Cloud mining companies are a special type of cryptocurrency-based businesses that center around allowing users to mine cryptocurrencies, while at the same time removing the high cost of entry and technological expertise that is traditionally required to get involved.
Mining deals with keeping specialized hardware online all day and night, which requires setup, maintenance (and replacement as parts die), as well as a steady Internet connection, optimization, and proper cooling to keep the systems from overheating.
All of these are off-putting to a lot of potential miners, and cloud mining alleviates the need for all of these. Instead, all a user has to do is create an account, pay for their mining power, and reap the benefits of the hardware. While this sounds like an awesome deal, the system really doesn’t work. Let’s take a look at why most cloud mining companies fail, and those that are still up simply aren’t a good deal.
Mining Isn’t Profitable (Usually)
A big thing most new users don’t realize is that mining generally isn’t profitable. There are a lot of costs that go into mining coins, and they are present whether it’s Bitcoin (SHA-256), Scrypt coins, or any other algorithm. These include things like:
- Electricity: a lot of electricity is burned, because the mining systems are being run 24/7 at their full power
- Cooling: this can sometimes be quite expensive, as the entire room’s ambient temperature needs to be low, otherwise there’s going to be a lot of downtime and dead hardware
- Space: mining systems need to be separated for heat dissipation, and they have to be stored somewhere
- Support: systems go offline all the time, or crash. Someone has to be around them all the time to help ensure they are running as often as possible, resurrecting the downed systems
There are more costs involved as well, but this helps illustrate that there are not only upfront costs, but ongoing ones as well.
Comparing to the Gold Rush
Back when the gold rush was occurring, there was a popular saying that it was the hardware sellers that were making the money. Bitcoin and other cryptocurrencies are exactly the same: those selling the mining hardware make profit no matter what. It’s the miners that deal with variance (and usually a negative ROI). Cloud mining companies take this a step further, by buying bulk hardware at a discount and then partitioning out pieces, making money off the sales and even more off the fees they charge each customer. In essence, they win no matter what, and this is what their business model is based on.
While you may try to extrapolate your earnings over the next couple years, the fact is that the difficulty rises each two weeks and results in even lower earnings. And why would the cloud mining companies keep letting customers take their profit if they were going to make any? They wouldn’t.