Whether you own 35 bitcoins or have barely started playing the field, you’ve likely heard of crypto mining. It’s an arduous process that intends to take the “financial” out of the investment equation.
Unfortunately, people often end up spending more time and money than what they managed to make. One simple reason for this is mining isn’t as easy as everyone likes to make it seem. It’s a lot of work on top of having super powerful hardware and lots and lots of time and energy.
Before when bitcoin wasn’t such an expensive date, mining was possible for any enthusiastic individual. All you needed was a couple of decent graphics cards and a month’s worth of electricity and you could call yourself a miner.
Then, as enthusiasts became professionals and professionals became organizations, things got a bit more complicated. Mining was so difficult and time-consuming that it eventually became a group activity. People would come together to split the check on computing power and share the rewards. They called that pool mining and then we managed to a point where it was the only way to earn crypto.
Nowadays, not even pool mining is efficient enough. For some of us, there is no time to worry about hardware or ASIC or energy bills - any of that. Cloud mining was inspired by those people and their need for convenience.
Whereas traditional mining tries to avoid the financial part of the crypto investment, cloud mining puts it back where it belongs. Instead of time and energy, you now invest money. A cloud mining user would purchase some of the operational capacity, or hashpower (H) and earn crypto proportional to what they paid.
Sounds too simple? That’s just it. The idea is to make things as easy as possible for people to passively earn crypto. How much they actually earn, however, is another story, which we’ll discuss here.
How Does Cloud Mining Work?
Every bitcoin transaction comes encoded in a 16-digit number. Miners have to guess what this number is by having their computers throw random sequences at the receipt until they get it right. Each of these attempts is a hash. A hash rate is how many hashes a miner can generate in a second. The miner who guesses the number first gets the reward for that transaction.
Ethereum uses something similar called Ethash. Other cryptocurrencies use a variety of hashes with different processing speeds. For simplicity’s sake, we’ll use bitcoin as an example.
A high-end ASIC mining rig can spit out around 14 Terahashes (TH) per second, which converts to roughly 14 trillion hashes. Sounds like a lot, but that doesn’t hold a candle next to what the bitcoin network can do. Currently, bitcoin can process one quintillion hashes per second - that’s a number with 18 zeroes. So in theory, if you can produce more hashes than that number, you’d win every transaction. But to even achieve such a feat, you’d have been better off buying every bitcoin available.
Sustaining a rig producing 14TH/s comes with a lot of heat, headache, time and a very large electricity bill. Cloud mining companies offer to endure all of that burden for you at a reasonable price.
Similar to pool mining where you can either buy additional resources for your CPU or share your own, cloud mining is all about buying hash power.
You pay for a hash rate you want and leave the rest to the miners. At the end of a certain period, you earn a portion of whatever they made based on the hashes you purchased.
How Much Money Can You Make?
This is where things get murky despite the concept of simplicity at hand.
When choosing a cloud mining service you often pick one of several plans they offer. They usually come in different hash rates, such as 100 GH/sec, 100 H/sec and so on, depending on the type of coin you want to earn.
The rate isn’t important since you can’t really change it and can only buy more of the same. What’s interesting is they sell them on yearly contracts. So if you wish to use the service, you’re obligated to pay for the whole year’s worth of mining. For an average hash rate of 100 GH/sec for bitcoin at 5 US dollars a pop, you’d be looking at roughly $1,900 for one year, including maintenance fees. Yes, they charge a fee for maintaining their own servers.
We can put this price into a simple equation to find how much profit we would make in one year.
Currently, it takes about 2.7 quadrillion hashes to produce one bitcoin. That’s 2.7 thousand trillion hashes, which equals 27,000GH.
With the package above, we’re entitled to 36,500GH so theoretically, once our contract ends, we’re sure to make 1.3 BTC.
See, now that’s an amazing deal. So why don't we see that on every single one of their ads? That’s because the reality is far from that. You’d only make 1.3BTC if the cloud mining service you’re using is the only one in the world.
Tens of thousands of miners vie for every transaction at any given time. Hundreds of companies and pools with various degrees of computing power all contend for the same rewards. When you purchase a hash rate, you’re basically weaponizing that against other competitors.
Probability plays a big role in all this as well. A much smaller miner could guess the sequence before a giant pool due to pure chance. That said, many cloud mining services end up costing their clients a lot of money and this isn’t at all uncommon.
All in all, if you want a truly hands-free investing experience, then cloud mining is the way to go, but don’t expect a passive income.
This isn’t a blue-chip type of investment where you can just buy once and check on it when you remember. It’s best to spend what you can afford and pretend it’s already gone because a lot of times, it might as well be.
For those with long-term goals and care more about profits rather than a relaxing experience, then avoid this kind of business at all costs.
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