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Monday, May 3, 2021

Chia Coin Trading Is Live, Mass Storage Shortages Could Follow (Or Not)


After a month of waiting, newcomer cryptocurrency Chia has finally hit it's trading start date. It's not listed at many exchanges yet, and there are lots of concerns and caveats with jumping on any new cryptocoin. But Chia is going for a novel appoach with a new proof of space and time algorithm. It's supposed to be far more environmentally friendly than all the proof of work coins like Bitcoin and Ethereum, but it could also shake up the storage industry in a big way.

Instead of hashing, Chia uses large plots of numbers that effectively amount to a massive Bingo card. The network determines the winning criteria every 20 seconds or so (18.75s, theoretically?), and that plot gets 2 XCH, the abbreviation for Chia's coin. The blockchain and block reward structure ends up similar to other cryptocurrencies, but the creation of the plot is the only really difficult part. After that, it's just a matter of letting the Chia plots sit around on your storage devices and hoping one of them gets a 'hit' every now and then.

I hesitate to even mention the current pricing, as it's extremely volatile right now. Early guesstimates put the starting price of XCH at $20, but IOUs for when trading commenced already hit the $1,000 mark in April. So far, we've seen a high of $1,935 today and a low of $1,116. Given the current statistics, neither price is remotely sustainable. Unless...

Yeah, unless. If you asked me years ago what Bitcoin would be worth, I would have never landed at it hitting $50,000 per BTC. Others were more prescient. People asked me about Ethereum when it launched, and I had reached the jaded point of seeing too many scam coins and ICOs and felt it was nothing special. Now, those who took the risk on the ICO have seen its value increase by 10,000X. There are a ton of other coins that haven't done nearly so well, and lots of scams as well, but Chia has some well-known people behind it. As in, Bram "BitTorrent" Cohen. Yeah, the guy that helped create BitTorrent is deeply involved in Chia. Which, I don't know ... BitTorrent isn't exactly a warm fuzzy term. It's useful for a lot of things, but also has been used for a ton of illegal downloads. Whatever.

Let's talk some theoreticals, then. The current netspace used by Chia — which is basically the Chia equivalent of the network hashrate — is already at an astounding 1.77 EiB. That's exbibytes, as in binary exabytes, or 2^60. It's a huge number, in other words. You'd need 177,000 10TB HDDs to store all that data. Even more alarming: Chia's netspace has basically doubled in the past week, and doubled again during the week before that.

Now that XCH is a tradable commodity on a cryptocurrency exchange, the price will help determine the eventual resting point for how much netspace it will use. Right now, even if we go with $1,000 per XCH, you could theoretically earn $1,500 per month from a single 10TB hard drive (#affiliate)! But that's only part of the story.

Creating Chia plots requires about 2.7TB of data to be written. It takes a decent amount of time on a hard drive, but a fast SSD can work on multiple plots concurrently. Except, 2.7TB of writes will burn through the life expectancy of most SSDs! This is where an enterprise class SSD could make a lot of sense. Anyway, if you want to do a lot of Chia plots quickly, you'll need a decent CPU with sufficient RAM, and then an ultra-fast SSD with a high endurance rating. Intel's Optane 905p 960GB for example would be a great choice. Or get an enterprise Intel DC P3600 1600GB drive for $1250. That should allow for the creation of eight concurrent plots in perhaps five hours, or 40 plots per day.  Let's just call it 20 plots per day to be conservative — and Chia will move those plots from temporary creation storage (ie, your fast SSD) to slower long-term storage (ie, a cheap HDD) automatically.

Here's the catch: Right now, Chia farming is basically all done solo. There are mining guilds of a sort, but they're not something I'd recommend — they require you to give away the keys to the kingdom (your private wallet keys). Pooled mining (farming) of Chia is supposed to be coming, but it's not here yet. So in order to win let's just say one plot per week, you'll need ... wait for it ... about 50TB worth of stored Chia plots. Ouch. And that's before the inflation in Chia's netspace, which will drop your mining rewards proportionately.

Now we're looking at $1250 worth of hard drives, plus a $1250 fast enterprise SSD, to do around 20 Chia plots per day. It will take over a week to fill up the HDDs with plots, at which time the netspace has potentially doubled again. That's a very ugly cycle!

Ultimately, the price or netspace (difficulty, sort of) have to reach equilibrium. An RTX 3090 graphics card selling at $3000 (twice its official launch price) can each about $10 per day, so 300 days to break even. Chia farming at $1000 per XCH will potentially get you $1000 per month per 10TB HDD, with a cost of $250 or so per drive. What's more, the power required to keep those drives online is nominal compared to GPU or ASIC farming — about 10W max per 10TB, vs. 250W for a high-end GPU.

Where will Chia and XCH stabilize, and where will they be in a year? Without a lot of storage, it's going to be difficult to get started right now due to the solo mining approach, but when pooled mining becomes available things will likely get a lot better. 10TB of storage could easily net you over $1000 by next year, possibly much more. Or it could end up being wasted space and wasted write cycles on your SSDs.

One final item of note is that Chia has a premine — or in this eco-friendly coin market, a pre-farm. Chia calls this the "Strategic Reserve" and it's a whopping 21 million XCH. That's right: the creators already have 21 million Chia waiting to be utilized. Now, a premine isn't the end of the world, as the funds from such can be used for marketing, development, etc. Lots of successful coins have had a premine or ICO. But it does mean that at the current price of $1000+, a brand new coin would have a theoretical market cap of $21 billion.

Outside of the pre-farm, to date only 451K XCH have been farmed. So of all XCH currently in existence, 98% came via the pre-farm. At a rate of 64 XCH per 10 minutes from farming, for the first three years (the block rewards will halve every three years, until reaching a steady rate of 4 XCH per ten minutes after 12 years), after the first three years the farmed XCH will only account for 32.5% of all XCH in existence. In another three years, farmed XCH will represent 41.9% of all XCH. In fact, it will take approximately 21 years for the farmed XCH to surpass the total size of the initial pre-farm.

In other words, no matter how much money Chia farmers make off of XCH in the coming years, it will be dwarfed by the amount that the Chia Network 'company' makes. Keep that in mind. The people who stand to gain the most from Chia doing well already have control of millions of XCH.

And let's end where I started. The price of XCH now, just an hour or two after I began, has now dropped to just over $1000. It could fall a lot further!

Addendum: The next morning, it looks like prices have reached relative stability at around $750.

Saturday, February 20, 2021

Ethereum Breaks $2,000, Bitcoin at $57,000: History in the Making


Thar she blows! That's right: Ethereum just broke $2,000 for the first — and almost certainly not last! — time. Bitcoin meanwhile is in the high $50K range. With companies like Master Card, Tesla, and various banks investing potentially billions of dollars into blockchain technologies, none of this is going away any time soon. Which raises an interesting question: How much money does the world spend daily on cryptocoin mining?

I've run the numbers, and best-case, the Ethereum miners are using well over a billion watts of power, and Bitcoin mining is about five times that amount. That's going off how much power would be required if every miner was using the most efficient hardware possible, which obviously they're not, and so real-world power use is about three times as high as what I just estimated.

That's three billion watts, every hour of every day, just to keep Ethereum humming along, and roughly 15 billion watts for all of those Bitcoin ASICs. It's nuts! It's also completely unsustainable to keep growing at this rate, so if you're looking at mining profitability right now and wondering how long it will stay this high, I'd estimate another month or two at most, and in three to six months it will likely be less than half as profitable. But what do I know? I thought $40,000 per Bitcoin was the limit for now, and clearly that was wrong.

Anyway, back to power, at $0.10 per kWh, Ethereum would cost about $7.2 million dollars to keep running, each and every day — not including IT infrastructure and cooling, which probably makes it closer to $10 million per day. With a price of $2,000, around 6,500 ETH blocks mined every day, and 2 new ETH minted per block, that's $26 million created out of thin air. So, it's definitely got room to grow at this price. Also interesting is that there are around 1.2 million transactions per day on the Ethereum blockchain, which means each one costs something like $20 in theory — that's looking at the average of around 2 ETH per block in transaction fees.

Bitcoin is, if anything, worse. The Bitcoin network runs at around 160 million terahash per second. The most efficient ASICs do about 25TH/s using 1000W. Using only such ASICs, that would mean we'd have 6.4 million ASICs running Bitcoin, using 6.4 billion watts. But lots of older ASICs are in use, so triple that and we can estimate roughly 19.2 billion watts. Each day, every day!

Total cost at $0.10 per kWh would be about $46 million per day in power costs. Lots of big miners are getting lower cost power than that, but lost of places in the world also cost a lot more, so let's just stick with 10 cents per kWh. Bitcoin is a slow block time of around 10 minutes, so there are only 144 block per day (give or take), but the block reward is 6.25 BTC newly minted, plus around 160 BTC per day in transaction fees, so roughly 1.1 BTC in tx fees per block.

Given those stats, Bitcoin creates 900 new BTC per day, with a value of around $50 million. Notice how much closer that is to the power costs? What's more, at 160 BTC per day in transaction fees, and around 300,000 transactions per day, that means the average BTC transaction costs around $30. Fewer transactions take place, and a lot of places like mining pools and Coinbase seem to be doing transactions largely off the books — using internal mechanisms to track who has what BTC — but the net result is a lot of power and heat used for blockchain technologies.

I'm curious to see where this goes, and if we end up with a lot more regulation and at the same time more uptake of cryptocurrencies in the coming years. The potential influx of cash into the network via banks and other large companies helps ensure things will continue for a while, but we know banks and others could pull out just as quickly as they joined — manipulating the market on a large scale and trying to make a buck in the meantime.

Don't get caught holding the bag, in other words. We saw massive amounts of hype in 2017 and 2018 for blockchain, and much of that went nowhere. Then again, here we are in 2021, with BTC at more than double the previous high and closing in on triple the value. If you had and held BTC for three years and triples your value, that's a nice improvement. All the 'weak' hands that folded? Too bad for them!

Personally, I'm trying to only sell enough of what I earn to pay for power these days. Because it feels like at some point in the coming years, we'll see $100,000 per BTC, and potentially even $1 million. Also potentially $10,000 or less again, so who knows?

Monday, January 11, 2021

GPU Cryptocurrency Mining Profitability, January 2020

Bitcoin is up, and mining is making a comback. Again. At least for the time being. If you're looking for advice on the best GPUs for mining, right now, here's my breakdown and analysis, based on testing over the past few days. These are the best GPUs for mining cryptocurrency, which currently means Ethereum. I'm putting prices in as MSRP, which you probably won't find anywhere for many months. But these are theoretically prices you could pay if supply was keeping up with demand. Adjust your expectations accordingly!

All of my values are based off mining via Nicehash. That's because, frankly, I want either Bitcoin or Ethereum, not one of the other potentially garbage coins. Plus, you can easily trade BTC or ETH for a different coin if that's what you're after. You can probably earn 10% more via mining ETH directly, but then you have to manage things more and it's frankly a pain I can't be bothered to deal with. I use a standard cost of $0.10 per kWh for power, with my own power measurements taken at the outlet, using an 850W 80 Plus Platinum PSU.

Component $ per Day Power per Day Profit Break Even
GeForce RTX 3090 ($1499) $7.50 $0.96 $6.54 ~229 days
GeForce RTX 3080 ($699) $6.50 $0.86 $5.64 ~124 days
GeForce RTX 3070 ($499) $4.50 $0.62 $3.88 ~129 days
GeForce RTX 3060 Ti ($399) $4.40 $0.58 $3.82 ~104 days
GeForce RTX 2080 Ti ($1199) $4.40 $0.72 $3.68 ~326 days
GeForce RTX 2080 Super ($699) $3.40 $0.61 $2.70 ~259 days
GeForce RTX 2070 Super ($499) $3.30 $0.52 $2.69 ~186 days
GeForce RTX 2060 Super ($399) $3.10 $0.48 $1.82 ~154 days
GeForce RTX 2060 ($299) $2.30 $0.48 $1.82 ~164 days
Radeon RX 6900 XT ($999) $6.00 $0.84 $5.16 ~194 days
Radeon RX 6800 XT ($649) $5.25 $0.84 $4.41 ~147 days
Radeon RX 6800 ($579) $4.50 $0.72 $3.78 ~153 days
Radeon RX 5700 XT ($399) $4.00 $0.66 $3.34 ~119 days
Radeon RX 5700 ($349) $3.75 $0.55 $3.20 ~109 days
Radeon RX 5600 XT ($279) $2.70 $0.48 $2.22 ~126 days

So, there you have it. If you could buy the GPUs, the best options right now are the RTX 3060 Ti and the RX 5700. Neither one is readily available at the pricese listed, and we could see prices more than double the MSRP in the coming months, depending on how things develop. But if you get the right hardware, assuming you already have a PC, breaking even on the GPU in just four months still looks possible. At the outside, you might break even in a year. Assuming of course that Bitcoin doesn't go tits up again.

The Rise and Fall of Bitcoin, Round Four

The only thing predictable about cryptocurrencies at this point is that they're unpredictable. Sure, there are larger patterns that repeat, but knowing when a new swing up is starting, or a new trend down is on its way, is tricky business. The past month has seen Bitcoin eclipse the previous high of 2017, followed by a surge to more than $40,000. That appears (maybe!) to have been the peak, as prices dropped over 20 percent just today (Jan 10, 2020). Will Bitcoin and the other cryptocurrencies rebound and head back up? Will they collapse back to early 2020 prices? I could guess, but then I'm no better than the rest of the pundits. All I know for certain is that cryptocurrencies are extremely volatile, the past month or two being a prime example of that volatility.

I've spoken with a few people over the past week who basically wanted to know what I thought about Bitcoin. One is an investment advisor, and naturally people he advises right now are asking about Bitcoin. Others were computer enthusiasts wondering if now is the time to start mining. My answers to both were somewhat nebulous, but I'll share them here.

Should you invest in Bitcoin or any other cryptocurrency, right now? No, I don't think so. We're already far into the surge upward, and the inevitable collapse will eventually follow. As fast as Bitcoin rocketed to $40,000, it can drop back to $10,000. Since we're still at about $33,000 (update: now past $50K), I wouldn't want to get caught holding the bag. Maybe we'll see $50K before a crash, maybe even $100K! Maybe not.

Longer term, you could still buy in today and very likely recoup your investment in the coming years, but history suggests we'll see $10,000 long before we see $100,000. Wait for the next drop, and if you still want to buy into Bitcoin or some other cryptocurrency, that's the time to make your move. Play the long game, buy when it's low, sell when it's high, but don't buy everything and don't sell everthing — I'd sell 25, 50, or even 75 percent right now, then set a target where you'll buy back in with a similar 25, 50, or 75 percent of what you put aside.

If you have 1 BTC today, then, sell half of it for $20,000 (give or take) right now and keep the other half. Then plan on buying $10,000 worth of BTC when it reaches your desired threshhold, like maybe $10,000. That theoretically gets you $10,000 of profits, plus increases your BTC holdings to 1.5 BTC. Do that a few times over the coming years and you could end up with $50,000 in the bank and 4 BTC or whatever.

As for mining, if you have the hardware available (meaning, a graphics card), I figure any time the net gains from mining are at least double the cost of the power you put into it, that's an okay time to mine. Right now, a GPU that uses perhaps 350W of power (including the rest of the PC) can generate about $5-$7 per day of BTC, using Nicehash. The power cost for running such a PC 24 hours a day is going to be 8.4 kWh, so if you pay $0.12 per kWh, that's $1 per day in power, which means it's a good time to mine.

If you pay $0.30 per kWh, that's $2.52 in power per day, which means it's still a viable time to mine ... but you really ought to consider lower power locations rather than mining in California or Europe or wherever. Cheap power can get as low as $0.05 per kWh, which means it's usually far easier to turn a decent profit.

But more on that in my next post...