Cloud mining involves the mining of bitcoins or other cryptocurrencies without managing of the mining hardware.
The mining hardware is usually owned and operated by an external third party from which the miner purchases mining contracts or shares. In other words, the data centers are remote, and the miner acquires bitcoins through the use of a local computer which communicates with the mining hardware.
Cloud mining may take 3 forms – hosted mining, virtual hosted mining and leased hashing power. With hosted mining, the miner leases an actual mining machine from the mining company. With virtual hosted mining, a virtual private server is created, and the miner has to install his own mining software. Leased hashing power allows the miner to lease hashing power without an actual or virtual computer.
There are many advantages to cloud mining, but there are also some disadvantages:
Advantages of Cloud Mining
One of the advantages of cloud mining is lower electricity costs when compared to using your own mining hardware. Electricity costs can become substantial and may put a significant dent in any potential profits that a miner may earn. With cloud mining, it is the mining company that is responsible for the electricity costs associated with running the mining rig.
However, since the miner must pay to use the cloud mining service, some of the electricity costs are inevitably transferred to the miner. Nevertheless, since the costs are spread out among several users, the per user electricity cost is significantly reduced.
Another advantage of cloud mining is freedom from the hassle of maintaining the mining hardware. Also, it frees the miner from the negative repercussions of defective equipment from mining equipment suppliers.
Disadvantages of Cloud Mining
One of the biggest disadvantages of cloud mining is that profits tend to be lower. This is because there are significant costs associated with cloud mining that the miner has to cover.
There are different types of profitability calculators available to help miners to determine potential profits before investing. It is important that you plug in accurate figures into the calculator, so that the computations will be a true reflection of the actual profitability.
With cloud mining, there is also an increased risk of fraud. Since the hardware is not under the control of the miner, this presents an opportunity for fraudsters to tamper with the system.
Nevertheless, cloud mining is generally considered to be safe. Miners should be aware however, that there are potential risks. Miners are advised to carefully weigh the risks against the potential rewards of cloud mining. When all is said and done, the decision should be based on a thorough risk analysis.
Inherent in cloud mining also, is the loss of control and flexibility. Since the miner does not own or control the equipment, he or she must rely on the integrity of the third-party operator. The miner must give up some amount of control as well as some of the ability to make any customizations or tweaks to the system operations.