Giving Thermodynamic Advantage to a New Breed of Miner

In our previous two posts (One and Two) we explored how the currency and ledger we call Bitcoin is a carefully constructed information machine that straddles both the physical and digital worlds. In this post we would like to explain our idea of what the future of mining might look like and how we think that we can distribute the proof of work.

What is the easiest way to spur action from individuals? Pay them. Or at least incentivize the action you want. This is illustrated by how the Bitcoin network adds hashing power to better secure the network. It was also clearly played out in how Paypal got its first customers. In this spirit, we are currently building a brand new type of Bitcoin miner that could once again incentivize home mining. We want people to get paid by the network, and become new participants in the revolution that is Bitcoin.

The Theory

Proof of work relies on the thermodynamic expenditure of energy (heat). That is why we are building a bitcoin miner that fits inside a water heater. If you already have an electric water heater, you spend $15-$40 a month on electricity for heat. So why not run that same electricity through some silicon first, generating both heat and revenue (in Bitcoin)?

The thought process behind this is pretty simple. If you are already spending that money on electricity anyway, the miner only has to pay for itself to ROI. This is the simplest advantage of this type of mining. Another advantage we have over centralized miners is that we cannot make money from using our own device. Because the capital cost is higher than a conventional miner, it is only profitable through a multi value stream setup. You can only make money if you use the waste heat to offset the cost normally associated with that waste heat. Individual subsidization is used as an anti-centralization mechanism.

Additionally, because of the second value stream of hot water from the electricity, the profitable lifetime of mining can be extended to the end of the hardware's working life (when the hardware dies). This allows much more time to reach ROI, greatly reducing the risk of difficulty catching up, and therefore ensuring less risk in participating. You can spend a lot of energy for a few dollars reward because you would spend that money to heat your water anyway. The only thing you give up on the mining side is the opportunity cost of buying a newer, more efficient, miner. On the hot water side, you could potentially lower running costs by using a heat pump water heater. However, the upfront cost for such water heaters is roughly the same as the projected cost for our miner/heating element, and our system will become cashflow positive sooner — in other words, this is a better investment. (Plus, a revenue stream of internet money is way cooler than saving a few dollars a month in electricity.) In the event of an upswing in the Bitcoin price, you could find the miner paid off even sooner. And you get all of this at greatly reduced risk, unlike mining for a hobby (i.e. mining at a loss because of altruism and/or possible moon landings).

Our pay back curve looks something like this. The red line is a conventional miner, and the blue line our new type of miner: we can’t have final numbers yet or know absolute positions on the graph, but the positions of these lines relative to each other and their general shapes/trends are correct.

Even without knowing the final price or ultimate efficiency of our miner, you can see how subsidized electricity costs necessarily flatten the ROI curve to a limit. The hashrate in this graph is pure Moore’s law, and it assumes constant demand for Bitcoin (price/coin doubles at each halving). Even if the hashrate gets cut in half at the halving, it should be much preferable to have the dual value stream miner. You might even be more profitable after a price decline, as you will be the last miner to turn off, giving you a larger share of the new mining pool equilibrium.

We have this new type of miner mostly built.

We started with a thermal test rig to verify that the basic heat transfer characteristics needed for this miner were indeed possible. After the results of that test easily met minimum requirements (and generally exceeded expectations), we proceeded to design the final form factor of the miner. We currently have the mechanical prototypes made and are finishing our first prototype of the power converter circuit. However, we still need ASIC chips to complete the design and build a fully functioning miner.

Mining chip manufacturers (aka centralized miners) have no reason to sell us chips; they have sunk capital to protect and this is understandable. But by protecting their own investments, they are also forcing us to place more trust in them by creating barriers to entry for newcomers. In order to get into the mining space these days, you need $10-20 million to develop and make your own ASIC. We don’t have that sort of money, and that sort of funding requires a lot of effort to get. We are posting this information in hopes of some community feedback to make sure our idea has any merit. Maybe we are just crazy. We have been running the numbers on this thing for quite sometime (many different ways) and they almost always work out. For some rough numbers see our brief technical overview.

Please contact us, comment, or take a short survey to let us know your thoughts. We want your feedback. We have been thinking about this for a couple years, but only recently figured out a way to actually build it at a potentially marketable price point. We feel we have a handle on the mining market, and have tried to use our blog posts to illustrate our current understanding of Bitcoin and to help you understand why we think this miner is a necessary step.

The long term implications of this style of computing can be applied to many other things. See our blog post here about what the future might hold forindividual home computing.

For a more detailed explanation of how our new miner functions, click here.