A few thoughts - Friday, August 29, 2014

[Steve Sokolowski]

Good afternoon! A few thoughts for lunch today:

The first big incentives are now appearing

Last night, I attended a Toastmasters speech contest. After the contest was over, I told someone that Newegg was offering $150 off $500 purchases using bitcoins this weekend. He was incredulous. "How can they possibly offer that discount?" he asked. I didn't have a good answer for him, nor do I now, but this Newegg discount is part of a trend that many had predicted long ago. Merchants are starting to offer huge discounts for purchasing in bitcoins.

Smart shoppers have already recognized this trend a while ago and have been purchasing gift cards through services like Gyft, or ordering things from Amazon through purse.io. However, Amazon isn't usually the cheapest vendor for most items, so any discounts they provide often fail to make them competitive with the lowest-priced store. Gyft has great discounts for some cards, but half-used cards from most establishments, especially restaurants, can be ordered at 15% discounts from places like Raise. I mentioned earlier how I wam able to order multiple-course meals from the Olive Garden for $9/plate as takeout by stacking gift cards on top of coupons on top of credit card cashback bonuses to obtain 40-50% off. The discounts are so steep that it is often more economical to take out dinner from an "expensive" restaurant than to cook dinner yourself, especially since many frozen foods are sold in packages that are too large for anyone except a very heavy eater to consume at once.

I should note that this deal is an even better deal than the PS4s that Newegg was selling last week. The PS4s were only a $70 discount on $400, while here there is a $150 discount on $500.


There is money to be made with these discounts

Continuing with the story about the Toastmasters competition, I was surprised as how few people were willing to use bitcoins to take advantage of such ridiculous offers. The two people to whom I talked thought it was a great deal, but when it came to actually spending bitcoins to buy the items, they were less willing. It's stunning to see how some people's ignorance or intransigence will cause them to lose huge sums of money.

You would think that, after Newegg offered those Playstations for $329 last week, the market would be flooded with cheap PS4s, but that isn't the case. The price has barely budged. I worked with my brother to determine that we can earn about $50 per Playstation by selling them on Craigslist and undercutting the market price. My current plan is to diversify by buying 3 PS4s and 3 Xbox Ones, which are both easily salable commodities, and listing them on Craigslist below market. This money will be enough to set the pool fee to negative to further incentivize testers to mine on the pool. Our only risk is that we flood the market with too many expensive items. Those who live near big cities probably don't even have to worry about that risk.

As people wise up to bitcoins, this situation isn't going to last long. For now, there is an enormous opportunity to make guaranteed money by simply buying stuff during these promotions and reselling them for dollars, then trading the dollars for bitcoins and doing it again during the next promotion. I'd give it a few months before bitcoin adoption reaches a high enough level for people to catch on and start lowering dollar prices. Until then, you are missing out on free money by not flipping stuff from Newegg this weekend.

The only caveat I have is that you need to buy things that are commodities, which won't depreciate during the time you need to sell them, and which can be shipped easily. Popular models of cell phones (not the iPhone, which will be superceded on September 9) are an example of this type of item. The item needs to be non-customizable and standardized. iPhones would be a perfect example of this if there weren't the risk of obsolescence, because they only come in a few colors, they all have the same specifications, and there are millions of identical products made. As long as your phone is new, there is nothing different about your product than the one the big box stores are selling.


Miners not always interested in money?

Chris and I found something interesting out over the past week. After calling for mining pool testers in the bitcointalk.org forum and pointing out that our pool is earning 30% more than the closest competitor, there were zero replies to the post. Given how people buy up ASICs early to squeeze every cent out of them, this seems to make little sense.

Of course, that was only one forum, so we will see if his next post to a different forum yields different results. But if the next forum also yields no replies, then perhaps we need to rethink what motivates miners. While we deal in altcoins and not bitcoins, and the following is not related to us, it is widely known that almost nobody makes any money in bitcoin mining. The difficulty is increasing so quickly and the price is stuck so low that even the most up-to-date miners don't pay for themselves. But, of course, people still buy those miners anyway.

My assumption was always that bitcoin miners would preorder equipment months in advance, that most of it would be delayed by the manufacturer, and that they would therefore get angry and lose lots of money since the difficulty increased by the time they receive the equipment. Unlike scrypt mining, bitcoin mining is almost always zero-fee, probably because there are no advantages a company can offer by having a better algorithm. Despite this, a substantial proportion of bitcoin miners use pools like Slush's pool and Elgius, which both charge fees for their services. On a solely economic level, unless these pools provide 2% more uptime than the other pools (which is unlikely), it does not make sense for anyone to choose them. But what if instead of being scammed by manufacturers, people buy miners anyway and know that they will lose money?

The possible answer to this question could be that people who buy bitcoin mining equipment are largely separated into two categories: the industrial Chinese miners who fill 4 warehouses with ASICs, and individual miners who run computers with single ASICs in their basements. This second category of miners could be mining solely to "support the network," or to obtain untraceable bitcoins to spend on drugs. For those seeking to buy drugs, they would be willing to take a percentage of losses from the initial cost of the mining equipment in order to hide their operations. In fact, if you use the classical example of cops coming to a house using a lot of electricity because they think it is being used to grow marijuana, it would make sense for the growhouse operator to instead mine bitcoins with all the electricity and source the weed online, which avoids being arrested when the cops raid the house and only find banks of computers.

For drug users, it would be logical to prefer pools that track the least amount of information possible, even if they lose money to those pools. It may be the case that the huge mining operations run their own pools, and the small fish care more about hiding their activities than making money.

[cukeking]

Chris and I found something interesting out over the past week. After calling for mining pool testers in the bitcointalk.org forum and pointing out that our pool is earning 30% more than the closest competitor, there were zero replies to the post. Given how people buy up ASICs early to squeeze every cent out of them, this seems to make little sense.

Given how many people run scams on bitcointalk and how there was no verified information other than "PM me" in the post you are referring to and that it was asking for beta testers for an unproven pool with what I'm assuming is a very small number of miners, it isn't really surprising that it got ignored.