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Cloud Mining – is it the Future?

As Bitcoin (and alternate currency) mining becomes more and more popular, people are wanting to jump in and get involved. We are getting to a point where even people who have no idea what mining is or how it works want to start in as well. To push things a bit further, people that are not as computer literate want a piece of the action. While this has traditionally caused problems because of the knowledge needed in order to mine various crypto currencies, there is a solution that has popped up and is gaining a lot of traction: cloud mining.

What is the Cloud?

A lot of people have heard of the cloud before due to its use in other applications. For example, storing your Amazon books in the cloud so that they can be downloaded on any device you log in to. Essentially, the cloud is just a ton of networked computers that store data. Rather than relying on one person or place, they can be all over the place; in fact, large companies use cloud networks to host their websites and other data for redundancy and speed purposes.

When we talk about cloud mining, it is along the same idea. Instead of one person having a computer that they are using for mining coins, there is a person or group with a ton of computers. These computers are then fractioned out and sold to the highest bidders (or those who can afford whatever the flat cost is for them) to use as they please. With the mining scene, this essentially comes in two types:

  • Bitcoin mining clouds only mine Bitcoin (and whatever can be merge mined at the time)
  • Scrypt mining clouds usually allow people to choose their own pools and such so they can mine what is the most profitable at the time if they choose, or speculate on prices

These two things are very different in their end results, although they work the same. As the computer systems are on and hashing away, any earnings go to the person who rented them. Electric costs, maintenance and cooling are all just part of the price of the rental. This means that someone who does not know much about computers can get involved by simply throwing some money at a rental, and taking what it earns without having to worry about the upkeep or what to do when problems arise.

There are actually multiple reasons for why the cloud mining scene is becoming more and more popular each day.

  • You can mine coins without having to know anything about how it all works. Just have them paid out to your wallet, and do what you wish with the coins themselves
  • Mining hardware sucks up a lot of electricity and generates a lot of heat (and usually sound). For those who live in places with high electric costs, it may not be financially viable to pay these costs yourself. And when you take in to consideration the heat generation and needing to cool it off, things just get harder. Not to mention the noise often lends itself to being an annoying racket that most people do not want in their home
  • Mining hardware can be expensive. This really depends on what you are planning to buy, but the price can be in the thousands easily. When doing mining contracts, however, you are just buying smaller pieces of hardware. As such, you can get in cheaper. Sometimes even a couple dollars can help get you in on a contract (although you can not expect to get rich off it… unless Bitcoin shoots up in value again)
  • You get to “set it and forget it” – instead of spending your time having to sit around watching your miners to ensure they are still active, you can let the contract host handle that. This means more time to deal with things you love, rather than wasting it all away just monitoring

As you can see, the benefits of going with the cloud mining solutions are great. This is what has been sucking more and more people in to the craze, and is also likely part of what is increasing the hashing rates as fast as they have been. All of these together help give some true value to going with cloud mining.

Is Cloud Mining Always the Best?

This is a tough thing to answer, and while most people would answer that cloud mining is not a good choice, it really depends. There are tons of cases where I would definitely suggest going with a cloud mining solution rather than self mining, although if you have the time and expertise, self mining is always going to pay off the most (since you are cutting out the middle man). If the choice is between getting involved and not, though, do what you have to do!

The important thing here is to pay attention to the contracts you are looking at, and run through some calculators to see if they are going to pay off. All too often people forget to do this and think that something is a great deal when it is really just going to cause them to lose money. When dealing with alternate crypto currencies this can be tough (being that their difficulties are pretty much always changing), but with Bitcoin it is simple:

  • The Bitcoin difficulty is always increasing. This means that what you earn right now per hour or day is going to be more than what you earn in a couple weeks over the same period of time
  • If your contract is based on a year and you will earn, say 15% based on today's difficulty, you are definitely losing money. You need to run through and do calculations based on a nice increase in difficulty every two weeks; something like 30% or so seems safe

This, while it can not tell you for sure what the future holds, is seen as being the safest way to calculate how much you are going to earn or lose over a period of time. Things can always change, of course, but we have to work with the data that we have available to make the best choices.

With alternate cryptos, the process is pretty much impossible because at the end of the day, each coin is different and it is tough to speculate on earnings. Everything right now is tied to Bitcoin, so even if you know a certain alternate coin is going to make its move up in the press, if Bitcoin crashes the value of that coin has also crashed. It is important to understand this because it means that all alts have a second point of failure: Bitcoin. Not only are you hoping that the coin you are mining will stay profitable, but you have to hope Bitcoin does not go down as well. Sometimes this will pay off, others it will not. It is just part of the gamble!

The Pricing Conundrum

A lot of the time we hear the same questions about cloud mining. The biggest one that comes up is along the lines of “you must be getting ripped off by choosing cloud mining, because if they were selling the contracts for less than they earn, they would be earning more off just mining on their own.” This is both true and false.

True. When cloud mining companies make up their prices, they are doing it based on the potential earnings. If everything goes well, the customer wins. The trick here is that there is usually enough cushion that the customer will at least break even, assuming the general consensus on mining difficulty and price holds true. While it does not always work out, it does enough of the time to have a bit of trust in it.

False. As stated above, there is still some risk. The company is actually minimizing their own risk by giving themselves a flat rate payment. It is along the lines of saying “I will give you $10 right now to rent your system for an hour. Or you can mine on it yourself and get anywhere from $2 to $25.” Some will say that the chance to turn $10 in to $25 is well worth it. Others will say the opposite, being that they could also lose $8. By the contract provider offering up their services, they are ensuring that they are getting paid regardless, which is a win for them. On top of this, the company also gets their payment up front, meaning they can expand their business more or collect interest on the funds. All in all, it is really like a gamble where either party can win, or both parties can win. There is just no way to tell until the contract is over and everything is settled.

Beware of Scams

There are a ton of scams in the crypto world. Due to the anonymity of how Bitcoin and its related currencies work, people love to take advantage of it to steal from others. Mining contracts are no different in this regard, and things get a bit worse with them: you are trusting someone for an extended period of time.

If we look at a site like pbmining.com, for example, you will notice that they do five year contracts. This means that even if they are legitimate for the first year, you are still having to trust that they will continue for the next four on top of that. Essentially you are betting that they will continue their business for the entire duration of your contract. May they? Sure. Or they could not; this is all part of the risk.

The best way to figure out which sites you can rely on and which you can not is to Google them. Look for both positive and negative reviews, and pay attention to the trust of the people that are making statements. The worst thing you can do is take someone's word for it and then find out later that they are just an alternate account of the scamming company. What you want is trustworthy people that are giving their own experiences. This decreases the chances of being scammed, which is important if you want to actually make some money instead of losing it. And, of course, this does not mean that nothing is going to happen; all you can do, though, is help stop it.

It is worth noting that doing due diligence takes time. You can not find a company, look it up for a couple minutes and automatically assume that it is legitimate. You need to spend time digging as deep as you can. The more you know about it, the more informed your decision will be. Try to figure out who runs the operation. Find out what they did before that (and what people thought about that). Find out as much as you possibly can. In the world of cryptos, this is your only source of protection.

Conclusion

Getting involved with cloud mining can be a good or a bad thing, depending on how you look at it. It allows you to get to mining without the requirement of keeping up with your hardware and ensuring it is always active, and it also cuts down on the amount of work you have to do when it comes to cooling and paying for electricity. For some people this is going to pay off and the time savings are worth more than the cost. For others, it is better to just mine on their own. Different people are different here, and the only person that can determine the best course of action here is yourself.

If you want to get involved with cloud mining, just be sure you are very careful with who you deal with. Try to learn as much as you can before you go in to business with someone or use a website. On top of this, if you really want to increase your chances of making great decisions, look in to what mining is and how it works (and especially the difficulty factor). While you do not need a very thorough understanding of this, it does help out with the decision making process when it comes to choosing a more profitable option. After all, the reason for going in to mining in the first place is to make profit, right?

Mining


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