cloud mining in cryptocurrency

Cloud Mining In Cryptocurrency: A Beginner-Friendly Introduction

by Tari Yousuo

Cloud mining of cryptocurrencies is filled with uncertainty and generally has a negative reputation because of the many scams people face. But with the right information, you can make profit and see that it’s not all gloomy.

In this article, you’ll find what you need to know about cloud mining from a neutral perspective.

Overview of Cloud Mining in the Crypto World

Cryptocurrencies and the blockchain industry are relatively new, having been around for only about 14 years. They’re evolving and have enough room for drastic changes. This is both uplifting and upsetting.

It is uplifting because more efficient and secure systems will be made, and users will have new ways to join and interact with the crypto movement. It will be upsetting because of the uncertainty that comes with change and the risks involved in engaging with new technology, especially one that has to do with finances.

Cloud mining is one of the latest innovations in crypto. It is a way of mining cryptocurrencies without owning the hardware required. It is based on the concept of cloud computing.

What is Cloud Mining?

First, you must understand cryptocurrency mining.

Crypto mining means adding new blocks of transactions to a cryptocurrency’s blockchain for a reward.

For example, in Bitcoin mining, miners compete for a chance to add blocks to the blockchain by solving complex mathematical puzzles. Whoever gets the answer first is granted the right to add a block of transactions to the blockchain and is rewarded with an amount of Bitcoin (currently 6.25 bitcoins per block).

Simple, but here’s the catch: the more miners there are, the harder it is to solve the puzzles. As competition increases, only those with the most powerful and efficient devices will be able to mine profitably.

During the early days of Bitcoin, you could mine 50 bitcoins in 10 minutes with just your laptop. But as its popularity and utility increased, its value fired up. This attracted many more people to the mining field. The increase in competition made it almost impossible for individual miners with normal devices to make headway.

This brings us to cloud mining.

Read also: 10 Benefits of cloud computing for small business owners

Cloud mining

Here, the mining process is executed at a remote location. That is, the miner doesn’t have the specialised hardware needed to mine the cryptocurrency but uses the resources of a service provider.

There are companies with large data centers and specialised computer hardware that mine cryptocurrencies. Users can rent portions of this hardware on a pay-as-you-go basis.

Types of Cloud Mining

There are various ways of mining crypto over the cloud. The 3 most used are;

  1. Renting hardware

Users rent hardware from the cloud mining service provider. The company handles the set-up, mining, maintenance, and security. After the agreed time frame, the mined crypto is sent to the user.

Note that the company will charge fees for their service.

  1. Hosted mining

This is for individuals with technical knowledge who’d prefer to have more control over the mining process. There are software that partition hardware into virtual machines. This allows users to work with hardware over the internet. Users can install their own mining software and set up mining operations. 

This gives more flexibility and control over how they mine and collect their rewards but comes with the responsibility of monitoring the process and ensuring a level of security.

  1. Hashrate based mining

This is similar to renting hardware, but it’s not the same. The key difference here is “hashrate”. Hashrate simply means the number of calculations a particular crypto-mining device can perform in a second. Remember, crypto mining is a competition for solving complex mathematical puzzles. Each calculation is called a “hash”.

In this type of crypto mining, users pay for a hashrate. Profits are shared to users based on the hashrate they paid for.

Benefits of Cloud Mining

Low start-up cost

Crypto mining hardware like Antminers and Whatsminers range from #300,000 to over #6,000,000, depending on the specification. That’s a huge amount to invest in crypto mining, especially when you want to experiment before committing fully.

With this, you can start at a lower cost, depending on your cloud service provider. You only pay for a certain computation power without having to buy the whole equipment.

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Technical knowledge not needed

If you were to buy any crypto mining hardware, you’d have to set it up. That would require knowledge of some technicalities. With mining, the service provider handles all the technical aspects for you. 

Of course, if you’d prefer to get your hands dirty, you can always use hosted mining.

Scalability

It’s easier to scale up or down on mining. Whenever you decide, you can rent more hardware or pay for a certain hashrate. Likewise, you can mine at a lower hashrate or scale down on hardware.

With traditional, offline crypto mining, you’d have to purchase new hardware whenever you want to scale up. The cost implication is not feasible for many people. On the other hand, if you decide to mine less, you’d have extra hardware just sitting around.

Access to new technology

With the ever-increasing competition in crypto mining, it’s easy for hardware to become obsolete in a short period. Manufacturers always look forward to making new hardware that is faster, more powerful, and energy efficient.

That means to stay profitable, you’d have to purchase newer equipment every now and then. With cloud mining, that’s the mining company’s headache. You can always switch to a company with better equipment.

Read also: An introduction to tokenomics in the blockchain industry

Risks of Cloud Mining

Scam

This is the most feared evil plaguing the industry. Many individuals and fraudulent organizations are posing as cloud mining companies.

Always be cautious in your dealings. Be wary of companies that promise unrealistic profits. As a general rule of internet security, “If it’s too good to be true, it’s most likely a scam.” Many Nigerians already know this.

Unprofitability

You can mine crypto without making any profit. When you consider the cost of mining, maintenance, and security, alongside the volatility of crypto prices and market value, it’s easy to see why.

Losses

You can come down with huge losses in crypto mining, too. It is like every other form of investment in that sense.

For example, say you spend $100 to mine a cryptocurrency, and your expected ROI is 10% based on its market value. If the crypto crashes to an all-time low, you can end up spending $100 to mine $20 worth of cryptocurrency. That’s a huge loss, except the crypto pumps back up.

Factors Affecting Cloud Mining and Its Profitability

  1. Electricity cost: Mining equipment consumes a great deal of energy. Companies spending less on electricity are likely to realise more profits compared to those in areas with higher electricity costs.
  2. Price of cryptocurrency: This is one of the key factors affecting profitability. Crypto prices can be quite unstable, so predicting profits is like a guessing game.
  3. Maintenance cost: A handful of things are involved in keeping the equipment and the entire platform up and running aside from electricity. It also involves cooling systems to ensure the mining hardware doesn’t overheat and blow up, offline and online security, server maintenance, etc.
  4. Competition: The more valuable a cryptocurrency is, the greater the competition. With more competition, it’s those with the latest hardware and more efficient energy consumption that can turn a profit.
  5. Company policies: Some policies, like minimum withdrawal amount and max payout within a time frame, affect how much profit a platform will make. It could be a clause that a user must accrue a certain amount of cryptocurrency before they can transfer it to their wallet. Or that only a fraction of mined crypto will be paid per time. Less freedom with how you move your gains can hinder overall profitability.

Conclusion

The crypto world is volatile. It is a high-risk, high-reward playing field. Cloud mining is not an exception. While it makes it easy for anyone to mine cryptocurrencies without having technical knowledge and skills, buying expensive hardware, and running regular maintenance, it comes with the risk of unprofitability, extended losses, and scams.

Before engaging with any service provider, ensure you DYOR (do your own research) about them and their business model. Always remember there are as many scammers as legit companies (there might even be more scammers than actual cloud miners).

Also, watch out for their service fees and know their policies on profits and withdrawals. It is advisable to see it as other forms of investment. Only put in what you can bear to lose.

Finally, remember that factors such as electricity costs and the price of the crypto itself can affect the profitability of mining.

If you have a question, leave it in the comments or join our Whatsapp community and start a conversation.

Edited by Halimat Chisom.

About Author

Tari Yousuo
Tari Yousuo
Tari is an SEO Specialist and Content Writer. A final year medical student interested in health technology.

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