What is Bitcoin Mining and How Does it Work?

Bitcoin mining is a massive topic in the crypto industry. For many people just getting started, Bitcoin mining may sound somewhat confusing. But guess what? We are here to make everything about Bitcoin mining as simple as possible. 

While many people see Bitcoin mining as computers mining virtual currencies, others consider Bitcoin mining as free money. That said, Bitcoin mining is way more than that, and today’s post will give you all the information you need to know about Bitcoin mining. 

What is Bitcoin mining?

Bitcoin mining is the very backbone of the Bitcoin network, and the system is controlled by miners who are responsible for providing security and confirming transactions. Without Bitcoin miners, the network will be susceptible to attacks now and then. 

For starters, Bitcoin mining is executed using specialized computers. Besides processing Bitcoin transactions, Bitcoin miners are also responsible for securing the network. To play their role in confirming Bitcoin transactions, miners have to solve computational problems. This process allows them to chain together blocks of transactions. For their contribution to the Bitcoin network, miners are rewarded with newly mined Bitcoins and transaction fees. 

How does Bitcoin mining work?

If you’re just getting started with Bitcoin mining, we are sure you must be wondering what Bitcoin mining is really about and how it works. Good for you; we have you covered. Like we mentioned earlier, Bitcoin mining is executed by miners whose responsibilities include securing the network and confirming Bitcoin transactions. 

For their job, miners are rewarded every 10 minutes with new Bitcoins and transaction fees. 

Now to the million-dollar question. What is the essence of Bitcoin mining? Well, we will explain everything in a bit. Just so you know, there are many aspects of bitcoin mining, and we will go over each of them so you get the bigger picture. These aspects include:

  • Issuance of new bitcoin
  • Confirming Bitcoin transactions 
  • Securing the network

Bitcoin mining and issuance of new Bitcoins

Central banks issue traditional fiat currencies like the Euro and the Dollar. So it is the central bank’s responsibility to issue new currencies if they think it will help improve the economy. On the flip side, Bitcoin works quite differently. 

With Bitcoin, miners are rewarded with new Bitcoins after every 10 minutes. And because the issuance rate is set in the code, miners cannot cheat the system or mine new Bitcoins out of the blue.  To generate new Bitcoins, miners often have to rely on computing power. 

Miners and confirming Bitcoin transactions

Miners on the Bitcoin network include transactions executed over the Bitcoin network in their block. Once a transaction is included in a block, it is considered secured and complete. Why? You may ask. Well, the answer is pretty simple. When a Bitcoin transaction has been included in a block, it has been officially embedded into the Bitcoin Blockchain. 

For larger payments, more confirmation is ideal. Here are some examples to give you a better picture of what we are trying to explain. 

  • Payments with 0 confirmation mean that such a payment can still be reversed. For successful confirmation, we suggest waiting for at least one confirmation. 
  • Transactions with one confirmation are enough for small Bitcoin payments that are less than $1000.
  • Bitcoin transactions between $1000 to $10,000 usually require at least three confirmations for a successful transaction. 
  • Payments of large amounts between $10,000 to $1,000,000 usually require 6 confirmations. 

What do Bitcoin miners require?

Since Bitcoin miners are responsible for securing the Bitcoin network, they work round the clock to make it difficult to attack, stop or alter. And just so you know, the more the miners, the more secure the network is. 

The only way to successfully reverse a Bitcoin transaction is to control more than 51% of the network hash power. And since hash power is distributed across different miners, the Bitcoin network will always be safe and secured. 

Bitcoin mining: How to go about it 

Do you want to give Bitcoin mining a try, but you don’t know where to start? Well, that’s where we come in. Read on to learn some tips on how to mine Bitcoin. But before you get super excited, let us tell you right away that Bitcoin mining isn’t very profitable for most people, and that’s because mining is an incredibly specialized industry. 

To give you the bigger picture, Bitcoin mining is executed in large houses with access to cheap electricity. 

While we don’t want to discourage you, you must know that Bitcoin mining isn’t for everyone, especially if you consider the insane amount of power and computerization needed. Plus, you’ll be up against the big boys who have invested thousands of dollars, if not millions, into hardware you can barely afford. Without mincing words, Bitcoin mining is pretty expensive and may not be so profitable for an individual. 

But if you still want to explore Bitcoin mining, you’ll not be disappointed to check out some of the steps we will be showing you shortly. 

Step 1: You need a Bitcoin wallet. 

When you start mining Bitcoin, you’ll be rewarded with new Bitcoin. And since they aren’t deposited into just any wallet, you’ll need to get a Bitcoin wallet. Suffice to say that you can’t mine without a Bitcoin wallet. 

But don’t just opt for any wallet you come across, as there are many dubious Bitcoin wallets out there. So it’s best to comb the internet for a review of the best Bitcoin wallets before making your choice. 

Step 2: Choose a reliable Bitcoin exchange.

After successfully mining bitcoin and sending it to a wallet, you may eventually have to sell it to pay for power or get more sophisticated hardware. To this end, you may need to find a reliable bitcoin exchange where you can sell your Bitcoins without any hassle. 

Step 3: Get top-notch Bitcoin mining hardware.

Mining Bitcoin requires that you have access to uninterrupted power and sophisticated hardware like ASIC miners. Without this hardware, it is practically impossible to mine Bitcoin. 

For those just getting started with Bitcoin mining, keep in mind that ASIC miners are specially designed hardware for Bitcoin mining. 

And let us warn you right from the get-go, mining bitcoins on your home computer may leave you frustrated, and that’s because it isn’t profitable. We have read of stories where people make less than a penny per year mining Bitcoin on their home computers. Considering the money spent on electricity, you’ll agree that this is a waste of time and money.

Step 4: Choose a mining pool 

After you have secured your mining hardware, the next thing you need to do is select a mining pool, in which case we recommended the Slush Pool. And that’s because it is the oldest mining pool. Plus, it has the best user interface, making it easy for anyone to kick off bitcoin mining.  

Without mining pools, you’ll only be rewarded with a mining payout if you ever found a block on your own. Plus, this is called solo mining. However, we don’t recommend this option because your hardware’s hash rate will most likely not find a block via solo mining. 

What is great about mining pools?

Joining a mining pool comes with a lot of perks; you’ll not enjoy solo mining. By joining a mining pool, you are essentially sharing your hardware’s hash rate with the pool. Should the pool successfully find a block, you’re rewarded with payout according to the percent of hashrate you contributed to the pool. 

For instance, let’s say you contributed 1% to the pool’s hashrate; you’ll be rewarded with .125 bitcoins out of the current 12.5 bitcoin block reward. 

Step 5: Get a high performing Bitcoin mining software

To hook your ming hardware to your preferred mining pool, you’ll need a high-performing Bitcoin mining software, and that’s because the Bitcoin mining software allows you to point your hash rate to the pool.

Also, the Bitcoin software is where you’ll input the wallet address where you want your payouts sent. For those who don’t have a Bitcoin wallet address, you can either use a third-party wallet address or one you get from an exchange. 

Whether you’re using Mac, Linux, or Windows, rest assured that mining software works for all of your devices. 

Step 6: Check to know if Bitcoin mining is legal in your country

While Bitcoin mining is legal in most countries, you want to do your due diligence by finding out your country’s laws regarding Bitcoin mining. A good place to start is to check with local authorities to see if there are any laws on Bitcoin mining and the tax implications of engaging in such an activity. 

And just like you’ll generally do with other businesses, it’s always a smart move to consider expenses like the cost of electricity and hardware. This way, you’ll be able to determine if Bitcoin mining is profitable or not. 

Step 7: Is Bitcoin mining a really profitable activity for you?

Now that you know what you need to start Bitcoin mining, it’s important you do some basic calculations to figure out if Bitcoin mining will be profitable for you. For those who have no idea how to go about this, there are tons of online Bitcoin mining calculators out there that should give you an idea or two. 

We weren’t mincing words when we said an idea or two, and that’s because there are several factors associated with mining profitability. More so, these factors are constantly changing. For instance, Bitcoin doubling its price could increase your profits by two. That said, it could also make mining Bitcoin super competitive that your earnings may remain the same. 

Mining Bitcoin on Android and IOS: Learn how

Do you know that you can mine bitcoin on your Android device? And yes, we aren’t exaggerating. Anyone with a decent Android device can use Bitcoin mining software for Android to mine Bitcoin and other cryptocurrencies. But guess what, you may probably end up making a few pennies at the end of the year. And that’s because Android devices can’t match the sophisticated performance of the ASIC mining hardware used by big cooperations that are serious about Bitcoin mining. 

While it is always fun to set up a bitcoin miner on your phone just to test how the operation works, don’t expect to make any decent money mining bitcoin with your Android phone. Also, you may end up wasting a lot of your phone’s battery in the process, as Bitcoin mining requires a lot of power. 

Bitcoin mining software: What is it?

Bitcoin mining hardware or ASICS, as they are also called, are highly specialized hardware designed for mining Bitcoins. Thanks to advancements in technology, the ASIC industry is becoming more complex and competitive than ever before. Today, mining hardware/farms are now established in locations where there is access to cheap electricity.

When Satoshi Nakamoto launched the Bitcoin ecosystem, he intended for the number one cryptocurrency by market cap to be mined on computer GPUs. But all that changed as soon as enterprising coders discovered that they could get more hashing power from graphics cards. To this end, they began building sophisticated mining software to take advantage of this. 

GPU mining

GPU mining entails mining bitcoin or other cryptocurrencies using a graphics card. For the benefit of those who have no idea what graphics cards are, a graphics card is a piece of hardware that comes with most desktop computers or laptops. This hardware allows your desktop to perform its operations without any hassle. 

GPU mining used to be very popular back in the day, but thanks to the advancement in technology and the coming of ASIC miners, Bitcoin miners have now ditched GPUs and now rely on ASICs because of their impressive performance. 

ASIC miners

ASIC is an acronym for “Application Specific Integrated Circuit. Simply put, ASIC is a special chip designed to execute one specific kind of calculation. With an ASIC Bitcoin miner, the chip is designed to solve mathematical problems using the SHA256 hashing algorithm. A simple search of ASIC bitcoin miner via google will give you an idea of what an ASIC miner looks like. 

These days, serious Bitcoin mining is done using ASICs, mainly in a thermally-regulated data center where there is access to affordable electricity. 

Unfortunately, economies of scale have resulted in the concentration of mining power in a few hands, more than originally intended. 

Bitcoin mining pools: What are they?

Thanks to mining pools, Bitcoin miners are able to receive more frequent mining payouts. By joining hash power with other miners in a group, Bitcoin miners are able to find blocks more frequently, resulting in regular payouts. But while Bitcoin pools look enticing, Bitcoin pools have their peculiar problems, which we will discuss shortly. 

While Satoshi originally intended for Bitcoin to be mined with GPU, he didn’t foresee the emergence of ASIC mining. In the same vein, he also didn’t anticipate the emergence of mining pools. 

In its simplest term, mining pools refer to the coming together of different miners with an agreement to split block rewards based on individual hash power contributed to the pool. Here is a very detailed pie chart showing the current total mining power according to pools:

But while mining pool is excellent for the average miner as it makes it a little easier to smoothen out and predict rewards, on the flip side, mining pools concentrate too much power in the hands of the owner of the pool. 

Bitcoin mining: Taking a closer look at the Bitcoin mining industry

Thanks to technological advancement, the Bitcoin mining industry has metamorphosed into one of the most advanced industries, especially considering the switch from graphics card mining to ASIC mining. 

Today, the Bitcoin mining industry is becoming increasingly championed by highly professional mining operations. Read on as we take you through how the Bitcoin mining industry operates. 

How Bitcoin mining farms look like

Now that you know what Bitcoin mining is, it’s time to show you what a Bitcoin farm really looks like. 

Just to give you a graphical image, Bitcoin farms look pretty much like a data center. Like traditional data centers, Bitcoin farms feature rows of hardware and powerful fans specially built to curb overheating.

Many Bitcoin mining farms look almost like an industrial setup; to this end, don’t expect them to look sleek or flashy. You can see Bitcoin mining farms as warehouses with impressive temperature control. 

Since most Bitcoin miners have ditched GPUs for ASIC mining, it’s only common to see most Bitcoin farms exclusively use ASIC miners for their Bitcoin mining operations. Using ASIC mining, most Bitcoin farms are able to mint several bitcoins daily. 

Do Bitcoin mining farms make any profit?

If you want to take a closer look at exactly how much Bitcoin mining farms make, you’ll have to look at several factors, including:

  • The cost of electricity
  • How sophisticated the mining hardware is
  • The scale of its operation
  • The price of Bitcoin when the miner sells it
  • The level of difficulty that comes with the mining operation

While all these factors play a significant role in determining how much mining farms make, the most crucial factor that affects how much money bitcoin farms make is how much they pay for electricity. Plus, almost all mining farms use these same types of hardware for mining operations. 

Considering that the reward for finding a new block is fixed and the difficulty level is adjusted as per the total processing power pooled together to find a new block, electricity is the only variable cost. So if you’re able to find cheaper electricity than other miners, you can choose to increase the size of your Bitcoin mining operation or spend less than other miners for the same output. 

How much electricity is used by mining farms?

Like we have mentioned right from the get-go, Bitcoin mining requires massive power. To this end, mining farms use a lot of electricity for their mining operations. To put things in perspective, the amount of electricity used by a mining farm depends on the scale of its operation. That said, the newest Bitmain ASIC miners use up to 1350 watts. 

But according to experts in this niche, it is estimated that all mining farms use up to 127 Terawatt hours of electricity. This is for 2021 so far. With these figures, the total electricity used for Bitcoin mining is almost equivalent to the annual energy consumption of Norway. 

Where are mining farms located? 

Bitcoin mining farms are located across the globe. And right now, we can’t tell you exactly how many bitcoin farms are out there. That said, most bitcoin farms are located in China, and the reason isn’t so farfetched. According to stats, 65% of bitcoin mining happens in China. 

Most Bitcoin mining operations happen in China because of the quick setup time and lower initial CapEx. Also, the proximity to where ASICs are built has contributed to the dominance of China in the Bitcoin mining industry.

Bitcoin mining terms you should know.

While it is already exciting to know a thing or two about Bitcoin mining, it is also exciting to get familiar with some common Bitcoin mining terms. If you’re interested in learning some common terms associated with Bitcoin mining, you’re welcome to read further. 

If you are ever thinking of getting into Bitcoin mining, either at an individual or enterprise level, getting the hang of these terms will help you immensely as you navigate the Bitcoin mining industry. 

Miner

Anyone who is involved in Bitcoin mining operations or any other cryptocurrency is called a miner. 

Block reward

Block reward refers to a fixed amount of Bitcoin awarded to the mining pool or miner that helps find a given block. 

Mining pool

Bitcoin mining pool refers to a group of miners who pool their hashing power together in a bid to find new blocks quickly. Miners in a pool eventually share the block reward according to their contributions to the pool. Creating pools have helped miners increase their chances of earning block rewards. 

Block reward halving

Bitcoin block reward halving takes place every four years. During this period, the block reward is cut in half. The first Bitcoin reward halving occurred in 2008 with a total of 50 Bitcoins. That block reward lasted until 2012 when a new reward halving occurred; this time, the reward dropped to 25 Bitcoins. 

Another halving happened in 2016, with the reward further dropping to 12.5 Bitcoins. As of writing this post, we are currently at the cusps of the third halving, which happened on the 11th of May, with the reward for that block cut down to 6.25 Bitcoins. 

Hashing power

Hashing power refers to the number of calculations a miner can perform per second. It is also sometimes referred to as the total amount of hashing executed on a chain by all miners, in this case, “Net Hash.”

Difficulty

Difficulty in Bitcoin mining is measured in a trillion. This term is used to refer to how difficult it is to find a block. The current level of difficulty when it comes to Bitcoin mining is why mining isn’t profitable for many people. 

Difficulty adjustment

The Bitcoin blockchain network is designed to produce blocks every 10 minutes. But given that the total hashing power is changing now and then, the difficulty of finding a block needs to be tweaked according to the amount of hashing power on the network. 

In simple terms, let’s say you have four miners on the Bitcoin blockchain network with the same amount of hash power, and two of the miners eventually stop mining; blocks will happen every 20 minutes instead of 10. To this end, the difficulty of finding blocks also needs to be cut in half; this way, blocks will continue to be found every 10 minutes. 

To bring you up to speed, keep in mind that difficulty adjustments occur after every 2,016 blocks. If this is constant and every new block is added every 10 minutes, it means we will experience difficulty adjustment every two weeks. Also, remember that the 10-minute rule is just a goal. While some blocks are added within 10 minutes, others take less. Our assumption here is merely a law of averages. So it doesn’t mean that block will be added every 10 minutes. 

Kilowatt hour

Kilowatt-hour refers to energy consumption per hour. With most ASIC miners on the market, you should get information on the energy consumed using the kilowatt-hour metric.

Is Bitcoin mining a waste of electricity? 

There have been many arguments in the media that Bitcoin mining is an utter waste of electricity, but that isn’t entirely true as we have observed some problems with their theories which we will discuss shortly. 

Many orthodox economists have voiced their opinion about Bitcoin mining, calling it wasteful. But let us quickly add that electricity is expanded on useful work:

Bitcoin mining enables a monetary network that is worth billions if not trillions of dollars. 

Bitcoin’s environmental impact is pretty negligible compared to carbon emissions from just cars driven by Paypal’s employees as they commute. 

And since Bitcoin has shown a lot of promises, especially considering that the technology can easily replace credit card companies, Paypal, banks, and the people who regulate them, it shows that traditional finance is a waste. And we are not just talking about electricity but also human resources and money. 

Mining difficulty

If there will only be 21 million Bitcoin ever created, why hasn’t the issuance of Bitcoin skyrocketed, especially with the ever-increasing power of mining hardware? Well, the answer is pretty simple, especially considering that issuance is regulated by difficulty, which we have earlier explained as an algorithm that adjusts the difficulty on the Proof of Work problems on par with how quickly blocks are solved within a given time frame.

Just so you know, difficulty rises and falls according to hashing power. This helps to keep the average time between blocks at approximately ten minutes. 

A dial back to history shows that the average block time is witing 9.7 minutes. And because the price is constantly increasing, mining power comes to the network at an accelerating speed, resulting in faster blocks. That said, the average block time for 2019 was around 10 minutes. And that’s because Bitcoin price remained largely steady within this period. 

Block reward halving

Satoshi originally designed Bitcoin so that the block reward that miners are rewarded with for solving a block is halved at every 210,000 blocks, which happens every four years. 

Thanks to Bitcoin’s price rising consistently, bitcoin mining remains a profitable venture, even given the falling block reward. 

Bitcoin network is secured by honest miner majority

A miner would have to keep creating blocks with falsified transaction records to attack the Bitcoin network successfully. To attain these feet, a dishonest miner will need to have the majority of the mining power. This way, he is able to maintain the longest chain. 

This is known as a 51% attack, allowing the attacker to spend the same coins multiple times while blocking other users’ transactions at will.

To pull off a 51% attack, a dishonest miner needs to own more mining hardware than other honest miners. Given the scale and money involved to pull off such an attack, we haven’t seen that happen. 

Given Bitcoin’s current stage, only major corporations or states can afford to pull off such an attack. Even then, the real net benefit of such an attack isn’t clear, as actors may even end up destroying the Bitcoin network. 

Mining centralization

The emergence of specialized hardware and mining pools has unfortunately brought about the centralization of Bitcoin mining. 

Bitcoin developer Greg Maxwell speaking on mining centralization, has spoken against mining centralization as he insists the trend puts a handful of entities in control of hashing power. 

Available stats show that at least 50% of mining hardware is located in China. Nevertheless, it is against any long-term economic interest for any miner to attempt a 51% attack. Any successful attack on the Bitcoin network will affect its credibility, forcing the price to plumate. In the end, the miner may end up losing more, especially considering how much must have been put into hardware. While Bitcoin mining isn’t perfect yet, there are possible improvements in the pipework. 

How Bitcoin mining works

Bitcoin mining isn’t as complicated as you imagine it, and today, we are going to give you some simple explanations that illustrate the Bitcoin mining process:

bitcoin network mining 1

1) Spending

Let’s say for instance; the Green user is interested in buying some goods from the Red user, the Green user will then proceed to send 1 Bitcoin.

bitcoin network mining 2

2) Announcement

Green’s wallet will then announce the payment of 1 bitcoin to Red’s wallet. This information, known as tx or transaction, is then broadcasted to as many full nodes connected to Green’s wallet. For those who have no idea, a full node is a unique transaction-relaying wallet designed to maintain a current copy of the entire Bitcoin blockchain. 

bitcoin network mining 3

3) Propagation

Full Nodes are then automatically deployed to check Green’s spend against other pending transactions. Assuming there is no conflict, that is to say, Green didn’t try to cheat the system by sending the said 1 Bitcoin to Red and a third user; full nodes will seamlessly broadcast the transaction to the Bitcoin network. Keep in mind that at this stage, the transaction has still not entered the Blockchain. So Red will be taking a huge risk sending the goods to Green before the transaction is confirmed. Now, you must be asking how transactions are confirmed? Well, that’s where miners step in. 

4) Processing by Miners

Just like full nodes, miners on the bitcoin blockchain network maintain a complete copy of the blockchain and stalk the network for newly-announced transactions. And just so you know, Green’s transaction may get to a miner directly, even without being relayed via a full node. Whatever the case, the miner then performs work to connect all new, valid transactions in the current block. 

bitcoin network mining 4

Miners compete with one another to complete the task, which entails packaging the current block, so it is valid and acceptable to the rest of the network. A valid block includes a solution to a Proof of Work computational problem, which many people know as a hash. To this end, the more hashing power a miner has, the higher his hash rate and the better his chances of solving the current block. 

The big question is, why do miners invest insane amounts in commuting hardware and compete with each other to solve blocks? The answer is simple; miners are rewarded for verifying and recording transactions on the Bitcoin blockchain. For their contributions, miners receive a substantial Bitcoin reward for every block they solve. 

bitcoin network mining 5

5) Blockchain Confirmation

The first miner to successfully solve the block that features Green’s transaction announces the newly solved block to the network. If other full nodes concur that the block is valid, the new block then gets added to the blockchain and the whole process is restarted. Once the transaction has been recorded on the Blockchain, Green’s payment status changes from pending to confirmed. At this point, Red can proceed to send the goods to Green. Nevertheless, as new blocks are solved and layered on top of the block containing Green’s transaction, reversing such a transaction becomes almost impossible. For large amount of transactions, it is always recommended to wait for six confirmations. And that’s because new blocks are produced every 10 minutes. More so, six confirmations shouldn’t take more than an hour. 

bitcoin network mining 6

The Longest Valid Chain

We are sure you may have heard that Bitcoin transactions are not reversible. So why do you have to wait for several confirmations? The answer is a bit complex and will require a deeper understanding of the hitherto explained mining process. 

Let’s say, for instance, there are two miners—X in China and Y in Iceland who solve the block at almost the same time. X’s block propagates via the internet from Beijing and arrives nodes in the East. At the same time, Y’s block is the first to arrive at nodes in the West. This scenario means there are now two competing versions of the blockchain. 

Now you may be asking, whose block will prevail? Well, it’s pretty simple, the longest valid chain will be the recognized version of the event. So let’s say another different miner solves a new block and adds it to Y’ chain, resulting in Y2. If Y propagates across the entire Bitcoin blockchain network before X2 is found, Y’s chain becomes the winner. This means X misses out on the mining reward and fees, which only exist on an invalidated chain. 

Looking back at our earlier example of Green’s transaction to Red, let’s say the transaction is included in X but rejected by Y, who demands a higher fee than what Green included in his transaction. If Y’s chain wins, then it means that Green’s transaction won’t appear on the Y chain. It will show as if the funds never made it out of Green’s wallet. 

Even though such splits are very rare, they are a credible risk. So the more confirmations that have passed, the safer a transaction is. This is why 0 confirmations on the Bitcoin Cash blockchain are extremely dangerous. 

Bitcoin and cloud mining

If you’re interested in finding the best Bitcoin cloud mining contracts, then you’re welcome to read further. 

Just to give you a heads up, the truth about Bitcoin cloud mining isn’t looking exciting. 

The majority of Bitcoin cloud mining are scams.

Without mincing words, the majority of Bitcoin cloud mining contracts are scams. And this doesn’t come to us as a surprise mainly because we have seen many companies collect peoples’ hard-earned money and never make payouts. We have seen companies claiming to be cloud mining companies without any concrete proof of owning hardware. 

So always keep in mind that at least 99.9% of cloud mining companies are scams.

Which companies are legit? 

At the moment, we can’t, in all honesty, recommend any cloud mining company. And if you ever find a legit cloud mining company, you’ll need a wallet to get your payouts. In which case, you can either use an exchange-based wallet or a hardware wallet, whichever works best for you. 

Is cloud mining profitable?

Honestly, this depends on your goal. If your goal is to get Bitcoins, then there is no sense in opting for cloud mining as you’ll receive more bitcoins for your buck if you just buy from an exchange like Coinbase or Binance. 

Some Bitcoin cloud mining scams

There have been many Bitcoin cloud mining scams in history. And that’s because anyone can just wake up and set up a website. Once the website is up and running with claims of having a large mining facility, the company swoops into action to defraud unsuspecting investors. 

In a bid to come off as legit, the company can choose to send initial payments to customers. But after that, the company will keep all received payments for hash power, with no further payments made to customers. 

Two of the most popular cloud mining scams include HashOcean and Bitcoin Cloud Services. 

As early as September  2019, there are still reports of cloud mining scams swindling people of their hard-earned cash. The SEC equivalent of the Philippines recently issued warnings to investors of Mining City to leave the scheme while they still can. They also warned promoters of the company that they face up to 21 years in jail if they don’t stop immediately. 

Even though it’s 2021, we urge you to always remain vigilant as cloud mining scams are still perpetuated today. No matter how beautifully packaged they are, always do your due diligence before investing in any cloud mining contract. 

Cloud mining red flags you should look out for

If you’re convinced that you have stumbled on a legit cloud mining company, you can do your homework by putting it to the test. 

Should you find these red flags, it is a tell-tale sign that you should proceed with caution. 

Do you have an opportunity to direct hashing power to your preferred pool?

If you signed up for a contract that gives you the right to some percentage of hashing power, there should be a system that allows you to direct your hashing power to any pool of your choosing. If this isn’t the case, then it means that there is no hashing power in the first place. 

Nevertheless, because a pool allows you to redirect hashing power doesn’t make it legitimate either. 

Does an ASIC manufacturer endorse the cloud miner?

There are only a few ASIC manufacturers that can service a large-scale mining operation with hardware. Any Serious cloud mining operation will allow an ASIC manufacturer to announce a large ASIC purchase and want the endorsement of the ASIC manufacturer to prove they are serious. At the moment, there isn’t any cloud mining company that an ASIC manufacturer has endorsed. 

Does your preferred cloud mining company have an affiliate program?

Cloud mining companies with affiliate programs are scams, especially when they seem to be offering customers up to 10%. The reality is that Bitcoin mining is a very competitive business with insanely thin margins. With this, there will be no way that the cloud mining company will pay you and the person who referred you. 

Do you have an idea about the owners of the cloud mining company?

If you don’t know the identity of the owners of a cloud mining operation, it means there is no way to hold the company responsible if they run with your money. With no identity, it is almost impossible to catch the person or the company that defrauded you. 

For instance, let’s say Elon Musk or some notable figure owns a cloud mining company; it will go a long way to boost its legitimacy because of the personality of the wealthy figure backing the company. More so, the personality has so much to lose by scamming people of their Bitcoins. 

Note: That a cloud mining company list many notable personalities as advisors or investors doesn’t mean that such a personality backs or invests in such a company. The truth is anyone can feature an image of Elon Musk on their website. So before you commit to such a website, check to see if there is any news clip of Elon Musk endorsing such a company. 

Are you allowed to sell your shares?

Any legitimate investment shouldn’t be a one-way transaction. If it’s easy to give a miner your hard earn money, there should be a system that allows you to get your money back if you’re no longer interested. If this doesn’t exist, then you should be wary of such an investment. 

Does your preferred cloud miner guarantee profits?

Any business or investment that guarantees profit is a scam. If your preferred miner has so far guaranteed profit, it means they are only paying you using money collected from new investors—many Ponzi schemes operate this way. At the end of the day, they will run away with your money; you just don’t know when. 

Another question you should ask yourself is that if a cloud miner can guarantee profits, why would they want to sell the right to you? Why can’t they just keep the guaranteed profit for themselves?

Do they offer unlimited hashrate for sale?

If the cloud company offers unlimited shares for sale, it is a tell-tale sign that they are running a scam. And that’s because no miner can have an unlimited amount of hashing power. If they have all that hashing power, they can just pull off the 51% attack. 

What payment method do they have in place?

Most cloud mining companies accept Bitcoin, Credit cards, and PayPal as means of payment. If you notice that a cloud company accepts Bitcoin as payment, there is a good chance that it is a scam. And that’s because Bitcoin transactions cannot be reversed. Once the company has accepted your payment, there is no way to get that money back if you paid via Bitcoin. 

Are there free cloud mining trials?

To be honest, no company will offer free cloud mining as this will amount to giving away free money. So if you come across any cloud mining operation with free trials, especially if they ask for payment information, they are most likely a scam.

How cloud mining works

Cloud mining essentially means that a company has a large-scale Bitcoin mining hardware and runs its operation from a professional mining facility. 

Cloud mining companies often rent out some of their hardware to investors. Depending on the hash power you paid for, you’ll be paid a share of the payment earned by the mining company according to the hash power you purchased. 

Even though this is how it works in theory, these cloud mining companies don’t have any hardware in many cases. At the other end of the business is just someone taking your hard-earned money and paying part of it to someone else who signed up before. The climax of this whole business arrangement is that the cloud mining company will eventually zoom off with your money. 

Cloud mining viruses

Over the years, many viruses have mysteriously found their way to computers and then use the computer’s GPU to mine bitcoins. This is quite common with Monero since the network is ASIC resistant and can only be mined using GPUs. 

If you suspect that you’re under an attack, simply run a malware detector to rid your system of such viruses. 

Are mining software the same as cloud mining?

Absolutely no. Mining software is a program you download and install on your computer. This software is crucial if you own mining hardware. The software allows you to connect your hardware to the internet to make hashes and communicate with the Bitcoin network. 

Buy Bitcoin instead

If you’re so bent on owning bitcoin, don’t bother about cloud mining. Go to top exchanges like Coinbase, and Binance where you can buy bitcoins with a click of a button.

Frequently asked questions

Can I invest in Bitcoin miner stocks?

Our readers ask one common question: if they can just invest in mining companies rather than mine themselves? The answer is yes. As a matter of fact, there are tons of publicly traded mining companies like HIVE Blockchain Technologies, BC Group, Bitmain, Hut8, and Riot that are open to investors. And sure enough, you won’t be the only one investing in these companies as big players like Fidelity, Vanguard, Charles Schwab Funds have invested in these companies. 

Is it still profitable to mine with GPUs?

While you can still mine several crypto projects like Ethereum, Monero, and Dogecoin profitably with GPU, it will be futile to mine Bitcoin using GPUs. Since 2016, mining Bitcoin using GPUs has proven to be ineffective. Plus, you may even end up losing your initial investment. 

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