In the initial days of cryptocurrencies, mining difficulty used to be pretty low, and most users could easily mine from the comfort of their own space. The entire scene began to change once powerful computer systems started entering the industry.
Today, a standard miner will need optimized electricity rates, technical knowledge, an expensive specialized miner, and expertise to become eligible to compete. Or, they can simply opt for different cloud mining services.
Cloud mining has plenty of advantages, especially for those interested in mining cryptocurrency but lack the technical expertise or means to set up their own mining rigs. It is a process that provides rewards to different miners, but at the same time, it is a field that is filled with scammers.
Scroll down as we look more closely at what cloud mining is, how it actually works, and what are the drawbacks as well as the benefits of the same.
So, What Is Cloud Mining?
Cloud mining is a method where individuals participate in mining cryptocurrencies, like Bitcoin, without owning or even managing the hardware required to do the mining.
Instead, users have to pay a fee to rent the mining hardware from a company that owns and manages the same. When this rented hardware mines a block, the rewards are distributed between the users and the company that owns the hardware.
Cloud mining is a term that comes from the concept of cloud computing, which in turn refers to using a network of multiple remote servers hosted on the internet instead of a local server to store and process data.
Cloud mining allows users to actually rent only a share of the mining capacities of such crypto-mining sites. Instead of your personal computer, the mining actually takes place in the cloud.
How Does Cloud Mining Work?
As we just mentioned, cloud mining enables users to purchase or rent a part of the computing power within a data organization set up specifically for mining cryptocurrencies.
Typically, this is how cloud mining works out.
Step 1: Select A Cloud Mining Company
The very first step is to select a cloud mining company that has a good reputation in the market. It is vital that you conduct diligent and thorough research. Unfortunately, the cloud mining space is familiar with many scams like the infamous Greenhashes cloud mining reviews on the internet – taking extra precautions is important.
Step 2: Choose A Mining Package
Cloud mining companies often provide multiple packages based on two factors – how much computing power you want to rent and for how long. The more computing power you will rent, the higher your potential returns will be. But obviously, this definitely comes at a relatively much higher cost.
Step 3: Select A Mining Pool
There are multiple cloud mining companies that allow users to select mining pools to which they feel like contributing.
Step 4: Pay For The Service
Once you are done selecting your package, you will have to pay for the cloud mining service. Typically, the payment is made in cryptocurrencies, although there are certain services that accept fiat currency.
Step 5: Start Mining
Once you make the payment, the cloud mining company of your choice will simply set up your mining hardware, maintain/manage it, and begin the mining process. In order to mine cryptocurrencies, the processing power you paid for will be used.
Step 6: Obtaining Mining Rewards
The rewards that are obtained from the entire mining operation are distributed among all the users depending on how much processing power each user owns. For the completion of this step, you will have to set up a wallet that is compatible with the crypto you are mining.
The Useful Metrics Of Cloud Mining
When you are dealing with cloud mining, there are multiple metrics that you need to take into consideration. This in turn will help you to understand the potential feasibility and profitability of your cloud mining alternatives.
1. Hash Rate:
Hash Rate is defined as the total number of calculations a single miner can do in a second. Higher rates typically increase the basic probability of determining the blockchain’s next block as well as receiving rewards.
While the hash rate is usually measured in H/s, that is, hasher per second, it is represented typically in bigger units such as EH/s (exahash), PH/s (petahash), TH/s (terahash), GH/s (gigahash), MH/s (megahash), and KH/s (kilohash).
2. Energy Consumption:
Mining, in general, consumes huge amounts of energy, which can be a vital cost for doing mining operations of just about any size. This is usually measured in watts, while a mining setup’s efficiency is mostly measured in J/TH or joules per terahash.
This indicates how much energy the hardware actually uses for performing some amount of computation. Lower values in J/TH are so much better since this highlights that your hardware is relatively more efficient.
3. Cost Per Hash:
Cost per hash is the exact cost of your specific cloud mining contract, which is divided by the overall hash power you are receiving. Essentially, it tells you how much you are actually paying for every unit of mining power. This can prove to be very useful when you are comparing various cloud mining companies or contracts.
Read Also: BetterHash Review: User Review, Interest, Charges, Cost
4. Mining Difficulty:
Mining difficulty will help you understand how hard it gets while seeking the very next block of the blockchain. And apparently, it also changes over a period of time, depending on how many miners are actually there.
Higher difficulty literally means you will need more hash power to actually mine the same amount of cryptos.
5. Block Reward:
This is the total amount of cryptos you get for mining new blocks. It is vital to know this simply because it affects your potential income directly. For some cryptos, such as Bitcoin, the block actually rewards halves literally every four years in a particular event like ‘halving.’
Read Also: NiceHash Review: How Reliable Is It?
6. Price Of Cryptocurrency:
This happens to be the current price of the crypto you are mining. This is vital because the mining profitability is related directly to the crypto’s price you receive as a stellar reward.
7. Pool Fees:
If you are participating in any mining pool via your basic cloud mining contract, typically, there will be a certain fee associated with the same. This fee will obviously reduce your income, so it is important to know what it actually is!
The Benefits Of Cloud Mining
Cloud mining actually has multiple benefits, especially for people who want to mine cryptocurrencies but don’t have the resources or even the technical expertise to organize their mining operations.
Here are the major benefits of doing cloud mining.
1. No Technical Knowledge Is Needed:
One of the primary benefits associated with cloud mining is that it does not need any sort of technical knowledge or expertise. Companies like Ecos cloud mining and Chickenfast cloud mining take care of all the information, and all the users will just have to purchase or rent mining capacities from them.
2. No Upfront Hardware Costs:
Mining hardware can be pretty expensive, and the technology can easily become obsolete. With effective cloud mining, you will not have to worry about these expenses since you are renting the hardware instead of purchasing it.
3. No Noise Or Heat:
Mining hardware can actually generate plenty of noise and heat, which can be a major issue if you are running it in your own home. With an innovative concept like cloud mining, you don’t have to deal with such problems since the hardware is situated within a data center.
4. Provides A Passive Income:
Once you have made the payment for your cloud mining contract, the mining organization takes care of everything that is left. This can definitely provide an income that is passive so that you can actually earn crypto rewards – plus, you don’t even have to do anything else!
The Risks Associated With Cloud Mining
Yes, cloud mining has multiple benefits. But at the same time, there are certain potential downsides and risks associated with the concept of cloud mining. It is vital to do thorough research about the risks and benefits of mining via another party before making any investments.
Here are the potential risks associated with the concept of cloud mining.
1. Scams And Frauds:
Unfortunately, the whole cloud mining space has been entirely rife with fraudulent operations and scams. There are some organizations that have actually taken money from different customers before disappearing.
It is vital that you do thorough research and then verify the actual legitimacy of any cloud mining organization before you invest your money.
2. Potential For Lower Profits:
Because you are paying for a certain service, your potential profits obtained from mining can be relatively lower than if you did the same with your own equipment (hardware).
The company has to cover multiple costs and wants to make some kind of a profit for itself as well – so these expenses are passed onto the customers typically. Sometimes, your revenue can be lower than just purchasing cryptocurrency and holding.
3. Lack Of Control:
When you choose cloud mining, you actually give up most of your control over the entire process. The company here decides which crypto to mine and even when to sell the same. If the organization goes completely out of business, faces technical issues, and runs into any kind of legal trouble, your potential rewards and profits can definitely be at risk.
4. Potential For Lower Transparency:
There are certain cloud mining organizations that are not completely transparent about their expenses, their operations, and other vital details. This can make it so much more difficult to estimate your potential rewards and risks accurately.
5. Market volatility:
The value of different cryptos is considered to be highly volatile. This basically means that the cryptocurrency you will earn from engaging in cloud mining could drop in value drastically, impacting your total return on the investments you made.
6. Regulatory Risks:
The legalities of cryptos, as well as that of mining activities, can change with jurisdiction – and are always subject to change. It is vital to understand the different regulations within your own country as well as the country where your chosen mining company is located. This will help you to understand whether you are compliant with all relevant regulations and laws.
Final Thoughts: The Era Of Cloud Mining Has Arrived!
It is essential to actually do some thorough research on the cloud mining company you are choosing to invest in: go through reviews, check out their actual reputation on different crypto forums, and work on finding out as much information as possible about their track record and operations.
An organization with established branding, a significant scale, and a proven track record is always more reliable. It is also vital to ensure you fully understand how the pricing structure of your mining contract is placed – including potential costs and other fees.
Also, you need to consider the equipment maintenance and cost of electricity, which is typically included in the price of the contract. Do not put all your eggs in any one basket – it is better to take into consideration that cloud mining is part of a very diverse investment strategy as compared to depending on it for all your investment or income returns.
Feel free to share your thoughts, experiences, and opinions related to cloud mining for beginners in the comments below!
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