Bitcoin miners: The boom within the boom

John Law, 17th Century thinker and columnist over at CoinDesk, has a few key insights into the mining rig boom that are worth considering.

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Bitcoin miners: The boom within the boom

John Law, 17th Century thinker and columnist over at CoinDesk, has a few key insights into the mining rig boom that are worth considering.

First, the background: There has been a race among companies that produce Bitcoin mining rigs. Alydian and KnCMiner are rushing to get their ASIC chip-powered machines to customers.

Then there is Butterfly Labs, who have apparently begun taking orders for a new machine before all of the old ones have been shipped.

Their no-refunds policy has drawn the ire of many customers.

Certainly, the rush itself makes sense: The more miners mining, the harder mining becomes. That’s just how Bitcoin works. So manufacturers want their new super mega rigs out before the other guys get theirs out.

It’s interesting. The old question was, “When the gold rush is on, do you want to be the miner or the guy selling the pick-axes?” But with Bitcoin, the gold itself has a hard limit that we all know, and the pick-axes are booming.

But John Law warns that these companies are failing to abide by the Osborne Effect, named after the early-1980s computer company that shot itself in the foot by announcing its new, better model too far in advance. Sales of the old model dried up, but the new model couldn’t ship quickly enough to make up for this.

It died of insufficient cash flow. (Well, that plus poor quality plus poor customer support.)

These companies are thus not just in a race against each other but also against obsolescence — every day, a mining rig is worth slightly less.

Meanwhile, the arms race will continue for the boom within the boom.

Back to the gold rush question: When the pick-axe boom is on, would you rather be the guy selling the pick-axes, or the guy making the handles?

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