What is Cloud Mining and How Does It Work?

There are two main ways of obtaining crypto coins. The first and most obvious one is purchasing them – be it directly from an exchange, or from another person selling in on a P2P platform. The second one is mining, which means using your computer’s power to contribute to the blockchain and be rewarded in the process. Today, we’re focusing on mining, and specifically cloud mining, which is a great option for those who are not very technically minded.

Traditional mining requires quite a bit of money and effort. Depending on what currency you’re planning to mine, you will need to invest in specific hardware – and that can be either ASIC processors, CPUs, or GPUs. ASIC computers, which are used for Bitcoin mining, are particularly expensive, but a couple of powerful GPUs could break the bank for some people as well. Then, you need to build your rig on your own and ensure that it does not overheat, by adding a cooling system. For profitable mining, you will need to run your computer 24 hours a day – and that means extra dollars on your electricity bill. On top of all that, mining rigs produce a lot of heat (even when properly ventilated) and noise. That’s why many people recommend keeping it in the basement or garage, and not everyone has the space for that. Bottom line is that traditional mining is much harder than purchasing coins, but that should not discourage you from trying it out.

What you can do instead is get a could mining contract from a reputable company that does traditional mining. These companies take all the responsibility of building the rigs and maintaining them and let people from all over the world rent a portion of their computing power from a distance. In other words, cloud mining companies are websites that let you mine Bitcoins or altcoins using their rigs, without worrying about the side effects of having a miner in your own house. You pay a small fee (usually per hashing power unit), and sometimes a maintenance fee, and you’re ready to start mining without any extra effort.

That’s basically how cloud mining works. Piece of cake, right? Not exactly. Thea real challenge is to choose the right contractor, as the cloud mining niche is oversaturated with scammy websites and Ponzi schemes. We recommend going with a reputable company like Hashflare, but you can also find a few other trusty websites on the Internet. Here is a small checklist of things to make sure of when you’re searching for the perfect cloud mining contractor:

1. How long have they been in business?

If the company has been active for several years, it’s usually a good indicator.

2. What do other customers have to say about it?

It’s best to go to non-biased websites like Yelp and Trustpilot for this, but remember that not even those reviews are to be trusted 100%. Some can be fake accounts created by the company itself, or by the competitors. A rule of thumb is to not go for a company that has 100% positive feedback, as no money-related business can ever have a completely satisfied customer base. Something with a lot of reviews that leans more towards the ‘good’ end of the spectrum is what you’re looking for.

3. What do cryptocurrency forums have to say about it?

Forums are usually filtered of any affiliate/paid publicity posts, so you can definitely find some reliable information on cloud mining there.

4. Is the company active on social media?

Although it doesn’t seem like much, a company that posts pictures of their team and rigs on social media, like Hashflare, is more credible than one that doesn’t.

5. Are they transparent about their fees?

The contract fees should be available on the website, and they shouldn’t ask for any personal data before informing you about the fees.

6. Do they let you choose your own mining pool?

A good cloud mining contractor will always let you choose your own mining pool, and pay you according to the pool’s policies. Websites that are shady about their pool policies are not to be trusted.

7. How do they pay you?

There’s no right or wrong payment policy – some websites will pay you on a daily basis, some every week, and some every month. However, you should look for one that is very transparent about their payment system: the website should tell you how often you will get paid, when will the first payment come in, and in what currency will they pay you.

8. Do they offer a limited number of contracts?

It can be frustrating to see that the Bitcoin mining contracts are sold out at one point, but that is actually a good sign – it means that the company doesn’t intend to sell unlimited amounts of (inexistent) hashing power. It’s best to go for a website that knows exactly how much computing power they have and are able to sell.

9. How long does a contract last?

Lifetime contracts were extremely popular in the past years, but many of the companies offering them ended up being Ponzi schemes. That’s why you will mostly find limited time contracts right now – most are on a yearly basis, but you can also find monthly and quarterly contracts. You can sometimes come across lifetime contract relics, but it’s probably best to avoid them.

10. Do they offer merged mining?

Merged mining refers to mining multiple cryptocurrencies based on the same algorithm. For instance, Bitcoin and Namecoin are based on the same SHA-256 algorithm. However, as the difficulty of Namecoin blocks is much lower, there’s a greater chance of finding one of those and earning more.

This is just the tip of the iceberg – there’s much more to what a cloud mining service can offer. However, it’s a good place to start your research before you give your money to a company, but you definitely shouldn’t stop here. Always invest responsibly and keep an eye on Cloudminers for more cloud mining guides.


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