back to article Bitcoin mining rig firm claims $3m revenue in just FOUR DAYS

It is said that during a gold rush, the people who make the real money are the ones selling the spades. The same appears to be true with Bitcoin, judging by the whacking great revenues announced by a firm which makes computers dedicated to mining the cryptocurrency. KnCMiner, a Swedish manufacturer of Bitcoin mining machines, …

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D'oh

Kicking myself that I didn't buy that £400 Radeon GPU a few years ago, purely to experiment with Bitcoin production....... think I spent it on beer instead, but I know which was more fun

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Anonymous Coward

Re: D'oh

I tried it, when I was renting a flat with bills included (yes, they still exist) a year or so back.

I sold the cards for about half price when I moved out, and the bitcoins gained in that time are approximately the same value now.

So, I broke even, but still hope they're going to appreciate.

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Re: D'oh

Making £1200 of bitcoins, covering your GPU outlay and buying twice as much beer?

I join you as one of the risk adverse, always wondering what could have been :/

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Pint

Not just me then?

I've been wishing I was on the Bitcoin track for some time but clearly I missed the bus. I'm wondering who is actually making the money here? Maybe if you had a solar panel on the roof this could work out quite well?

Beer - it's always a good return on investment.

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Sir

I may be a bit out of touch, but wouldn't it be cheaper for the miners to invest in multiplexing cheaper rigs together to number crunch?

Didn't someone mananage to do this with a bunch of PS3's a while back? Admittedly it would be more costly power-wise, but you could probably more than offset the cost with the increased processing ability.

I'm prepared for a rapid re-assessment of my knowledge (just don't shoot me in the face)

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Re: Sir

You're about 6 years out of touch, you can buy a much better graphics card for less than the price of a PS3 now.

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Suddenly my 3 spare HP Proliants are looking quite attractive.

Shame the electric bill will probably cause me to be in debt rather than "in the money"

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Suddenly my 3 spare HP Proliants are looking quite attractive.

Probably not ... there was an article in Toms Hardware a few months back that went into the economies of bitcoin mining and the conclusion was that the days of making money using GPUs was well over. FPGAs at that stage were still viable but likely to become obsolete as the next generation of bitcoin ASIC mining rigs came out.

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2nd Generation ASIC Miners

With the constantly increasing difficulty, my first generation ASIC miners (333 Ghash/sec) are now well and truly obsolete. The newer ones which can theoretically perform 2.2 Ghash/sec are now shipping, and a mate of mine has about 10 of them cranking along.

Unless you have serious cash, or bitcoins to burn, then you have pretty much missed the boat, although you can always be like Lando Calrission and do a spot of Cloud Mining.

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Bleak future?

I see it ending as a waste for many. If BCs grow rapidly and threaten the various nation's currencies, then one of two thing will happen. Those nations will ban BCs or they will throw their weight into the mining. The latter means that the world's top supercomputers will mine nearly all of the BCs and nobody else will have a chance. Better get them while the getting is good and convert to real currency as quickly as possible.

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Re: 2nd Generation ASIC Miners

>>The newer ones which can theoretically perform 2.2 Ghash/sec are now shipping

Your probably mean theoretically perform 2.2 Thash/sec, and 2.2 Thash/s, is probably not the maximum being touted, I've heard of a UK bunch doing 2.4Thash/s units

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JDX
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Huh?

I'm confused how this all works. What hashes are you solving and why does this make you money? Is it in some way illicit or is "printing your own money" the way BitCoin works?

I always thought they were just an electronic currency that could be transferred between owners, all this talk of mining is bewildering and just sounds like something out of a MMO...

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Re: Huh?

Briefly, the "mining" is cryptographically provable work done, which is used to "sign" the network's view of who owns which coins. It's quite a subtle concept, and *genuinely new*. It takes time to understand.

Nothing you try and reason about the BitCoin algorithm will be correct without fully understanding how it works. It is a totally new category of substance, unlike anything else.

It can also be extended and used in other unusual ways, not just a currency. See this talk at a BitCoin London conference to get a feel for that. http://t.co/13FBILgAEv

In my view, if you're in IT or finance and you don't understand the BitCoin algorithm, the world will rapidly become a deeeply mysterious place to you over the next 20 years.

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FAIL

Re: Francis Irving Re: Huh?

".... It is a totally new category of substance, unlike anything else....." Nope. Scams have been around for centuries.

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Re: Huh?

In simplest terms, the coins you get by "mining" are payment for helping to operate the Bitcoin network, validating transactions and updating the shared ledger specifically. The hashes are an arbitrary challenge by which people compete for that privilege. This is intended to keep any one person from easily seizing control of the network.

But I agree with Francis Irving, if Bitcoin intrigues you at all, you really should read all the technical details, it's interesting stuff.

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Anonymous Coward

Re: Huh?

For a currency to work it must be basically impossible to forge, so each bitcoin must be very strongly protected in terms of signing, and that signing process must keep up with computing power. So strong that it would be impossible for any one outfit to produce enough bitcoinage to be useful, so the process is farmed out to, well, anyone that wants to do the work. Their reward is the same as goldminers': they have the coinage in their hands "wholesale" and then they spend it on things, putting the bitcoins into general circulation.

Just like goldminers, there is a financial cost involved. When people say that you can't mine bitcoins with a GPU anymore what they actually means is that doing so would cost you more in electricity than the coin would be worth. You could solve that by using, say, solar power but even then the difficulty will eventually increase until the depreciation in value of your equipment will balance the value of the coins made, so each new generation of bitcoin mining machines goes from profitable to obsolete in a more or less predictable curve of profitability during which the coinage supply gets boosted.

Like gold, bitcoins have no inherent value (i.e., you can't eat them) so their value is simply as a limited, verifiable resource to use as an exchange token (but not too limited otherwise not enough people have them to make trading practical) but unlike gold they are easy to transfer electronically around the world in an instant or two. If it were not for the question mark of quantum computing, bitcoins would absolutely replace all "real" currencies online (as well as gold offline) pretty well immediately as they are otherwise superior in every way.

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Anonymous Coward

'the world will rapidly become a deeeply mysterious place to you over the next 20 years'

"In my view, if you're in IT or finance and you don't understand the BitCoin algorithm, the world will rapidly become a deeeply mysterious place to you over the next 20 years."

Disagree! As long as there is still a deeply entrenched crooked banking system in place, IT or finance won't change all that much over BitCoin! The JPM Reg article today is a reminder on how special interests protect the crooked banking system. Should BitCoin become an established commodity / currency like gold or silver, expect banksters to get in on it, front-running and outright rigging the market. They can leverage exotic derivatives off the back of BitCoin in a heartbeat, and if they choose to, they can screw the little guy in under 100 ms! But this won't make it grow, it will make it more volatile!

Half the trading desk is filled with ex-math geniuses. Exotic options models are more complicated than BitCoin math! But banksters have little interest at present, because QE is a much greater scam, because it has much better leverage. I worked as a derivates developer on an Fixed Income Trading Desk, so I recognise how easily Banks can dominate Bitcoin if they choose to...

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@Robert Long 1

Superior in every way?

When someone can filch them and be impossible to trace inclines me to award the superiority badge to the bag of brass implementation for trading tokens.

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Re: Huh?

"otherwise superior in every way."

Well, unless you are already very rich, if you try to destabilise the US dollar, the American government will attempt to kill you or have you arrested. This is one of the things that makes me almost completely certain that the US dollar will be worth roughly the same next week as this week, and not too much different next year.

I have almost no idea what a Bitcoin will be worth next week. If there's yet another attempt to destabilise it, it could be halved or doubled, depending on just when you're talking about.

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Re: Huh?

"If it were not for the question mark of quantum computing, bitcoins would absolutely replace all "real" currencies online (as well as gold offline) pretty well immediately as they are otherwise superior in every way."

Bitcoins will never replace real currencies as government wouldn't be able to print off a heap more when they need more money

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Anonymous Coward

Re: @Robert Long 1

"Superior in every way?

When someone can filch them and be impossible to trace inclines me to award the superiority badge to the bag of brass implementation for trading tokens."

I did say for online purposes. They're certainly no easier to steal than "real" money or plastic. My wife's credit card details were stolen recently and used to buy things in the US. While we didn't lose anything from it, someone (ie, Visa) did and that happens all day every day without anyone claiming that credit cards are worthless.

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Re: Huh?

Saddam Hussein was very rich and decided to do just that. He announced that he was no longer going to sell oil in dollars.

Within two months the tanks were moving...

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Anonymous Coward

Re: Huh?

"Saddam Hussein was very rich and decided to do just that. He announced that he was no longer going to sell oil in dollars.

Within two months the tanks were moving..."

Two months plus 3 years.

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But, if using those rigs is profitable, why sell them?

I guess I have answered my own question.

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Thumb Up

No, it's a good question ...

it's a little like buying machines which turn lead into gold without asking why the seller doesn't just use the machine to make his own gold.

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Risk

Who's to say they're NOT mining away.

But I think the real reason is it's like those spades sold during the gold rush referred to in the article. You're guaranteed a profit from selling spades/rigs; when mining you're subject to the vagaries of a volatile market, one where a total collapse in value is still a real risk.

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Anonymous Coward

> But, if using those rigs is profitable, why sell them?

Risk vs benefit.

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Facepalm

Evidently...

"But, if using those rigs is profitable, why sell them?"

You can only put so many of these rigs in the backroom before you need to upgrade your own power line. You can sell the remaining rigs out of the batch a little delayed and give your own rigs a good head start.

A lot of people forget it's easy to do more than just 1 single thing at a time ... :)

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Perhaps the mining rigs depreciate in value faster than the hard currency for which they are being sold?

Or it could simply be that not a lot of places accept bitcoins as payment. Earning a million easily spendable dollars might be perceived to be better than earning the equivalent of two million dollars in not so easily spendable bitcoins. See liquidity.

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Re: No, it's a good question ...

Or to use the Reg's own analogy, why don't the people selling spades use the spades themselves? Clearly, the spades must be a scam!

Or not. The flaw in this argument is ignoring the timescale - the machines are expensive, so my understanding is you will have to mine for some period of time to start making a profit. Perhaps the companies making these machines do keep some back for their own long term money, but their gain is making money in the shorter term.

There's also the speculation in Bitcoin as an investment - the people buying these machines are hoping Bitcoin will be worth a lot more in future, where as the people selling these machines aren't in it for investment, they're a business who want to make a guaranteed sale today.

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Diversity?

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Re: Risk

Could be. Then again, what if IBM's Watson is doing the same? What if the Chinese and US governments turn their many giant supercomputers into miners? Then those with these fancy new rigs will be using a spade whilst those governments and large corporations are strip mining with giant nuclear powered bulldozers. II think the end game was always to replace current currencies by forcing governments to mine their own (and subsequently get the lion's share). Of course, they could always take the easy way out and just declare them illegal.

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Some of them mine too!

See this link. It's a datacenter BUILT to mine bitcoins. Built by AsicMiner - who make and sell mining hardware.

http://hongwrong.com/hong-kong-bitcoin/

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Help me here

so is it possible for two miners to be working on the same solution, and therefore the one who comes second has wasted their electricity and cpu cycles? Or is the potential keyspace so large that you're unlikely to trip over someone elses?

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Re: Help me here

so is it possible for two miners to be working on the same solution, and therefore the one who comes second has wasted their electricity and cpu cycles?

Yes. In fact that always happens. Bitcoin mining is competitive. Each block has only one winner (although people can and do pool their efforts and then split the prize if they win).

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WTF?

I really don’t understand?????

Can someone correct me, and I don’t like to sound dumb, but just don’t get it.

From what I understand, currency came about as a way to pay for things using something that had value, for example

Person A is selling furs,

Person B wants furs and has some wood,

Person A doesn’t want wood, however person C does want wood,

So person B swaps his wood for some currency from person C which B can then swap with person A for his furs

Leaving person C with wood, person B with furs, and person A free to swap the currency for a dragon ride.

Currency is based on its value, a coin represents a value which is determined by its 'worth' (in the UK it used to be a pound weight in gold, hence the name) the value of a product is determined by how rare/much it costs to produce/people are willing to pay for it, a coin is a physical thing can be combined and traded for something depending on its value. And £10 note is basically a check for 10 £1 coins.

Then we get to trading, stocks, shares, etc etc, which is essentially speculation or representation on again, physical object values (or speculations on speculations on speculations on physical object values), and while this money ‘doesn’t actually exist’ it still represents the physical currency object which has a physical value, so if I took my stocks in Pork rinds, which is used to make Bacon, which can be found in a Bacon, Lettuce and Tomato Sandwich (points for the film reference) I can trade them for a physical monitory amount, or a representation of that amount.

Correct?

So my issue is this, how do you trade in something that doesn’t actually exist? What is the value of a Bitcoin? I don’t mean its worth against the dollar, I mean what is it based on apart from a series of numbers and hashes? what is the ‘value item’ that you exchange? How do you determine its value?

Is it in fact just made up?

At what point am I able to convert Bitcoins into actual money? And if that’s the point of them, to represent real money, then what is the point of them?

Are they not just the same as writing “IOU 5 internetz” in an email?

I can’t seem to find anything that explains these things in a way I understand, all it seems to be is someone came up with the idea of them, and then they magically made some from thin air, and people started trading with them, and more magically appeared, etc etc.

Some explain where I am wrong please!

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Anonymous Coward

Re: I really don’t understand?????

The value of bitcoin is based on the shared belief that it has value. Which is why, in the early days when it was just nerds playing around with it, it was virtually worthless. You could have bought thousands for a dollar. But now, since a sufficient number of people on the planet are willing to accept bitcoins in exchange for goods, services, or other currencies, you end up in a situation where it aquires a value and takes on the characteristics of a currency. And the more people in the world that agree that bitcoin has value, the more value it will possess, in a rather nice positive feedback loop.

And you're pretty much spot on. Someone did come up with them, and solved the problem of how to reliably decentralise a ledger of transactions, and the world is now waking up to the fact that this is a pretty awesome new paradigm that in many ways makes more sense than trusting a central entity with your money. Go ask Cyprus how that works out.

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Re: I really don’t understand?????

You are aware that you can't really trade in a £10 note for ten pounds of gold* anymore right? Modern government-backed currency isn't specifically tied to anything real either. Bitcoin only has value because people agree it does. This is true. The difference between that in say pounds is that the agreement is reached by consensus instead of authority. That can either be a strength or a weakness, depending on your perspective.

*Silver actually, hence pound sterling.

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Re: I really don’t understand?????

Maharg

A good question. But I will try to respond as this is a complex subject of which I understand a little. But I think that the gist is this.

Once upon a time money was used. say gold, as medium of exchange. Now, I remember from my Commerce lessons back in the 70s that money had to be three things to make it useful and therefore 'valuable'. These were scarcity, durability and portability.

It was no use having money made out of leaves (see HHgttG) nor having money too large to cart around and it was no use it falling apart. So gold became the de-facto standard because, essentially, gold is gold is gold. One could have used diamonds, for example, but some diamonds are bigger than others and some are better than others. So we all settled on gold. it could well have been any othe precious metal but it was gold.

Once upon a time the wealth of a nation was how much gold it had. The money in circulation was backed by gold. If you look at a British Five Pound note today it still says "I promise to pay the bearer the sum of five pounds" (or words to that effect) and that is signed by the chief cashier of the Bank of England. This meant that I could wander down to Threadneedle Street and swap my note for some scraps of gold.

And that's how commerce worked. Gold was mined, stord in vaults and notes were used in place of the gold.

Then some bright spark decided that we ought to liberate our money from the gold. Which meant that the countries can print as much money as they like. Now this is where the complete bonkers Magic Money Tree comes into life. If you print more money then you have, er, more money. Of course it becomes that slightly less worth but no-one minds especially if you call it Quantitive Easing and say that it's a Good Thing. But don't look too closely, play the game of musical chairs and hope that no-one points out the Emperor's New Clothes.

Before the second world war, Germany had to pay repairations for the first world war. They were found to be 'to blame' for all. Only in the sense that they lost and, therefore, they were the Bad Guys. As if having a good proportion of its young men killed wasn't enough the Allies punished them with crippling debts that they had to pay.

They had no choice to pay but paying them would mean that the country would go broke. If they paid it all back in installments then the bankrupcy would have been long and painful and would have gone on for decades or more. So what they did was was rather clever; the Weimar Government printed all the Marks it needed and paid off the debt. Of course the Marks were effectively worthless as they were backed by thin air (as in your message) and then hyper-inflation set in as a loaf of bread costs millons of Marks when it cost only thousands yesterday.

Hyper inflation is what happens when one has too much money trying to chase too few goods.

And, as an aside, this is one of the dangers facing the US Treasury. We all know that the US Debt is alarming. However, to pay the bills more money has to be printed which means that the dollar is getting to be less and less valuable. And sooner or later unless the US actually reduces the deficit (I don't mean slowing the increase, I mean making the debt smaller) then some day soon someone is going to say "Oi, these dollars; they're not so valuable now, are they?" and then the US is going to have major problems all because the dollar isn't backed by anything but goodwill (at the end of the day a currency is either backed by an agreed tangiable asset or goodwill). If the dollar is devalued then there's quiestions about the PetroDollar as this is the only thing that's keeping the country afloat -- because of this Magical Money Pump (money comes into the Treasury from the sale of the oil somewhere, it goes around the US and then out again) the dollar is seen to be a strong currency.

But devalue the dollar and the lads from the Middle East may decide to go into another currency and then there's no limit to the potential plunge.

It's not only currencies which are subject to this. We had, not in living memory, the Tulip Bulb Bubble when people decided that tulip bulbs, especially rare ones,. were worth a small fortune. The mayhem and madness of the markets as people wanted to get in on these is much the same... until the music stops and then the market comes to its collective senses and says "I am not buying a tulip bub for the price of a town house" and then the price comes crashing down. All currencies which aren't backed by something, be it gold, good will or the Magic Petroleum Money Pump are liable to this.

BitCoin is not dissimilar in that it's not backed by anything so in that sense it's "worthless" but on the side of the coin (excuse pun) there is only going to be a limited amount of these BitCoins so, in theory, they ought to settle down in value.

What is the value of a BitCoin? Well, if you deal wth stocks at all then you will know that the price of a share is determined by one person thinking he wants to get out, that the share is undervalued, whilst the other party thinks it's undervalued and wants to get in. Value is just one person's peception and when two people have two different opinions on value then we have a market and that is what determines the price.

The same applies to any free markets; what I peceive to be good value I will buy into or go long and what I think is poor value I will sell or go short. If I wished to trade in BitCoin and think that the price will increase, ie the coin is undervalued, then I will buy them. If I think that the whole thing is overvalued, as I do as I believe it to be a bubble, then I will either short or keep away.

And yes, they are writing "IOU 5 Internetz" but I may sell that IOU tomorrow for six to someone else who may think that they can get seven for it.

All I am saying is that scratch down far enough and you'll find thin air which makes economics both interesting and frightening at the same time.

This is my take on it. Cue to downvoters...

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Headmaster

Re: I really don’t understand?????

> And sooner or later unless the US actually reduces the deficit (I don't mean slowing the increase, I mean making the debt smaller)

Ideology bubbling under the surface aside this is not entirely true. The absolute size of the debt itself is not as important as the debt to economic output actually. The US could still run very small deficits and if the economy grew at a gangbusters rate for a generation the US would still be in much better shape even though it never paid down any of the debt (ie the Reagan grow yourself out of debt approach). In fact at the end of the Clinton presidency they were starting to get worried what would happen if we had no debt and no longer issued treasuries as the world economy depends on it (haha that was not a worry for long). The issues were:

According to the report, there are three reasons why paying off the debt would be scary for the United States:

"...investors looking for an asset free of credit risk can no longer count on an abundant supply of U.S. Treasury securities, and Treasury securities may no longer provide a reliable benchmark for interest rates."

"...the Federal Reserve may have to change the mechanisms by which it conducts monetary policy."

"...the surpluses... would require the federal government to acquire assets through the Social Security Trust Fund." The question would then be what would they buy, and how would they buy it?

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Re: I really don’t understand?????

@BongoJoe

"Only in the sense that they lost and, therefore, they were the Bad Guys."

Really? Only that?

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Re: I really don’t understand?????

"Only in the sense that they lost."

That, and invading Poland, erm, Belgium.

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Re: I really don’t understand?????

By that I meant that they were no worse than any other country kicking off the first world war. In fact it could be argued that they were dragged into it by The Austria-Hungarian Empire who forced them into it by their multualy protective treaty.

None of the other European countries comes out with any credit.

But this, I fear, is beyond the scope of the topic.

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Facepalm

Re: I really don’t understand?????

Unfortunately, for bitcoins to have value there is one more requirement which is not filled. One can introduce as many varieties of bitcoins (under different names) as one wishes. There could be x-coins, c-coins, and so on and so forth. All of them may be backed by some 'mining' algorithms. As such, bitcoins are worth precisely nothing. They will become worth something once goverment decide that they are legal tender. As it is unlikely (to put it mildely), the bubble will break sooner or later.

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Facepalm

Re: I really don’t understand?????

That, and invading Poland, erm, Belgium.

In WWI? I think you are a 1000 years off the mark.

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Anonymous Coward

Re: I really don’t understand?????

"Currency is based on its value, a coin represents a value which is determined by its 'worth' (in the UK it used to be a pound weight in gold, hence the name) "

It was a pound of silver, actually. And a troy pound at that (gold and silver are still traded in Troy ounces). Newton accidentally destroyed the value of silver as a currency by pegging the value of gold to a fixed ratio of that of silver while he was in charge of the Mint, but the theory of silver-based coinage hung on for a while even after that.

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Re: I really don’t understand?????

"If you look at a British Five Pound note today it still says "I promise to pay the bearer the sum of five pounds" (or words to that effect) and that is signed by the chief cashier of the Bank of England."

British? It's English and not legal tender in Scotland :-). Nor, of course, are any Scottish banknotes.

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Re: I really don’t understand????? @Old Handle

>>You are aware that you can't really trade in a £10 note for ten pounds of gold<<

Yes that’s why I said (quote) “in the UK it used to be”

It was a simplification, I could have reeled out the history of sterling, how where made of silver in Tudor times, the pound weight of 60 or so silver pennies, how by the 1700s they represented Gold, as we ran out of silver, the introduction of the gold sovereign, and then doing away with the gold standard under Lloyd George etc etc, but the post seemed long enough already.

So I didn’t.

But that you for the taking the time to reply

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Re: I really don’t understand????? @Bongo Joe

Excellent reply, thank you

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Re: I really don’t understand?????

wouldn’t say it could be argued they were dragged in by the Austria-Hungarians, they were dragged in, Fact.

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