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Bitcoin Currency Inflation Rate Will Drop 50% Next Year

Every bitcoin in existance first passes through the hands of a Bitcoin Miner.

That is how the currency is issued.

Today the targeted rate that bitcoins are issued occurs at a level of about 7,200 new bitcoins per day — calculated using the 50 BTC per block and blocks solved about once every 10 minutes.

That level will be changing in about a year though when the block award drops in half from 50 to just 25 BTC per block.

For the bitcoin currency itself, that drop has been known since its inception and would already be priced into the exchange rates.  To miners, however, that drop will be felt suddenly.  One day the income that each Ghash/s earns will be at one level, and the next day that revenue will drop 50%.

There are some miners who plan to shut down and some will liquidate even once the block reward drop occurs once block 210,000 is reached — an event that will occur perhaps as early as November or possibly as late as January 2013.

The difficulty level will adjust shortly after miners drop out but with the equipment representing an investment in time as well as money, many miners generally need to feel the pain in the form of electric bills exceeding revenues before they capitulate.  At the same time, there will always be a chance that the exchange rate will climb enough to compensate for the decline in the supply of new coins.

Attempting to predict Bitcoin twelve months out is particularly difficult as this is the first block reward drop — something that will occur just once about every four years.

Anyone evaluating whether or not to buy a mining rig or to add capacity to an existing mining operation today should be keeping this block reward drop in mind in the decision process.

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Mining Profitability - Back In Black
Thanks to a steadily declining mining difficulty level, mining profitability at around today’s $3 BTC/USD has returned to nearly the same level as when the BTC/USD was a little above $4 two months ago.
The details that go into how the points plotted in this new chart from BlockChain.info (realtime view) are not known yet but as explained in the site’s footnotes based on the rate of $0.15 per kWh.  The chart’s description reads “miners revenue minus estimated electricity and bandwidth costs”.  The chart corresponds with the claims by miners that when including the cost of electricity, mining was a money-losing effort for much of October and November.  While these levels aren’t terribly attractive they will help many miners to at least resume earning some profit — something those who took on debt to buy equipment were certainly looking forward to.
At the same time, the level of mining activity has stopped dropping and appears to be on the rise (as shown in photo), ever so slightly once again.  Because many miners simply powered off their rigs during the price collapse, spare capacity is just a flick of the power switch away.  As a result difficulty will adjust nearly in real-time, versus a several week to multi-month lag which was seen back when miners couldn’t buy hardware fast enough to catch up to the price ascent.
Also, a recent burst of media coverage of Bitcoin appears to have once again brought a wave of first-timers looking to try their hand at mining.  They will be competing against veteran miners who have been buying up some of the used hardware that others had been dumping as well as picking up deals such as NewEgg’s recent special price of $300 for ATI HD 5970s.
At current levels, a little over $20K worth of bitcoins is minted each day (7,200 BTC per day X $3 or so BTC/USD).  Informal surveys have found that a significant percentage of miners are dumping their mining proceeds nearly as soon they are received — to pay for the electricity consumed by mining, at a minimum.   As a result, the recent rise in demand isn’t finding a corresponding rise in supply from miners taking profits — as many miners simply have already sold nearly everything that they’ve produced and are producing.  Little can be concluded except that the price rise likely isn’t attributed to hoarding by miners but instead appears to currently be simply new investment inflows that bring demand significantly above the 7,200 BTC per-day supply.
If this keeps up, miners might — for the first time in months, have something to celebrate.
Previous Posts

Mining Profitability - Back In Black

Thanks to a steadily declining mining difficulty level, mining profitability at around today’s $3 BTC/USD has returned to nearly the same level as when the BTC/USD was a little above $4 two months ago.

The details that go into how the points plotted in this new chart from BlockChain.info (realtime view) are not known yet but as explained in the site’s footnotes based on the rate of $0.15 per kWh.  The chart’s description reads “miners revenue minus estimated electricity and bandwidth costs”.  The chart corresponds with the claims by miners that when including the cost of electricity, mining was a money-losing effort for much of October and November.  While these levels aren’t terribly attractive they will help many miners to at least resume earning some profit — something those who took on debt to buy equipment were certainly looking forward to.

At the same time, the level of mining activity has stopped dropping and appears to be on the rise (as shown in photo), ever so slightly once again.  Because many miners simply powered off their rigs during the price collapse, spare capacity is just a flick of the power switch away.  As a result difficulty will adjust nearly in real-time, versus a several week to multi-month lag which was seen back when miners couldn’t buy hardware fast enough to catch up to the price ascent.

Also, a recent burst of media coverage of Bitcoin appears to have once again brought a wave of first-timers looking to try their hand at mining.  They will be competing against veteran miners who have been buying up some of the used hardware that others had been dumping as well as picking up deals such as NewEgg’s recent special price of $300 for ATI HD 5970s.

At current levels, a little over $20K worth of bitcoins is minted each day (7,200 BTC per day X $3 or so BTC/USD).  Informal surveys have found that a significant percentage of miners are dumping their mining proceeds nearly as soon they are received — to pay for the electricity consumed by mining, at a minimum.   As a result, the recent rise in demand isn’t finding a corresponding rise in supply from miners taking profits — as many miners simply have already sold nearly everything that they’ve produced and are producing.  Little can be concluded except that the price rise likely isn’t attributed to hoarding by miners but instead appears to currently be simply new investment inflows that bring demand significantly above the 7,200 BTC per-day supply.

If this keeps up, miners might — for the first time in months, have something to celebrate.

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Last Chance To Vote - Best Bitcoin Mining Rig Builder
CoinConnect is running a Bitcoin Mining Rig competition and has a dozen entrants, one of which is featured in this post.
Voting is performed using the Poll at the top of the forum post.
Previous Posts

Last Chance To Vote - Best Bitcoin Mining Rig Builder

CoinConnect is running a Bitcoin Mining Rig competition and has a dozen entrants, one of which is featured in this post.

Voting is performed using the Poll at the top of the forum post.

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asker

Anonymous asked: Hello, my friend and I are thinking about investing in a small mining operation. I realize things are slow right now what with the exchanges, but we're patient and feel that prices will go up again. As what I read varies from post to post, and opinions on tech change so quickly, I ask you--if you were to build a basic rig right now for 500-1000 dollars, what would you use? I realize every beginner might ask, but it's good to have a fresh answer.

realize things are slow right now what with the exchanges, but we’re patient 

Slow?  That is an understatement.  The revenue from mining is now for nearly all miners below the cost of their electricity.  That means it is cheaper to purchase bitcoins at market than it is to mine them — assuming you are paying for electricity.

Put more clearly — mining at the current price levels is currently a money-losing proposition for nearly all participants.  Adding hardware at this time for economic reasons is purely a speculative play.

if you were to build a basic rig right now for 500-1000 dollars, what would you use

There are those with access to capital and technical skill who will add capacity when profits return.  They then enjoy economies of scale that aren’t obtained by individual owner/operators.  A “small mining operation” is no longer single low-end PC and instead now refers to a rack of rigs perhaps.

What you are describing is a hobby box.  And with most hobbies, all you are likely to get out of it is some entertainment or an opportunity to learn.  if you don’t mind contributing your time and money to achieve those ends for this hobby, then by all means proceed.

As far as specific hardware, why not look for a rig being sold by a miner that is liquidating at a discount.  There are plenty to be found.

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Video: Liquid Nitrogen Cooling System

TeamNexGen shows in this video a blast of liquid nitrogen as a method to cool down a few rigs.

[Caveat: Electronics were not meant to sustain rapid changes in temperature and depending on the application, this method could damage your equipment.]  

 Previous Posts

asker

Anonymous asked: hey there, i have a dedicated server and I am thinking about doing some mining, but I am curious what the "mining" really is? Are you processing algorithms in order to generate coins for your self? Or are you getting paid to process things for others?

What is Mining?  The short answer: Miners perform computations that enable Bitcoin to be a decentralized currency system that does not rely on a master node or other authority. The long answer is on the Bitcoin wiki.

The incentive to the miner comes in the form of issuance of a small amount of digital currency.  That currency received by the miner can be used to make purchases or it can be exchanged for other funds through an exchange.

As far as using a dedicated server … you may wish to reconsider.  Unless it has a GPU you will be wasting your time and electricity.

Put Bitcoin Mining Rig Heat Exhaust To Good Use

Rather than just venting away the heat, this miner has a novel use for the byproduct of Bitcoin mining.  Bitcoin rigs make “excellent food dehydrators”, reportedly.

With a typical rig putting out tens of thousands of BTUs per day, creative miners are finding complementary uses for the exhaust heat.  Most of these uses, such as this home Bitcoin powered home water heater, are hobby projects though on a larger scale there is a busienss case where performing heat recapture is justified.  

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L2Bitcoin: Tutorial - How to Stack Custom Rigs

This latest video from L2Bitcoin provides a guide on creating a stackable mining rig.

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Hack A Day - FPGA bitcoin mining
A post on Hack A Day features the first commercially available FGPA Bitcoin mining hardware.  Excerpts:

The board requires only 6.8 watts for 100 Mhashes/second, but [li_gangyi]‘s blog says the team expects to hit 150-200 Mhashes with some improvements.

Only four of these boards were built and the supply has already sold out.  Deposits are being accepted at Cablesaurus towards pre-orders for the second generation model.  The second generation units are priced at $420 (single FGPA) to $620 (dual FPGA) but those prices will likely be lowered before purchase due to volume discounts.  The number of boards produced will be determined by how many deposits (paid in either bitcoins or USDs) are made.
This board differs from the modular FPGA hardware project but runs the same open source FGPA miner that was released in May.
FPGA hardware is more expensive for mining Bitcoin than the hashing equivalent when GPU graphics cards are used but power consumption for FPGA mining can be nearly an order of magnitude less.  At current exchange rates and difficulty levels, the dual-FGPA board will produce just under 0.12 BTC per day, which is worth about $1.22 USD.  Calculated using the typical U.S. residential rate the cost of electricity to run the two FPGAs for a day is under $0.04 USD, or about 3% of revenue.  For comparison, when GPU graphics cards are used for mining in regions where electric rates are high the cost of electricity can exceed half the miner’s revenue.
Though mining profitabilty is near all-time lows, these levels are still high enough that FGPAs are not yet price competitive due to the higher hardware costs involved.  At the same time, this board just brought FPGA mining one step closer to becoming a significant competitor to GPU mining.  Those likely to be the early adopters will be those hitting total power consumption limits, those running out of space and those unable to sufficiently remove the heat produced when mining with GPUs.  
Previous Posts

Hack A Day - FPGA bitcoin mining

A post on Hack A Day features the first commercially available FGPA Bitcoin mining hardware.  Excerpts:

The board requires only 6.8 watts for 100 Mhashes/second, but [li_gangyi]‘s blog says the team expects to hit 150-200 Mhashes with some improvements.

Only four of these boards were built and the supply has already sold out.  Deposits are being accepted at Cablesaurus towards pre-orders for the second generation model.  The second generation units are priced at $420 (single FGPA) to $620 (dual FPGA) but those prices will likely be lowered before purchase due to volume discounts.  The number of boards produced will be determined by how many deposits (paid in either bitcoins or USDs) are made.

This board differs from the modular FPGA hardware project but runs the same open source FGPA miner that was released in May.

FPGA hardware is more expensive for mining Bitcoin than the hashing equivalent when GPU graphics cards are used but power consumption for FPGA mining can be nearly an order of magnitude less.  At current exchange rates and difficulty levels, the dual-FGPA board will produce just under 0.12 BTC per day, which is worth about $1.22 USD.  Calculated using the typical U.S. residential rate the cost of electricity to run the two FPGAs for a day is under $0.04 USD, or about 3% of revenue.  For comparison, when GPU graphics cards are used for mining in regions where electric rates are high the cost of electricity can exceed half the miner’s revenue.

Though mining profitabilty is near all-time lows, these levels are still high enough that FGPAs are not yet price competitive due to the higher hardware costs involved.  At the same time, this board just brought FPGA mining one step closer to becoming a significant competitor to GPU mining.  Those likely to be the early adopters will be those hitting total power consumption limits, those running out of space and those unable to sufficiently remove the heat produced when mining with GPUs.  

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