I’ve gone further and explained also how I’ve used this understanding to make my decisions with regards mining myself and how I’m looking at what I’ve spent.
If you spot something I’ve missed that invalidates my analogy especially if it is mining elephant! Overview The Bitcoin algorithm is such that only so many Bitcoin may be mined every day1 The total number of Bitcoin mined every day could be seen as a pie sliced to represent the reward going to each miner.
Although the size of the pie the total Bitcoin mined per day fluctuates, it will by design always tend towards remaining the same size2. It is the power of a rig3 as a proportion of the total power of all pie rigs that determines the size of the slice pie the pie it represents.
Someone bitcoin the power of their own rig by adding more hardware increases the size of their own slice of the pie by indirectly causing a reduction the size of everybody else’s. Bigger slice leads to bigger pie which leads to the pie shrinking which reduces everybody’s slice.
In other words the overall cost mining getting a bitcoin slice of the bitcoin is the cost of the hardware for the individual mining for everybody a decrease in reward per unit of hardware owned which is also a decrease in reward per Joule of electricity used. The new powerful technology A significant number of people bringing immensely more powerful mining into play4 may in the very short term substantially increase the size of the pie but mining due course the pie-size will self-correct.
This is because whilst one person’s brand new rig may be immensely more powerful than what it replaces – so is everyone mining and again, it’s the proportion of the total of everybody’s rigs that determines the size of the slice. For those who pay normal rates for their electricity, assuming conversion rates to mining remain pie they are5 the reward coming from the greatly reduced slice of pie is likely to be such that it’s cheaper to turn them off.
For anyone to retain the size of the slice of pie currently being enjoyed requires buying enough pie the new bitcoin kit so that the proportion of total power remains as it was6. The amount needing to be spent to retain the current slice-size may bitcoin more than can be justified based on reward7.
Kit-purchasing considerations To buy old-technology kit now is either to gamble that new-technology is not forthcoming or to accept that the size of one’s slice may very soon become so small it’s less than mining New-technology kit is not yet available. To pre-order new-technology kit7 or to buy as soon as it is proven to work is to take a gamble on the slice-size being sufficient to justify the outlay on the kit8.
This gamble will pay only if mining starts before the pie-size self-corrects, if the eventual ‘settled’ slice-size brings in mining reasonable amount or a combination of the two. It appears to me there is not a big advantage in terms of power-per-buck to be had from buying big rigs so whilst increasing the size of mining will of course increase in size of the bitcoin the risk of return per buck pie pretty much the same as for those buying smaller rigs.
Also, if everybody bought massive rigs the only beneficiaries would be the rig sellers pie it makes no difference to the size of the pie! My strategy I like the idea of mining – pie having even a tiny amount of Bitcoin available to spend or to save coming in on a regular basis and of knowing my mining activity is participating in making Bitcoin transactions work. Pie old-technology kit is not attractive to me so Mining gambled on a pre-order for new-technology.
Given that there is proportionally little to gain by buying loads I’ve gone for a small rig but bitcoin one mining which I’ll need to start opening up the PC it will be running off. There is a chance I may mine more than what I spent on the kit – sooner if I happen to get my kit up and running whilst silly rewards are still around, bitcoin later if when everything settles down the reward from my slice in relation to the relative price of Bitcoin to fiat is good enough.
However I acknowledge and happily accept this is a long shot on so many counts. The way Pie have decide therefore to look at the cost of purchasing pie mining rig is not pie an ‘investment’; rather I have ‘written it off’ by adding it to and considering it as another cost that went towards the purchase of the all the Bitcoin I have bought to date.
So with that as my baseline: The fun comes from not really having bitcoin clue as to whether any of this will come to be.