Cloud mining has been generating a lot of buzz in the crypto industry. In the last couple of years, this area of cryptocurrency mining has become almost as popular as traditional mining.
But what really is cloud mining and how does it work? Well, read on to learn everything you need to know about cloud mining.
Cloud mining is a unique mechanism put in place to mine cryptocurrencies, such as bitcoin, Litecoin, and others. Unlike traditional crypto mining that uses sophisticated mining hardware like ASIC miners, cloud mining leverages rented cloud computing power. The difference between cloud mining and traditional bitcoin mining is that with cloud mining, you don’t have to install and directly run the hardware and other related software before you can kick off mining.
Cloud mining firms, typically allow investors to register an account and participate remotely in the process of cryptocurrency mining for a specified cost. The brilliant thing about cloud mining is that it makes mining accessible to tons of people across the world, especially people who don’t have the financial acumen to invest in expensive ASIC miners out there.
Since cloud mining is executed via cloud computing power, it solves issues like direct energy costs and maintenance of equipment.
Anyone who signs up for cloud mining through a cloud mining firm essentially becomes a participant in a mining pool. The pool allows investors to purchase a certain amount of hash power with each investor earning a pro-rata share of profits in proportion to the amount of hashing power rented.
Cloud mining: What you should know
Cloud mining takes advantage of cloud computing to create new blockchain-based cryptocurrencies. And for starters, cloud computing is one of the fastest-growing technological trends in the tech space currently. This brilliant area makes it possible to access technology like database services, processing, server capacity, software, and file storage via the cloud. And by cloud, we mean over the internet. Cloud computing companies usually charge users based on a usage basis, just like you’ll typically pay for electricity and water usage.
On the flip side, mining is the very essence of the cryptocurrency model. Without mining, it will be impossible to create new bitcoins. Mining also relates to the process through which transactions are authenticated and added to the public ledger, known as the blockchain. And like we mentioned, every crypto mining process results in the release of new coins.
A combination of cloud and mining opens the world of mining to people who would never have been able to participate in this unique process of minting new coins, as they don’t have the financial strength to invest in equipment and the exorbitant price of electricity. Cloud mining is for everyone, as it requires little to no technical knowledge or access to hardware infrastructure.
Cloud mining models and how they work
When it comes to cloud mining, there are several cloud mining models, and today, we will take some time to explore each cloud mining model, so you know exactly what they are and how you can take advantage of them.
Hosted mining is among some of the most popular forms of cloud mining we have come across, and just so you know, this cloud mining model is unique in many ways. This cloud mining model works in such a way that customers are able to purchase or lease mining software setup within the miner’s facility. For this model, the miner has the sole responsibility of maintaining the equipment and ensuring that the whole setup runs smoothly.
This cloud mining model gives investors direct control of their cryptocurrency. The economies of scale of a mining farm ensure that the exorbitant cost that comes with mining, such as storage, electricity, and hardware, are manageable. Notwithstanding, there is a considerable upfront cost that is associated with this type of mining.
Leased hash power
This is another brilliant cloud mining model that is gaining a lot of traction within the cloud mining space. This cloud mining model works quite differently from hosted mining. With this cloud mining model, hash power or computing power that will be used to mine new cryptocurrencies is leased from a mining farm that operates this model. Customers who signup for this cloud mining model essentially get a share of the farm’s overall profits made from cryptocurrency mining. Based on reports, this cloud mining model is among the most popular forms for mining altcoins.
To get hooked to this cloud mining model, an investor would have to open an account with a cloud mining company that operates this website, after which they will choose the type of contract they want along with the amount of hashing power.
Even though cloud mining has tons of advantages, including less hardware and recurring costs, there are also many disadvantages associated with cloud mining. So before you even consider cloud mining, do your due diligence to understand some of the risks associated with cloud mining. Just to bring you up to speed, the cloud mining industry has been taken over by fraudulent investment schemes following the growing popularity of cryptocurrencies. Also, there is the prospect of diminishing returns.
For instance, altcoins are pretty susceptible to demand. So any reduction in their hash power will result in fewer profits for miners. Another thing about cloud mining models is that it promotes centralization of cryptocurrencies, which goes against the very tenet of the decentralized cryptocurrency ecosystem.
How does cryptocurrency mining work?
By now, we are sure you know a thing or two about cryptocurrency cloud mining. Now, the big question is, how does cryptocurrency mining work? Read on as we will get to that in a bit.
Whether locally or through the cloud, mining for top cryptocurrencies such as bitcoin doesn’t involve any mining. Even though mining plays an active role in generating new cryptocurrency tokens that are awarded to miners, cryptocurrency mining operation serves a more crucial purpose, especially when it comes to maintaining the security of a distributed ledger like the blockchain.
Bitcoin mining operation is executed via high-performing computers that have been uniquely engineered to solve complex computational math problems. These computational problems are super complex that they cannot be solved manually. And just so you know, they are complicated and will tax even the most powerful computers out there.
Whenever cryptocurrency miners add new blocks of transactions to the blockchain, part of their responsibility is to authenticate that those transactions are accurate and valid. To be more precise, bitcoin miners ensure that bitcoin isn’t duplicated, a unique scenario in the crypto space that experts refer to as double spend.
This is one area that shows how mature bitcoin and other cryptocurrencies are, especially when you compare it with the traditional fiat currencies where counterfeiting is always an issue. With fiat currencies, when you spend, let’s say, $20 at a store, that money bill goes to the sales rep’s hands. With digital assets like cryptocurrencies, it is a whole different story entirely.
Thanks to mining operations, miners are able to solve cryptographic puzzles using computational power. This helps prevent double spend in a decentralized manner.
Advantages of cloud mining
Like we mentioned earlier, there are tons of advantages that come with cloud mining, and in this section, we will run you through some of the upsides of cloud mining.
- Cloud mining makes it possible for anyone to get into cryptocurrency mining without sweating it. With traditional mining operations, you’ll spend hundreds of thousands of dollars on sophisticated mining hardware and software. And since the person with the most hashing power finds new blocks faster, there is always the competition to buy the newest equipment. But guess what, with cloud mining, you don’t have to worry about all of this as the cloud mining company does all the leg work on your behalf, allowing you to sit back and watch your profit real in.
- Mining operations come with tons of responsibilities. On the one hand, the mining company has to ensure that all mining equipment is managed appropriately, and in the course of this, the company spends more money on ensuring that the equipment doesn’t overheat. But with cloud mining, you don’t have to worry about the equipment overheating, as you trust the cloud mining company to handle this aspect of the contract with you.
- Since companies involved in cloud mining have the financial strength to buy sophisticated towers and equipment, any problem that has to do with aeration is ruled out of the mix.
Disadvantages of cloud mining
After looking at some of the advantages of cloud mining, it’s time to explore some of the not-so-cool sides of cloud mining. This way, you’re able to make an informed decision whether or not cloud mining is for.
- While cloud mining sounds like a brilliant idea, the many cases of fraud permeating the cloud mining space have made it almost impossible to actualize its full potential. One thing you should know about cloud mining is that anyone can set up a website in the name of a cloud ming company, only to defraud unsuspecting investors.
- There isn’t a lot of profit in cloud mining. And if there was, trust us when we say the companies offering cloud mining services wouldn’t provide opportunities for external investors to come in. So before you give cloud mining a try, ask yourself how much you’ll be making at the end of the day. And just in case you come across a deal that seems too good to be true, trust your instinct and walk away as it may end up being a fraudulent venture.
- Cloud mining operations are becoming centralized, especially considering that companies with hashing power control the entire process. This negates the principle of decentralization that the crypto space has always promoted.
Is cloud mining legit?
With the myriad of scams perpetrated in the cloud mining space, it is almost difficult to trust cloud mining companies these days. Even the cloud mining companies that are doing pretty well aren’t very transparent about their operations and the hashing power deployed for their operations.
Another thing we have noticed about many cloud mining companies is that they don’t have a physical address, so dealing with this kind of company is pretty risky as they can simply just shot down operations and disappear into thin air with your money.
Before investing in any cloud mining company, always remember that the crypto space is largely unregulated. To this end, you may end up losing your investment, especially considering all of the unregulated cloud mining companies posing as legit businesses.
While many countries have cracked down on the activities of fake cloud mining companies by enacting stringent laws against perpetrators, we keep reading about phony cloud mining companies been launched now and then. So your best bet is to always do your due diligence before investing your hard-earned money in any cloud mining business.
Is cloud mining profitable?
Many people opt for cloud mining because it is a profitable way to participate in cryptocurrency mining operations without having to invest in expensive mining hardware. In terms of profitability, we can’t say exactly how much you’ll make from cloud mining as this entirely depends on how much hashing power you subscribed for, along with the terms of the contract you opted for.
But before you opt for any cloud mining services, do your research to know how legit they are. On the one hand, cloud mining can be profitable if you pay attention to and do things right. On the other hand, if you come across any cloud mining company that promises you rewards that seem too good to be true, it is a tell-tale sign that it is a scam set up to defraud you of your hard-earned money. And should you have any doubt, always trust your instinct and don’t let FOMO rule you.
Be firm, resolute, and walk away. Trust us when we say your wallet will thank you for looking the other way.
Cloud mining is gaining massive traction, especially with more and more people looking to get into cryptocurrency mining. But before you subscribe to any cloud mining services, do your due diligence as the cloud mining space is saturated with a lot of fake companies disguised as legit businesses.