Recently, a new Bitcoin startup called Coinlab attracted considerable attention from the community, raising $500,000 startup capital from Silicon Valley angel investors. Operating under the tagline “All your gamers are gold”, what the startup intends to do is to help game companies monetize “that 80% in the middle” – those users who have a significant commitment to the game but not enough of one to buy a monthly subscription or spend heavily on virtual goods. Of course, the method that they intend to employ is Bitcoin mining.
On the surface, the estimate is sound. Assuming that a computer has 300 MH/s (a reasonable estimate, judging by an informal poll taken last summer), since the mining factor (USD per day per 100 MH/s) is currently about $0.33, a gamer running Coinlab’s background software might be able to earn the company $30 per month. However, there are serious problems with this estimate as it is.
Secondly, the assumption that gamers will be playing on computers that are running 24 hours a day is unlikely to last. Desktop computer sales are on an irreversible decline, and by 2015 the overwhelming majority of users will be on a combination of notebooks, netbooks and tablets. Most worrying of all, it is the computationally weakest category of them all, tablets, that are overtaking the desktop, as the middle categories are remaining constant. Laptops, netbooks and tablets are much weaker than desktops in terms of GPU hash rate, and even the hash power that they do have often cannot be used. Suspend and hibernate mean that they are off for a significant portion of each day, and Bitcoin mining on a computer that is not connected to a power source will quickly drain the battery, which will lead many portable users to reject the software.
First of all, the business model is not scalable. At a price of $5, Bitcoin mining generates a total of $36000 per day, or $13 million per year, for all miners no matter how many there are, and this figure will fall to $6.5 million per year by the time Coinlab gains substantial momentum due to the upcoming mining reward change in December (although an argument can be made that the change will simultaneously increase the Bitcoin price, undoing some of this loss). If Bitcoin mining is to become the source for even 0.01% of the $65 billion per year video game industry’s revenue, the number of gamers the industry needs to attract to grab each additional dollar would in the worst case scenario approach infinity – in order to capture 90% of the pie, you need to have enough hash power to match 900% of the size of the pie as it currently is (an equilibrium at which each individual user would be generating a mere $3 per month rather than $30), and capturing 100% of the pie or more is impossible. One reply to this is that the size of the Bitcoin economy, and therefore the Bitcoin price, will increase, but even as this happens the mining reward will continue to fall, so it is unlikely that mining revenue will ever exceed a few billion dollars per year even if it Bitcoin does become a significant global currency.
While Bitcoin mining may make software developers some small change in the near term, it is ultimately not only useless for this purpose but highly environmentally irresponsible. If the business model is to survive longer than a year at all, it will be by deception, relying on users’ ignorance of the cost that they are paying for the electricity that the mining software is consuming overnight. The Bitcoin network, already criticized for what many see as a waste of electricity, would become even more so, spending perhaps an extra $50 million per year mining on inefficient hardware only to increase the investment required by an attacker to overpower the network by a mere $1 million. If we are to be paying for our games with bitcoin, perhaps we should work on developing a microtransaction-friendly Bitcoin economy and helping users buy bitcoins quickly and easily so that they can buy the games directly.
Jiang Zhuoer: BTC.Top Will Support the Camp Favored by a Majority of Hash Power in the Bitcoin Cash Hash War
Jiang Zhuo’er and his BTC.TOP , a major Chinese mining pool, will not take side in the upcoming Bitcoin Cash’s hash war between two competing camps, Bitcoin ABC and Bitcoin SV. Zhuo’er shared h
F2Pool Will Support the Mining of BCHABC and BCHSV after Bitcoin Cash Hard Fork
F2Pool, the sixth largest bitcoin mining pool in the world, announced on Tuesday that it will allow miners to mine both coins generated from the upcoming Bitcoin Cash hard fork after the chain split
IBM Says Blockchain Can Power 'Open Scientific Research' in New Patent Filing
A patent application published Thursday claims the process of conducting scientific research can benefit from the blockchain.
Led by a team at IBM's Watson Research Center, the patent application p
CFTC Fines Bitcoin Trader $1.1 Million for Crypto Fraud
The U.S. Commodity Futures Trading Commission (CFTC) has jailed a bitcoin trader and fined him over $1 million for running a fraudulent bitcoin and litecoin scheme.
According to a press release iss
Japanese Firms Claim Success in Marine Insurance Blockchain Trial
One of Japan's largest insurance companies, Tokio Marine & Nichido Fire Insurance, and IT firm NTT DATA have completed a trial that put the paperwork for marine cargo insurance claims on a blockchain.
Accenture Puts Software License Management on a Blockchain Platform
Global professional services giant Accenture has rolled out a new software license management application built with tech from distributed ledger startup Digital Asset.
Accenture announced in a pre
Singapore's Central Bank, SGX Develop Blockchain Settlement System
The Monetary Authority of Singapore (MAS) and the country's stock exchange, Singapore Exchange (SGX), have developed a settlement system for tokenized assets that can work across different blockchains
Colorado Regulators Crack Down on Four More ICOs
Colorado regulators took action against four ICOs Thursday, bringing the state's total number of cease-and-desist orders against crypto startups to 12.
The state's "ICO Task Force" rebuked Bitcoin