Crypto Cloud Mining: Everything to Know
By Beluga Research June 20, 2023
- Crypto cloud mining is a method for a party to mine cryptocurrency without actually owning any hardware or paying for electricity and maintenance costs
- This involves renting mining power from a cloud mining provider
- Cloud mining allows parties without technical expertise or resources to participate in the crypto mining process
- This type of mining is also a way for miners to diversify their portfolio
Crypto cloud mining involves renting power from a cloud provider that operates a large-scale cryptocurrency mining farm. Such providers offer different plans with varying levels of hash power, which refers to the computational power needed to solve a block and earn a reward. The plans also differ in terms of contract length and cryptocurrency payouts. Once a party chooses a plan that suits their needs and budget, they can begin mining immediately.
Cloud mining has become a popular option for parties that want to participate in cryptocurrency mining. However, most lack the technical expertise or resources to set up mining rigs. This is also a way for miners to diversify a portfolio and mine different cryptocurrencies.
A Brief History
In 2013, a company called CEX.IO launched a cloud mining service that allowed parties to mine Bitcoin. These parties could use the CEX.IO cloud-based mining pool. Other companies quickly followed suit. Now cloud mining is a popular way for parties to earn cryptocurrency without investing in expensive hardware. That being said, crypto cloud mining has been associated with scams and fraudulent activities. This is because some providers promise unrealistic returns and fail to deliver.
What is Crypto Cloud Mining?
Crypto cloud mining involves renting power from a cloud mining provider. The more hash power a party has, the higher the chances of solving a block and earning a reward. Cloud mining providers operate large-scale mining farms with thousands of mining rigs. The equipment is optimized for maximum efficiency and profitability.
The cloud provider takes care of the hardware, maintenance and electricity costs. It also pays out rewards in the form of cryptocurrency. Cloud mining is not a guaranteed way to make money. The profitability of mining depends on several factors, including the price of the cryptocurrency, the difficulty of the mining algorithm and the cost of electricity.
- Choose a cloud mining provider and sign up for an account. The provider then allocates the party a portion of its cloud computing power. The party uses the computing power to mine cryptocurrencies. In return, The party typically pays a fee for the cloud computing power. The amount is usually based on the amount of computing power required and the duration for which the power is needed.
- Mine cryptocurrencies. Mining cryptocurrency involves using computing power to solve complex mathematical problems. The problems validate transactions on the network and are finalized by adding new blocks, or groups of transactions, to the blockchain. As a party solves the problems, they receive rewards in the form of newly minted cryptocurrencies.
- Allows parties to mine cryptocurrencies without having to invest in hardware. Traditional cryptocurrency mining requires miners to purchase and maintain specialized hardware. This is expensive and time-consuming. With cloud mining, parties rent computing power from a provider, eliminating the need for investment and maintenance.
- Allows parties to mine multiple cryptocurrencies simultaneously. Traditional cryptocurrency mining usually involves mining a single cryptocurrency. This limits a miner's potential rewards. With cloud mining, because of a provider's ability to offer lots of computing power, a party can mine multiple cryptocurrencies at the same time. This increases their potential rewards and diversifies their mining portfolio.
- Lack of control over the mining process. Since a party relies on a third-party cloud provider for their computing power, they have less control over the mining process. They may not be able to optimize their mining efforts as effectively as they would with their own hardware.
- Risk of fraud and scams. Cloud mining involves paying a fee for computing power. There is a risk that the provider may not provide the computing power. Further, providers may engage in fraudulent behavior. It is important for parties to research potential providers before investing in cloud mining.
- Cost-effective. A party saves money on the cost of hardware, electricity and maintenance. This is beneficial for small-scale miners that cannot afford to buy expensive mining equipment.
- Easy setup. A party only needs to create an account with a cloud mining provider, choose a mining plan and start mining. They do not have to worry about hardware setup, software installation or maintenance.
- No noise or heat (or both) for the miner renting equipment. Mining equipment can generate a lot of noise and heat. This can be a problem for some miners. With cloud mining, no noise or heat is generated for the miner themselves. The mining is done remotely in a data center.
- No technical expertise required. Since cloud mining does not require any technical expertise, it is accessible to everyone. Parties do not need to have knowledge of mining hardware, software or mining pools.
- More predictable earnings. Cloud mining providers offer fixed mining plans with a guaranteed hash rate. Parties can have more predictable earnings compared to traditional mining. In that scenario, a party's earnings depend on the price of the cryptocurrency and the difficulty of mining.
- Risk of fraud. The crypto cloud mining industry has been plagued by scams and frauds. Some providers promise high returns and low fees that may be too good to be true. It is essential to do thorough research to select a reputable provider.
- Lack of control. Cloud mining providers control the mining hardware and software. A party using these providers has limited control over the mining process. A party cannot customize the hardware or software to optimize mining performance.
- Dependence on the provider. Parties are dependent on the cloud mining provider to maintain and upgrade the mining equipment. If the provider goes out of business or experiences technical difficulties, there may be downtime and loss of earnings.
- Limited profitability. Cloud mining profitability depends on the price of the cryptocurrency and the mining difficulty. If the price of the cryptocurrency drops or mining difficulty increases, cloud mining can become unprofitable.
- No ownership of hardware. When parties rent computing power from a cloud mining provider, they do not eventually acquire the mining hardware. This means miners cannot resell or repurpose the hardware.