How Does Cloud Mining Bitcoin Work?

If you intend to invest in bitcoin mining without any hassle of maintaining your own hardware, there is an option. You can opt for the cloud to earn your coins.

In simple words, cloud mining means using commonly shared processing power that is being run from remote data centers. One just needs a personal computer/system to communicate, own alternative local bitcoin wallets, and much more.

Though there are specific risks associated with cloud mining that investors have to understand before making a purchase.

Advantages

• Stay at a peaceful space without any disturbance of hamming fans.
• No inclusive electricity charges.
• No equipment to be sold when mining stops profiting.
• Zero-ventilation issues with hot equipment.
• Decreased instances of being let down by the suppliers of mining equipment.

Disadvantages

• Risk of criminal activities and fraud.
• Non-transparent mining functions.
• No chance to implement your technical skills.
• Reduced profits as the operators would have to cover their costs as well.
• Contractual warnings that the mining functions may cease based on the price of bitcoin.
• Decreased access and flexibility.

Cloud Mining Types

Usually, there’re three forms of remote mining being introduced until now:

1. Hosted mining

Lease a mining device that is being hosted by the provider.

2. Virtual hosted mining

Generate a standard virtual private server and then install your mining software.

3. Leased hashing power

Lease a specific amount of hashing power, without any physical or virtual system. 

Determining Profitability

Profitability calculators can be used to determine the profit amount, and it includes electricity costs, and also the initial investment amount in hardware. Also, you are being asked again and again, for your present costs and your one-off investment amounts.

Hence, if the provider, not you, is going to pay the electricity bills, you can get into the monthly mining bill instead of the electricity cost.

To accomplish cloud mining calculations, you have to calculate an equivalent cost per kilowatt-hour to insert into the mining calculator. This can be done by dividing the monthly running cost by the 0.744 conversion factor.

What to consider: Risk or Reward

While getting involved in any type of cryptocurrency mining, there exist risks, but benefits are also there if you take the appropriate decisions.

When you would do the test calculations, you would be able to see that some of the cloud mining services will be beneficial for a few months, but, as soon as the difficulty level of bitcoin gets increased, you would possibly begin to face a loss in some months and later.

A probable solution to this problem is to reinvest what you have earned into managing a competitive hashing rate, but this process is very doubtful. Investors should invest in cloud mining only if they are known to the associated risks and are ready to accept them.

One should search out all the related social media channels, communicate with former customers, and ask informative questions to operators before investing. Eventually, you should practice this kind of due diligence that you would for any kind of investment.