Dogecoin block pricing experiment

As I've explained repeatedly before, the block reward is the mechanism which we as a community use to buy the hashing power which keeps our network relatively independant and secure as an honest processor of users transactions. As we cannot pay miners in fiat somehow, we pay them in Doge in the form of block rewards and transaction fees. This means that we as a community are putting a price on the hashing power used to secure our network. I thought it would be interesting to try and figure out what that number is.

The reason it's interesting is the Dogecoin block reward schedule. To encourage mining and manage the value of the coin, Doge operates on a diminishing rewards block schedule that encourages mining and buying into Doge with hashing power by rewarding early miners more than late miners. However this works only to a point. Mining Doge has to be ROI positive or nobody would bother with it. Mining Doge also has to be ROI competitive with other altcoins or nobody would bother with it. This first requirement I address in this post, and the second requirement I'll address some other time.

Experiment

This is current (ish) pricing and power consumption information for a variety of different mining hardware. The important number here is the final column, KH/w. As the point of this exercise is to put a Doge price on every block, the power consumption of every KH pointed at mining Doge counts.

 Vendor      Miner              KH/s       Watt   Cost           KH/w  
-----------+------------------+---------+-------+-----------+---------
 KnCMiner    Mini Titan         150,000     400   $5,495.00    375.00  
 KnCMiner    Titan              300,000     800   $9,995.00    375.00  
 Gridseed    ASIC Blade Miner   5,200        70   $1,049.95     74.29  
 Gridseed    ASIC 5-Chip        350           7   $79.95        50.00  
 DualMiner   ASIC USB 2         70            2   $81.99        46.67  
 GAWMiner    War Machine        54,000    1,280   $5,899.95     42.19  
 GAWMiner    Black Widow        13,000      320   $1,799.95     40.63  
 GAWMiner    Fury               1,000        30   $159.95       33.33  
 DualMiner   ASIC USB 1         70            3   $98.00        28.00  
 Radeon      R9 290X            850         295   $579.99        2.88  
 NVIDIA      GTX 770            220         230   $329.99        0.96  
 NVIDIA      GTX 560 Ti         150         170   $120.00        0.88  
-----------+------------------+---------+-------+-----------+---------
 Average                                                      89.1525  

At present Doge is near 1K Doge = 0.435 USD, or measured in doge/usd 2298.85.

Measuring the price per block

power costs 0.1220 USD/KWhr at US national average prices, so lets run some numbers.

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(ns doge
  (:require [meajure]
            [Clojure.algo.generic.arithmetic
             :refer [+ - / *]]))

;; constants and definitions
;;------------------------------------------------------------------------------

(def kw-per-w
  #meajure/unit [1/1000 :kwatt 1 :watt -1]) ;; definition

(def hr-per-block
  #meajure/unit [1/60 :hour 1 :block -1]) ;; definition


;; simulation variables
;;------------------------------------------------------------------------------

(def kh-per-watt
  #meajure/unit [375
                 :khash :watt -1 :second -1]) ;; variable

(def usd-per-watt-block
  (* #meajure/unit [0.122 :usd :kwatt -1 :hour -1] ;; variable
     kw-per-w 
     hr-per-block))

(def doge-per-usd
  #meajure/unit [2298.85 :doge 1 :usd -1]) ;; variable


;; computation
;;------------------------------------------------------------------------------

(def price-per-watt-block
  (/ doge-per-usd kh-per-watt))

(print "DOGE per watt-block |"
       price-per-watt-block)

(def price-per-kh
  (* usd-per-watt-block 
     price-per-watt-block))

(print "DOGE per KH         |"
       price-per-kh)

;; break even block reward
(print "DOGE for hashrate   |"
  (* price-per-kh
     #meajure/unit [50 :mega :khash :second -1]))
DOGE per watt-block | #meajure/unit [25.785592103418296,
                                     :second, :watt, :khash -1, :usd -1, :doge]

DOGE per KH         | #meajure/unit [5.243070394361721E-5,
                                     :doge, :khash -1, :second, :block -1]

DOGE for hashrate   | #meajure/unit [2621.5351971808605,
                                     :doge, :block -1]

Analysis

 Miner              KH/s       Watt      KH/w   Min. block reward  
------------------+---------+-------+---------+-------------------
 Mini Titan         150,000     400    375.00       623.243777777  
 Titan              300,000     800    375.00       623.243777777  
 ASIC Blade Miner   5,200        70     74.29      3158.329954954  
 ASIC 5-Chip        350           7     50.00      4674.328333333  
 ASIC USB 2         70            2     46.67      5007.851224910  
 War Machine        54,000    1,280     42.19      5539.616417790  
 Black Widow        13,000      320     40.63      5752.311510378  
 Fury               1,000        30     33.33      7012.193719371  
 ASIC USB 1         70            3     28.00      8347.014880952  
 R9 290X            850         295      2.88     81151.533564810  
 GTX 770            220         230      0.96    243454.600694440  
 GTX 560 Ti         150         170      0.88    265586.837121212  
------------------+---------+-------+---------+-------------------
 Average                              89.1525           28935.106  

In order to recieve any return on invested compute power, a miner must find blocks. If the difficulty is too high, then it isn't feasable to find blocks and mining is ROI negative. This is why Wafflepool and other multipools switch coins: they mine for as long as it's ROI positive to do so and once the difficulty adjusts rendering it no longer ROI positive to do so they bail out and head for greener pastures.

So, Dogecoin has a minimum block reward of 10,000 Doge, but we won't see that until January. At present we're at a 125,000 Doge block reward. Looking at this table, that indicates that Nvidia GPUs are now absolutely ROI negative. I won't be mining any more for this reason.

You don't just get coins for mining tho, you get coins for finding blocks. Assuming that the Scrypt proof of work function is inviolate, what fraction of the hashrate do each of these miners need to represent at the current block reward to break even?

 Miner                KH/s   Min. block reward   Hashrt. Frac.   Hashrt. (KH/s)  
------------------+--------+-------------------+---------------+----------------
 Mini Titan         150000       623.243777777    4.9859502e-3       30084.5360  
 Titan              300000       623.243777777    4.9859502e-3       60169.0730  
 ASIC Blade Miner     5200      3158.329954954     0.025266640      205804.9700  
 ASIC 5-Chip           350      4674.328333333     0.037394627        9359.6334  
 ASIC USB 2             70      5007.851224910     0.040062810        1747.2564  
 War Machine         54000      5539.616417790     0.044316931     1218495.9000  
 Black Widow         13000      5752.311510378     0.046018492      282495.1300  
 Fury                 1000      7012.193719371     0.056097550       17826.0900  
 ASIC USB 1             70      8347.014880952     0.066776119        1048.2790  
 R9 290X               850     81151.533564810      0.64921227        1309.2790  
 GTX 770               220    243454.600694440       1.9476368         112.9574  
 GTX 560 Ti            150    265586.837121212       2.1246947          70.5983  
------------------+--------+-------------------+---------------+----------------
 Average                             28935.106                                   

And what's our current hashrate? 48GH/s, or 48000000 KH/s.

Conclusion

I think the writing's on the wall here. If everyone on the Dogecoin network was running the War Machine miner, our hashrate is a factor of 48 times higher than would be break even. What does this mean for our future? As block rewards fall, either the price of Doge will rise due to adoption as a unit of trade which will drive down the minimum block reward numbers, decreasing the hashrate fractions and increasing the global break even network hashrate.

What do I think this means? Well after fooling around with this math and the price of Doge variable the computed maximum network hashrate goes over 45GH only when the price of Doge increases to about 1523 Doge/USD, or at current market prices about 130 Satoshi BTC. If the price of Doge doesn't rise back to the 130 mark, I expect that we will see our hashrate slowly but steadily fall until it reaches a point where miners perceive that they are breaking even, being very likely under 1GH/s according to these numbers.

If we want Dogecoin to grow into something more than a tip currency I think that we missed the boat when we turned down merged mining with LTC. We have to secure our hashrate for the long haul that it'll take us to build real market valuation through acceptance as a unit of trade. Merged mining with LTC would have achieved that goal. So what do I think the outlook is? I think we're gonna run out of fuel in earth orbit rather than get to the moon.

^d