Back in august i decided to try out cloud mining with hashflare. Only $12 worth, or 100 ghz lifetime contracts. A few days later they doubled their price and changed the terms from life down to 12 months. Luckily they dropped the price down to 1.50. And it remained the case until about a week ago when they upped it to 2.20 again only without notice.
On top of that their minimum withdrawel rates are unrealistically high for most, as well as their transfer fees. I am not sure if my $12 is as good as gone. But such is the cost of learning and ultimately avoiding bigger mistakes.
The last difficulty increase was about 18%. it appears that for this cycle the difficulty increase will exceed the gain in which i can mine; I doubt I would increase my hashrate by 10% this cycle. So to mind, if the difficulty keeps increasing faster than the daily rate of satoshis then the reward will just keep getting smaller and smaller per cycle.
From https://www.coinwarz.com/difficulty-charts/bitcoin-difficulty-chart
From august 30th to dec 28, the difficulty of mining bitcoin has increased from about 888 G to 1.873 T. Or it has gone up 110% in 4 months. It goes up about 20% each month on average. My GHS has gone from 100 up to 220, although I could bring it up to 230. perhaps the difficulty increase were abnormal, but whatever the case may be they are no longer competitively or valued priced.
Mind you Much of the purchases were at 1.40 to 1.50, and I would still be beating the difficulty (even 240 GHS, inching closer to 250) if the price remained at 1.50. At 2.20 per 10 GHS, not only would I only have about 68% of the buying power, but that buying power would continue to decrease as the difficulty increased.
Bitcoin has fallen about 20%-30% from its recent highs, so less can be purchased from it. So even at the present moment, even reinvesting at the $1.50 rates were only 70-80% as effective as the previous difficulty.
so 68% as effective due to price increase, 70-80% effective due to the drop in btc, and about 85% as effective from the increase in difficulty. Only about .40-46% of what it was prior to the update.
Hashflare reports that I last made 2900 satoshis yesterday. in a year, that would mean about .0105 B. Oh, but the maintenance was 493 satoshi yesterday. basically 2407 after mantenance. So i guess that means .008786 B. but we aren't done yet. I don't have older difficulty data. But 4 months is fair easy to convert to a year. (2.1^3)=9.261. And from that we can get an approximate fortnightly rate; Basically a 26th root, or 8% difficulty on average. The discount factor 1/(1+i)=.9259. From https://bitinfocharts.com/comparison/bitcoin-difficulty.html we see a change in difficulty from dec 28th 2016 to be about 312G-a 600% increase per year. About a 7.13% fortnightly increase, with a discount factor of .933388
So basically this becomes 14 annuities (assuming 14 days in a period). 14a(1)+14a(d)+14a(d2)+14*a*(d3)...+14a(d^25). Basically a finite geometric sequence, and for convenience we'll skip that last day in a year.
14a(1-d^26)/(1-d)=14a(12.5115)(11.67477).
Our value a is the daily earnings in satoshi. so our yearly return(from today) is 14(2407)(12.5115)(11.674776)=.00421615.00393416.
**
on edit. Since the maintenance fee doesn't increase, it would be better to use:
14(2900)(12.5115)-364*493 (ignoring the last day)=328514. basically a max of 20%.
Also see comments below about adjusting for the 8 months left on the initial contract, and how a loss is still possibly.
**
The Cost to buy $12 worth of bitcoin on august 29th was .00272727 as bit coin was about 4400.
That should be a nice 54%44% return from when a contract was a $1.20. A few days later when the contracts were upper to 1.50, bitcoin was trading at about 5000, the cost to get in was .003, still a nice 40%30% gain.
But at todays rate just to get where we are today would take 22 contracts at 2.20 each, or basically .00345671 B.
on edit
remember that we adjusted the max to be .00328514 by correcting for maintenance. So technically a loss.
Basically a 21%13% gain in satoshi. Even then, there are other variables such as maintenance costs which can vary on the price of bitcoin. Even if it is the case that bitcoin difficulty is increasing faster than the reinvest rate, it is still for a moment profitable. But with margins these low, i don't think it is sustainable for much longer-especially with a positive acceleration in difficulty. What if the price were to quickly go up substantially? i suppose it is possible your hash rate could grow faster than the difficulty, but compared to others hashflare is at a disadvantage. And even if we suppose bitcoin doubles in price to 30-40k, one could ask if hashflare would increase the price of a contract again.
I realize now that when I wrote a mining calculator earlier this year I didn't include difficulty. I was unaware of it at the time. Ideally though that as time increases cost should decrease and machine speeds should increase, but cost wise the opposite is happening and the hashes per contract are stagnant.
The price spike of hashflare is concerning, especially when they fail to be value price to their competitors. What is perhaps more concerning that the gains are going to be near 0 by means of price control, one could even ask if there is mining going on at all. I do believe there is. But with ridiculously high transaction rates and ridiculously high withdrawel rates, it seriously asks the question if it is possible that a company could survive just on the idea that they were selling bitcoin mining contracts. Keep in mind x% of the customers will die and the estate may never know of it, another y% will forget their account or their log in, numerous other people can't withdraw it; A company in theory could predict out of how many bitcoin are coming in and how many will ultimately go out, and the difference being dead tokens which could be abused as profit.
There are many things that suggest that it could be a ponzi scheme that collapses on itself. I am not saying that it is. There are just a lot of red flags, especially converting lifelong contracts to 12 months. That was the first of several major red flags that screams there are serious problems.
On top of that. I don't really trust that bitcoin will have much of a future. Bitcoin is slow, the transaction rates are high. Plenty of dirt cheap alternatives being used now. I think eventually the market will start to turn against bitcoin. It is still the main player and will continue to ride on its hegemony for quite some time, but i think its days are numbered. To be honest, I am surprised environmentally conscious folks haven't asked to prohibit mining bitcoin.