It is with great interest that we observe the mining difficulty leap by 30%+ every 2016 blocks.
Considering the paucity of public ASIC delivery, it seems odd that the hash rate consistently punches through the ceiling on an ongoing basis.
So where is the hashing coming from?
Perhaps, not all ASIC manufacturers are selling their hardware, but rather developing it on their own and mining in-house.
The simple reality is that most miners are not going to recoup their initial investment. But they keep on mining because their cost of electricity is less than their mining output. Obviously, the only reason ever not to mine, is when the cost of mining exceeds that of its rewards.
Consider 3 types of miners:
1) Those who have received ASIC miners early and will receive a positive ROI. Everything after that point is gravy.
2) Those who have received ASIC miners but will not recoup their initial investment.
3) Those who mine but spend more in electricity costs per month than they receive in the Bitcoin dollar equivalent.
The only reason to continue mining as somebody in the third category is to acquire Bitcoin conveniently. The choice is always evident: to buy or to mine. Those in the first category will benefit from the mining choice. Those in the second would have been better off just buying Bitcoin outright, as well as those in the third.
Those in the 2nd category will earn Bitcoin but at a premium rate. Instead of $120 per, they may end up paying $180 or $270... when accounting for electricity costs.
Those in the 3rd category should stop. And they will stop.
As the hashrate increases, miners in the second and third category will be peeled off, because Bitcoin mining is no longer a hobbyist's activity. In the interim, Bitcoin fortunes have been amassed and mostly by adept crypto-savvy players. These players understand Bitcoin at its core and are willing to throw their entire portfolio at the next generation of ASIC miners: "In any gold rush the money's in the shovels. If BTC is going up you'd be dumb not to buy, if it's going down you'd be dumb not to sell. It takes a special kind of dumb to start buying up the shovel factories," says one high roller who doubled down not once, but thrice on his bounty.
Somewhat magnificently, the protocol provides a feedback mechanism that entices yet warns potential miners. Because the difficulty increases relative to active mining, individuals can enter the game understanding their upside... and downside.
Despite the parabolic increase in mining difficulty witnessed during the last 18 months, eventually economic reality will come to play. More miners will be pushed into the third, unprofitable category, and will shut down their rigs, just as the CPUs which ran the Bitcoin mining software in 2009 no longer participate.
On the horizon, we only see incremental changes in ASIC chip technology, with the most advanced touting 28nm profiles. These efficient chips will provide the benchmark for the next year or so, as more diminutive profiles require extra technology to support.
To those who mine, in whatever capacity, take heed: Whatever goes up, must come down... maybe... but probably not. Sorry, it's not really a bubble - more like an ascent.