10mins read
Published on: Aug 22, 2024
#Crypto 360
Cloud mining solves the mining complexity without buying any equipment. Such an approach also comes with risks.
➔ More and more people are turning to cloud mining, which is becoming increasingly popular and complex, requiring plenty of investment in hardware and electricity.
➔ The two categories of crypto cloud mining are host mining, where the users own the equipment but not its management; and rental hash power mining, where the user acquires mining power without owning the equipment.
➔ Cloud mining is a service that allows users to engage in the mining process of cryptocurrencies without owning proper equipment nor spending a lot of money on it.
➔ Before choosing a cloud mining service, it is critical to consider factors such as chances of being profitable, time required, charges involved, platform efficiency, and legal compliance.
➔ Crypto cloud mining also comes with risks. It can often be unprofitable, coming with low to no returns and the risk of being scammed.
In the beginning of cryptocurrencies, anyone could mine from the comfort of their home. The computing problems were not as complex as they are today, and the difficulty levels were much lower. However, as time progressed and technology improved, this changed.
Today, the challenges for cryptocurrency miners include having to acquire specific, costly mining hardware, getting affordable electricity rates, and having a reasonable amount of knowledge in the area to be competitive. For many, this is a rather complex setup. That’s where cloud mining comes in.
Cloud mining, or hands-off mining, has many advantages, which are especially important for those who want to try crypto cloud mining but do not want to invest time or money in purchasing the necessary equipment. This way, cloud mining offers mining rewards and takes the pain of hardware management and setup out of the way. However, you must be careful as the industry is also infamous for its share of scams.
Cloud mining is an approach that solves the mining complexity without buying any equipment, such as ASICs for Bitcoin. This transfers all the tasks of equipment establishment, utilization, and management to third parties, thus streamlining the mining process.
Crypto or Bitcoin cloud mining is not limited to owning the hardware, and the process is more convenient. Besides, it does not require much investment, especially during critical events such as the Bitcoin halving. It makes it possible for people to earn an income from the appreciation of Bitcoin without owning and maintaining mining hardware.
Cloud mining involves locking in one’s computational power from other people’s data centers that crypto cloud mining firms host. This setup is easy to use, and the mining process is easier, benefiting many users at once. Users can choose the computing resources needed for their tasks and pay the price to the cloud provider for the selected resources. As a result, they get potential mining rewards proportional to the hashrate they purchased and can thus mine from a distance or in areas with poor infrastructure and a lack of technical proficiency.
Cloud mining differs from mining pools in that in a mining pool, several miners combine their hashing power to increase their chances of solving a block and, hence, being awarded the respective currency. These rewards are then distributed among the participants based on the quantum of mining power each has contributed.
On the other hand, cloud mining is relatively straightforward and does not require the owner to have mining hardware to join a mining pool and gives the owner a more hands-on approach to mining and earnings.
Image: Crypto mining software by avopix
There are two main approaches to cloud mining: Host mining and rental hash power.
Host mining is popular among miners who want to have their own mining equipment but do not want to be bothered with the installation and management of it. Here, one buys the hardware, which is the mining rig, but the management of the rig is done by a third-party. These facilities are adept at managing the diverse layers of mining operations and offer remote monitoring of the rigs through software or online platforms.
This is quite different from host mining, which is akin to outsourcing the mining process to someone else. Renting hash power is like investing in a share of a crypto mining company. This approach allows you to rent certain hashrate of a mining farm without buying mining equipment.
In such a model, you are free from worries about maintaining your equipment or the costs of setting up the gear, and you work on a subscription basis to earn profits directly proportional to the hash power you rent. This is unlike the cloud mining services, and it provides a more straightforward approach to engaging in the mining of cryptocurrencies. It also promotes a simple and direct relation between the consumers and the miners through common platforms or applications.
Choosing the best cryptocurrency to mine is critical for both new and old miners, and profitability is one of the most important factors to consider. However, profit is not only the cost of the coin purchased in the market; it also involves the expenses of using crypto cloud mining services, which gives a whole new perspective on the gains. Below are some notable cryptocurrencies that you can cloud mine:
BTC mining is the most popular, yet one of the most difficult, requires specific hardware, and is expensive. Cloud mining BTC can appear attractive, since cryptocurrency has a high price, but does not always offer a satisfying profit. Read our piece to learn whether Bitcoin mining is worth it.
ETC is easier to mine than Bitcoin since winning the block reward is relatively simpler. With the change of Ethereum from Proof of Work (PoW) to Proof of Stake (PoS) in September 2022, many miners started switching to mining ETC.
LTC consumes less energy compared to Bitcoin; therefore, it is preferable to cloud miners.
DOGE was created as a meme, but it is recognized widely and has a large market cap. It is popular with cloud miners because, similar to Litecoin, it uses the Scrypt algorithm, which does not require very advanced equipment.
Cryptocurrency mining, including Bitcoin cloud mining, means using computer resources to validate transactions and earn rewards in cryptocurrencies, a process that also helps in protecting the security of the blockchain.
In Bitcoin mining, servers that work around the clock calculate variations to arrive at the right number. Then, the rest of the nodes verify the data in the block, a new block is created, and the whole process is repeated. For example, since December 2023, the Bitcoin network has been solving more than 500 exahashes (500 quadrillion possibilities) per second, and every new block is generated in about 10 minutes.
It is a myth that mining is all about solving challenging mathematical tasks, and it is, in fact, about finding a particular value first with the help of your computer. Mining is, in essence, a competition to try to find the right number. Miners also verify the correctness of the blocks of transactions that they include in the blockchain by comparing the hash of the current finished block with the expected hash of that block. If there is a single bit of error in the block data, then the hash totals will be different, and therefore, the block will not be accepted.
A shortcoming of the early blockchains was the ability to spend the same information twice in the context of what is called ‘double spending.‘ This was solved by putting the block data through a hashing function and making most of the network accept the correctness of the hash value.
Choosing the right cloud mining service involves looking at more than one factor.
Positive feedback from users, transparency of operations, clear contract terms, including the period of its validity, payment and charges, earnings potential, security, customer support, clearly stated payout procedures and legal compliance are some of the most important. Here are some more factors to look at when choosing a crypto cloud mining platform:
• Regulatory Compliance: This is an area that a simple analysis should confirm about a company or organization, whether it follows rules and regulations in the places it operates.
• Profitability: Try to determine if you can get any profit after all expenses.
• Fees: These are the capital and operational costs associated with the system's setup, maintenance, and operation.
• Transparency: How much they reveal about their business, financial aspects, and how the profits will be divided.
• Hashrate: Confirm the mining power you are getting.
• Platform Reliability: Check the company's history and clients’ testimonials.
• Withdrawal Terms: The dos and don’ts of cashing out your profits.
• Security Measures: How they ensure that they do not fall victim to theft and scams.
• Customer Support: How easily you can get a support team and how helpful it is.
Some of the advantages of cloud mining include:
• Low Cost - Cloud mining helps you avoid the needed investment in costly hardware and maintenance. The initial investment to start mining on your own can be high for the equipment owners and cloud mining hosts.
• Passive Income - Leasing out equipment or hash rate means you can have several income streams. Also, when renting hash power from a mining farm, you are entitled to a certain percentage of the farm's total earnings.
• Quicker to Profit - A cloud mining service can often recover its investment and start being profitable faster than if it were CPU or ASIC mining.
Some of the disadvantages of cloud mining include:
• Risks of Fraud and Scam - One of the disadvantages of cryptocurrencies is that, due to a lack of centralisation and irreversible transactions, it has attracted plenty of illicit activities. Cloud mining providers should be checked to confirm if they are legit or scams.
• Potential Low to No Returns - Low or no profits are possible due to an increased mining difficulty level and the addition of more miners in the networks.
• Centralised Authority - Mining farms, through which cloud mining mostly takes place, control a large hash rate of cryptocurrencies. This dominance makes cryptocurrencies centralised, while they were initially supposed to be decentralized financial systems.
Cloud mining is a unique concept within the ever-advancing cryptocurrencies field that offers an opportunity for people who want to engage in mining but find it challenging to overcome the high electricity bills, the need for powerful equipment, and special knowledge.
Like any other investment strategy, cloud mining has its own set of opportunities and challenges. This means that you must perform research before choosing to engage with any cloud mining service providers. This includes learning about the legal aspects of contracts, being aware of the changes happening in the cryptocurrency market and assessing the providers’ credibility.
Cloud mining is a process that enables users to engage in cryptocurrency mining without having to purchase and maintain physical mining hardware by joining a mining pool or renting mining hash power from various platforms.
In traditional mining, you must buy and maintain the mining equipment. In cloud mining, you join a mining pool or rent the mining power from a company and do not have to own the hardware.
There are two main categories of cloud mining: hosted mining, where users own the miners, but the mining process is done by a third party, and rental hash power, where users pay to use some of the mining farm’s power but do not own any equipment.
Some of the risks of cloud mining include scams, low income resulting from an increase in mining difficulty, and a slight dominance of hashpower of cryptocurrency, which is against cryptocurrencies’ initial concept of decentralization.
When choosing a cloud mining service, you must consider factors such as profitability, the history of the company, clients’ reviews, the type of contract, the conditions of withdrawal, and regulatory compliance.
Cryptocurrency mining involves using computational power to validate transactions and earn rewards in cryptocurrencies, a process that also helps in protecting the security of the blockchain.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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