Cloud mining: 5 points that distinguish legitimate companies from fraud
Bitcoin Mining - How to identify scams? Source: Pixabay
This post is dedicated to the issue of cloud mining and demonstrates what you should look out for in order to avoid becoming a victim of a scam. We strive to improve community cohesion by incorporating community contributions and highlighting interesting subjects from many perspectives. Have a good time and stay safe!
Cloud mining is the process of several devices at a cloud mining provider’s data center working together to mine Bitcoin. The benefit of this sort of mining is that the client is not responsible for the hardware or software used to mine Bitcoin, but just pays to the expenditures. The customer can rent a different quantity of hash power. In this post, we’ll show you how to spot a reputable cloud mining company and what to look for in a shady one.
The hard way of the bitcoin miner
You’ll need technology, software, and the right infrastructure to run mining operations. Mining software, unlike hardware, is available for free. The mining gear (ASIC or GPU miner) typically costs between 1000 and 3000 euros per device.
But that isn’t the end of it. To make mining profitable, the miner requires a pitch with internet access and inexpensive power and cooling. These are key obstacles for beginners to overcome in order to participate in mining. Read our information post ” Bitcoin mining: how does it work and is it worth it?” if you want to learn more about how bitcoin mining works.
Cloud mining as a business model and fraud model
A corporation with the necessary infrastructure purchases miners and runs them in their own data center with inexpensive electricity. Customers can then rent the miners’ services for a specified length of time and profit from it.
In and of itself, a promising business strategy, because customers can start with little sums and do not need to purchase a complete mining gadget right now. Unfortunately, many organizations’ cloud mining has evolved in such a way that the consumer never sees a significant portion of his money again.
These featured business strategies that paid significant commissions to anyone who was able to attract new clients and utilized up to 40% of the invested capital for their own infrastructure (pyramid system or pyramid scheme). Those that only wanted to mine and not gain more clients only received a little portion of their initial investment.
Other business models rely on the concealment of mining performance so that the predicted income cannot be calculated.
Bitcoin mining requires 100% transparency
An Antminer S9, for example, has a computing power of 13.5 TH/s and power usage of 1400 watts. With these figures, you can use a mining calculator (such as whattomine.com) to determine whether mining is profitable at the current electricity price.
Many providers did not mention the miners employed or the miners performance in a beginning package, which is crucial for a computation. However, many buyers were drawn in by sophisticated marketing, only to be disappointed.
Cloud mining had a surge in 2017. The promises offered by the shady suppliers were so appealing that many individuals fell for them, and practically all consumers lost money the following year when the companies just disappeared or ceased paying out. Despite the numerous bad apples, there are cloud mining companies who write their contracts carefully and specify the expenses of maintenance and mining performance.
>> Do you want to know more about mining? See how China is back at it. >> Mining is not only reserved for Bitcoin. You can also mine Ethereum
How do I recognize a scam?
There are several telltale symptoms of a con. The following cloud mining situations should be approached with extreme caution.
Profit promises that are unrealistic. An investment’s break-even point is frequently not reached after six months. It normally takes around a year, although it could take longer if the difficulty level rises (e.g. 24 months).
It is not possible to register for free with the service. To be able to invest personally, you’ll need a middleman. This indicates a Multilevel Marketing System (MLM) in which recruiters make a lot of money. Most importantly, this has a detrimental impact on the company’s service.
It is unknown which miner (kind and firm) is being used or how much processing power your investment is based on.
When mining is no longer economical, opaque contracts allow for unlawful shutdowns.
“x dollars per giga or terahash” service fees are common. Mining is usually not profitable from the start because to the high fees.
Miners that are either overpriced or way too inexpensive. A purchasing price that is twice as much as the manufacturer’s pricing is not a serious matter. Offers that are too good to be true may suggest deception. The miner will always be slightly more expensive than the manufacturer because to import taxes and delivery fees.
5 points to watch out for when cloud mining:
When it comes to cloud mining contracts, and generally when it comes to mining company investments, the following points should be considered:
Is the location of the company’s headquarters known?
Transparency in contracting: How is the contract written? Is it in accordance with the law?
Electricity prices are favorable: How much does electricity cost? Is this described, and is it really worthwhile to mine?
Service Fees Are Adjustable: Is the Fee Schedule Reasonable?
Distribution regulations that are clear: when is disbursement made? Are there any minimums? If so, how much do these cost?
You should also check social media to see how long the supplier has been around and whether there have been any negative experiences. Most scam models are only on the market for 6 to 18 months. After 2-3 months, the first unfavorable response is usually received. The Bitclub fraud was, by the way, one of the greatest cloud mining scams.
Cloud Mining: 5 Points That Distinguish Legitimate Companies From Fraud – Summary
Cloud mining is the process of several devices at a cloud mining provider’s data center working together to mine Bitcoin.
Read our information post ” Bitcoin mining: how does it work and is it worth it?” if you want to learn more about how bitcoin mining works.
Many organizations’ cloud mining has evolved in such a way that the consumer never sees a significant portion of his money again.
With these figures, you can use a mining calculator to determine whether mining is profitable at the current electricity price.
Despite the numerous bad apples, there are cloud mining companies who write their contracts carefully and specify the expenses of maintenance and mining performance.
The following cloud mining situations should be approached with extreme caution.
The Bitclub fraud was, by the way, one of the greatest cloud mining scams.