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Comment by TylerE | Hacker News Reader

Yea, but they're making money BECAUSE THE PRICE OF BITCOINS ROSE. Not because they "created value". That would have made just as much, without all the hassle, just by buying bitcoins at the initial lower price.

Think of it absolutist terms, denominated only in BTC. If you buy a bitcoin miner, today, for 50btc, what do you think your odds are for mining 50btc + enough extra to pay for electricity before the device either fails or is obsolete, or returns at such a low rate you might as well of stuck your money in municipal bonds?

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Ah, I see what you were going for there. That is sort of the gold mine / oil well situation too. If you price the activity in the asset, you normalize the result to the asset and are left unitless :-). But since the asset value flows with respect to another measure (in this case dollars) you can profitably arbitrage (in terms of dollars) using btc as a proxy. Just like you can with gold or oil.

Seems like a kind of useless way to look at it though since the goal here seems to be dollars, not btc. So what insight do you gain by evaluating it this way?

That mining bitcoins is dumb, you can access the same potential reward (or loss) with normal speculation without having the money tied up in hardware - put another way, if the BTC market crashes, you have some small window of maybe getting out at 40 or 50 cents on the dollar, but if you spent all your money on asics you're stuck with a bunch of expensive, inexpensive space heaters.

BTW: This is absolutely NOT an arbitrage situation. Arbitrage is when you make 2 (or more) simultaneous transactions to take advantage of market inefficiencies.

Oh, so I don't get it, measured by dollars in vs dollars out my NetApp friend returned 50% on his investment of $4,500 in six months for an annualized rate of return of 100%. How is that not better than 3% municipal bonds?

It isn't 'dumb' its 'normal speculation' but with a different commodity.

I think TylerE's point is that further 50% gains in six months are not guaranteed. You can look at any stock index and find assets that spiked in a similar manner. Had you invested in those, you would have made the same return without having to buy, store and run hardware.

His point is that he'd have made 150% just buying the bitcoins rather than the mining gear.

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