Why buy mining contracts?

Author's note: This article is part of an ongoing blog about my adventures in the world of alternate currencies.

It had been quite a while since I viewed ads on CoinAd and BitVisitor, so I figured it was high time I checked them out. Now that I am taking anywhere from 0.02 to 0.05 BTC in profits nearly every day from cloud mining, I am much less excited about earning uBTC through those sites than I used to be. I still view these ads every once in a while because it's a fun visual way to keep up with what's new in the cryptoworld.

I visited quite a few sites I have not seen before, including at least two (repeated as various users undoubtedly share their affiliate links) which sold mining contracts. One of these sites was called Hashop, and it sells two year mining contracts for one to twenty GHS. The cost for one GHS is $69. The cost for 20 GHS is $1249.

Back when I knew nothing at all about Bitcoin mining I might have been impressed with these numbers. Now I am much less favorably impressed.

It's expensive!

When I was researching the viability of the Commodity Exchange (CEX) on the Bitcoin Forum one negative which came up repeatedly was that hashing power on CEX was expensive compared to what it cost when one purchased actual hardware. The complaint was that one GHS on CEX cost as much as ten times what it would cost as hardware. The follow up complaint was that a CEX miner would never make back his or her initial investment.

I actually do not know what hashing power from actual hardware costs and I don't ever plan to truly need to know. However I am very aware of what it costs on CEX. As I write this one GHS is currently trading for 0.042 BTC. One BTC is currently trading on Camp BX for $814.22. This comes out to $34.20 for one GHS on CEX, one half what it costs for a two year mining contract on Hashop!

It's for a limited time

Two years sounds like a long time in the cryptoworld where things happen so fast. Still, if you had a choice between buying a GHS for as long as you wanted it, or renting it for only two years, which would you choose? Why would you pay twice as much for a GHS you could only have for two years as for one you could keep forever?

When you buy hashing power on CEX, you get to decide for how long you will keep it working for you. You can keep it for one day, one week, one month, one year or ten years. Whenever you decide you no longer want it, you can sell it at the going market rate. Some people actually day trade GHS on CEX! Others treat their hashing power as a long term investment.

You are locked in

When I buy hashing power I definitely want to leave open the option of keeping it forever. However I also want to have the freedom to sell it back should I decide it's no longer yielding enough. Not only that, I'd like to be able to add to my hashing power any time I want to without having to buy a new contract. Can you imagine what would happen if I purchased one new GHS in mining contracts every week for an entire year? I'd wind up with 52 separate contracts! Then in two years I'd have to renew each one of them. It is possible that the website would allow for bulk renewal, but what if I wanted to get out before the two years were up? On CEX if I want out, I just sell. I can even set my sell price as long as there's a buyer out there willing to pay it.

It is merely renting

When you buy a mining contract you are essentially renting hashing power for a limited amount of time. When that time is up you need to buy a new contract to keep the hashing power working for you. You do not receive any compensation for “losing” your GHS at the end of your contract term. On CEX, I buy the hashing power and it's mine for as long as I want until I choose to sell it. I could theoretically hang onto it for three years or longer before I sell. And I actually can sell it, very possibly for as much as I paid for it or more, though likely for less given consistent mining difficulty increases. But I can count on getting some compensation for giving up my hashing power.

CEX has more advantages

There are many other advantages to building up one's cloud mining through CEX rather than through the purchase of a mining contract. On CEX, hashing power is liquid, it can be bought with either Bitcoin or Namecoin, mining profits can be withdrawn at any time, and it is possible to buy fractional amounts of hashing power, making it easy to reinvest earnings. This last point is a bit deal for those who are first getting involved in Bitcoin and who don't have money to risk trying out new things. I could use my CEX address on CoinAd and BitVisitor and as soon as I'm sent a payout, no matter how small, I can immediately put that payment to work mining. There is no amount of hashing power that's too small.

Mining contracts may have made sense before the Commodity Exchange came on the scene. They at least fulfilled a consumer demand for access to mining without having to physically own and run the hardware. But CEX meets that demand and provides so much more at a price that is set and constantly adjusted by the market and which is cheaper to begin with. I believe CEX has rendered ordinary mining contracts totally obsolete. I can think of no good reason to choose a mining contract over cloud mining on CEX.

Devtome writers | Mining

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