Cloud Mining - DEBUNKED

Cloud Mining - DEBUNKED

By DimitarM | Welcome to my life | 24 Dec 2019


Cloud Mining is a topic that never gets old. Although the peak of cloud mining is in the past, there are still websites and people looking into it. Let's fist have a brief explanation what it means.

Cloud mining is when a person is renting server from a provider(Company/website) that is hosting mining equipment somewhere. Usually the client rents a particular amount of speed that will be used for mining for particular period of time. The different cryptocurrencies have different algorithms and different equipment is used for each of them. For Bitcoin that's ASIC(application-specific integrated circuit) Miners, for other cryptos GPU and CPUs are used and so not. I'm not going to go in details. The profitability of these machines depends on several stuff:

1) price of the coin they mine.

2) fees on the pools/exchanges

3) electricity cost

4) mining speed

5) mining difficulty

The fees, the mining speed and the electricity cost are relatively static numbers, but the mining difficulty and the price of the coin that is mined is what's volatile. Basically getting a contract for cloud mining of Bitcoin of lets say: 1 TH/s for the period of 2 years costs some amount of money - around 40$. For two years you will be getting the bitcoin mined from that 1 TH/s. However, the Cloud Mining companies have the so called maintenance fee -> it is usually fixed amount of money per TH per day. What that means -> when the BTC price is high, the percentage of the fee is low, when the BTC price is low, the percentage of the fee is high. Basically, let's say the fee per day per TH is 10 cents/day. This covers -> electricity, salaries of the personal of that maintains the equipment and anything else you might think of related to running this operation.

At some point, this fee might become bigger than what you actually earn from that 1TH/s. At this point the company that is renting the equipment for you takes all the mined bitcoin and you get nothing.

If you google "cloud mining" you will find tons of companies that are offering unrealistic returns from cloud mining, they even go further and promise you 150 Gh/s (0.15Th/s) free speed forever so you can start. That is how they trick the clients to start. At some point someone with the free speed, reaches the minimum withdrawal after few weeks and decides to try to withdraw -> surprise, they need to but premium contract to be able to withdraw. And many people fall for it. The worst part is, that they never see anything in return after they send their crypto to the "website".

The biggest red flag guys for such scams is the unrealistically big promises for earning. What I mean by that -> let's say they offer you 1TH/s and advertise that with that speed you will be receiving the amount of 0.005 BTC per month. This really doesn't sound too bad, right? At the current rate this is 30-something USD. The problem is that if you take the time to calculate how much actually you can earn with 1TH/s per month with an online calculator, you will get numbers nowhere near that. 

351665157-8a8cad7d66929b1ae1e8a109851711f474521cbdb7ca6911e3baa314035db1bc.png

This is a calculation of earning for 1 TH/s with power cost of 1 cent and power consumption of 1 watt(this is just example).

As you can see, the monthly reward for this amount of speed is about 0.0006 BTC. I am leaving here the link for the calculator for mining.

The said above does not mean that there are no legitimate Cloud Mining companies - on the contrary, there are some, however their profitability is volatile - more than the Bitcoin price, the reason behind that is because they are heavily affected by the change of the difficulty. When it comes to bitcoin the Difficulty is mostly going up. Yes there are occasions when it goes down, but it is usually followed up with big spike afterwards. Here you can see the difficulty chart of Bitcoin

351665157-29f820f6416fe3de42a5578c2f3d40591f646525a6a26b1411272e12e6851df9.png

There are cryptos with more stable difficulties, but they are usually mined with GPU's until some point where someone produces an ASIC to mine that particular currency. 

Anyway, if you are looking into Cloud Mining contracts, make sure you do good research - calculate the current profit, calculate the costs, try to anticipate the future changes of the difficulty and how that this will affect your profitability. Take into account the fees -> maintenance fee, pool fee, transfer fee(yes, some providers are charging customers with fee to transfer their earnings to external wallet).

I will leave here links to several legit mining operations that you can make money off:

Genesis Mining

Hashing24

Nicehash

 

Those are old companies - being around for years. Genesis and Hashing24 are classic cloud mining operations, they have a "mine" somewhere and hold mining equipment, they have staff that needs salaries, they have electric bill, rent and so on. Nicehash on other hand is something else -> they do not hold mining equipment - they are merely a marketplace, where miners are selling their home-based hash power -> either PC or ASIC and other miners are purchasing that power to mine specific coin. What that means: you have 0.01 BTC and with it you can rent X amount of speed to mine ETH for X amount of days or hours. If you made the calculations correctly you can really benefit from it. If not, you can easily lose money.

Btw, this is an excellent scenario for money laundering.

I really hope that any of you guys might find this information useful. 


DimitarM
DimitarM

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Welcome to my life
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