Quote from: insomnicat on June 10, 2011, 03:38:58 PM

Hi, I'm a confused newb here. This Analysis doesn't make sense to me. My understanding is that there is a fixed amount of BTC to be mined each week. The difficulty is used to keep that fixed amount in check. The difficulty is currently increasing because the amount of rigs are increasing. The reason the amount of rigs are increasing is because there is big profit in mining right now. However, if the difficulty was increased so much that it was clearly not profitable then wouldn't most people shut down their rigs bringing the difficulty down? By this analysis, it shows that even when the difficulty is so high that it's clearly not profitable people will still bring new rigs online. Why would anyone bring new rigs online when the difficulty is clearly to high to make a profit?
Like I mentioned before, I am a complete newb here so I'm sure I'm missing something important in my understanding about how this works. Thanks for any clarification.

The problem is you end up competing against people who:
- for some reason aren't paying for their power, or
- wouldn't normally enter because the profits are so low but already own the equipment so just keep it going
or both.

The long-term equilibrium difficulty will likely be below the break-even point for folks paying for both electricity and hardware depreciation. Even if it's above break-even, if you're only earning 10% that's pretty crappy for: tying up capital, spending your time, and taking on risk of loss.