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A Beginner’s Guide to Bitcoin Cloud Mining

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Want to invest in bitcoin mining but do not want to deal with the hassle of managing your own hardware? Cloud mining is an alternate way of mining Bitcoins without you having to own expensive hardware or know any technical expertise. Because of this, bitcoin cloud mining has opened up a new possibility of earning bitcoins for enthusiasts that are not particularly tech-savvy.

Cloud mining is done by using shared processing power produced by a remote datacentre. However, there are a few risks that must be taken into consideration before purchasing such services. This Bitcoin mining guide will provide details concerning these risks.

How does Bitcoin cloud mining work?

The main difference between these mining methods is the issue of who houses and manages the Bitcoin mining hardware. With traditional mining, the user purchases, sets up and maintains his equipment.  This implies that the owner must have more than basic technical knowledge, proper ventilation for cooling and a budget for increased electricity costs. Cloud mining has the mining rigs stored and maintained in a facility that belongs to the mining company. For a customer to access such services, he must register for an account and set up a mining contract. These contracts come into effect almost immediately and the user earns profit on a regular basis.

Types of cloud mining

Currently there are three forms of remote mining available:

Hosted mining – which implies leasing a mining machine that is owned by the provider.

Virtual hosted mining – it creates a virtual private server on which you can install your private mining software.

Leased hashing power – you lease an amount of processing power without having a dedicated or virtual computer.

Profitability issues

Not all cloud mining services are the same so as a result different mining services will give different earnings.  The first matter is the mining company’s reputation. It is important to look for a company that is known to have strong security features implemented and few negative reviews from customers. Search for relevant threads on Bitcoin forums and reliable review sites for feedback from users that have tried the services of a cloud mining company. Check out our Top Most Visited Bitcoin Forums.

The second issue at hand would be the cost of cloud mining – GH/s (Gigahash per seconds) – that you will be acquiring. Prices vary from company to company, some of these being so high that it seems unprofitable to invest in such mining.

Mining difficulty and the market price of Bitcoin are other factors that influences the profitability of these services. Good mining calculators can give users a close estimate on how his earnings will be affected by increases in mining difficulty.

However, the web services that calculate these things work with hardware parameters, not cloud-mining parameters. Profitability calculators usually ask for electricity costs and maybe the initial hardware investment.

The conversion process is also a bit tricky. With hardware miners, you can figure out your monthly running cost by multiplying it with your electricity charge by the power consumption of the unit and by a conversion factor of 0.744.  But for cloud mining calculations, you have to do the opposite, because you are given a monthly running cost. You do this by dividing the monthly running cost by the conversion factor of 0.744.

Risks and rewards

You will most likely observe that some cloud mining services will bring you good earnings for the first few months, but as the mining difficulty increases, you start to experience losses from a certain point.

The risk of frauds, scams or just mismanagement is real in the cloud mining industry, so invest only if you are comfortable with the possibility of you also losing money.

Pros

  • No installation or setup costs
  • No heat and noise coming from the cooling fans
  • No maintenance
  • You don’t have to buy extra equipment to have your mining hardware running
  • Reduced chance of being duped by mining equipment suppliers

Cons

  • You cannot sell equipment because you don’t own it
  • Risk of fraud/scam
  • Lower profits
  • Mining operations can be ceased if a profitability threshold is too low
  • Less control and flexibility
  • You cannot point your hashrate at your mining pool of choice

Bitcoin mining should be practiced in the same manner as any other high risk investment and as the saying goes, never invest more than you are willing to lose.


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