2023 Guide to Cryptocurrency Cloud Mining

If you’ve contemplated earning a passive income in crypto and done a little searching, cloud mining has surely come up. Cryptocurrency mining is a tough game that requires a lot of technical competencies, and cloud mining offers a far easier option for less tech-savvy types.

Although it might seem difficult to grasp at first, don’t worry—you’ve come to the right place!

This article will take you into the world of crypto cloud mining, exploring what it is, how it’s done, and whether it’s safe and if you should give it a try.

What is Proof of Work and Crypto Mining?

Many cryptocurrencies, including Bitcoin, can be mined. At the heart of mining lies a certain level of difficulty, which in turn requires a certain amount of computing power to crack.

The devotion of computing power to mining is what powers many blockchains. A blockchain, after all, is simply a ledger upheld by a distributed network of computers, and this network needs computing power to run and process transactions.

If you send some crypto from one wallet to another, that transaction is grouped with many others like it and forged into a block. This block also contains a cryptographic hash of the previous block’s contents.

Incidentally, this is why blockchains are considered immutable. Changing the contents of a block changes its hash, thereby breaking the chain.

This hashing and grouping of transactions together into blocks is called block production. Blocks are also verified once produced, which is called validation. Cryptocurrencies like Bitcoin work like this, with block production and verification done by miners. They’re called “proof of work” blockchains because they rely on miners doing some work and proving their validity.

Is Crypto Mining Profitable?

In these proof-of-work blockchains, miners race to solve the hash. It’s competitive, meaning that miners with more processing power (or hashing power) are at a distinct advantage.

The miner who wins this race produces the block, and the rest validate it. This, essentially, is the entire decentralized network coming to an agreement on the truth. Therefore, proof of work provides the network with what’s called “consensus” and serves as a consensus mechanism for many blockchains.

There are other consensus mechanisms, such as proof of stake, proof of authority, proof of history, and even proof of burn, but proof of work is the trailblazer.

Mining is crucial for a blockchain since it establishes consensus and ensures nobody’s cheating with their transactions. Therefore, all blockchains incentivize miners to connect their hardware to the network and help out. The more independent miners there are the healthier the network.

This incentivization is provided via the blockchain’s block reward. The miner who wins the race to solve the aforementioned cryptographic puzzle gets to produce the next blockchain block, and with it comes some network currency. In Bitcoin’s case, the block reward is currently 6.25 BTC.

That amount of Bitcoin is a king’s ransom to many, and it’s gettable every ten minutes. This might help explain why crypto mining is as big of an industry as it is, and the higher the value of a proof of work cryptocurrency goes, the more profitable it can be to mine.

What is Cloud Mining?

Bitcoin serves as an excellent example of how competitive crypto mining can be. With a block reward of 6.25 BTC and five figures per unit price, Bitcoin mining is tremendously competitive.

The thing is, it was originally intended to be mined at home using an average personal computer. Satoshi Nakamoto, Bitcoin’s creator, ostensibly mined many of Bitcoin’s first blocks right from their own desk, earning 50 BTC a poop (the block reward has “halved” several times since then).

Those days are unfortunately long gone, and if you try to mine Bitcoin using just your PC, there’s no guarantee you’ll ever win a block. The odds of doing so are very similar to winning a lottery, which, in essence, they are. And winning a lottery is very unlikely, even if you sign up for one every day.

Therefore, the only way to make a reliable income as a crypto miner is to invest in a significant amount of mining hardware (ASICs for BTC, GPUs for ASIC-resistant coins, such as Ravencoin and Ethereum Classic). Then you’ll have to set up your mining rig, for which you’ll need space, lots of cooling and electricity, and a decent grasp of computer hardware and software.

If this picture gives you shivers, setting up your own mining farm or mining rig may not be for you. Not to worry; that’s where cloud mining comes in! Rather than invest in a rig and figure out the hardware yourself, you invest in a cloud mining contract from a range of providers.

These providers run mining rigs themselves or contract miners to do so. The income earned by these rigs is then transferred to you as per the terms of the contract you purchased.

How Does Cloud Mining Work?

Cloud mining is an extremely popular way to take part in the lucrative crypto-mining industry. The fact that it doesn’t require any technical skill to get started makes it an ideal starting point if you have enough capital to afford a cloud mining contract.

Luckily, there are a lot of cloud mining providers out there with plenty of contracts to choose from. When you sign up with one of these providers, you’re actually renting out their hash rate. Essentially, you’re trading a lump sum of fiat or crypto for a brief period of crypto income.

To get set up, you need to register with a provider and fork out for one of these mining contracts, also referred to as “shares” by some cloud mining companies. Bitcoin is the main currency on offer, but you can find cloud mining services for many other proof-of-work coins too.

Advantages of Cloud Mining

Here are some of the top advantages of cloud mining:

• Crypto income. Just as with building and setting up your own mining rig, cloud mining will provide you with a certain ROI in crypto. If you’re looking for a passive income stream or dividends in crypto, this is for you.
• Low technical requirements. Aside from the cost of purchasing and setting up a mining rig and ongoing power costs, the main barrier to entry when it comes to crypto mining is technical expertise. Setting up a mining rig takes a lot of skill in hardware and software, but none of that is needed for cloud mining.
• Physical space. The word “cloud” in cloud mining says it all. The whole point of cloud services is that you don’t need to devote your own precious physical space to the job. With cloud mining, you’re using someone else’s space and hardware.

Disadvantages of Cloud Mining

As compelling a proposition as cloud mining can be, it’s not a perfect model. Let’s take a look at some of the cons:

• Centralization. Cryptocurrencies were created very much with the principle of decentralization in mind, but cloud mining means that you’re not really creating a mining node of your own and decentralizing the network. You’re just paying for a small part of someone else’s hash power.
• Single point of failure. This centralization of mining power also means that attacking or compromising a big cloud mining provider could adversely affect the network.
• Scams. Unfortunately, cloud mining has seen many scams abound over the past few years. Transparency is key, as is doing your due diligence on a provider before signing up and handing over your money for a contract.

Top 3 Cloud Mining Sites

So, now that you know all about crypto cloud mining, where can you sign up? Picking the right provider is important, so let’s take a look at some of the best options to investigate.

#1. Reputable Crypto Exchanges

Rather than name individual exchanges, it’s easy to clump them into a single group since many of the top exchanges offer cloud mining contracts. However, cloud mining isn’t their main product, so it’s unlikely that they’re disingenuous or trying to scam you with their cloud mining options.

KuCoin, Binance, Gate.io, and many other top exchanges offer cloud mining within their product portfolios.

#2. NiceHash

NiceHash is a hash power broker that explicitly doesn’t offer cloud mining, but the concept is similar. Rather than the company itself running rigs, it enlists users who provide hash power to the marketplace, called “hash power sellers.” You can therefore buy hash power, which is very similar to cloud mining, from these hash power sellers on the NiceHash marketplace.

#3. Ecos

Based out of Armenia and notable for being the first legal cloud mining operator, Ecos offers various products, including crypto wallets, but also supports a versatile Bitcoin cloud mining service. It can be set up using an app and has a relatively low minimum contract cost.

Is Cloud Mining a Scam?

While scams are definitely an ever-present danger in the cloud mining industry, it may be unfair to label cloud mining itself as a scam. If you did, then by that logic, the stock market is definitely a scam, too, given the millions of dollars handed out in fines on what seems like a daily basis.

Whether it’s the “smart money” grifters on Wall Street or black hat hackers taking on DeFi (decentralized finance), there’ll always be scams where there’s money to be made. And, as you may have noticed, there’s definitely money to be made in cryptocurrency mining.

So, while cloud mining itself isn’t a scam, you will definitely find scams in the industry. The key is to do everything you can to avoid them.

How to Avoid Cloud Mining Scams

Cloud mining scams are some of the oldest in the business, with BitClub Network managing to defraud customers of $722 million worth of Bitcoin in 2019. While the scammers behind BitClub didn’t get away with it, their tale indicates just how easy it is to pull off a cloud mining scam.

Generally, cloud mining scams use the Ponzi model, popularized by its namesake, Charles Ponzi, and famously used by the late hedge fund manager Bernie Madoff. In a Ponzi scheme, earlier investors are paid out with the funds from later investors.

The former group, therefore, thinks the service is legit, rates it well, and defends the company on social media. The company then disappears or suddenly becomes “unavailable in your region.”

Scammers tend to offer astronomical returns and advertise ”proprietary” strategies. If the service is offering way more than you should usually earn from crypto mining but wants to lock your funds up for a suspicious amount of time? Run.

There’s also a lot of pushback against regulation, but one way to avoid scams is to sign up with a regulated service provider.

That said, it’s difficult to fully insulate yourself from scams, even if you choose the most reputable option. After all, FTX boss Sam Bankman-Fried, now considered one of crypto’s most infamous scammers, was discovered to have a close relationship with CFTC head Rostin Behnam, one of the top regulators in the US.

How to Choose a Cloud Mining Site

Choosing a cloud mining site is the most important step when you get into the business, so you should approach it with considerable care. Given how many scams the cloud mining business has seen, it may be extra important to do so.

Ultimately, choosing a cloud mining site is a matter of thorough research. Into the platform itself and what customers are saying on social media, into the products and services offered by the site, and what their track record looks to be.

Also, keep an eye out for contract terms and when and how often you’re being promised payouts. If you’re being locked in for too long or if the promised returns are too high, you should definitely be asking questions.

Key Takeaways

Cryptocurrency cloud mining is a way to earn passive crypto income if you spend a certain amount of capital on a contract with a cloud mining provider. This is only possible with proof-of-work cryptocurrencies like Bitcoin since other coins generally have to be staked rather than mined.

Cloud mining has historically been rife with scams, so picking the right cloud mining provider is very important. It can be a good source of income for you, but the money you put down for your cloud mining contract is at risk if you don’t do your due diligence on the provider or site you’re looking at.

Cloud Mining FAQ

• What’s the best cloud mining website?

  The best cloud mining website depends on your requirements and risk tolerance. Crypto exchanges often offer some of the best cloud mining options, but always be wary of advertised returns that are too good to be true.

• Can you cloud-mine Bitcoin?

  Yes, Bitcoin is one of the most popular cryptocurrencies that cloud mining platforms offer. You can cloud-mine Bitcoin, and what’s more, you can expect the best selection when it comes to cloud mining contracts with Bitcoin.

• Is cloud mining free?

  No. To start cloud mining, you’ll need to buy a cloud mining contract, which can be quite expensive.

• Is cloud mining profitable?

  Cloud mining can certainly be profitable, although the rate of return isn’t all you should look at. Cloud mining scams tend to be rife and easy to set up, so choose your provider wisely.

• Can you cloud mine ETH?

  No. Ethereum is now a proof-of-stake cryptocurrency, so you’ll need to stake it to earn an income from ETH. Check out decentralized options like Rocketpool and Lido Staked ETH if you want to give Ethereum staking a try!