Mining is an integral part of cryptocurrencies and blockchains. While historically, mining would refer to the act of digging for precious rocks and metals, in the crypto world, mining is the process of generating and verifying new cryptocurrencies. In a cyclical manner, miners are incentivised for contributing computational power to maintain the blockchain, with new coins.
To engage in mining, individuals need ‘mining rigs’: high-performance hardware with the processing power needed to successfully mine and verify crypto.
Simple enough, right? Okay, great. So what is crypto cloud mining then, you may ask?
Cloud Mining - Definition
Cloud mining is the process of outsourcing computational power to mine cryptocurrencies. As the software industry would come to learn years ago, rather than purchasing and running masses of computers to keep things running, a better solution is to rent the computational power from another facility.
A third party hosts the pricey mining hardware needed, and are paid to do so. Miners in this instance are investors, towards a portion of a mining operation. As with any investment, the expectation is to reap the benefits of the operation.
To full understand what is crypto cloud mining, you should know its advantages. Cloud mining allows people to become miners, without the extortionate investment needed to purchase the equipment, the overhead costs, specifically power costs, of running the equipment 24/7 and the stress of maintaining the equipment at all times.
How Does Cloud Mining Work?
Cloud mining works only for Proof-of-Work (PoW) systems - blockchains that rely on sheer processing power, rather than staked verifiers (Proof-of-Stake), which means it only applies for certain cryptos. As a cloud mining investor, what you do is select an applicable cryptocurrency that you want to invest in, alongside a successful mining service.
As you would expect, there are many sites hosting crypto mining, but some of the most popular ones are:
- Genesis
- Bit Deer
- Hashnest
- ECOS
- Shamining
- Scryptcube
Before signing up, take into consideration the fees, the estimated percentage incomes per GH/s. Depending on your budget, some services will prove better options than others.
Cloud Mining Types
Host Mining
There are two types of cloud mining. Host mining is the process whereby rigs are leased or purchased. While host mining typically has setup and maintenance cost, the overhead energy costs are low, you gain more control over your rig, meaning you can allocate how it is used, in an effort to increase mining efficiency.
Lease Hash Power
Unlike host mining, leasing hash power doesn’t require setup or maintenance costs. Instead, miners simply subscribe to a plan that suits their budget, and sit tight, hoping for a share of the mining farm’s profits. Essentially, when cryptocurrencies are mined and verified, the returns are then shared among the cloud mining farm’s investors, proportionate of course to their investment.
Cloud Mining Advantages and Disadvantages: Can you earn money with it?
The most obvious advantage to cloud mining is of course, the cost. Cloud mining means miners don’t need to invest the thousands needed to set up, purchasing the high spec equipment, nor fork out for the substantially high running costs, to cover the energy needed to power mining rigs.
Cloud mining is completely ‘hands-off’, meaning, like the running costs, the continuous maintenance for these mining rigs, is not your responsibility. No technical upkeep, no unwanted noise and heat emitted by the mining rigs - all of this is the responsibility of the third parties paid to do so.
With this in mind, the question remains - can cloud mining be profitable?
Yes - sort of. Cloud mining profitability is dependent on numerous factors. Profitability of cloud mining begins with the mining farms themselves, and that brings us unexpectedly swiftly to the disadvantages.
Cloud mining is often considered risky by many. This is because some mining farms don’t have the high spec needed to mine cryptocurrencies at a profitable margin, meaning smaller returns when the coins are mined.
In addition to this, the volatile nature of cryptocurrency means the fluctuating value of whichever coin you’ve chosen, may also eat into your profits, relative to the initial investment cost you put forward. With all you know about buying cryptocurrency already, imagine purchasing cryptocurrency with your country’s fiat currency, but then not knowing what rate you will get, until weeks and weeks later. On top of that, it’s of course not just one payment, but you pay repeatedly, as part of a contract, for specific usage of energy.
That’s the risk of cloud mining. The long durations often needed to mine cryptocurrencies are why they can prove unprofitable.
Another risk to be aware of scams. As with the entire cryptocurrency and blockchain landscape, cloud mining has become rife with fraudulent activities, designed solely to rip off budding investors. The dreaded shape of any investment operation, the pyramid looms large in many instances, with exit scams paying out early investors, and of course themselves big-time, while paying those further along the line nothing, before scarpering into the abyss.
As a predominantly deregulated environment, largely hailed as one of crypto’s greatest advantages, when it comes to investing into an operation, like you would a business, this can be the downfall, with cloud mining services operating with full anonymity and autonomy. On the other hand, when regulations do come into place, they can often be a complete crackdown on the practice, such as China’s 2021 banning of cloud miners there, resulting in thousands of lost incomes.
This is why choosing a reputable and well reviewed cloud mining service is your best bet. And steer clear of any service offering incomprehensible and unrealistic returns on your initial investment.
Summary
Deciding which cloud mining service to use, then which subsequent contract to subscribe to, arguably requires more research than when deciding on which new altcoin to invest in. With consequential variables, from market volatility against contract costs, to untrustworthy cloud mining services, there’s a lot to ensure you’re clued up on before engaging in this practice.
Even with all of the variables in your favour, with the not-uncommon lengthy time period between investment and profit, many analysts insist you’d be better buying Bitcoin straight up.
Cloud mining has the potential to be lucrative passive income, especially if you pick the right cloud mining service and contract. Saying that, you need to be prepared for the risks. And if you are fortunate enough to avoid the risks, you then may have to just be patient, although patience isn’t always profitable in cloud mining.
La inversión en criptoactivos no está regulada, puede no ser adecuada para inversores minoristas y se puede perder la totalidad del monto invertido.
