Moore's Law on Steroids: World Computing Power for One Type of Calculation is Doubling Every Three Weeks
Over at Forbes, I wrote this week about Bitcoin mining. But don't be immediately put off. This is not yet another article by a crazed libertarian and Cryptonomicon fan on the miracle effects of digital currencies. Instead, I look at the crazy economics and absurdly steep capacity and technology curves of Bitcoin mining. An excerpt:
Let’t take an example, and consider the Cointerra TerraMiner IV, a 2TH/sec machine priced at about $6000 which if purchased today would be delivered sometime in February, or about 3 months from now. At current difficulties and exchange rates, such a machine would pay back its purchase price in less than a week, producing over $25,000 a month in Bitcoins.
A no-brainer, right? But Bitcoin mining difficulty has been going up of late by a factor of 10 every 3 months. Based on a mining difficulty ten times greater than today and current exchange rates, we could expect instead to be making at delivery something more like $575 a week. Three months later we would be making a tenth of that. If we factor in the costs of electricity, this machine will never cover its costs at current Bitcoin exchange rates.
I do not think I have ever seen a business technology obsoleted so quickly. Essentially, the next generation of mining processors will be virtually obsoleted between the time of its sale and its delivery 3 months later. Every three months one has to reduce his production costs by a factor of 10, in a business where cost reduction basically means throwing out all one’s existing capital assets and buying expensive new stuff.