Cloud mining has been the focus of strong debate for years. Protagonist of a large number of scams, it has been criticized by many and appreciated by few.
Cloud mining involves the extraction process using a remote data centre with shared processing power. This type of mining allows users to extract bitcoin or alternative cryptocurrencies without having to deal with the hardware.
Mining plants are located and maintained in a facility owned by the mining company and the customer simply needs to register and purchase mining contracts or shares in exchange for a percentage of the revenue or a fixed rate.
This procedure conceals more pitfalls than opportunities, but in order to understand it, it is necessary to have a very clear overall picture of the situation.
The cloud mining landscape doesn’t include only scams, at the end of the article, there are some interesting examples.
However, it does remain a high-risk speculative investment.
Mining in 2020
The mining sector is becoming increasingly complex, the years when it was possible to buy hardware and extract cryptocurrencies at home with a modest investment are long gone.
It is no longer even possible to participate actively in this industry with huge investments, except if one is located or wants to relocate in areas of the world where the cost of electricity is very low.
The mining industry is becoming increasingly professional and needs entrepreneurial experience, skills and capital.
The graph shows the phenomenal growth in the computing power available for Bitcoin’s blockchain. It represents all the equipment currently active in the network.
Competition in the industry leads to lower profit margins, each PoW (Proof of Work) algorithm has its own incentive model.
The most famous one involves a controlled inflation that halves the number of coins received as a reward by the miner through a mechanism called halving.
The competition on the market sees miners contend for the reward attached to the newly mined block, the more they play the game, the harder it gets.
This is why pools have been created, which serve central nodes more adept in the propagation of information, with the aim of lending computing power in exchange for a percentage of the rewards.
How does a miner make money
- Cryptocurrency reward with mining;
- Fees collected for transactions;
- Appreciation of the mined coin.
With regard to the third point, it should be pointed out that the accumulation operation should be considered more like speculation than a net gain. Revenues should be subtracted from the costs of hardware equipment, management, allocation and power supply.
Easy fraud using cloud mining
Promising an enthusiastic young man to be part of a mining farm and earn a lot of money was a profitable model for scammers all over the world.
A growing market, promises of moneymaking and a strong narrative were a devastating mix.
Here are some ways to recognize a scam service:
- The domain name is never registered in the name of a real user but is kept hidden;
- Corporate registration in symbolic and credible cities like London, to give the illusion of reliability. Only later it is discovered that administrators are often registered as foreign residents where identities are forged;
- Evasive teams when asked to show evidence of specific mining equipment with photos, videos etc..;
- They only accept cryptocurrencies for the purchase of packages in order to hide the traces in case of exit scams;
- They try to show a Bitcoin address from which verifiable payments can be visible in order to attract the contribution. Sooner or later the flow stops and everyone disappears.
In reality, the first funds are used to pay the promised shares to newcomers following a pyramid scheme that eventually ends with an exit and the interruption of the rewards.
This situation punishes the last ones in particular.
Here is a list of services that have mysteriously stopped paying out:
- Mining Sweden
Honest cloud mining services?
Amidst all this, there are also honest and reliable services. When deciding to undertake this type of investment remember always to consider that there are often inconvenient and risky clauses in the contract that needs to be signed.
Contracts often close without refund and the risk compared to the yield is much higher than a simple direct investment in cryptocurrencies.
During an accumulation phase like the one we are experiencing after a bear market cycle, an investment in fiat with returns in cryptocurrencies is not said to be the best solution. Locking capital while the market gives bullish signs is not too wise.
Nowadays, with Proof of Stake and DeFi, there are investment alternatives to consider in the field of blockchain validation, not risk-free but with totally different commitments.
Here are some services that would be worth looking into. We do not recommend any of them, but we’ll leave a list cleared of the worst initiatives for a conscious evaluation of the proposals made on the portals themselves.
- Bitcoin Pool
We stress the importance of reading and understanding the contract specifications which are accepted during payment.