In the early days of crypto when mining difficulty was low, many users used to mine from the comforts of their own homes. The situation started to change as more and more powerful computers entered the scene. Now, a typical miner-to-be needs an expensive specialized miner, optimized electricity rates, as well as technical knowledge to be able to compete.
Or, they can opt for cloud mining services.
Cloud mining has a number of benefits, particularly for those interested in cryptocurrency mining but lacking the means or technical expertise to set up their very own mining rigs. It is a method that does provide rewards to miners, but it is also a field plagued with scammers.
In the following paragraphs, we will look more closely at what cloud mining is, how it works, and what its benefits and drawbacks are.
Quick Fact: Crypto mining is the procedure used to verify transactions before they are added to the blockchain. It serves as the mechanism that provides safety, decentralization, as well as issuance of new coins.
What Is Cloud Mining?
The process of cloud mining enables users to mine cryptocurrencies like Bitcoin without having to purchase or maintain their own mining rigs. This removes the challenge of setting up, operating, and maintaining this specialized equipment and transfers it to another party.
Instead, users utilize remote data centers and pool the computing power, which is typically offered by third-party cloud mining companies. Since cloud mining is a more straightforward process than traditional mining, it is pretty popular for this reason alone.
Based on the amount of computing power they wish to use, users pay fees to the cloud provider. By acquiring a set amount of hashrate from the service provider, each miner essentially joins a mining farm (remote server facility specialized in crypto mining).
The provider will give them access to payouts in return that are based on the hashing power the miners have opted for. This enables individuals in remote regions with little to no physical infrastructure and limited technical skills to participate in the mining industry.
Quick fact: Hashrate is a measure of computational power per second used when mining. More simply, it is the speed of mining.
Types of Cloud Mining
Let's break the two cloud mining methods down, so you can make a more informed decision.
One of the most often used methods for remote mining is host mining. It's a process by which you have to purchase the equipment and pay for the maintenance of the mining rig. However, the rig itself is installed in a host facility that handles everything for you.
These facilities are designed specifically for hosting and running mining equipment. You can remotely monitor the performance of your rig from the comfort of your own home, typically using software or interfaces.
Rental Hash Power
On the other hand, renting hash power is comparable to purchasing stock from a crypto mining company, instead of using host mining. With this technique, crypto miners can only rent a portion of a crypto mining farm's hash power.
You are not required to pay for the rig's setup and upkeep, unlike host mining. You must, however, pay a subscription fee and receive the requisite cut of the revenue.
As payment for finding new crypto blocks, the mining farm produces cryptocurrency. Then, according to the portion of the hash power you have rented, you will receive your part.
Similar to cloud mining services, hash rate contracts operate without an intermediary. Through the offered interface or app, customers and miners directly communicate and conduct business.
Which Crypto Can You Mine?
When deciding whether to mine cryptocurrency, people mostly consider profitability. This statistic, however, is not solely dependent on the price of the coin, which some novice miners might misinterpret. The fees for using the cloud mining service must also be taken into account.
As an alternative, you can check out which coin is currently offering the highest payouts and is the most valuable by using a website like whattomine.com, but you shouldn't aim for quick gains because mining is more of a long-term investment.
What may be successful now doesn't necessarily guarantee it will be profitable tomorrow due to the tremendous volatility of the cryptocurrency market.
Although there are hundreds of coins using some version of the Proof-of-Work mechanism available for mining, here is a list of some popular coins you can cloud mine in 2023:
Ethereum Classic (ETC)
Bitcoin Gold (BTG)
Is Cloud Mining Profitable?
During the early days of Bitcoin mining, everyone mined from their own personal desktops and laptops. Professional businesses eventually began to emerge, which led to the production of specialized mining equipment and a more competitive environment. Professional mining facilities specialize in locating the cheapest accessible energy in order to reduce their costs.
Cloud mining can be an excellent way to generate passive income. This is due to the simplicity with which cryptocurrencies may be mined via cloud mining. Furthermore, you may usually reinvest your profits in the cloud mining service to enhance your hashing power or lease more resources.
With cloud mining, all you have to do is select a contract that matches your risk tolerance and you're on your way to earn.
Cloud mining investments provide a variety of contracts from which to choose based on the expiration date, investment size, risk profile, and even projected Bitcoin price. It eliminates the need to spend money on purchasing, maintaining, and updating equipment, as well as paying for electricity and renting space.
In a perfect scenario, by investing in cloud mining, you ensure that the data center is serviced on a regular basis and that the equipment is continuously updated to limit the likelihood of failure.
On the other hand, users should be aware that consistent profitability may be difficult to achieve in cloud mining since it is a highly competitive industry. If a cloud mining company charges a fee on top of the energy price, it becomes more difficult to compete with miners who only pay for electricity.
You must ensure that the cloud mining services you utilize are within your budget. Always keep an eye on and track your expenses. This involves keeping an eye out for unusual spikes in resource utilization or network traffic.
Pro tip: Make sure to read the cloud mining contract thoroughly. Some companies have clauses that void the contract after just one unprofitable day.
How to Calculate if My Investment Will Be Profitable?
The revenue generated by miners who contract hashing power to mine cryptocurrencies determines the profitability of cryptocurrency cloud mining.
The quantity of accessible hashing power, commission fees, cryptocurrency exchange rates, initial investments, and the choice of currencies with promising prospects in the virtual coin market are some of the factors that affect this profit.
It is possible to calculate a potential profit using numerous websites that offer profitability calculators, such as Hashmart or CryptoCompare. You will just need to input the data of your contract — hash rates, electricity cost, and fees included.
Bitcoin Hash Rate | Source: CoinWarz
A proof-of-work (PoW) cryptocurrency network's hash rate is a measure of its processing capability. The higher the hash rate, the larger the blockchain network. The mining difficulty of a certain blockchain is also affected by the hash rate.
Pro tip: Make sure to take into account the average mining difficulty increase, as what is profitable today might not be profitable six months down the line.
Benefits and Risks of Cloud Mining
It goes without saying that the advantages of cloud mining must also be highlighted in any discussion of the topic. Let's find out more about the advantages of cloud mining for Bitcoin or any other cryptocurrency.
Benefits of Cloud Mining
Many sources only accentuate the negatives of crypto mining, which is making this technology a bit of a fringe field in the crypto world. There certainly are many benefits of using this type of mining.
Some of them include:
The first benefit is the lower starting cost. While they do charge more in the long run, cloud mining companies help smaller entities start mining with far less starting capital than they would require if they were buying their own specialized equipment and adapting their facilities to accommodate for mining.
Next, no expertise is required. For the purpose of setting up, running, and maintaining the devices as well as carrying out crypto mining, traditional crypto mining calls for specific skills. To master these skills, it may take a long period. Cloud crypto mining does not require such specialist knowledge because the cloud provider is in charge of it.
No setup. Since the cloud provider manages them, cloud mining lessens the burden of setting up and maintaining the crypto-mining infrastructure. Consequently, you can begin the mining procedure without the technical know-how.
Cloud mining is very efficient. Cloud service providers are equipped with the most recent mining hardware, making effective crypto mining possible.
And the last one — scalability. Scalable and adaptable cloud services are designed to be available to many users. Without any manual involvement, they can automatically alter the mining power to meet your mining needs.
Risks of Cloud Mining
Even though there are many positives connected with cloud mining, unfortunately, there are some red flags that show up with lots of cloud mining service providers.
The fact that many cloud mining organizations claim to make inflated returns on investment is one of the main reasons it is believed that cloud mining is a scam. These businesses frequently make unrealistic promises of significant returns with little to no risk in the world of cryptocurrencies. In many of these businesses, rewards are given to early investors utilizing investments from new investors rather than actual mining earnings.
Many of these businesses don't reveal their business practices is another reason why cloud mining is viewed as a gray area of crypto.
Furthermore, the difficulty of mining cryptocurrency increases as more miners join the network and competition intensifies. As a result, the amount of computational power required to mine cryptocurrency is growing, making it increasingly more difficult for individuals to mine profitably.
Cloud mining facilities often have clauses in their contracts specifying that the contract is void after several days of unprofitable mining. However, several days of unprofitable mining are almost inevitable in any market.
Cloud mining stands at a unique place in the crypto industry as it offers users an alternative method to engage with cryptocurrency without the traditional barriers of high electricity costs, equipment maintenance, and technical know-how.
As with any investment, it comes with its own set of risks and rewards. Prospective miners must do their own research when looking for providers, understanding the terms of contracts and the ever-changing landscape of cryptocurrency.
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