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Cloud Mining – My Thoughts

One thing that is becoming more and more abundant in the crypto world is the idea of cloud mining. This is a way of allowing people to get involved with mining cheaper, and without needing the technology knowledge they would otherwise be forced to have in order to do some crypto mining. Through this article I want to look at the cloud mining craze, as well as give some details that may help decide whether or not it is the right decision for you.

How Does Cloud Mining Work?

It is actually a lot more simple than it may seem. Cloud mining, unlike cloud computing, simply means that someone has a lot of hash power and is willing to separate the earnings based on how much of the hash rate has been purchased by people already. As an example, let us take a scenario:

  • Someone buys enough computer hardware to host 100 MH/s of hash power
  • They then sell hash rate in 1 MH/s blocks, for a total of 100 blocks
  • As income comes in, they keep it in a specific wallet and every day, week, month or whatever they separate it and give it to each person based on how much of the hash rate they had. If someone were to purchase 50 blocks, for example, they would then get half of the total earnings

The reason why this is becoming more and more popular is because the people who buy the contracts, or cloud mining, do not have to deal with hardware. They do not deal with any problems that arise or anything. It is the job of the person hosting the cloud mining contracts to ensure that everything is working as it should and that if any problems arise they handle it in a fast and efficient manner. And while this would not be a big deal in some areas, crypto mining really does add to the wear and tear of computer hardware. On top of this, we are also dealing with something that is quite time limited; even a delay of a day due to hardware issues not being noticed and result in drastically lower earnings than expected. In essence, you are just paying so that someone else can deal with all the problems, while you sit back and rake in the cash.

Why Would Companies Do Cloud Mining?

When a company announces that they are going to be offering up some cloud mining contracts, one of the first things people do is attack them because it is a bad idea (or so they think). After all, there are only three options when it comes to offering up these contracts:

  • They are selling them at a loss, whereas they could be earning more mining for themselves
  • They are selling them for profit, but someone could just buy and host their own hardware and keep all of the profit
  • They are trying to scam people out of their money or coins

Really, the situation goes a bit deeper than this, though. One of the things people often forget to take in to consideration is stability. You can possibly earn 500 FTC over the next month, or you can guarantee that you will get 350. For some, this possible loss of 150 is well worth it considering they could just as easily get much less than that over the period of time. This stability makes offering up the contracts a great deal, since everyone is sharing in the risk. While this is not always what is going on in the minds of the cloud mining companies, for some it is.

Determining the True Value of a Mining Contract

This is a lot harder to do than people realize. When we deal with Bitcoin it is at least somewhat easier, assuming we are going for a coin based conversion. If we are also taking in to consideration the fiat value, it is pretty much impossible. There are just too many variables, like:

  • Difficulty fluctuations
  • Coin value in Bitcoin
  • Bitcoin value in USD (or another fiat currency)

Because of the volatility of Bitcoins, when we are mining them we can only make estimates as to how many will be mined over any period of time (that may or may not be way off, especially with more and more ASICs being released each day). Bitcoin is related to the difficulty of them at the time, but also includes luck. And then when we move to fiat, there is no way to tell from minute to minute or week to week. When we move to alternate currencies, things get even harder. Most alt coins end up going through massive fluctuations in hash rate and difficulty. They can go up or down, and again there is just no real way to tell.

As you can see, we really can not tell much about the future when it comes to cryptos. Instead, you are pretty much just gambling in the hopes that what you put in will come back to you with some profit. In some cases it will, and in others you could lose a majority of it. A great way to see it is being like a slot machine: you are pulling the lever and hoping for the best.

Comparing it To Self Mining

You may take from the above that mining for yourself is not worth it. This is not necessarily true. While there are still fluctuations in mining rates, coins minted and their value in the real world, you have something on your side: you can keep mining until your gear falls apart. Compare this to using the contract, where your money is only good for a certain period of time. If you have not broken even by the time this period is over, you have lost money. Along with this, when you are mining on your own you can sell that gear at any point. You can decide tomorrow to jump out of the crypto game and sell it all off. Or you can use it for other purposes (such as I use mine for gaming as well, which also helps curb its cost to me, being that I really needed it regardless).

At the same time, however, you are also handling your own problems. If you are away from the house and your gear goes down and stays that way until you get home 8 hours later, you have lost a third of a day of mining. You also have to deal with all of the electricity costs, which can be high or low depending on where you live. And if any of the gear breaks or comes up with other issues, it is up to you to get it dealt with, which can add some more costs. On top of all of this, there is another problem you really need to take in to consideration: heat.

When we run our rigs at their full capacity like we do, they generate massive amounts of heat. If you are running a single card, you are probably not going to have too many issues. When you have a rig with five cards, you are starting to turn it in to a heater. When you take things a step further and have multiple rigs that each have multiple cards, the heat can become massive. There are people who get their rigs set up and find out quickly that there is just no way that they can disperse that much heat, and have to get rid of their hardware because of it. This and the electricity costs should be one of your biggest determinants. It is far too easy to get caught up in the idea of making money and end up making some pretty big mistakes in the process. Ensure that you have the room and ability to host any rigs you want to set up if you take this route. And realize that the heat is probably going to be much worse than you are expecting!

Conclusion

Rather than going for or against cloud mining services, I feel that taking a more informed approach is important. Through this article we looked at why some of them run and who they are good for. Some people would be better off with cloud mining, and some would be better off mining on their own. It is really all up to personal preferences and how much knowledge you have of the mining game. But be sure that you are also taking in to consideration things like the cost of electric and whether or not you are going to be able to do something to disperse the massive amount of heat that you can expect from the systems.

As a final note, I think it is important to remind you to vet out any service that you are planning to use. We are still dealing with a lot of scam companies in the crypto world, and you can cut down on your chances of suffering losses by quite a bit by simply doing research in to companies and people before you give them your money. Getting everything stolen while in a rush to make more money is the opposite of what you want to do. On top of this, look for others who have used the service if you can. You may find that the service you are checking out is legitimate but has been having problems with its customers due to not honoring its agreement as promised (such as not reimbursing for down time, or not paying out the full amount that they should be). These notices can go a long way towards helping you avoid bad situations! So take your time to do it right.

Mining


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