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Is Mining Worth it?

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albyva:

 I'm wondering if building a bitcoin miner is worth the time, money, effort, and electricity costs.
I was thinking that either acting as a Market Maker or Arbitraging disparate bitcoin markets
is likely much more profitable.

 For example, lets assume you have 100 bitcoins and $1000 in your accounts at Mt.Gox and
CryptoXChange. At this very moment (July 10 2012 @ 12.30a ET) the following Bid/Ask price
quotes exist on both exchanges:

Mt.Gox
---------
Bid: $7.05118
Ask: $7.11498

CryptoXChange
--------------------
Bid: $6.78
Ask: $7.12


 Given these quotes, I would sell 100/bitcoins on Mt.Gox @ $7.05 (Value: $705)
and buy 100/bitcoins on CryptoX @ $6.78 (Value: $678). As a result, I've just
arbitraged $27.00 buying and selling 100 btc.

 Now my accounts would show:

Mt.Gox:   $1705/USD - 0.00/bitcoins
CryptoX: $322/USD - 200/bitcoins

Added all up and I have gone from $2000/USD - 200/bitcoins
to $2027/USD - 200/bitcoins. That is a 1.35% increase in my wealth.
If I just made (1) trade per day with similar arbitrage spreads, I would
net over $800/month by doing nothing more than moving money and coin
around between disparate markets.

Another option is to become a market maker by posting Bid and Ask quotes
on an exchange. You do the same thing as arbitraging, except its confined
to a single market location and offering the best Bid/Ask price. The less
competition yields higher spreads whereas more competition will narrow
spreads and thus profits.

 In any case, Building Mining Equipment for a couple of peanuts just doesn't
seem to be worth the cost. Also, you are highly susceptible to the market price
for bitcoins, whereas somebody who is a market maker or is arbitraging markets
doesn't care about the price of coins, just the volume of trades and spreads in
bid/asks.  In short, there is much more risk to be a miner than a trader.

 

asgallant:
That's not how it works.  The bid price is what you sell for and the ask price is what you buy at.  You would sell on mtgox for $705 and buy on CryptoXChange for $712, losing you $7.

The only way to become a market maker is to have an overwhelming advantage in the volume of assets you can move.  You would have to be THE guy to go to for buying and selling BTC, which (unless you secretly own most of the BTC in circulation) you are likely not.  If you don't have that advantage, you can try to work the middle, but it can bankrupt you to do so - every movement of the market up or down can hurt you.  Take the following case:

Assume you have $1000 and 200BTC, and the market is hovering around $5.  You have a bid for 200BTC @ $5 and an ask for 200BTC @ $5.05.  Let's say the market goes up ~$0.10 - your ask price is accepted and you sell 200BTC @ $5.05, giving you $1010.  The new market bid/ask is around $5.10-$5.15.  You can put in a bid for BTC @ $5.10, but that would be buying back the BTC you just sold for a lower price, a losing proposition.  You either have to wait for prices to fall or write off a $0.05/BTC loss to enter back into the game.  The same effect happens when prices fall, but in reverse - you would have to offer to sell the BTC you just bought at a higher price, again losing you money.  If you play this game, you are betting that prices are never going to significantly deviate from a very narrow range of their current values.  The only way you can insure that they don't is to have an overwhelming advantage in market power, which you - again - probably don't have.

When it comes to mining, the profitability depends on three things: 1) electricity costs, 2) power efficiency of the mining equipment, and 3) the market price of BTC.  Assuming you live in the US (or somewhere with similar electric costs), you probably pay about $0.15/kwh (US national average).  Using last-gen mining equipment (AMD radeon 5XXX/6XXX series GPU's), you'd probably just about break even, maybe make a little profit, maybe lose a bit of money, at the current market prices.  The newest generation of AMD GPU's are more energy efficient, but I don't know off the top of my head how well they stack up performance-wise with the 5/6 series cards, so I can't speak to profitability.  The money-makers are the FPGA miners, which can perform at similar levels to GPU's but use a fraction of the electricity.  The problem with them is twofold: primarily, the price of entry is quite expensive currently compared to the return, so it will take a long time to pay off the purchase, and 2) there is a strong probability that someone will come out with a dedicated mining ASIC that blows away FPGAs in performace and efficiency (and maybe cost too) in the near future.

Personally speaking, I had a decent personal mining rig (2x6950) which was earning me money back when BTC were around $8 (for reference, I pay $0.15/kwh for electricity).  I stopped mining when the BTC market tanked and haven't done any since.  Unless electricity is dirt cheap where you live, I would recommend either investing in FPGAs, waiting for ASICs, or staying out the the BTC mining business altogether.

zeronic:
I'm running a FPGA myself, their not that hard to get running, thou you will need a little linux box to run the system.

Recommendation
Find a FPGA, either Quad ModMiner or X6500 (new board coming this month hopefully)
Ubuntu 12.04 Desktop or Server
A low power computer, I suggest an AMD E350 or E450 APU, 4 to 8GB of ram
Modular Python Bitcoin Miner : https://bitcointalk.org/index.php?topic=62823.320
Python 2.7
Read this guide: http://fpgamining.com/documentation/software/mpbm-linux

So your new FPGA miner and controller will be using less power than a GPU but with the same Mhash/s it is very easy to expand this system.

As far as ASIC, we might see a few vendors try to release some, but overall. Their performance is been hype without real world numbesr. FPGA is the safes route atm.

albyva:


   It seems like the biggest variables are BTC Market prices and the cost of Electricity.
Both are factors outside of everybody's control. And although it might be cool to stand in
awe of your Bitcoin Mining machines while sipping Mint Julip from the porch of your Mississippi
Plantation, the market just never allows for anybody to get an edge up on making a nickel.

 It reminds me of that old Steinfeld episode where Kramer and Newman are trying to figure out
how to make money on recycled cans by selling them in another state that pays double. Trouble
is, transportation costs eat up any gains they get until they come across a mail truck they can use
for free.  lol

 In any case, this is why I'm making the argument that Bitcoin Mining is likely futile and that maybe
we should focus on arbitraging the bitcoin market as a more lucrative way to make money. Just like
the Rothchild's of old, making money from price differences can be profitable.


Case in Point: http://nyse-group.de/bitcoin-arbitrage

jacobleonx:
I am having a hard time fathoming how much research you had to do for this data, but I appreciate it and I agree. You make a lot of sense.

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