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Crypto Cloud Mining Contracts - Legit or Scam?


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The allure of crypto cloud mining contracts or ‘hashlets’ as they are called is very tempting due to the promise of quick and generous profits. These companies promise fixed returns of 150% or more with small investment periods of as little as a few days. But are they legit or are they a scam? That’s what this post is about.

This post is more of a word of caution than information about an actual investment opportunity but if you are interested in learning more about crypto cloud mining contracts, this post may provide you with some interesting facts.

Disclaimer: I am not a legal or investment expert. I’m not providing any specific suggestion for any investments. This post is simply for informational purposes. Use at your own risk.

What are Crypto Cloud Mining Contracts?

Crypto mining companies are businesses that own mining system farms at one or multiple locations - likely in countries where cost of electricity is low.

These companies offer cloud mining contracts or hashlets are they are called to small investors like you and me.

Cloud mining contracts work a bit like a CD or Crypto Staking: You lend a professional crypto currency mining company your money in crypto for a predefined period of time (between 10 and 75 days) to fund their mining operation.

In return, you receive back your original investment plus a slice of profit from the mining operation - in theory.

What kind of profit can you make with Crypto Cloud Mining Contracts?

The profit the company claims you can make with such a contract can be quite attractive as you can see on their website. The emphasis here is ‘claim’ and I will discuss comment in detail in the next section.

For example, Hashlists.com claims that you can receive $75.6 after only 7 days by investing in a $540 Ethereum contract. That’s an almost 14% return after only 7 days. Compare that to the meager 0.06% or so interest you receive on your savings account.

By investing higher amounts, the companies claim that you can also receive higher returns. For example, Hashlists.com states that if you invested in a $8,500 mining contract for Ethereum for 75 days, the company promises a $14,025 return. That’s a 165% return after 75 days.

It sounds to good to be true, doesn’t it? Well, you know what they say…

What are the Pros and Cons of investing in a Crypto Mining Contract?

Here the Pros and Cons of investing in a crypto mining contract. Make sure to also read the Cons.

Pros:

  • They appear to be a more profitable investment opportunity compared to conventional options like savings account or CD

  • Opportunity to participate in crypto mining without getting your ‘hands dirty’ and having to invest in expensive mining hardware

  • Convenient ranges of investment amounts

  • Convenient ranges in investment periods

  • Simple and quick setup and transfer of funds.

Cons:

  • The legal status of cloud mining contracts is still in limbo. Cloud mining companies may be charged in any country with securities fraud

  • The funds are tied up for the period of the investment

  • As with any mining operation, there is risk associated with the actual operation, e.g. hardware may break down, crypto currency mining difficulty may change, mining company may go bankrupt.

  • Your funds are tied to the cryptocurrency you invest in and will fluctuate with the price. In case of a sudden market downturn, you will not be able to move your funds out of the cryptocurrency and into safety.

  • Risk that the cloud mining company is attacked by cyber hackers (see Coinbase hacker attack in 2021)

  • Some of the cloud mining website do not offer Two Factor Authentication, making them less secure.

     

What are the big Crypto Cloud Mining Companies?

There are about a dozen cloud mining companies that I found. During my research, I focused on the three big companies:

Hashlists.com

  • $8 sign up bonus

  • Over 240,000 active users

  • User-friendly platform

  • Average profit rate of 150%

  • No maintenance or deposit fees

  • 24/7 support

  • 3% referral bonus

  • Plan contracts range from $8 to $6,500

  • Investment periods range from 1 day to 60 days

  • 10 mining locations in Greenland, Estonia, Ice land, United Kingdom, and Sweden

  • Available coins: ETH, BTC, BCH, DOGE, LTC, FIL, DASH

MineDollars.com

  • Sign up bonus of $10

  • Over 320,000 active users

  • User-friendly platform

  • Plan contracts from $10 to $7,000

  • Contract periods between 1 and 90 days

  • Multiple mining farms across Europe and Asia

  • Available coins: BTC, BCH, LTC, ETH, XRP, USDT, USDC, DASH

Genesis-Mining

  • Currently sold out

  • Plan contracts between $499 and $4,999 for ETH

  • Custom plans

  • Contracts between 1 day and 24 months

  • Mining farm in Eastern Europe

  • Available coins: BTC, ETH, LTC, Monero, ZCash

Which Cryptocurrencies are available for investment?

Here are the cryptos you can invest in at the three major mining sites:

  1. Hashlists.com: ETH, BTC, BCH, DOGE, LTC, FIL, DASH

  2. Minedollars.com: BTC, BCH, LTC, ETH, XRP, USDT, USDC, DASH

  3. Genesis-Mining: BTC, ETH, LTC, Monero, ZCash

Are Cloud Mining Contracts a Scam?

So that question is the gorilla in the room. Are the cloud mining contracts for real or are they a Ponzi scheme?

In a 2015 lawsuit, the Securities and Exchange commission filed a lawsuit against two mining companies, GAW Miner and ZenMiner alleging that these companies were involved in a Ponzi scheme.

The complaint stated that the two companies were misleading investors by selling a share of computing power that was way too small for the amount of mining they conducted. The SEC believed that the companies paid investor’s returns from some of the proceeds generated from newer investors.

The danger of the daily actual mining profit being smaller than the promised returns is that the company may never have enough funds to repay all the investors and that some investors may lose their money.

In addition, the SEC also alleged that these companies:

  • Made false or misleading statements in regards to usage of computing powers to mine crypto currencies and calculation of profits

  • Stated false details about the actual profitability of hashlets

  • Made false statements about the extend of their cloud mining activities.

  • Made false statements about that investing their virtual currencies would allow mining companies to maintain their mining equipment and continue mining operations.

Now, one needs to keep in mind that this SEC lawsuit was filed 7 years ago targeting two specific cloud mining companies. This may not mean that all companies operate the same way or that they will ever be charged with a lawsuit.

However, this lawsuit helps one to understand how some cloud mining companies operated in the past and how they were able to pay big profits from their mining operation.

The big question is if the currently operating cloud miners recover enough from their mining operation to pay the profits promised or if they don’t. Unfortunately, I don’t have the the technical understanding or the insight into the company’s operations to make that determination.

A second big concern with the whole cloud mining concept in regards to SEC rules is the question whether these contracts are considered security investments and if the companies are selling these investments without a license.

As explained by Kevin Thompson, an MLM attorney, “When companies sell an investment contract (i.e., a security) without filing any of the appropriate registrations, they violate the Securities Act.”

A decisive ruling of the SEC on this subject is still outstanding.

These two legal concerns should be considered before making an investment in these types of contracts.

Do these companies actually pay out?

Yeah, so that’s the big question. Again, I’m not trying to confirm that if you invest in these contracts, you will ever get your money back.

However, I can tell you that I made a very small investment in Hashlists.com as only as an experiment and learning experience for this blog just to see if I would get my money back. And sure enough, after the short investment period of thee days, I was able to retrieve my funds plus the promised profit I earned and was able to transfer it back to my crypto wallet.

What I can say is that for my small experiment, the contract was honored and I was able to recover my funds. However that doesn’t mean this will happen for future investments as well.

The Bottom Line

In case you are hopelessly confused at this point, you have a good cause to be. So what is this guy recommending??? Should I invest in this cloud mining scheme or should I stay away from it? What is it? Is it a scam or is it for real?

Unfortunately, even after researching the topic I cannot make any recommendation one way or another with a good conscience. However, I will suggest that you be very careful or you may end up losing your money.

Personally, being a risk averse investor, I think I’ll pass. But everybody has a different level of comfort when it comes to investment risk.

In case you are still hell-bound to use this type of investment, there are some things to consider to reduce your risk:

  • Start investing a small trial amount first to learn the process of transferring funds to and from your wallet to the cloud mining company.

  • Spread your investment between multiple companies and hope they don’t go belly-up at the same time.

  • Only invest a small percentage of your funds so you can easily recover from losses.

  • Move your profits out of the mining company and into your wallet as soon as you can.

Hopefully this post has provided some new insights for you.

If you have any suggestions or comments, please send me a comment.

Have a great day!

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Chris Shield
Chris Shield

I'm a software engineer interested in Automatic and Algorithmic trading. I have several blogs for Mobile Development (https://mobiledeveloperblog.com/), Medium (https://medium.com/@chris_42047) and Substack (https://algorithmictrading.substack.com/)


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