Today’s topic is at the intersection of the two areas of investment, which are probably the most massive interest in runet today: cryptocurrencies and remote passive income generation on the Internet. The concept of cloud mining became popular 2-3 years ago, that is, it has a short history. However, today there is hardly anyone interested in the topic of cryptocurrencies, who has not heard about this type of earnings. In this article, let’s understand what cloud mining is and whether it is worth investing in this direction.
As the bitcoin algorithm became more complex and the profitability of mining decreased, miners began to look for ways to improve the efficiency of their work. The solution was the emergence of the so-called pools, when individual capacities in the network are synchronized. Then, specialized sites appeared in this promising niche, offering individuals to invest in large farms. This solved the problem of lack of computing power, power consumption, as well as noise and cooling. Mining on a personal computer since the summer of 2016, when a single block was valued at 12.5 BTC instead of 25 BTC, was finally no longer profitable.
You can try even now, but the main result will not be the mined cryptocurrency, but the satisfaction of curiosity and skills acquired in the process. Real profitable mining in the last 2-3 years began to move to industrial data centers. And they do not pay off everywhere, but only in countries with cheap electricity and available equipment (China), possibilities of natural cooling (Iceland, Sweden, Finland), or tax benefits for this type of activity (Estonia).
The conditions of entry into the business have also changed. In real mining today you do not enter with 100 dollars, it is all decided by people with a lot of money. One should also take into account the fact that it is important for a private investor to diversify his investments. And this is an additional burden on the budget. Thus, cloud mining is offered as an alternative to the use of a personal computer and the physical supply of specialized equipment. In this case, you do not buy a piece of equipment, but a certain number of so-called hashes (cryptographic codes that connect the blocks with each other).
The company that owns the site sells you this capacity and takes a commission in satosh. The more you buy giga- or terahashes, the faster your wallet is replenished with the mined currency. So, in essence, you’re not buying equipment or a piece of it, but speed. At the end of the contract, the capacity is returned to the company at a discounted price, taking into account depreciation and the degree of obsolescence of the equipment. They can also be resold, for which the services have platforms – marketplaces with the familiar stock exchange interface, charts, orders stacks, etc. By the way, there are always people in such places who specialize not in mining, but in speculation, reselling the power to other participants.
Special equipment that bears the abbreviation ASIC (Special Purpose Integrated Circuit), from manufacturers or on AliExpress costs from 1.5 to 3k $, not including shipping and customs duties, which is another $400-600. Not everyone can afford such an investment, and add to that the prospect of turning your apartment into hell. Buying a used device in Russia will be much cheaper, but you need to understand that it has worked “to the wear and tear” and has already lost its technical characteristics.
That is why there is a widespread scheme whereby power is purchased in the form of giga/terahesh, which are translated into bitcoins and other cryptocurrencies. The average earnings at an investment of $200-250 (1.5-1.8 terashesh) – about $1 per day. Payback about a year – already considered a good result, provided a stable rate of cryptocurrency. The contract on the old equipment, such as ASIC S5 or s7 will be cheaper, but the speed will be appropriate. It makes sense to buy only the new version, such as ASIC Antminer S9 or AntminerL3+. Store on the site works on the principle of the exchange: you put a request for a giga/terahesh, and it is waiting for a suitable offer. To do this, the investor makes a wallet and opens a deposit in BTC.
Popular cloud mining services
There’s a lot of talk online right now about cloud mining pyramid schemes. There are more and more negative reviews as fraudulent schemes spread. What should a private investor interested in this business do? The sign of real mining is having your own pool to which you can connect your home farm, if you have one. Real, physically working cloud mining projects are often set up by large manufacturers or suppliers of computing equipment.
My advice is to ignore offers from individuals or sites unknown in the market. Nor should you look for super reliable cloud mining sites with a 10-year history: the business is new, with only a few years of history. To help with the search, I recommend the Russian-language aggregator bitmakler.com/cloudmining, where cloud mining sites are collected as a rating.
Note that they are rated separately for different cryptocurrencies, which is justified because of the different yields on bitcoin and altcoins. You should not focus only on the place in the rating, because, in addition to profitability, there are many other parameters by which services are evaluated:
- availability of their own industry pool or provider status;
- the year of site creation;
- disclosure of information;
- performance of the equipment used;
- tariff policy;
- information about the ownership team, etc.
Let’s start with two Chinese cloud sites.
HashNest.com, a subsidiary platform of AntMiner, the largest hardware manufacturer, can be considered the most famous and well promoted. This alone adds to its credibility and user confidence, since it is a real production site. It is part of a whole family of sites from the manufacturer under the Bitmain logo. The site has a Russian-language version, supports 7 popular cryptocurrencies: BTC, ETH, LTC, BCC, Dash, ZCash, Monero. It is appealing that hash mining statistics is publicly available, thanks to which any user can see the process online, and for new visitors it serves as a proof of transparency of the company’s work.
Genesis-mining is a Bermuda-based offshore company, which is also backed by a large Chinese manufacturer of mining equipment. A variety of deposit and withdrawal methods are used, including bank cards. Daily payouts are practiced, which reduces user nervousness about withdrawal. The service has good PR in social networks and the press, there are even reviews in the Economist. The plus is that the contract is paid once and is valid for life. Of course, this is a successful marketing ploy: in fact, the contract is in force as long as it is cost-effective for you, that is, the price of electricity and the bitcoin exchange rate justify the commission charged.
HashFlare is a Russian-language Estonian site, one of the most profitable. I have a small deposit in this project. There is an opinion that this is pure hype, because Estonia has European electricity rates and no cold climate for cooling. I explain HashFlare’s survival by other reasons: the policy of the authorities encouraging cryptocurrency startups and its popularity among private investors from the CIS.
Is it possible to make money from cloud mining
Obviously, the goal of the owners of a mining business is to make money for themselves, not to help you do it. From a commercial point of view, it makes sense: why should they care about your profits? And it’s not about the miners, it’s about the model of this business, which often resembles a one-way game. When you connect to a service, you pay for the electricity for the miner. Rates are going up, including in China, and the profitability of mining is going down. In this situation, the involvement of private investors is not a bad solution. But the main disadvantage of such projects I would call unscrupulous marketing. Advertising is aggressive and at the same time quite convincing, while the real rate of return is hidden behind glossy phrases.
Is it possible to make money on it? It is hardly possible with minimal expenses. If you do not follow the safety rules and lack of diversification, you can lose your investment completely. Payback in a longer period, for example, two years, in the field of cryptocurrencies – is an unacceptable luxury, everything changes too quickly here:
- The risk of exchange rate volatility;
- The political risk of a cryptocurrency ban;
- Skam platforms.
In the case of stagnation, or even more so in the case of cryptocurrency depreciation, cloud miners may well be at a loss, paying money for hashes and service fees. It is possible to sell obsolete capacity only for 5-10% of its original, often inflated, value. Engaging in this business makes sense if you have 20-30 terraheshs in the aggregate in the accounts of several reliable miners. This will give you $20-25 a day, not counting the growth rate. Also, you can earn money in this business if you are a refovod, distributing promo-codes to your subscribers.
The obvious data fraud in cloud mining is technically impossible: the blockchain system simply will not confirm the creation of a new block with corrupted data. However, HYIPs and pyramid schemes can occur. As a rule, the first sign of a HYIP is super profits. Mining, which promises 300% per annum, can only operate on the principle of a pyramid. On the other hand, the payback period of two years for the cryptocurrency market is also unacceptable, in this area everything changes too quickly.
Cloud mining projects should only be considered as part of a portfolio diversification with an eye to high non-trading risks, which are comparable to HYIP projects. Write your opinion about this way of investing and whether I should add this direction to my public portfolio in the comments.
Shon Hill is a major investor and player in the investment market. He is an investment angel for various companies and knows a lot about technical analysis.