On the basic level, cloud mining is a mechanism to mine a cryptocurrency, such as bitcoin, using rented cloud computing power. Using the rented power means that miners do not have to install and directly run the hardware and related software.
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Choose your quick section of our Cloud Mining step by step Guide below.
A Quick Overview of our Cloud Mining Review:
- ✔️What is Cryptocurrency?
- ✔️What is cloud mining?
- ✔️How cloud mining works
- The models of cloud mining
- The fundamentals of cryptocurrency mining
- How to mine Bitcoin
- A short introduction to the mining process
- The fundamentals of Bitcoin mining
- The use of Bitcoin software
- A closer look at Bitcoin mining pools
Cloud mining operations are mining farms — data centres dedicated to mining — that sell or lease hashing power to cryptocurrency miners.
What is Cryptocurrency?
Cryptocurrencies are digital currencies, or assets, which have been encrypted by computer software and which is, therefore, secured by cryptography, which explains the name ‘cryptocurrency’.
One of the factors which entails the leverage that cryptocurrency has over fiat currencies, or paper money, is that it cannot be counterfeited due to its encrypted nature, and cryptocurrency has, in addition also solved one major problem attributed to fiat currency, the issue regarding double-spending.
Cryptocurrencies are decentralized networks which are based on blockchain technology which serves the purpose as a decentralized ledger, or DLT, for the recording of transactions involving cryptocurrency.
The DLT ensures that the history of a digital cryptocurrency cannot be altered, and it ensures complete transparency as well, seeing that these transactions can be viewed publically.
Cryptocurrencies are not issued by banks and nor can they be controlled or manipulated by central banks or by the government. They are free from the conventional monetary policies to which fiat currencies must conform.
This is one of the major reasons why governments have all but tried to outlaw them, and failed, and it attributes to the overall value that cryptocurrencies have, and why they are being traded more these days.
They offer people with a form of freedom where dictatorship, economic situations, inflations, and other corrupt practices are concerned which strongly revolve around fiat currencies.
What is cloud mining?
On the basic level, cloud mining is a mechanism to mine a cryptocurrency, such as bitcoin, using rented cloud computing power.
Using the rented power means that miners do not have to install and directly run the hardware and related software.
Cloud mining companies allow users to open an account and participate remotely in the process of cryptocurrency mining for a basic fee.
This model makes mining accessible to a broader group of people around the globe, due to the fact that mining done via cloud reduces certain entrance barriers such as the maintenance of equipment or direct energy costs.
As such, cloud miners participate in what is referred to as a mining pool, in which users each purchase a specific amount of hash power, earning a pro-rata share of the profits in proportion to the amount of rented hash power.
How cloud mining works
Cloud mining leverages cloud computing for the purpose of producing blockchain-based cryptocurrencies.
As such, cloud computing is one of the fastest-growing technology trends whereby computing services such as processing, server capacity, database services, software, and file storage are accessed via the cloud.
The cryptocurrency model is fundamentally reliant on mining, which is the process whereby transactions are verified and added to the public ledger, known as the blockchain.
Added to this, it is the process through which new coins are released into the cryptocurrency ecosystem.
By combining mining with cloud computing, the various possibilities associated with Bitcoin mining are made accessible to people distantly located, and who may not necessarily have advanced technological knowledge.
The models of cloud mining
Hosted mining is the most popular cloud mining model, in which the customer either buys or rents mining hardware stored in a miner’s facility.
Using this model, customers have direct control over their cryptocurrency, and the miner remains responsible for maintaining the equipment and ensuring that it delivers on its performance.
Furthermore, the economies of scale using this model mean that the high costs associated with mining, which include electricity and storage, become more manageable for a variety of users. That said, this type of mining does involve considerable upfront costs.
Another model used for cloud mining is that of leased hash power, which is the computing power associated with generating or using a cryptocurrency.
Using this model, the hash power is leased from a mining farm, and customers receive a share of the farm’s overall profits from mining cryptocurrencies.
Leased hash power has become particularly popular for mining altcoins, and the process requires a person to open an account with a cloud mining company via its website.
While cloud mining has become popular for several notable advantages, such as less investment in hardware and ongoing overhead costs, there are some disadvantages as well.
For one, the model has been susceptible to some industry scams, and there is also the possibility of diminishing profits.
The fundamentals of cryptocurrency mining
Mining in the sense that it is used to apply to cryptocurrencies is meant euphemistically, and of course is not meant to be understood as actual mining.
Cryptocurrency mining serves a twofold purpose, firstly of generating new cryptocurrency token that are awarded to miners, and more crucially, of maintaining the security of the blockchain.
Rather than being carried out by men with pickaxes underground, Bitcoin mining is performed by high-powered computers that solve complex computational math problems.
These problems are so complex that they cannot be solved by hand and are complicated enough to tax even incredibly powerful computers.
When cryptocurrency miners add a new block of transactions to the blockchain, part of their job is to verify that those transactions are accurate.
In particular, Bitcoin miners make sure that Bitcoin is not being duplicated, a unique quirk of digital currencies called “double spend.”
With printed currencies, counterfeiting is always an issue. But generally, once you spend $20 at the store, that bill is in the clerk’s hands.
With digital currency, however, it is a different story. The miners use their computational power to solve cryptographic puzzles that prevent double spend in a decentralized manner.
How to mine Bitcoin
As the advancements in technology continue to accelerate, so have the growing opportunities in the fintech arena.
As a result, participants are constantly seeking new ways to make investments, with Bitcoin largely answering this need in the last few years.
When Bitcoin was first introduced to the world by the pseudonymous Satoshi Nakamoto, it was largely viewed as an unknown and unproven currency.
Today, Bitcoin is accepted by major retailers such as Home Depot, Zappos and Dell, prompting more and more people are searching for answers about digital currency and how it came to be.
As Bitcoin continues to feature as an exciting and lucrative investment for a variety of different players, the currency’s greatest asset, “blockchain technology”, has been hailed as an innovative way to transact, and speaks to the future of moving money.
To understand bitcoin mining, it is important to first have a sound grasp of the intricate inner working of this first cryptocurrency.
First off, one of Bitcoin’s most differentiating characteristics is that it is not tied to any particular country or economy, but is rather completely decentralized in nature, and powered by mathematics that uses complex algorithms generated by powerful computers.
As such, one of the most important aspects of maintaining Bitcoin’s success is to ensure its accuracy and the methodical release of additional currency over time.
To this end, mining accomplishes both tasks as miners discover and obtain bitcoins by completing specific tasks.
People send bitcoins frequently over the blockchain, which acts as the bitcoin network.
For example, Person A may purchase an item from Person B for an agreed price, but there must be a way to record and validate the transaction.
The network completes this task by collecting all transactional data created within a specific period and placing it on a list, which is also known as a “block.”
The miner’s job is to confirm the accuracy of transactions and write them into a general ledger, which is essentially a list of all blocks (more commonly referred to as a “block chain”).
As a result, a detailed list and confirmation of each transaction takes place in the network, and this data which is produced becomes constantly updated and provided to everyone who participate, in order for them to remain abreast of all developments.
As such, Bitcoin miners are essential to the success of this cryptocurrency because they verify transactions, ensuring the integrity of the blockchain network.
A short introduction to the mining process
When a “block” of transactions is created, bitcoin miners initiate a process that confirms its accuracy.
In order to do this, they take this block and apply a mathematical formula, turning that initial sequence into something much shorter. The result is a more compact sequence and truncated patterns of letters and numbers that is also called a “hash.”
Each new block is produced using the hash from the block before it, and this is used as one mean of confirming the accuracy of the block.
This process creates a so-called “wax seal,” which indicates that this block and the one before it is accurate.
As an example of the efficacy of this process, if an individual were to decide to tamper with the block, all participants would become instantly aware due to the abovementioned process, and the fake would be easily spotted.
The mining process itself can be summarily described in the following steps:
- The transaction is bundled into a block.
- Miners verify whether the transaction is valid.
- They select the header of the most recent block and insert it into the new block as a “hash.”
- They solve the mathematical problem.
- When the solution is found, the new block is added to the block chain and then propagated throughout the network.
Miners do not only attempt to verify one transaction, but many, and all of these transactions are locked into boxes with a virtual lock.
Miners continuously run software to locate the “key” that opens that lock. Once the computer discovers this key, the box is opened, the transaction is verified and the miner receives 6.25 bitcoins (before the halving in May 2025, the reward used to be 12.5 bitcoins).
As can be imagined, this task is not easy to complete, and very much resembles trying to find a needle in a haystack.
In fact, the estimated number of attempts to find the correct key is about 1.7 billion, and a bitcoin reward is given out about every 10 minutes.
Therefore, the key to any miner’s to success is having the right tools at their disposal.
In summation, it can be understood that during the mining process, miners seek to verify transactions and then ensure their accuracy.
This is a complicated process which makes use of complex mathematical formulas. But, once this complicated process is successfully completed, the miner is rewarded with 6.25 bitcoins.
The fundamentals of Bitcoin mining
The first step in starting a Bitcoin mining career is getting a Bitcoin wallet. Each wallet has its own unique bitcoin address.
This wallet is essentially an encrypted online bank account that holds your reward during the mining process.
In addition to the wallet, you also need the right tools – and those tools have changed significantly over the past few years, but a description of the most relevant is given below.
CPU versus GPU bitcoin mining
During the first years of Bitcoin mining, miners relied on simple CPUs to mine bitcoins.
At the time, these basic desktops were powerful enough to complete the required tasks. But as time progressed, cracking the codes became harder, and miners found a more robust alternative, namely that of GPU mining on graphic cards.
This was because GPUs were nearly 100 times faster than CPUs, and when it comes to bitcoin mining, faster processing results in greater and more frequent success.
Added to this, GPUs could be used to mine a variety of cryptocurrencies, not just bitcoins. But as time progressed, faster and even more robust options emerged, causing many of the former options to become obsolete amongst miners today.
FPGA bitcoin mining
This is a field-programmable gate array (FPGA) which enables mining hardware manufacturers to purchase chips in volume and customize them for bitcoin mining prior to putting them into their equipment.
Since this technology is customized specifically for the task of bitcoin mining, it usually performs much better than CPUs and GPUs.
ASIC bitcoin mining
Application-specific integrated circuits (ASICs) are the newest thing in bitcoin mining. They are designed to provide mining power at immense speeds and use extraordinarily little electricity – which is a bonus for miners with high electricity bills slowly eating away profits.
These chips, however, must be designed for the specific task, which does make them time consuming and expensive to produce. Yet many bitcoin miners find the investment is worth the speed. In fact, ASIC devices can run up to 2 tera hashes/sec.
In summation, much of the hardware used at the start of the bitcoin mining era has become obsolete, as it is too slow for the massive scale computation required.
While newer options have become available on the market, they do come with a larger price tag.
The use of Bitcoin software
Depending on the type of hardware and equipment a miner selects, they will also need certain software in order to operate this equipment.
In the case of using GPUs and FPGAs, a host computer is needed that runs a standard bitcoin client as well as the mining software.
A standard bitcoin client is the type of software that allows the user to interact with bitcoin clients by relaying data between the miner and the bitcoin network.
Bitcoin mining software is central to successful cryptocurrency mining because it instructs the hardware to do the hard work, passing along transaction blocks to solve.
In nearly all cases, miners will need software for the ASIC miner as well, but manufacturers of some new models do say this is not required. All this equipment and software can make the cost of mining bitcoin add up.
Collectively, miners are estimated to use about 3,176 megawatt hours of electricity per day. With mining becoming increasingly difficult and expensive, many miners are joining pools to ease the expense and workload.
In summation, Bitcoin software enables the Bitcoin hardware to carry out its task in the mining of Bitcoins, making this software crucial to the entire mining process.
A closer look at Bitcoin mining pools
Returning to the high costs of bitcoin mining, one option which can reduce these expenses is that of mining pools.
These pools formed when mining became more difficult and it could take years for slow miners to generate a single block. In response, the found that they required a method that would help pick up speed, without too much expense.
Miners decided that if they pooled resources and joined forces, they could generate blocks faster and receive block rewards on a more consistent basis, rather than every few years.
However, all mining pools are not created equal, and they use a variety of operational methods, some of which are described in more detail below.
Firstly, the pay-per-share method provides instant mining output for each share that is solved by a miner. Payment is made from the pool’s balance and a miner can withdraw their money immediately.
This method offers low risk for miners and transfers a large amount of the risk to the pool’s operator.
Secondly, the proportional method allows miners to earn shares until the pool finds a block, which will signal the end of that mining round. After that, each user gets a set number of shares within the round, based on a specific formula.
Thirdly, the Bitcoin pooled mining method, also referred to as the slush system, is one in which older shares from the beginning of a block are given less weight than more recent shares.
This method minimizes the risk of cheating the mining pool system by switching pools during a round for maximized profit.
As can be seen from just some of the methods which are described above, it is important for minders to do adequate research on the mining output method used before joining a pool.
As more miners join the Bitcoin arena, the process is becoming more competitive and decidedly more difficult. A such, today it is harder for miners to unlock Bitcoin profits as more people are participating in the search.
Mining pools make the task easier by allowing miners to pool their resources for greater efficiency.
However, the easiest way for a beginner to get into bitcoin mining is by participating in cloud bitcoin mining.
This is because cloud bitcoin mining allows for an individual to pay for the use of hardware and software needed for bitcoin mining without expending the cost of overheads associated with a personal mining rig.
Companies which offer cloud mining have data centers all over the world that house this hardware, which means they absorb the electrical and heating cost that comes with cryptocurrency mining.
Which are the best companies for Cloud Mining?
Before proceeding with cloud mining, traders must understand the great risk which is involved with this type of mining as it is an extremely high-risk speculative investment. Not only because of the mining process, but various factors that surround it.
Success cannot be guaranteed and there is always a risk that miners can incur substantial losses. It is imperative for miners to first evaluate a mining company in great detail and read up on reviews and user experiences before deciding to sign up.
Some of the best cloud mining companies include:
- Bitcoin Pool
- Hashnest
- Hashflare
- Hasing24
- EoBot, and more
Advantages and Disadvantages of Cloud Mining
Instant Activation
Miners are only liable to purchase GH, and they can start mining instead of having to gather capital for hardware, having to order it online, and waiting for it to ship.
In addition, it also cancels out having to deal with faulty hardware and having it fixed or replaced and cancels out the tedious task of setting new hardware up.
No risk of hardware failing
The data centre, or mining company, is the responsible entity in providing subscribed miners with the hardware that they need. This has to be in good working condition and the company carries the cost should hardware fail, or maintenance has to be done.
The company is also responsible for configuration and supplying the miner with guaranteed up-time in addition to pay-out.
No noise, heat, or issues with space
Advanced machines are not suitable for home use due to the heat and noise that they produce in conjunction with their sheer size.
No hike in electricity fees
Due to the substantial power that it takes to mine, it consumes a lot of electricity and miners are then subsequently responsible for the bills. However, when cloud mining, the company is liable for those cost and often, they get discounts on electricity based on their location or on bulk pricing.
Disadvantages of Cloud Mining
The risk of fraud
Due to the nature of this type of business, the cloud mining industry is littered with scams and due to a lack of regulation, people put their trust in companies without there being any backup for when things go wrong.
Lower profits
The profit margin involved with mining is already low and where cloud mining is involved, there is paying for all the conveniences cloud mining brings, which will decrease an already low profit margin.
Lack of control
There are numerous cloud mining companies that do not provide miners with full control over their hashing power. Some of these mining companies also have their own mining pools that miners are placed in without a choice of their own.
Is Cloud Mining profitable?
The profitability will vary on the kind of cloud mining that the miner is doing however, in most cases, the answer is often no. These methods are often used by those who do not have a background in mining, or those who merely want to make fast profits without putting actual effort and capital into mining conventionally.
There are, however, numerous minders who know what they are doing and who have adequate investment, emotionally and mentally as well as actual investment, into what they are doing. They see an opportunity, purchase GH, and make profits where they can.
There are also those who have made a substantial amount of profit through cloud mining, but it happens seldomly.
Unfortunately, there are more people who are starting new cloud mining contracts, buying GHs, and investing a substantial amount of money in mining in this manner, who may not get a decent ROI due to the cost of the contract in addition to the price on cryptocurrencies such as Bitcoin.
It may seem like a much cheaper option, but when considering that miners pay the contract and the GH and to break even marginally while making a profit is rarely attainable, feasible, or sustainable in the long run.
Mining, not just Bitcoin mining, becomes unprofitable as soon as the cost of running cloud mining is more than the amount of bitcoin which is actually being mined and it would therefore be more efficient to merely buy, trade, and exchange bitcoin than trying to mine it.
Calculating profitability where mining is considered over a long term, becomes quite difficult when considering that the difficult in mining where algorithms is concerned is increasing and the hash rate continues to expand and contract. The hash rate tends to grow and shrink according to the profitability and the market price on these cryptocurrencies.
Conclusion
The essence of the service is that a third-party hosts mining equipment and provides access to the rewards associated with the equipment.
Cloud mining has many advantages and disadvantages. For one, the user must trust the cloud provider in a space ripe with scams and frauds. The user is not in control of the equipment or how it is used.
The advantages, of course, are not having to fill your home with computer equipment, not having to deal with the noise, the heat, the power consumption, and the upkeep of the mining equipment, and so on. Essentially, you outsource the work.
In cloud mining, you essentially fund a portion of a mining operation, and the cloud miners do the rest. You are, in effect, an investor in the operation.
A huge advantage of these services is that it is totally hands off — no equipment to buy or manage, no space to find for the equipment, no equipment noise, no heat to deal with. Cloud mining service solves those issues for you.
However, cloud mining can also be somewhat risky. Many are not profitable for the durations specified in the contract and can leave purchasers of these services losing money, in some cases, over the long run.
Users may have been better off simply purchasing the cryptocurrency that their mining contract mines. (That, of course, is often also true of pool and solo mining.)
Note also that there is overlap between pool mining and cloud mining. Some pools will not only use your hash power but will also sell you hash power.
In effect, you are connecting your processors to the pool’s node, but you are also providing cash to the pool to purchase more computing power, which they will then manage for you.
Thanks to some great partnerships that Cloud Mining has established with hardware producers, as well as to the company’s large-scale purchases, it is able to get better prices on its employed technology.
This means that the company buys the hardware cheaper than the market price. What also bears great importance, considering the maintenance costs, is the storage of the miners.
To this end, these companies have several farms around the globe, and each location was chosen to fulfil two important criteria: cheap electricity supply and little or no need for cooling.
There is much beauty in purchasing and setting up your own mining operation, and many do follow this route.
But setting up mining rigs are for those who are skilled technicians, can solve tricky complications, and generally see the fun in maintaining a complex construction.
Cloud mining is for those who want to have the benefits of cryptocurrency mining without maintaining any mining equipment. For most people these are tricky, unnecessary difficulties, and the Cloud Mining solution is targeted exactly at them.
While there are many out there who feel that they can mine cheaper by themselves according to their calculations, they do often forget to factor in one or more of the above listed costs.
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