As Bitcoin continues to soar to new all-time highs, global awareness surrounding cryptocurrencies has exploded. Particularly for newcomers, the idea of mining Bitcoin can sound very attractive at first. After a little research, however, the realities of needing special mining equipment, electricity costs, and technical know-how can be discouraging to many would-be miners. Cloud mining offers a tempting alternative, allowing people to participate in Bitcoin mining without the burdens of buying equipment, setting it up and managing the necessary hardware and software.
What is Cloud Mining?
Cloud mining, sometimes also called “cloud hashing,” is a way to mine Bitcoin or other cryptocurrencies remotely, in “the cloud,” using shared processing power. Companies effectively let anyone rent mining power from their hardware, which is stored in remote datacentres.
There are several potential advantages to mining in the cloud. If, for example, you live in a part of the world where electricity costs are very high, it might make sense to outsource your mining to a place where electricity is cheaper. For those who want to mine but don’t have the desire or resources to invest in mining equipment and deal with issues like overheating, technical troubleshooting, and upgrading hardware and software, outsourcing can be an attractive option.
Can You Make Money With Cloud Mining?
If you’re interested in mining Bitcoin, profitability is likely a major factor. A lot of people regret missing out on the early days of Bitcoin mining when anybody could mine from home using a regular computer. Cloud mining, as a concept, can sound like a very promising solution. The reality, however, may fail to meet expectations. While there are circumstances where mining remotely can be a worthwhile option, it is definitely not guaranteed to be profitable.
To get started with mining in the cloud, you will typically enter into a contract for a specific hash rate (for example, a common rate is around $175 USD for 1000 GH/s). Your ultimate return on this investment will depend on the price of Bitcoin, exchange rates, the cost of electricity, and a number of other factors. Additionally, when it comes to profits, even legitimate operations will usually charge some form of “maintenance fee” in addition the cost of hashing power specified in your contract. To calculate profitability, you will need to be sure to deduct these fees from your projected earnings. Using a mining profitability calculator can help generate a rough cost/benefit analysis of different mining options.
Operations run the gamut from a select group of reputable companies to a lot of scams and Ponzi schemes. In fact, it has been suggested that the vast majority of cloud mining companies are scams. When evaluating a company, some things that may be helpful in spotting a scam or determining legitimacy include:
- Photos of the operation: A legitimate operation should be able to provide photos of their data centre.
- Public mining address: A public mining address is a way to verify that a cloud mining company is on a network. Additionally, being able to sign blocks can confirm ownership of the address.
- Unlimited Processing Power: Companies renting out hashing power are limited by how much hardware they have in their data centres; or, they should be! Any company that isn’t transparent about their limits, or claims to offer “unlimited” power, is worth evaluating with a healthy dose of scepticism.
- No option to withdraw earnings: If a website offers to rent hashing power without providing a clear way to withdraw your earnings, it is likely a scam.
- Domain name ownership: A legitimate business in this space should make their contact information readily available. This applies to domain name registration, as well. Anonymous or concealed domain name ownership is a red flag that a cloud hashing operation is likely a scam.
It is recommended that you do your own research and understand exactly what you are signing up for before entering into a contract with any cloud mining service. There are legitimate and reputable operations out there, and they can be profitable under the right circumstances, but it is important to be aware that this is a high-risk space with no guarantees and many dubious players.
Rupert Hackett is the co-founder of Bitcoin Australia, and has a wealth of experience with Bitcoin and Cryptocurrencies, including the world’s first Masters in Digital Currencies. He bought his first bitcoin in 2011, and in 2014 immersed himself in the crypto world with Bitcoin Australia and angel investor fund Dominet led by Domenic Carosa.
Quote: “I really think Bitcoin could change the world.”