What is Cloud Mining?

what is cloud mining

Have you ever been interested in becoming a Bitcoin miner? Becoming a Bitcoin miner is not simple or easy  to do. You need substantial capital to assemble the equipment, electricity to support the computing network and an internet connection that works without stopping. But if you are still interested in doing it, there are now many available cloud mining services you can use to start mining.

Cloud mining is an alternative to conventional cryptocurrency mining. Cloud mining is usually considered the preferred method of generating digital coins for people with no technical expertise in mining and those who do not wish to indepenently run and maintain mining-related hardware and software. It’s a method that offers definite convenience to miners, but it’s also an area where many scams are covered up. In this article, we’ll take a closer look at cloud mining, how it works, and its advantages and disadvantages.

What is Cloud Mining?

Cloud mining is a process of generating cryptocurrency by using rented computing power from third parties (cloud mining service providers). In cloud mining, each miner participates in a “mining farm” by purchasing a certain amount of “hash power” from a service provider. In return, the provider will give them access to a reward in the form of crypto assets proportional to the amount of hashing power¬† the miner has purchased.

You only need a computer or laptop to access the selected cloud mining services to start cloud mining. Since mining operations are carried out via the cloud, miners do not have to worry about computer equipment maintenance, noise, heat, or electricity bills resulting from mining activities. After finding a safe and reliable cloud mining service provider, miners only need to choose the type of contract to sign and the desired duration. They have to make an up-front payment, either in fiat or digital currency, after which the service provider will provide everything they need for the operation.

Typically, miners can choose between contracts of 500 and 1,000 giga hashes per second, lasting up to one year. (One GH/s = 1 billion hashes per second.) However, some providers may offer short-term cloud mining contracts, six or even 24 months. 

What is Bitcoin Cloud Mining?

Bitcoin mining is a very laborious process involving expensive equipment for relatively little return. Bitcoin cloud mining services are an alternative for everyone who wants to start mining Bitcoins without needing expensive equipment or technical knowledge. Just like other cloud mining, the concept involves only remote data centres with shared processing power called hashing power.

Meanwhile, this activity can be profitable if we look at the return on investment (ROI) of Bitcoin cloud mining. But it all depends on the cost of buying cloud mining and the price of Bitcoin at the time you register in the cloud. Since you are technically borrowing computing power from a cloud mining service provider, the price per gh/s or yr/s and the cost of the service are key factors in determining your true ROI.

Compared to GPU mining which costs $2,000 to $8,000 for a high-end unit, cloud mining can save you from hassles like huge electricity bills, noise, and heat. You must sit back and wait for the mining rewards to kick in by purchasing your selectedhash power and completing the desired investment period. However, like any other form of investment, cloud mining always involves uncertainty and risk. You should always do your due diligence before investing in these.

How Does Cloud Mining Work?

In cloud mining, all participants in a mining pool share their computing resources to increase the probability of generating blocks on the cryptocurrency blockchain that require solving complex cryptographic puzzles. If participants are successful, they receive a reward in the form of the mined cryptocurrency. The amount they receive depends on the proportion of their processing power relative to the rest of the pool.

Distribution of Mining Rewards

There are two types of cloud mining models based on how they work:

  • Master Mining: miners buy or rent mining rigs on a mining farm and pay for their setup and maintenance. This model reduces costs associated with access to electricity. Because miners have more control over the rigs, they can outsource the resulting hashing power to the mining pool. In addition, miners have complete control over the rewards generated.
  • Leasing Hash Power: Miners rent hashing power generated by devices provided by cloud mining services which can then be used in a mining pool. They subscribe to the hash power offered by cloud mining companies to receive a share of the mining profits collectively in a mining pool. Miners don’t have to pay any setup or maintenance fees, and mining rewards are distributed depending on the portion of hashing power each miner contributes.

How to Use Cloud Mining?

Because of its user-friendly nature, starting cloud mining activities is certainly easier than building your own mining rig. Here’s an easy way you can follow to get started:

  • Choose Cloud Mining: make sure that you have chosen a trusted cloud mining service¬† with a good reputation for providing benefits. Do some research and make comparisons between one cloud mining service and another.
  • Select Cryptocurrency: after selecting cloud mining, choose the crypto asset you want to mine. Several cloud mining services provide more than one crypto, so make sure you have picked a crypto asset with the most profitable mining level.
  • Register: if you are sure of the cloud mining service and crypto assets you have chosen, you must register and follow the steps to verify your data on the service.
  • Make Payments: after registering, you can make payments according to the contract that suits you and the type of mining.

3 Types of Cloud Mining

Currently, there are three cloud mining mechanism systems that you can use. The following is an explanation of these systems:

  • Hosted Mining: with this type, you can do cloud mining by renting a mining machine¬† hosted by the provider or the service provider. The type of mining rig rental provision falls into this category.
  • Virtual Hosted Mining: this type of cloud mining is hosted virtually. The tenant manages this server network. Some of them use a type of server generally used for hosting websites.
  • Leased Hashing Power: This type of cloud mining is a leased hashing power without a physical or virtual computer, which until now was used in the cloud mining method. This cloud mining is not just renting hosting but renting hash power supplied by the provider to carry out mining.

Cloud Mining Risks

As explained above, cloud mining is a type of investment with risks. Each investment has its own risk of loss, so you need to weigh your decision to make the best investment. Here are some of the risks of cloud mining that you should be aware of:

  • Since miners have no computer equipment, they have no control over it. This means they cannot sell the crypto mined directly in cloud mining.
  • The profitability of cloud mining contracts varies widely and has no guarantees. Even if a miner finds a trusted provider and signs a contract with that company, it does not guarantee that it will generate profits for the miner. In addition, any gainscan be offset by fees paid by miners to providers during the contract term on top of the down payment amount.
  • The cloud mining space is often associated with cases of fraudulent behavior. Miners may pay the provider up front and receive no reward in return, or the reward may not be what was promised. Also, providers may disclose their mining details, but no actual photos or other verification, which could indicate a scam. Reliable cloud mining companies will always disclose authentic information and photos of their data centre and, in some cases, even provide proof of electricity bills.
  • If a service provider is offering unlimited hashing power for sale, it could indicate a scam as no cloud mining company actually has unlimited computing power.
  • Finding a trustworthy provider can be a challenge. Miners must always do their due diligence regarding a particular company before contacting them.
  • Finally, there may be circumstances in which the provider may stop their mining operations, for example, when the exchange rate of the cryptocurrency being mined reaches a certain level. Therefore, miners need to pay attention to the terms and conditions of the provider regarding ‚Äúcontract alerts.‚ÄĚ

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