What is cloud mining?
Table of content:
- What is cloud mining?
- The main benefit of cloud mining
- The risks of cloud mining
It is important to answer a very popular question: what is cloud mining? The gap between the current complexity of mining and the huge number of people wishing to earn on it, especially among those lacking the technical knowledge of financial investors, led to the emergence of a new service – cloud mining.
Cloud Mining is a service for the sale of a part of capacity by operators specialized in the generation of cryptocurrencies blocks of data center. In fact, cloud mining is a purely financial investment for those who want to earn on generation of cryptocurrency blocks.
This means, that an organization can increase the production of something with additional investment. If there are nos funds and desire to take loans, you can always start a campaign to attract people who want to make investments and get income. This is logical.
The company owning the site, sells you these capacities and takes a commission in Satoshis. The more you bought giga- or terrahashes, the faster your purse is recovered by currencies. In this way, in fact, you do not buy equipment or part of it, you buy speed. Upon termination of this contract, capacity is returned to a company at a discounted price, bearing in mind the depreciation and the degree of equipment obsolescence.
Today, there are three most common types of cloud mining:
– Hosting. You can rent equipment from its owner
– Shared hosting. Rent a server from its owner, with the subsequent installation on it of its programs for the extraction of cryptocurrency
– Rental capacity. Remote server power lease for mining without the possibility of its physical maintenance
The main benefit of cloud mining:
- Users break all the deficiencies of mining: monitoring of cloud mining, setting up equipment, paying bills for electricity.
- Quite high profitability – services allow you to receive on investment of 200% to 400% of revenue for the year, which, together with a constant increase in the rate of cryptocurrency makes this very interesting.
- Companies have a legally registered status. They are in geolocations with transparent legal norms (mainly Europe) and are quite reliable.
- The common capacity of a single data center will generally be greater, therefore, when collecting your farm and leasing the capacity, “on the side”, the compensation indicators will differ – each mining of the cryptocurrency on the machine has its own balance of costs and profits. At the same time distinction will be for the benefit of contracts of cloud mining – even bearing in mind the profit laid by the service, the profitability for users will be higher.
- Profit can be prognosticated: investing in contracts for cloud mining is not the same as purchasing of shares on the stock exchange – where the price may fall due to a decrease in demand, and the production of cryptocurrency is protected from such force majeure, because of the average complexity of the network and the exchange rate . Using this service in any case brings you money, and a fixed amount of compensation and well-known indicators of the complexity of calculations allow you to easily foresee the profitability and use the cloud mining Bitcoin or another coin.
- On the same service, you can simultaneously purchase contracts for different cryptocurrencies, which will help to protect yourself against occasional falls of one of them. A competent distribution of investments between them, may, and will reduce the total expected profit, but also minimizes the damage – in this respect from the point of view of security, the best strategy for mining will be a diversification in two or three of the most profitable algorithms.
- Opportunity to carry out auto mining of bitcoins on a large number of resources simultaneously, searching for the most profitable contracts without any restrictions. But be careful with new services, the bulk of the investment should be on proven platforms.
- Referral programs – for the invitation of the user you can rely on a fixed amount or a small additional percentage of the profits on his contracts. So, the creators stimulate the demand for their services, so that cloud-based cryptocurrency mining becomes more popular and accessible. This is not a significant income, but still a small bonus.
- Quick and easy scaling! This is an extremely important aspect that is not fundamental at the first stage, but is critical in further development. Unlike the classical production of cryptocurrency, in cloud mining we are always able to scale our capacities in just a few minutes and at no additional cost.
The risks of cloud mining
A reverse side of high profitability of cloud mining is a whole bunch of various risks.
One of its main risks is the good faith of the provider of this service. Simplicity of attracting investors and high profitability attracted to this market a lot of scammers. Already, dozens of hypes (fraudulent schemes) operating under the scheme of financial pyramids – collecting money and have not invested in mining at all, or have established a level of profitability above the cost of attracting investments, have already been revealed, with the subsequent goal of stopping the activity when recruiting the right amount. Judging by the analysis of the market, there are always a lot of projects created for this purpose on it.
Another major risk of mining is the increasing complexity of generating block hashes, against a backdrop of high volatility of rates of cryptocurrencies. The fact is that the costs of providers, for example, on electricity, are tied to the fiat currencies, for example, to the US dollar. In addition, the amount of costs directly depends on the complexity of solving the problem of finding the right hash. The flow of income is determined in the cryptocurrency chosen for mining. Thus, there is a combination of complexity and the course of the cryptocurrency, at which the generation of new hashes will be unprofitable. At this juncture, providers will stop paying the contract.
For beginners, the problem is complicated by the fact that the emission of cryptocurrency is limited. For this, for example, in the bitcoin network, a programmed reduction by half in the fee for the generation of new blocks has been introduced after the formation of every 210,000 blocks (approximately every 4 years). The first such halving occurred on November 28, 2012 from 50 to 25 bitcoins for each newly created unit. The next change was around the end of July 2016. Unequivocally we can say about the decrease in the yield of all types of mining of bitcoins after this date. The question of its effectiveness remains open and depends on a number of accompanying factors.
The site of the company with an online wallet is subject to hacking attacks and hacking – from this, the services of cloud mining are not completely protected. If such an event happens exactly with the site you have chosen – the money that is not deduced will leak irrevocably in an unknown direction. In this regard, it is worthwhile to beware of services with too long a period of return of funds or conditions that prevent immediately transfer profits to your account.
There is a possibility of a drop in the rate of bitcoin itself. To mitigate this defect, we recommend not to withdraw the received cryptocurrency immediately in Fiat, and wait for the most favorable rate.
Mining is a high-tech task. To solve it, new equipment with more efficient characteristics is constantly being manufactured. Therefore, investing in a similar business takes on the risk of equipment becoming obsolete.
Cryptocurrencies are by now quite an established phenomenon, and in one form or another are recognized in the leading economies of the world. However, insufficient historical experience does not allow us to assess even their medium-term prospects, which are classical for the economy.
In addition to the above, investors assume all possible risks of investment. All this leads to a practical impossibility to evaluate the effectiveness of such investments.
Thus, you know “what is cloud mining” and can place in it only the part of the funds that you are willing to lose without noticeable damage to your business. To do this makes sense first of all not for the sake of stable income, but for the purpose of being present in a new developing market and the possibility of a rapid significant entry into it, when it becomes more predictable.