Now look at it from my perspective. I started when BTC was valued at about $8 per, and difficulty was half of what it is right now. So for me little has changed in terms of return/month (still estimated $300 monthly return after power cost on a $206 hardware investment). Gox being hacked and the resulting implosion in BTC value is an anomaly, if we discard that and look at the trading range of BTC at difficulty of 870k, I'm actually UP in income over difficulty in the mid 400s and $8/btc. Sure, at 560k difficulty and $32/coin I was looking $1000 profit a month on a $206 hardware investment but it's clearly obvious to all onlookers why that could not and would not last.
I think you just affirmed what I said more than anything. Ignoring fluctuation (positive or negative) in the market, bitcoin mining will provide less of a return as it becomes more popular. Popularity affects it in two ways: difficulty and shares. If bitcoins are being provided at too fast of a rate, the proverbial carrot is dangled further from reach (difficulty goes up). As more people get into mining or existing miners beef up their hash rate, existing miners will process fewer shares (as a percentage).
The only way to combat both issues is to simply invest in more hardware. I'm going to preface this with an important thing... I'm not an investor... I don't do day-trading or anything of the sort. However, I'm trying to look at this in the most logical way possible. But let's take a peek at an analogy:
You own a restaurant. You decide to open another restaurant in a neighboring city. The typical business decision is to open the new restaurant to provide revenue on top of what your current establishment already provides. The bitcoin mining "philosophy" is to open another restaurant to attempt to alleviate a loss in business that your current restaurant is suffering from.
While the analogy does not suggest that your second business will not provide an increase in revenue, it is suggesting that it is based on a flawed sense of investing. I'm enjoying these analogies... so let's do a movie one. Have you ever seen the movie "The Money Pit" starring Tom Hanks? That's what bitcoin mining is eventually going to become. Not that I'm inferring that it will crash to the ground like the house (hopefully you've seen the movie and I haven't spoiled it ).
To me, investing in more infrastructure to see the same returns is a flawed investment strategy.
I've heard a lot of talk about how if people eventually quit, the difficulty will drop. The only problem I see there is that with a drop in miners, you will also see a drop in interest overall in bitcoins. Hell, the only reason I'm doing this is I can pretty much milk people's greed by selling them silly bitcoins that in essence... I'm paying pennies on the dollar for. It kind of makes me feel like a Nigerian scammer in a way. :hmm:
Remember this is a pyramid scheme. The more hardware gets added the more worthwhile it seems to simply buy btc instead of mining them. People buy, prices go up, and we begin a new cycle of hardware additions as people doing math at the other end of the pendulum swing decided to jump in with both feet. This continues until there's no more fresh blood to drive the cycle.
You know... I've never been a fan of calling this a pyramid scheme. I think people just see that the early you "get into it", the more money you
could have made. This does not a pyramid scheme make. The biggest fault is that people ignore the fact that a pyramid scheme requires a concept of referrals or "underlings" and generating extra revenue through cuts from said underling's work.
I think the monetary value assigned to bitcoins is probably one of the biggest problems I have with the currency as a whole. Unlike other investments such as stocks, $/BTC is purely based on how much someone is willing to pay for one. This is what makes the market potentially volatile... what is going to make people stop putting high value into bitcoins?
The problem this provides is that how do you know when to honestly buy bitcoins? The only thing I can see is if you notice a trend where it tends to simply oscillate. You attempt to buy bitcoins for as low as possible, and hope that the trend continues so you can sell high. The money then is pumped into the next dip to attempt to perform the same reaping. I only see this working as long as people that cannot read charts are willing to buy bitcoins.