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What is cloud mining?

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With the rise of the cryptocurrency industry, new income-generating opportunities that are unique to it have emerged. One of them is crypto mining. This leads participants to stakeholder status across multiple block chains as they invest their time, computing power, and money in protecting and validating their chosen encryption network.

There are different forms of participation in the crypto mining sector. You can choose to take a practical approach or choose to avoid the technical compromises required for successful crypto mining. In this guide, we’ll focus on the latter. Here, you'll find everything you need to know about choosing a more direct approach to crypto mining, or what is popularly called cloud mining. But first, you need to have at least a basic understanding of how crypto mining works in general.

What is crypto mining?

Crypto mining involves a sequence of processes designed to secure, in a decentralized manner, a given network of blockchain. Through their activities, miners validate transactions and collectively generate the supply of new cryptocurrencies.

A crypto miner is expected to:

run a node on a blockchain network;
complete specific tasks to find a new block;
load new transactions in the block;
make sure that there is no double spending on cryptocurrencies.

Upon completion of these processes, the blockchain network is designed to automatically reward successful miners with new currencies. This is the main distribution mechanism used by proof of work (PoW) blockchains (blockchains that support mining). Note that the special task assigned to miners depends on the type of PoW engine in use.

For example, the Bitcoin network and other block chains using the SHA-256 mechanism (256-bit secure hash algorithm) require miners to compete to solve extremely difficult mathematical equations before a new block can be found. This process requires a high level of computing power, which means that miners who wish to succeed must be able to invest a certain amount of funds in suitable hardware to ensure that they have a chance to run a profitable mining operation.

Also note that blockchain networks are designed to constantly adjust the mining difficulty to ensure that new blocks are found at a fixed interval.

Therefore, whenever there is an increase in the number of mining nodes in a given network, or an increase in the computing power of its existing mining nodes, the difficulty of mining the network increases accordingly. If the reverse is the case, the network self-adjusts to reduce the difficulty of the SHA-256 equation. In most cases, would-be miners therefore need to invest in powerful and specialized mining platforms in order to have a chance to become profitable.

With that in mind, the following is needed to become a successful crypto miner:

Investment in high performance mining platforms. A solid piece of mining hardware can cost up to $ 8.000 and a platform is not enough for a miner who expects to make a profit.
Acquire the coding and technical knowledge necessary to run a complete node on a blockchain network.
The electricity bill to operate and cool mining platforms 24 hours a day, 7 days a week, could hurt the mining companies' profits. Therefore, miners should choose a cheap energy source or choose locations with colder climates to reduce the amount of electricity needed to cool mining hardware.

In short, an independent cryptocurrency needs to have the technical skill, along with sufficient commitment and capital, to have a chance of success. As not all cryptocurrencies can meet or increase these requirements, other less practical mining options offer viable alternatives. This is where cloud mining comes into play.

Mining cloud: what is it?

Now that you understand the basic concept of crypto mining, it should be easier to understand cloud mining. As its name implies, cloud mining is the process of using the power of cloud computing to mine cryptocurrencies. In that case, you pay a third party to do all the work for you. In essence, you don't need to buy or maintain special mining platforms, nor do you need to run a blockchain node.

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With cloud mining, participants often rent mining platforms or rent hash power. The latter is a measure of the power of a mining platform and is usually calculated in units of Gh / s and Th / s. The cloud mining provider owns and operates a facility or farm loaded with mining platforms and offers users the opportunity to buy or rent a portion of the hash power it generates.

The cloud mining provider must have invested in cutting-edge mining hardware and, ideally, established its farm in a location with access to cheap electricity and a cooler climate. This approach ensures that the overhead costs of running the farm are kept within an acceptable range.

This solution is ideal for individuals who are not interested in getting involved with the technical side of crypto mining. In most cases, participants can track their hash rate and cloud mining revenue using their smartphones. Some cloud mining configurations even automatically redirect the generated hash power to the most profitable mineable currency over a given period.

Different types of cloud mining models

host mining

Host mining involves buying or renting platforms on mining farms. In this scenario, you may have to pay for the configuration and maintenance of the platform. The advantage of this model is that it generally reduces the indirect costs associated with access to sufficient electricity. In addition, you have more control over your leased platform (s) and can choose to redirect the generated hash energy to mining pools in order to increase your chances of finding a new block. Finally, you have full control over the rewards generated, as you only need to pay maintenance and setup fees to the cloud mining provider.

Lease Hash Power

In contrast to host mining, leasing the hash energy involves leasing part of the hash energy generated by a mining farm. Here, you are not burdened with maintenance or setup fees. You only need to sign up for a plan to receive a share of the farm's profits. When the farm finds a new block and receives cryptocurrencies as a reward, the revenue generated is shared among users according to the portion of the hash power they control.

What are the advantages and disadvantages of cloud mining?

Cloud mining is the ideal choice for anyone who wants to reap the economic benefits of mining without having to deal with all the technical and hardware requirements described earlier in this guide. Cloud mining can also potentially help to reduce the overall operating costs of a mining platform.

However, there are potential disadvantages that you need to consider before opting for a cloud mining model. The first is the high rate of scams in the cloud mining sector. Over the years, the sector has become a breeding ground for scams. Since investors may not have the opportunity to assess mining farms in person, it can be difficult for them to verify the claims made by the cloud mining provider.

Some cloud mining providers even run pyramid schemes, in which the first investors are paid with deposits from new investors. Knowing that this is unsustainable, the providers eventually commit exit scams. Therefore, it is your responsibility to perform due diligence before opting for a particular cloud mining service. You should explore assessments, investigate the platform's credibility in crypto forums, consider withdrawal limits, and avoid offers that promise implausibly profitable deals.

Another detail that you need to note is the potential profitability of the offer. If the amount paid to rent, buy or maintain cloud-based platforms does not align with the hash power offered, you may incur losses. Carefully analyze mining capital and potential revenue before moving on to a cloud mining offering.

Finally, beware of cloud computing platforms that have complete control over your earnings. It is advisable to choose those that offer some level of autonomy when it comes to your cryptographic wallet.

Conclusion

Cloud mining is a viable means of earning passive encryption revenue. However, as mentioned in this guide, it does come with its peculiar pitfalls. Therefore, it is important to conduct extensive research and have a firm grip on basic mining concepts before engaging in the practice.

Disclaimer: The views and opinions expressed by the author, or anyone mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing or trading cryptocurrencies carries a risk of financial loss.
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