Nov 30, 2017 • 14:42
Cloud Mining Risks as cloud mining scams, price volatility, terms of contracts and mining difficulty.
Bitcoin has not only been a trendsetter, but it is still the de factor standard for cryptocurrencies. Of all the cryptocurrencies available today, Bitcoin continues to lead. Bitcoin still has the greatest popularity, user base and market capitalization. All Bitcoin transactions must be authenticated by miners in a process referred to as ‘mining’. Unlike with traditional mining, cloud mining allows users to buy mining power of hardware placed in remote data centers, instead of using their own machines. This allows all Bitcoin mining to be carried-out in the cloud, eliminating all offline hassles that come with installation, upkeep, and hosting.
Even so, there are some risks involved with Bitcoin cloud mining, just like it is with other types of investments. Here are the major cloud mining risks that every user must be aware of. The risks apply to Ethereum cloud mining, Scrypt cloud mining, Dash cloud mining, Zcash cloud mining and Monero cloud mining as well.
The vast majority of cloud mining services available online are actually scams. Most scammers use a fraudulent investment operation known as ‘Ponzi scheme’, whereby old investors get paid with funds made by new investors. Not only does cloud mining provide an easy way for fraudulent entities to transfer money with limited ability to trace them, but it also limits the users’ ability to reserve those transactions. We evaluate each cloud mining company before we list them in terms of history, reliability, transparency, customer ratings, forum ratings, our own experience and our own payout charts. We have had best experience with Genesis Mining, Hashflare and ViaBTC. Example of large scams are Hashocean, Biteminer, CLDmine and there is a complete list on our cloud miningpage.
The cryptocurrency market is quite volatile, where the market capitalization of a Bitcoin can be divided or multiplied by a factor of 2 in a few days. This means that the value of your Bitcoins can increase or decrease significantly in a matter of a few hours. When the Bitcoin value plunges too much, the cloud mining equipment can run out of profitability, forcing the company to shut it down. This translates to an investment loss to a user. We did experience this ourselves with Mining Sweden and Zeusminer.
We have seen cloud mining contracts changed the terms during the course of a contract. This is a potential risk among all cloud mining risks. Even though cloud mining contracts rarely undergo frequent changes or modifications, it doesn’t necessarily mean that changes can’t occur. Once they do, it can be extremely damaging. Hashflare did this in September 2017 when they changed their Bitcoin cloud mining contracts from lite-time contracts into 1-year contracts. Hashflare even changed already sold cloud mining contracts. Genesis Mining did at the same time claimed that they would never do such a thing as to their customers.
Another risk, among all cloud mining risks, is the mining difficulty that will greatly vary depending on the number of miners that join and or leave the network. This can can a negative impact on the payouts. It can make it difficult for user to predict or evaluate the profitability of the return on their cloud mining investment.
Just like with other online investments, investing in cloud mining is a pretty risky operation. To minimize the risks, it’s imperative for you to understand all the terms of your cloud mining contract before signing it. Be sure to check the flexibility of the contract and verify beforehand. For example, Genesis Mining let you the liberty to switch between different cryptocurrencies. Most cloud mining companies display electricity and management costs on their pricing page. Take them into account when you compare contracts.
You can read more about how to minimize risk and general cloud mining tips in our cloud miningpage.