Why are companies selling mining hardware instead of using it themselves?

Question

I'm not (yet) using Bitcoin, and I'm just approaching this world as of now.

I stumbled upon some merchants that sell mining hardware (with some GH/s). But I've yet to understand what they gain, apart from the upfront cash.

The reason one should buy mining hardware is, if i'm not mistaken, to "generate bitcoins", i.e. "generate money"; so, one expects to be able to have a return of the investment sometime in the future, so I guess that in some way my claim is correct (about "generating money").

But then, why don't the companies simply use their own hardware?

Answer 1

It is not guaranteed that purchasing mining equipment will generate in its lifetime more than it cost to purchase. That depends on the future of BTC price and the difficulty, both of which are hard to predict.

Those who believe, for whatever reason, that it will indeed be profitable, will purchase devices. But most companies selling mining hardware are in the business of designing hardware, not of speculation and running datacenters - in terms of both risk profile and expertise. So long-term they should just sell the hardware.

It's worth noting that some companies do develop ASIC devices with the intention to use them themselves rather than sell them.

Answer 2

Companies that manufacture mining equipment don't just mine with their own hardware for a variety of reasons:

1. They may not be able to obtain low prices on electricity, making it more profitable for others to mine than for them to mine.

2. They may not be able to make use of the heat generated, making it more profitable for others to mine than for them to mine.

3. It's easier to get financing if you're going to make something you can sell.

4. They may prefer not to take the risk that mining will remain profitable.

5. The value of mining equipment depends on the value of bitcoins, which would be negatively affected by mining becoming too consolidated. So mining is more profitable if it's distributed.

6. It may be virtually impossible to mine profitably and they may be too smart to think otherwise.

Answer 3

http://arstechnica.com/gadgets/2013/06/how-a-total-n00b-mined-700-in-bitcoins/3/

In fact, if it's so profitable, why on earth is Butterfly Labs selling these devices? Why not rent a warehouse, fill it with miners, and make infinity bitcoins?

The answer is two-fold. First, BFL required a great deal of capital in order to design and manufacture the ASICs that power its boxes and then to assemble the miners themselves. This capital was provided in no small part by pre-selling the miners; hanging onto them to do some BTC mining with them is sketchy at best and at worst illegal. Plus, there are practical considerations: a giant BTC warehouse adds overhead costs, and I can't even begin to take a guess at the bookkeeping implications of warehousing capital like that.

However, the second reason is far more practical: bitcoins, for all their current value, are still speculative. A large amount of US dollars is a large amount of US dollars no matter which way you cut it. It can be readily exchanged for goods and services. Bitcoins themselves don't necessarily hold value, and it's difficult to exchange them in large quantities for an equivalent amount of dollars. So selling Bitcoin miners for dollars guarantees a certain number of dollars; investing capital into mining a truly large number of bitcoins might work well as a short-term hedge, but the value of the trade is utterly impossible to predict.

This, I suppose, is part of the nature of high-risk investments. But in this case, Butterfly Labs can simply charge whatever it wants for its gear in order to make whatever margin it deems is sufficient. Why bet on the future of a relatively new virtual currency that may go up or down when you can simply get a bunch of real US dollars?

Answer 4

In the gold rush the people who made the most safe/constant returns where not the miners but the people who sold them the shovels

i.e BFL AVALON bASIC

The mining process for Bitcoin is going through a large upheavl/transition to a new tech platform due to the ASIC mining equipment

Everybody has been promised a lot of things with large sums of $$ paid up front with many a missed delivery time ranging in 3-6+ months late on what was promised

ASIC chips are refered to as unicorn blood..having said that the next 4-6 weeks will reveal a lot.

You must understand that BTC mining calculators

http://www.alloscomp.com/bitcoin/calculator

are based on GPU (or current tech platform) difficulty factors. If you put ASIC chips specs into these calculators expect to divide that figure by a factor of 20-40 due to what i believe an over capitalization of the mining process (IMHO)

I would wait at least 3 months until the market settles and the big questions regarding these products have been at least partly answered (It would take at least this long until we see 2nd batch's coming through of these units :D )