What is cloud mining?
Cloud Mining means that the mining is done remotely- you can invest a fixed sum in a certain level of hashpower dedicated to mining – the mining is done for you by the third party company, and you will have a contract of a set length where you get a set percentage of the mining rewards for that time. This allows users to invest in mining and receive a reward without having the overheads or responsibility to maintain crypto mining resources.
Cloud mining offers people the chance to have crypto mined remotely for them, without having to take care of any equipment.
Crypto mining is resource intensive and hence many miners use cloud-based platforms to perform these actions. Cloud mining services provide the required resources and charge a small fee for mining.
Imagine a building full of computers that are doing one job: Mining cryptocurrencies. You don’t own any of these computers. Yet, you can still hire a part of their computing power. Any blocks that are found by that computer will be yours – minus the fees of the operation. You don’t use your own computer, you don’t waste any energy, and you don’t make any effort at all: Just hire a computer in a remote location to do the mining for you. This is cloud mining in a nutshell.
Why would people want to do Cloud Mining?
Early adopters of Bitcoin mined Bitcoin from home, with initial block rewards leaving some early miners with tens of thousands of Bitcoins, if not more. At the time, mining was not profitable – Bitcoin then had very little value, and the costs of mining- buying the equipment and paying for the electricity – cost more than the then value of Bitcoin. The first valuation of Bitcoin was even based on the cost of the electricity needed to mine it. Many early adopters even gave up mining at home, because the heat or noise generated by the mining equipment became too much for them – some now regret this given the present worth of Bitcoin…
Mining crypto can be seen as an easy, passive income, certainly it can seem easier than trading or knowing what to invest in, and people are always drawn to easy earnings and high ROIs.
However, solo mining from home is hard – understanding and maintaining the equipment, having enough space to house the CPUs/GPUs and having adequate ventilation and cooling – means that it will never become mainstream. As such, many people have become interested in investing in Cloud mining.
Cloud Mining Risks and Scams
There are several companies that claim to offer cloud mining, and there are no doubt legitimate cloud mining services- where the hosting company owns the mining equipment and pays out fairly the correct amount of crypto mined to the investors- their customers.
Unfortunately- crypto being crypto- there have been many scams around crypto mining – all taking a lot of investors’ money before disappearing. Crypto and cloud mining are, as yet, unregulated, and it is unfortunately easy to create scam cloud mining companies- where the company simply never owns any mining equipment, but rather operates as a Ponzi scheme, using money from the new investors to pay returns to the older investors. These Ponzi schemes can go on running, until the new investors dry up, and suddenly there is not enough new money coming in to repay the early investors. In some cases, also, the founders just disappear, and all repayments stop overnight, leaving investors unable to withdraw or access their funds
Tips for investing in any Crypto Cloud Mining (or pool mining) offerings:
- Our best tip – if it is a cloud mining contract or a mining pool- is, in most cases, don’t invest, however good the offering may sound or however legitimate the company may look. There are more scams than good ones out there, and you are tying up your money, it’s hard to know how good the ROI really is and you might not be able to get your capital back out.
- If it seems to good to be true, it is
- If it guarantees an ROI in general, it’s most likely a scam
- If it promises or guarantees and unrealistically high ROI, it’s an even higher likelihood that it’s a scam
- Check the team – who is behind it. If they are anonymous, if their profiles don’t look real, they’re not on Linkedin or don’t have a presence on social media that can be backed up, they’re probably not real, and are thus more likely to disappear and pull an exit scam
- Does the offering seem plausible? Can you prove that they own the mining equipment?
- Read forums – such as Bitcointalk – and read the experiences of other users.
- Check the domain (the .com or .io link) – on sites such as Whois or Whoisology- how long has the domain been active
- Check the company registrations- is there any evidence to support the existence or financial backings of the company
- Be wary of any reviews – many reviews are fake or paid – it is easy for such scam companies to buy paid reviews or get their friends to post videos etc. Information about the company or returns paid out can also be faked.
- If you do invest, only invest what you are willing to lose.