Since mining on your own is becoming quite complicated and mining equipment very expensive, there are many services offering cloud mining. What this actually is a contract between you as a buyer and mining contractor as a provider that is providing you with mining services, with performance specified by the contract. For example you can rent out a specific level of mining capacity for a set price for a specific duration. A simple example would be 1 giga-hash for a year at some price.
Here are two most popular cloud hashing service providers:
Genesis Mining is the oldest and most reputable cloud mining service. They are running their operation on Iceland where they can cut costs on cooling and can buy cheap and clean electricity. The service offers mining contract for bitcoins and other popular alternative coins. You can pay the service in USD by credit card (or wire payment) but also with BTC, LTC, DGC and DASH.
Hash Flare offers similar service as Genesis Mining. They are running their operation in Estionia. They offers mining contract for bitcoins and other popular alternative coins. You can pay the service in USD by credit card (or wire payment), using WebMoney and Payeer and of course using bitcoins.
Whats the catch with cloud mining?
Well, there couple of them. Once you sign a mining contract the provider is obligated to provide you with for eg. 1 Gh/s of mining power. Usually these contracts are for year or a two but they can also be “unlimited” but there are some other limitations. First limitation is the difficulty since as the difficulty increases the amount of bitcoins you will be able to mine with that hash power you have rented will start to decline (about every two weeks) and at one point it will be close to zero. The other limitation is that they often tell you that they will subtract their operational costs MEF (maintenance and electricity fees) from the bitcoins you mine so that you are only renting the hashing power. As difficulty starts to increase and your income is decreasing at one point your MEF costs will be bigger than your income and at that point it would make no sense to have that kind of a deal and at that point your contract is void and they will just stop mining for you since your hashing power is no longer profitable and can’t even pay for the electricity costs.
Also, when you take a look at their offer and and put it the has power you are about to rent in a mining calculator it usually says that you’ll need about 6 months to get your bitcoins back. Now this is not quite true since nobody can guarantee you how difficulty will be after couple of months and most probably you will never reach these 6 months and will become unprofitable much before that. The only way to keep your cloud miner working is to invest some (or even all) coins it mined for you back into buying more has power.
How can anyone profit with these terms?
Here are some basic rules you need to know if you want to make a profit with cloud miners:
- When buying a mining contract always pay it with USD and never with your bitcoins. The reason is simple: you’ll never get these coins back and after some time it may worth much more that the money your cloud miner will mine you. But, if you pay it in with USD, the coins your cloud miner mined might be worth much more than the USD you paid for the mining service. This of-course implies that bitcoin prices will rise over the months and not decline.
- Never reinvest your mined bitcoins in buying more hash power than buy that with USD and keep the at least some of the coins it mined. (pretty much same reason as above).
- Bitcoins your cloud miner mined might not be worth more than you paid for the mining at this very moment, but that may change in just few months or weeks.
Cloud mining VS mining on your own?
There are many good and bad things on the both side. If you’re mining on your own you’ll have to buy your own equipment. In case you are mining with basically a gaming computer equipment in case something happens or your mining operation is simply not profitable any more – you can always sell all that equipment as second-hand and get at least some money back. In case of cloud mining if you’re not profitable you lose all your money you have invested in contracts. On the other hand with cloud mining you don’t have to worry about many things like does the cooling works and are all the fans spinning, has the rig stopped for any reason, has the GPU just broke, how to deal with all that noise and heat, is it going to put your house on fire… you get the point.
If you are using dedicated mining equipment (ASICs), and that can be quite expensive, easily costing more $5,000 per unit, in case this device becomes unprofitable – it’s worth nothing that same second, pretty much as your mining contract. Also in case of failure of such device (and many of them have just 90 days warranty) you can lose a lot of money. Having a mining contract and letting somebody else take care of all that can give you time to focus on other things.
What to look at before signing a mining contract?
Sine there are many fake sites offering this service check things like: where are they located, are they a company, do they have a phone number, can you pay with credit card, do they have Youtube channel, Facebook page, active Twitter or Instagram accounts, can you check the mining equipment images on these social accounts etc. Also, check them on major bitcoin forums or Reddit and read what other people are saying about them. If they are new – better skip them and go with someone trusted. The better the offer sounds – the more likely that it’s not true.
Since as I already wrote, it will take you at least 6 months to get your bitcoins back (in reality that’s more like couple years to never) this is a good opportunity for scammers to make a Ponzi scheme by taking your bitcoins for mining contract and then returning them back to you slowly – faking that they are actually mining. For that reason, once again, never pay mining contracts with bitcoins!
Some say that the cloud mining is like a casino – house always win. This might be true. IMHO the only way to make a profit is to invest USD into buying hashing power and then to keep your mined coins for some time and hope the price will go up. Some will say that you could do the same thing if you just bought the coins directly and just keep them. I have tried to do the math to confirm that but due to huge amount of factors I wasn’t able to confirm or deny that fact. Also out of two things that goes against you with these kinds of contracts (difficulty and MEF) I’d like that I’d be able to pay the MEF in USD and that I get the full amount of mined coins, but I haven’t seen anyone offering such thing (for a reason).