of
> >> > time to essentially buy their own personal customer base/network
> >> effect
> >> > with the intention of monetizing it later isn't even close to the same
> >> > thing as being one of many miners in a distributed system.  This is
> >> also
> >> a
> >> > poor comparison, in my opinion.
> >>
> >> That wasn’t my comparison at all. Please don’t put words in my
> >> mouth.
> >
> >
> > Ok, so can you explain it then?  I obviously misunderstood you, I’m not
> > trying to be combative here, though you somewhat seem to be...  Attacking
> > an idea is not the same thing as attacking a person.
> >
> >
> >>
> >> --
> >> Tom Zander
> >> Blog: https://zander.github.io
> >> Vlog: https://vimeo.com/channels/tomscryptochannel
> >> _______________________________________________
> >> bitcoin-ml mailing list
> >> bitcoin-ml at lists.linuxfoundation.org
> >> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-ml
> >>
> > --
> > Andrew Johnson
> > _______________________________________________
> > bitcoin-ml mailing list
> > bitcoin-ml at lists.linuxfoundation.org
> > https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-ml
> >
>
>
> _______________________________________________
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-- 
Andrew Johnson
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