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bitcoin mining hardware vs server hardware

Hello,

We were wondering if someone can explain why server hardware is not suitable for mining bitcoins. We have racks and racks of dell servers with xeon cpus. Just wondering why these enterprise machines are not effiecient for mining bitcoins when they are capable of running sophisticated databases etc

Thanks.
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PlumInternet
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PlumInternet
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Terry WoodsIT GuruCommented:
Initially mining was done with CPUs. A fast CPU at the time could manage no more than about 100 Mhash/s (million hashes per second).

It became economical enough to mine that people discovered that the algorithm required to do a sha256 hash of a string (as required for mining) turned out to be particularly well suited for ATI GPUs and using those was substantially cheaper both hardware-wise and energy-wise.

The most suitable types of graphics card could manage up to 1200Mhash/s (1.2Ghash/s), and with the right type of mother board and cooling several of them could be run from the one mobo. Once the software and set up techniques for achieving this were shared, CPU mining became largely uneconomical.

People figured out how to program FPGA's and achieve higher energy efficiency that GPU's. Soon after those became available, custom designed chips (ASICs) started to come onto the market, and now the market has been flooded with them. A single ASIC chip can achieve something like 1Ghash/s for something like 3 Watts of power compared with more like 500 Watts for a GPU or 50 Watts for an FPGA. Though design costs were high, the ASICS were also much cheaper to produce in bulk than FPGA's, and many chips have been put into a large device (such as one that mines at 500Ghash/s).

As the Bitcoin network grows, the protocol is designed to adjust the mining difficulty level so that a relatively constant number of bitcoins are mined over time (25, on average, every 10 minutes, if difficulty was constant). As more ASICs started mining, the difficulty skyrocketed as per the intended design. There are profitability calculators available to help you work out your mining profit, such as this one: http://www.bitcoinx.com/profit/

If your CPU could achieve 100Mhash/s with 100Watts of power, you'd earn on average 0.0001BTC per 24hrs, worth 0.07USD, but your electricity alone will cost something like 0.36USD. You're better off just buying bitcoins from somewhere like coinbase.com

Performance comparisons of different hardware are available here:
https://en.bitcoin.it/wiki/Mining_Hardware_Comparison#Popular_Mining_Cards
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Terry WoodsIT GuruCommented:
The daring people who took the risk of pre-ordering a 500Ghash/s ASIC machine will be, if they've received it, earning around 325USD of bitcoins per day.

The suppliers of ASIC hardware are either sold out, or taking orders for a far-future delivery. By the time you can get your hands on an ASIC device, there's a reasonable chance the difficulty will be high enough that you struggle to earn enough to pay off your purchase price. Many buyers of Butterfly Labs devices have been hit especially hard with this issue; they have a bad rep for delivering on time. Other suppliers like kncminer.com have a better reputation, but have sold out.

To further complicate things, when the bitcoin/USD exchange rate increases like it has just done, ASIC hardware manufacturers have an incentive to just run their own hardware to mine rather than sell it; I don't know how many of them are doing this, but they'd be silly not to.
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Terry WoodsIT GuruCommented:
Just wondering if I answered your question satisfactorily?

It's also worth mentioning that there are alternative cryptocurrencies such as Litecoin that haven't yet had ASIC hardware built for them, so they may still be profitable with GPU or CPU mining, depending on their design. I don't know what the current profitability of mining these is though.
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PlumInternetAuthor Commented:
Brilliant overview
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