Cloud Mining: What is Bitcoin Cloud Mining?

By Laurel Tincher · May 03, 2021 · 6 minute read

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Cloud Mining: What is Bitcoin Cloud Mining?

Cloud mining is a way to mine cryptocurrencies like Bitcoin and Ethereum without investing in expensive, energy-intensive computer hardware and software. This article will explain the need for Bitcoin cloud mining, how it differs from traditional mining, and more.

We will explore:

•  What is Traditional Cryptocurrency Mining?
•  What is Bitcoin Cloud Mining?
•  Why Crypto Mining is Important
•  Is Bitcoin Cloud Mining Worth It?
•  Types of Cloud Mining
•  Getting Started with Cloud Mining

What is Traditional Cryptocurrency Mining?

First, a brief recap of how Bitcoin mining works: Bitcoins are created and released into the blockchain network through a process called mining. Mining involves using computing power to solve complex mathematical equations which help to verify previous Bitcoin transactions on the blockchain. Miners earn Bitcoin as a reward for helping to keep the network running. This same process is also used to mine other mineable crypto such as Ethereum.

The computing equipment and software required for mining can be both expensive and energy intensive—which is why many mining companies set up in cooler regions of the world that also have low energy costs.

What is Bitcoin Cloud Mining?

Another way to mine Bitcoin and other mineable cryptocurrencies is through cloud mining. Cloud computing includes services such as databases, software, file storage, server space, and processing which users access via the cloud. Many cloud computing services charge based on usage, similarly to paying for use of utilities like water or electricity.

With cloud mining, a person can rent cloud computing power instead of running their own local machines. This lets people participate in mining remotely by opening an account and going through a simple set-up process. Bitcoin cloud miners join a pool of miners, also known as a “mining pool,” which rents a certain amount of hashing power used to mine Bitcoin. Hashing power is the amount of computing power used to solve algorithms in the Bitcoin mining process. ​The individuals in the mining pool split the profits depending on how much hashing power each of them rented.

The lower costs and easy set up process make this an attractive choice for many, but it is no guarantee as to whether mining will be profitable.

Why Crypto Mining is Important

The mining process is key to maintaining and securing the Bitcoin blockchain. It keeps track of all Bitcoin transactions that take place, making sure there are no instances of double spending—where the same Bitcoins get sent to more than one address, allowing someone to spend the same amount twice. The mining verification process is one benefit of the blockchain system. It eliminates some problems that paper money has, like counterfeiting—because if someone hands a merchant a counterfeit bill and walks away there isn’t much that can be done.

Is Bitcoin Cloud Mining Worth It?

The major upside to cloud mining is that it eliminates the costs, time, and expertise associated with setting up a mining operation. Customers can earn a profit from partaking in cloud mining with very little upfront effort. They also avoid having to listen to noisy mining equipment and keeping electronics (and the home or business in which it’s located) sufficiently cool.

However, there are also downsides to cloud mining. The cloud mining space has had its fair share of scams. Customers signing up for a cloud mining account don’t have much way of knowing whether the mining operation really exists, and it could shut down at any moment. As with any potential investment, it pays to do some research before signing up: check industry news sites and forums to see what cloud services get good customer feedback, and which ones have been outed as scams.

Also, the return on investment for cloud mining is longer than simply buying and selling cryptocurrencies. Customers have to invest an upfront sum of money and then wait months or years for that investment to pay off.

Pros of Cloud Mining Cons of Cloud Mining
•  No equipment, set up, or maintenance costs
•  No technical knowledge required
•  No noise or heat
•  No ongoing maintenance
•  No need to continue buying new equipment
•  No risks of fire
•  Potential for mining company to be a scam
•  Less choice of equipment or mining specifications
•  Mining company could go out of business
•  Long ROI

Types of Cloud Mining

There are two major forms of cloud mining.

Hosted Mining

The most popular type of cloud mining is hosted mining, where customers rent or buy mining equipment that remains in the cloud mining company’s facilities. The mining company handles all the set up and maintenance of the equipment. Since the company can scale up their operations, this brings the costs of energy and storage down, but customers have to pay the lease fee as well as paying for the maintenance services the company provides. Generally, there is a large upfront cost when getting started with hosted mining, but after that the ongoing costs go down.

Leased Hash Power

In mining, a good hashrate is key. Another type of cloud mining is leased hash power, where customers rent hash power, or computing power, from a mining company (also known as a mining farm), for a certain amount of time. The customer then gets a share of the crypto profits that the mining company earns. This type of cloud mining tends to be more popular for types of cryptocurrencies other than Bitcoin.

Getting Started with Cloud Mining

The first step in getting started with cloud mining is to find a reputable company. Forums and reviews can help suss out which companies are scams and which are real. It’s important to note that scam mining services will often advertise on industry sites, forums, and subreddit channels. If there is an advertisement but no information or positive reviews of the company, it might be a red flag.

The next step is to compare costs and options between different mining services. Some may charge higher fees or may have a larger upfront investment requirement. Things to look at include:

•  Price per GH/s (1,000,000,000 hashes per second) or TH/s (1,000,000,000,000 hashes per second)
•  Service fees (these may be ongoing or upfront)
•  Time to ROI (if the upfront investment is large, it may not make sense to sign up since it will take too long to see an ROI)

Once you decide on a cloud mining service, it’s as simple as creating an account, deciding how much to invest, and waiting to see how your investment pans out.

The Takeaway

Cloud mining offers some advantages over traditional Bitcoin and crypto mining. Notably, an individual doesn’t have to invest in expensive, energy-sucking computer equipment and software, or find a place to house it. But just because cloud mining is easier in some ways, doesn’t make it a sure thing in terms of an investment.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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