Predicting Difficulty, ROI, and Price of BTC

If you read that title and your first thought was, "Anyone that can do those three things accurately is guaranteed to make a ton of money!" Well, you're absolutely right... and your next thought was probably something along the lines of, "Too bad most of that stuff boils down to pseudo-science and lame charts that are wrong 90% of the time," again, you're right.

One of my recent posts basically had a couple of people call me out and say something to the effect of, "But you're not even factoring in the increasing difficulty of BTC mining for your calculations, so they're all wrong!" To which I responded, effectively, "Yes, and I didn't factor in price either."

Of course course the difficulty of mining BTC -- or any other cryptocurrency -- changes the ROI prospects. The price of the target cryptocurrency likewise changes ROI prospects. Factoring in both of these is basically... well, at best it's just pure guesswork, and so I've stopped bothering. At this point, we should all know that difficulty and pricing for cryptocurrencies change regularly, but there's no telling what they'll actually do.

I've said before that difficulty follows price, but that's only part of the equation. Difficulty follows price as well as hardware efficiency, with other less significant factors also playing a role. BTC has had steadily increasing difficulties every cycle for so long that everyone seems to have forgotten that at one point, the difficulty actually plummeted! It did so right after the first big crash from $30 to $2. At some point it will almost certainly happen again, so if you're really smart you'll sell all of your Bitcoin right before the next big crash and then buy back in at the bottom so you can make tons of money. (Good luck doing that, by the way.)

So again: difficulty basically follows price as well as the efficiency of the hardware, and unless you can predict both accurately, any guess at difficulty is just that: a guess. Let me give you some great examples.

If we look at April to October 2013; the average increase in difficulty for BTC was 22% per cycle (a bit less than every 12 days). Then if we look at the next six months, October 2013 to April 2014, the increase per cycle averaged 25% (with a few instances where it jumped more than 40%). Wow, difficulty never stops increasing, right? But then we go the the past six months (April 2014 to October 2014) and the average increase is now only 12.5%. More importantly perhaps, look at just the last month where difficulty only increased 7% per cycle -- or the last two increases of 1% and 3%!

The reason the difficulty increases have fallen is that the price of Bitcoin has trended down lately (about the lowest it's been since a year ago), coupled with the fact that there's not really any more efficient SHA256 ASIC hardware coming online right now. As I've pointed out previously, the best SHA256 ASICs are doing something like 0.5W per GH, and in the not too distant future (~3 months?) we might see 0.25W per GH... but the next bump after could be much further out and eventually we might only get 0.1W per GH before we basically are stuck following Moore's Curves. That means the efficiency will be very difficult to improve without a process technology shrink, those only come every two years or so now, and in many cases a process shrink only improves efficiency by 30% (or maybe 50%).

We might see some other "tricks" where companies focus on making truly efficient ASIC designs and get a boost without a process shrink (e.g. look at NVIDIA's recent GM204 launch, where they increased performance and reduced power use while staying on the same 28nm process technology), but given SHA256 hashing isn't really all that complex I wouldn't expect major breakthroughs going forward.

Short summary: difficulty increases in Bitcoin are going to slow down, and at some point we'll even see difficulty decrease. That will happen when the price and difficulty make it unprofitable to continue mining for a bunch of ASICs, at which point they get shut down (just like my AntMiner S2 ASICs are now resting peacefully). The only thing that will get those ASICs turned back on is higher BTC prices to compensate for their power use. And if we see a massive jump in Bitcoin prices to $10,000 or whatever, you can bet that difficulty will skyrocket as well.

I of course make no claims of being able to accurately predict the future difficulty or price of Bitcoin, so when I say "best-case, the current ROI for buying a Hashlet Prime is 429 days", that means that if you buy a Hashlet Prime at $34 from the Hash Market and Bitcoin stays at $338 with difficulty also staying static (which means the payouts stay at 0.0003 BTC per MH, plus 50% for Double Dipping), you'd need 429 days to break even. If the payouts drop the time to ROI will increase, and if the price of BTC goes up the time will decrease.

Hopefully that clears things up.

Hash Profit: Free 200KH/s Test

So here's an interesting one for you: Hash Profit is claiming that through a variety of coin mining algorithms, they're able to pay a whopping 0.00698 BTC per 1000 KH per day. What's more, there's an option to get a free 200 KH/s for seven days as a trial. And since it's free, I figure why not give it a try?

There are a couple options. One is that they've misplaced a decimal point (which would be crazy, since this should be based on running some calculations and automatically generating a figure, not manually updating a field). The other is more likely: they're not talking about Scrypt MH/s or any number of other algorithms, so in fact their 0.00698 "MH/s" rate is some apparently arbitrary number that they've come up with.

I'll report back tomorrow with the actual daily returns. It looks like the free 200 KH for seven days will net you about 0.01 BTC by the end of the week at the current rates. So basically, for signing up you get a free $3.50 or so of Bitcoin; I suppose there are worse ways to spend your time. :-)

In the meantime, if you're wondering, the price for 1 MH/s (1000 KH/s) is currently 1.28457 BTC, which explains the apparently crazy returns per MH. See, if you're earning 0.00698 BTC per day off of a 1.28457 BTC investment, you're time to ROI is 184 days. Six months to hit ROI would be great on most investments, but in the world of cryptocurrencies there are far too many companies that don't last that long.

Still, if you're interested in something other than GAW or LTC Gear, you could give Hash Profit a shot.

Farewell, MintPal? The Alt-Coin Apocalypse Continues

I haven't been doing much on most of the exchanges lately. With the alt-coin apocalypse, so many of the coins that have been traded quickly became more or less "worthless", so I consolidated all of my holdings primarily into BTC and called it a day. I'm also basically done with GPU mining, as the best returns only just pay for power and may a bit extra.

Anyway, I just saw today that MintPal, one of the more well-known cryptocurrency exchanges (and by no means one of the best, as they've had hacks/problems in the past) is apparently going away. Well, maybe not quite, but the managing company is filing for bankruptcy and they've "sourced a new management team" for the site. There have apparently been some additional problems with missing/lost balances over at MintPal, and if that's the true I can see how that could quickly lead to closing shop at this stage.

On that note, with so many alt-coins basically dying and becoming worthless, I suspect we'll see something similar happen with many of the exchanges that primarily deal in alt-coins. Again, I've pulled my coins off of all of the exchanges (well, except for coins that are basically worthless -- the exchanges can keep those if they'd like), and I'd strongly suggest others do likewise.

For that matter, if you're in Bitcoin for the long haul, you might want to just move your coins into cold storage rather than trusting Coinbase or any of the other big names with your holdings. I haven't gone that far yet, mostly because I still do things with my Bitcoins (like buying Hashlets, ASICs and other goods), but better safe than sorry. And if a company you're doing business with seems to be acting a bit crazy, perhaps it's because they are?