A Beginner’s Guide to Bitcoin Cloud Mining
Bitcoin Cloud mining operation is an alternative to traditional cryptocurrency mining. Bitcoin Cloud mining is usually seen as a cheaper way to generate digital coins for people who are not technically savvy, as well as those who don’t want to operate and maintain their own hardware and associated software.
It’s a method that definitely offers advantages for miners, but it’s also an area ripe for scams. In this article, we will take a closer look at what cloud mining is and how it works, as well as its pros and cons.
What is cloud mining?
Cloud mining is a process for generating cryptocurrencies using rented computing power from a third party (cloud mining service provider). Each miner actually participates in a “mining farm” (remote data center for crypto mining) by buying a certain amount of “hash power” from the service provider. In return, the provider grants them access to rewards proportional to the amount of hashing power purchased by the miners.
Because the mining operations are conducted via the cloud, miners do not have to worry about computer equipment maintenance, noise, heat, or energy bills. After finding a reliable Bitcoin cloud mining service provider, miners only need to select the type of contract to sign and the desired duration. They have to make an upfront payment, either in fiat currencies or digital currencies, after which the provider supplies them with everything they need to operate.
In general, miners can choose between contracts for 500 and 1,000 gigahashes per second with a term of up to one year. (One GH/s = 1 billion hashes per second.) However, some providers may offer short term cloud mining contracts, 6 month or even 24 month contracts.
What is Bitcoin cloud mining?
Bitcoin mining is tedious and requires expensive mining equipment for the small rewards. The Bitcoin cloud mining services are an alternative for everyone to start bitcoin mining without requiring expensive equipment or technical knowledge. As with any cloud mining, the concept is simple and involves only the remote data center with a shared processing power – hashing power.
While the return of investment (ROI) from bitcoin cloud mining is arguably rewarding. But it all depends on the upfront cost and the valuation of the Bitcoin price at that point. Since you are technically leasing the processing power from a Bitcoin cloud mining service provider, the price per gh/s or th/s and the service fees could be a major factor in deciding your actual ROI.
Compared to owning a GPU mining machine that costs $2,000-$8,000 for a high-end device, Bitcoin cloud mining could actually save you a lot of hassle from the high electric bills, noise, and heat. All you need to sit back and watch the rewards roll in is buy your desired hash power and decide on a desired investment period. But cloud mining is like any other form of investment; it is always associated with uncertainties and risks. Always do your due diligence before investing.
The competition for Bitcoins
The miners compete with each other in the search for new blocks. Every time someone successfully creates a hash, they currently receive 6.25 bitcoins. The blockchain gets an update through the hash and everyone knows about it. With this incentive system, the mining that keeps the transaction processing going is rewarded.
The problem is that it’s very easy to hash a collection of data. So the bitcoin network has to make it harder, otherwise everyone would hash hundreds of blocks a second and all the bitcoins would be mined in a few hours. The Bitcoin protocol intentionally makes it more difficult for the miners by introducing a so-called proof of work – the mining difficulty increases over time.
The Bitcoin network would not simply accept any old hash. Rather, the block hash must have a specific appearance, such as a specific number of zeros at the beginning. There is no way of knowing what a hash will look like until it has been produced, as it completely changes its appearance with each piece of data set that is added.
Miners should not interfere with the transactions in the block. However, they must alter the data they use to create a new hash. They do this by using another piece of data again. This record is also called a nonce. It is used along with the transaction to create a hash. If the hash doesn’t find the desired format, the nonce is changed and the whole hash changes again.
Many attempts are usually necessary to find the right nonce. Therefore, the miners mostly work on the same network at the same time. If the nonce is found, the bitcoins are divided among all miners according to their performance. This is how miners ultimately earn bitcoins.
How does Bitcoin cloud mining work?
There are two types of Bitcoin cloud mining models:
Host mining: Miners buy or lease mining rigs on mining farms and pay to set them up and maintain them. This model reduces the costs associated with access to electricity. Also, since miners have more control over rigs, they can redirect the generated hashing power into mining pools. In addition, miners have complete control over the rewards generated.
Lease Hash Power: Miners lease a portion of the hash power that a mining farm generates. You are essentially subscribing to a plan offered by the Bitcoin cloud mining company to get a share of the mining farm’s profits. Miners do not have to pay any setup or maintenance fees, and mining rewards are distributed based on the share of hashing power that each miner controls.
How do mining pools work?
All participants in a mining pool share their computing resources to increase the likelihood of generating a block on a cryptocurrency blockchain – which requires solving complex cryptographic puzzles. If participants are successful, they receive a reward, usually in the form of the cryptocurrency they mined. The amount they get depends on the percentage of their computing power or work in relation to the total pool.
Distribution of mining rewards
All mining pools have their own difficulty level, which is usually between 1 and the difficulty level of the cryptocurrency being mined. If a miner generates a block with a difficulty between the mining pool difficulty and the cryptocurrency difficulty, that block is considered a “share”. The majority of mining pools usually distribute mining rewards among participants based on the pay-per-share (PPS) model.
There are also pools that may impose limits on rates paid per share. These pools use models such as Equalized Shared Maximum Pay per Share and Shared Maximum Pay per Share.
What contributes to the idea of Bitcoin cloud mining?
Enthusiasm for cryptocurrency mining remains strong despite increasing mining difficulties. There may be miners who prefer hosted mining equipment rather than owning it. Still, there are many reasons that lead to the idea of cloud mining.
Here are some of the possible reasons:
Network hashing performance requirements
The difficulty of cryptocurrency algorithms had increased while the rewards had decreased (e.g. 6.25 bitcoin per mined block today compared to 50 bitcoin per block when it started in 2009). Mine owners realized that more computing power was needed to stay competitive. This led to the idea of mining pools, which pool the hashing power of all participants involved in a mining operation.
The limited supply of mining coins
Only a predetermined number of coins of a given cryptocurrency will come to market (in the case of Bitcoin, 21 million coins). Coupled with the prospect of a rising exchange rate, this has led to a number of innovations in the crypto mining space. Bitcoin Cloud mining is actually the evolution of mining pools.
Attractive mining returns
Another reason for the rise of cloud mining is the potential opportunities for miners to earn attractive rewards by participating in mining operations. Bitcoin Cloud mining companies tend to offer generous payouts to entice clients/investors to participate.
You can now buy hash power from Minerland Cloud Mining!
The mining rig revolution
In the early days of crypto mining, the entire process was done on an average home PC. Later, miners started establishing mining “rigs” by combining GPU cards, which proved to be much more efficient at solving complex mathematical equations (like Bitcoin’s Secure Hash Algorithm-256) than regular CPUs. GPUs boosted the hashing power of the Bitcoin network, but also made the SHA-256 algorithm much more difficult to solve.
A little later, application-specific integrated circuit (ASIC) mining rigs were introduced to the market, quickly eliminating the need for GPUs. However, these powerful, purpose-built chips came at a cost that the average miner could not afford. The hashing power of the Bitcoin network continued to increase – as did the difficulty of the SHA-256 algorithm. It became almost impossible for users to mine on a regular CPU while their power bills skyrocketed.
The ASIC rigs turned the crypto mining sector into a place mostly destined for big players. And this is where mining pools came in: their purpose was to allow anyone to participate in the mining operations to the best of their ability and exchange them for regular rewards. These rewards are usually proportional to the donated hash power of each participant in the pool.
Soon, data center operators found that a large number of people were not participating in mining pools because they did not own a mining rig. Hence, they started renting out hashing power within the pool, which gave rise to the concept of cloud mining.
Bitcoin Cloud Mining vs. Hardware Mining
In Bitcoin cloud mining, miners are actually investors in a mining operation and the only thing they ensure is money. The cloud mining company operates a mining farm consisting of mining rigs and allows miners to either buy or rent a portion of the farm’s hashing power.
In many cases, the provider has invested in top-of-the-line hardware and built the mining farm in a place with cheaper electricity and a cooler climate. This keeps the total cost of running the business under control. Miners do not have to worry about anything in the entire process and only expect a reduction in the farm’s profits.
With hardware mining, miners own their own mining rig and must decide whether to mine solo or join a mining pool and contribute to its computing power for a share of the proceeds. You have to take care of all the costs related to maintaining and upgrading the hardware and have a reliable internet connection at all times.
How do miners benefit from Bitcoin cloud mining?
Bitcoin Cloud mining is usually very cost-effective for miners. You don’t have to pay for your own mining equipment, keep upgrading it, and there are no installation or setup costs. The only hardware they need is a tablet or smartphone to check their rewards from the operation.
This removes the worry of whether they will be able to sell physical equipment once mining is no longer profitable.
Miners also don’t have to worry about electricity bills, noise or heat generated by mining rigs.
Cloud mining requires no specific knowledge of protocols, cryptocurrency, or mining rigs. All miners have to do is open an account with a service provider and pay a fee that depends on the amount of hashing power they want to buy. All rewards will be paid directly into this account.
Another benefit is that miners don’t have to worry about equipment maintenance (to ensure the best environment for a rig to run) since the cloud mining company takes care of it. Companies typically deploy cooling towers and other equipment to keep their mining farms well ventilated to avoid a hardware meltdown.
However, miners may be charged a maintenance fee for the equipment by the cloud mining service provider.
Risks Associated with Bitcoin Cloud Mining
First, since miners do not own computer equipment, they have no control over it. That means they can’t sell it.
Second, the profitability of Bitcoin cloud mining contracts varies widely and is not guaranteed. Even if miners locate a trustworthy provider and sign a contract with that company, it just means that the latter will provide exactly the advertised services and hash rates for the agreed duration. It does not guarantee that it will generate a profit for the miners. Furthermore, any profits made may be offset by fees that miners may pay the provider during the contract period – in addition to the upfront payment.
Third, the Bitcoin cloud mining space is full of cases of fraudulent behavior. Miners can prepay a provider and receive no rewards in return, or the rewards promised may not be as expected. Also, vendors can disclose details of their mining farm but no actual photos or other evidence of it, which could well indicate a scam. Reliable cloud mining companies will always disclose information and recent photos of their data centers, and in some cases even provide proof of utility bills.
If a vendor seems to be offering unlimited hashing power for sale, it could also be a scam — no cloud mining company actually has unlimited computing power.
Finding a trustworthy provider can be difficult. Miners must always take care of their own due diligence regarding a particular company before contacting them.
Finally, there may be circumstances in which a provider may stop mining – for example, if the exchange rate of the mined cryptocurrency reaches a certain level. As such, miners must pay close attention to a provider’s terms and conditions regarding “contractual warnings.”