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I am really confused about the proposition of "cloud mining" or "cloud hashing" services. Let's take cex.io for example. 

Let's assume you are not joining cex.io to speculatively trade GH/S <-> BTC and you aren't planning on spamming your referral link all over the place.  Why would you ever use their services? I honestly don't get it.

Some statements from their site:




OK, this all sounds like there is some possibility for me to buy cloud hashing time and potentially actually see a return on my investment right?  Looking at their own calculator: https://cex.io/calc we can see an estimate of predicted investment VS return. 

The current rate for GHS/BTC is .0850, so say I spend 8.5BTC for 100GH/S, their calculator shows that in the first month I will make back 2.39BTC, second 1.59BTC...etc until the twelth month when it has dwindled to .03BTC and is fast dropping.  The most I ever make back is 6.92BTC plus a few specks of dust after 12 months as the return approaches 0.

WHY WOULD ANYONE DO THIS?  Please I don't want to hear about trading of GHS/BTC, I realize that this is how people are using it to make money, but cex.io themselves isn't only focusing on this, they are selling themselves as a mining service that makes sense, and to me it makes absolutely no sense. 

Here is a scam service idea that could make a huge profit: set up a cloud mining service that offers better rates than everyone else.  People pay you BTC for GHS.  You don't use this BTC for any hardware, you just sit on it, and you pay them out a diminishing trickle of their own funds that decreases as difficulty increases.  If you did this right you would actually be giving people better value for their buck than CEX.io and still making huge profits.  Actually, how do we know that cex.io or other operations are not doing this?

Can anyone convince me that the whole thing isn't a huge scam? I would love to be convinced. The fact that proponents of the services are constantly spamming around their referral links doesn't help much. 

Some people cannot afford to buy equipment, or cannot run the equipment for one reason or another.  It is more expensive to cloud hash, but depending on the price of BTC versus the cost it can be profitable.

That said with the great increases in BTC Value, mining has been a losing venture as compared to just buying BTC and holding long term.

Hind sight is always 20/20.

Really? I don't think it can, because you can't pay in anything other than BTC, so I don't see why it has anything to do with the BTC/USD rate.  I am saying that if you put X BTC into cex.io and simply cloud mine, there is no chance of ever getting X out, and definitely not more than X.  If that was made clear to users (again, who are not interested in spec trading GHS v BTC) then no one would sign up.  Currently the site seems extremely dishonest about what is going on.

Well, you can buy GHs, mine for a month and sell it.

If the prices of a GHs lower at the constant rate it has been lowering at, you can make a profit like that.

You can get more out if the difficulty goes down (or goes up less). That is the gamble.

cex is a was of money and time imo

Daledaledale

Interesting analysis. I don't know any thing about the company but there are a lot if scams in BTC world and even more suckers as we can see from the five short years of its history.

If you don't understand it or it doesn't make sense. Stay away. Plenty of other gullible fools out there.

I think the lowering of difficulty (or even the lowering in the speed of increase) is very very unlikely.

New ASIC technologies are just going to break the roof.

Just for the record, I don't disagree, and I don't recommend buying hash power on CEX. I'm just saying that if you buy hash power on CEX with the intention for holding it for mining profits you are implicitly expecting difficultly to stagnate or fall.

So if the question is "are hash shares on CEX overvalued" my answer would be yes and your answer would be yes, but isn't a logical certainty.

The one thing that would likely put a damper on difficulty would be a big crash in the price of BTC. So in a way you could look at CEX as being a short on BTC.

Daledaledale,

It is not you that is confused, it is the people that buy the shares that are confused. Some people that buy the shares are speculating that somebody is going to pay even more for them. That works sometimes, but the price is already too high and trend is down, so on average anybody that buys these shares is going to lose money.

I would stay away from the virtual mining thing.  If you wanna mine, just buy the hardware, mine with it and once it becomes unprofitable, sell it on ebay.  Trust me, alot of dumbasses will buy old mining equipment with no understanding of ROI.

Also, even if you don't want to do it yourself, you can find reputable group buys on here that include hosting for much less than CEX.

Let's see if it stays this way, I see lots of auctions on Ebay these days asking crazy prices for old Block Eruptors, and most seem to be selling. Looks like everyone is jumping on bitcoins to get a piece of the action.

Yeah, it might be a scam, but consider three little words:

CEX.IO sells hardware

They explicitly let you trade and redeem your hashpower in the form of a physical bitcoin mining rig, and then run it at home yourself if that sort of thing is more appealing to you... Everyone's preferences and skill level is different.

Another thing, consider the fact that their hashpower / pool is large enough to show up on this chart as one of the top three:

http://blockchain.info/pools (http://blockchain.info/pools)

Just sayin'

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Maybe it's a waste of money too. Nobody knows with 100% certainty. The projections for when bitcoin mining becomes unprofitable are diverse and varied in their models and methodology.

I don't have a crystal ball to say WHEN it will happen, but at some point the older, less-efficient bitcoin ASIC mining hardware will stop being profitable, including the currently available CEX.IO cloud-hosted hashpower.

---

Case study comparing cloud-mining to my own bitcoin ASIC mining hardware:

• Consider the efficiency specs of BFL 65nm ASIC hardware
• Assume australia's electricity rate and paying about 30 cents per kilowatt hour for electricity.
• Assume exchange rate settles at around $500 per BTC...

Under those conditions, the less-efficient 65nm ASIC hardware will hit a profitability threshhold at which point:

"price to buy bitcoins on the market" VS "cost of electricity to mine bitcoins"

will be roughly equal, or in favor of buying bitcoins at or around a bitcoin network difficulty of 6 billion...

---

Now consider the more efficient mining hardware used by, for example, cloud-mining company CEX.IO / GHASH.IO:

• More energy efficient 55nm silicon process for bitfury ASIC chips.
• Commercial / institutional electricity used by CEX.IO is much cheaper,
  but after datacenter / maintainence fees, it is quoted at $0.30 USD (equiv. $0.33 AUD)
• Consider identical exchange rate at or around 500 per BTC...

This hosted commodity hashpower hardware will reach the profitability threshhold at about the same 6 billion difficulty, but there's are several differences:

• You can't order tiny amounts of butterfly labs 65nm ASIC hardware because the smallest order is their 5 GH/s model, AKA "Jalapeno", and you can't easily scale up incrementally to something in-between the Jalapeno and "25 GH/s little single" without buying in full 5 GH/s increments
• Hardware production & shipping delays push you further into the next bitcoin difficulty increase(s) & profitability decline
  (compared to the "instantly available and hashing" for cloud services)
• The aftermarket for used bitcoin mining hardware is rather unpredictable
  (versus having the ability to both conveniently, and instantly sell your commodity hashpower to get some of your money back)

---

Now let's consider what if your existing hardware on-hand is a less-energy-efficient "avalon" bitcoin miner or "USB Block erupter", and therefore your profitability threshold will happen at some point before bitcoin even hits the 6 billion difficulty which affects these two case studies ...

Now let's say what if you can't afford to buy new hardware, or maybe you don't feel like looking for a local buyer or trying to figure out shipping costs associated with selling your next set of new hardware once THAT TOO becomes obsolete after N months or years (or maybe you simply don't want to wait in line for shipping... regardless, you have a reason for not wanting hardware) and after considering all the pros and cons, you still want to mine bitcoin...

It might not be for everyone, but there are legitimate circumstances under which a purchase of some cloud-hosted commodity hashpower might be attractive to some bitcoiners or investors...

Consider all your options.

That's all I'm saying.

I don't have a crystal ball, so I can't predict how long it will take for the bitcoin network to reach the "6 billion" difficulty target, or whatever the relevant profitability threshhold is for [hardware X at exchange rate Y and electricity cost Z] (though there are some pretty well-made mining profitability calculators out there, particularly community favorites such as http://mining.thegenesisblock.com/ (http://mining.thegenesisblock.com/))

For that matter, there's always the possibility that somewhere down the line some company will start selling hosted commodity hashpower at a cheaper [hosting, maintenance & electricity] price, or maybe cex.io will upgrade their fleet of ASIC hardware to something more efficient.

Again, I don't have a crystal ball.

In your calculation you assumed a given change of difficulty for the next few months and you also assumed that people buying these shares are rational beings like you and pay only a reasonable price for this. If these assumptions of yours are correct then you are right, it is not worth. Personally I think that your assumption about the difficulty is qualitatively correct, but the second assumption might not hold. If that were true, share prices on cex.io would have fallen much more, reflecting the increase in difficulty.

Your description fits all the so called "perpetual mining bonds". They could make a lot of profits because people do not understand how to sum a geometric series. These people have in mind "mining forever..."

WRONG!!!

• BFL 65nm process silicon ASICs are 4 GH/s per 12.8 watts (3.2 joules per GH)
• BitFury 55nm process silicon ASICs are 25 GH/s per 16 watts (0.64 Joules per GH)

New calculation using same energy costs from the above case studies (30 & 33 cents per kilowatt hour):

A = ( 3.2 * 30 )
B = ( 0.64 * 33 )
C = A / B
D = 6 billion * C

6 billion * (96 / 21.12) = 27.27(272727...) billion

CORRECTED profitability threshhold shows that the "hosted commodity hashpower" is actually much much more sustainable than mining with older hardware

... such as 65nm BFL ASICs (assumes BitFury 55nm process silicon ASICs operating at 0.64 Joules per GH)

---

Edited to add:

Note that the above case studies were assuming bitcoin exchange rate of $500 per bitcoin.

Cloud mining *can* turn a profit but the problem with cex is not their hardware or the site itself, it is the site management which likes to jerk around users and change there TOS on a whim. There are several alternatives to cex.io, I hope the new one that is creating a buzz eventually forces cex lower on the scale.

My advice is do not trust cex.io or Jeffrey Smith AT ALL.

This is an interesting observation. So purchasing the GHS/BTC on CEX is effectively a form of hedge for long term bitcoin holdings? The question is what would it cost in BTC to fully hedge your holdings? And is that cost worth it to you if you think there is a bubble in the current price of BTC/USD?

Complicated but I intend to smoke a doob and think on it some more. :D

The actual title of this thread explicitly has the words "... and other cloud mining services"

Ok, I'll bite. What are you referring to?

In the past couple hours I confirmed that the top 3 pools (by number of blocks submitted to the bitcoin blockchain in the past 4 days) are currently still still:

• ghash.io (cex.io's pool)
• btcguild
• eligius
  .
• Source: https://blockchain.info/pools?timespan=4days (https://blockchain.info/pools?timespan=4days)

Could you please qualify those statements?

Which alternatives?

Which new one specifically is creating a buzz?

---

As an aside, perhaps are you suggesting that one of the top 3 largest pools is simply as-yet unidentified by the tool(s) used by blockchain.info for identifying blocks, and therefore most of these unidentified blocks listed under the "unknown" section of the pie chart is actually coming from a cloud-hosted mining operation? (which, admittedly, if most of that "unknown" section is coming from one pool, it means that the top 3 pools I'm listing is technically wrong)

What are some viable, reputable alternatives to CEX?

That is counterintuitive... if BTC crashes, lots of miners would stop, but wouldn't that also drive the price of GHS lower also? Like GHS/BTC at 4/3 become 3/2 (making up numbers here). Looking at the long term GHS/BTC chart looked very flat over the last month given that BTC was parabolic, I assume that means GHS was essentially parabolic also.

If that is the case then not a hedge, but please correct me if I have that wrong.

(edit- I think actually you may be correct upon contemplation for a few minutes. The chart DOES appear to be flat, if that is correct, and you can buy GHS/BTC or BTC/GHS, then that would be the first effective hedge I have seen in bitworld. You won't profit off the decline, you just won't lose your open gains in BTC. Does this sound right? If so cex ought to get to marketing it....much needed I believe.)

As for the premium, you're probably right but it's totally normal. You'll have to forgive me I've been a commodities trader/hedger for a long time so I have to use those terms, but when you are trading futures you create what is called a basis. Basis breaks away from cash values as speculation in the futures moves higher or lower from real world prices. I get the impression cex is more focused on the futures business. When you are using that as a vehicle you don't really care what the basis is. This is why most futures contracts are settled against the commodity on a specified date, so that it does not drift eternally away from the underlying product.

I don't know if that is what you are seeing here, I have some more homework to do, but ultimately futures exchanges trend towards having nothing really to do with the commodities they represent (I've never really seen a yen but I've traded a few billion of them, mostly true for soybeans and the rest).





  

Okay I went and looked as this is interesting. Here is the chart for GHS/BTC

https://i.imgur.com/fcGJPRC.jpg


I haven't quite figured out the multipliers so if you break it down for me that would be awesome. The chart is clearly nothing like BTC alone, unless the multiplier is extremely high and that minor deviation is dramatic. What is the scale? In other words what is the high of .145 on 11/4 and the low .067 on 11/28... does that mean the widest fluctuation in value  was .078 BTC?

Problem as I see it remaining, you're still in a vacuum, in relation to USD etc. So it's not really a hedge. But it is something...past my bedtime I will sleep on it, thoughts welcome.

The price of GHS/BTC depends on BTC/USD only by its effect on the difficulty. Since GHS/BTC is denominated in BTC and it earns BTC, USD does not have a direct affect on it.

When BTC/USD drops, mining becomes unprofitable for the marginal miner, and he will stop mining. The difficulty will rise more slowly (or even drop in the extreme case), and that will result in rising mining revenue (in BTC) for the miners that remain, causing GHS/BTC to rise.

Note that operating costs are currently very low, and BTC would have to drop quite a bit before high operating costs would make mining unprofitable. On the other hand, falling prices would discourage people from buying mining equipment until its cost adjusts lower. This will cause the difficulty to rise more slowly temporarily.

I also want to point out that GHS/BTC is not a commodity because it earns income and its value is based on the amount of income it earns.

I would look at some of the group buys where they host the machines for you, and you get a share of the hash. I have a few shares with DZ.

Pretty much just to echo what other people have said already...from a financial perspective pretty much all of these services will lose you money. They are for people who don't do the calculations. I mean when you first hear "$10 for 1GH/s for a year" it sounds pretty good, but when you add in their maintenance fees and realize that BTC difficulty is only going to keep jumping up then you still won't break even in the end. If you are betting on the price of BTC skyrocketing then you should just buy BTC instead. That way you at least know exactly how much BTC you will get for your money instead of just an estimate based off of hash rate and predicted difficulty.

Yes, actually it is not necessarily a scam and it's called PMB (perceptual mining bond).

If the price would only be 10$/GH. But is 0.07 BTC right now , which makes it almost 60usd/GH.
I honestly don't understand why somebody would buy this , unless he has no clue about math.

I couldn't agree more.

@OP Sure someone can convince you that the whole thing is not an huge 'scam' however noone can't convince a believer of anything.

So very true. No one wanted to believe TradeFortress was not trustworthy 6 months ago, when the writing was on the wall. Now he is nowhere to be found and his "true believers" were left with slack jaws.

cex.io will most likely meet the same sort of end.

Yesterday morning my cex.io account was hacked and also my email. The hacker sold the GHS I had and withdrew the funds. I had deposited 10 btc into my cex account. My cex account is now frozen by cex and they are investigating – whatever that means. Does not cex have the obligation to make this right??

2FA should be mandatory, not an option. In addition, they need tighter security for withdrawals.

Ok I've been running some thoughts and numbers in my head about CEX. Right now it is .04189 a GH so 1 Bitcoin would get you about 23 GH's. I have about $14,000 in a couple stocks right now that I am thinking about cashing out and buying bitcoins at the current price of $850 I could get about 16 Bitcoins. Now if I bout GH's with those 16 bitcoins I would have 368 Gh's (not including my BFL 60), at the next predicted difficulty level of 1,549,680,471 I would earn .1194 BTC per day according to bitcoinx.com. So if I did this for 30 days I would earn 3.582 bitcoins but with difficulty increase probably 3 bitcoins in a month.  Then I sell my Gh's hopefully for what I paid for them or more I could make a profit here I think, and then put my money back into stocks. My goal is to just get about 5 bitcoins total and then store them on a flash drive and CD for the next 10 years and then come back and look at them.

Any thoughts if this could work? ???
Thanks.

Is cex.io legal?

Never really occurred to me to ask but they are uk based I believe, stringent financial regs. Since they don't take money money I am not sure what the status would be. Technically they are running an exchange (buying selling hash power basically the same as trading electricity in the eyes of a bleary bureaucrat).

I would have concerns about that putting a big chunk in and keeping it for months. Risk not worth a few extra coins considering opportunity loss if they grabbed your stash.

Just something to think about, like I said I don't know.

I see no advantage whatsoever (and significant disadvantages) if the plan is to buy and hold (mine).  Just buy some mining gear (which will likely be cheaper).  Why introduce a middleman who might implode, might be a scam, etc.?

If you are going to trade I could possibly see the merit, but not for mining.

The logic behind that is flawed.

If you buy for a month and sell it, does what you said also apply to the person who bought from you?

What if you are the person who bought from the person who'd be already using it for a month?

i dont see a lot of people agreeing with you

Everybody will make a lot of cash :) , err bitcoins. Wasn't supposed to be like that , everyone getting rich out of nowhere? =))))

This chart helped me get a better idea of CEX >>> https://cryptfolio.com/historical?id=cexio_btcghs_daily&days=180

I use CEXio... before my goal was to trade, then I wasnt careful and had around BTC 0.4 of losses mainly because I thought the price of GHS would go up (I started just before prices went down)...

Looking at the graph in the link above, and the graph on CEXio, I've had some luck getting back those BTC that I lost...

If the price of GHs is destined to go down, trading would really be profitable. Just buy when it gets to that big drop (you really have to spend time watching it though). The more GHs or BTC you trade, the bigger the profits of course. Don't expect to be rewarded by trading one GHS/BTC at a time... Those .000x wouldn't matter if you're not trading big, youre better off mining that difference for the time being...

In the end, I think its the same thing if you're mining in the cloud or have your own hardware. Bottom line, YOU GOTTA SPEND MONEY TO MAKE MONEY! It's as simple as that...

Very simple.
Some people don't check the profit calculator, and some don't even understand what difficulty is.  :)

Yeah better ur btc sit in cex and making u some small profit than sitting in ur wallet doing nothing :D .
And also add there some good refs. And do bit trading . U can make some nice profit.

I totally agree with u . Cex cant make u loads of money on ur investment , but its pretty safe investing there and will make u some profit. Not much but better than nothing. Atm if u have more than 160 ghs, for me that will make some nice profit for doing nothing.

That is just not true. In general, the more you mine using cex.io, the more money you lose. You are much better off holding BTC in your wallet than buying GH/s and mining. This has been shown many times already.

Here are the ways a profit can be made on cex.io:

1. You buy GH/s at a much lower price (below 0.012 BTC), and you mine.
2. You trade frequently and you are very good/lucky.
3. The difficulty remains flat or falls (possible, but extremely unlikely).
4. Spam referral links (as suggested by MICRO).

Well hm... u have good point coz price rely drooping.
But there is one more way , let refs buy ghs for u :D

Did the original questioner remember to include the fact that at the end of that year you still have the original ( but depreciating ) GHS to sell back to BTC?  And if one were to re-invest the mined coins as they come, there is the opportunity to mitigate the depreciation of the total GHS on the account, by constantly increasing the mining power by using at least some of the profits.
However, I don't know if the value of the BTC mined would be enough to buy sufficient extra GHS to create a virtuous cycle. Probably only some of the time.  But part of this model involves timing when to move between GHS and BTC.  i.e. Trading one for the other for a profit.
In some ways this could be more sensible than buying the mining hardware because it is difficult to convert the BTC (or fiat) you used to buy the equipment back into BTC.  

I invested 0.05ish btc for 5ghs in this http://pbmining.com/ . Its for 5 year so no trading or selling ur ghs. But at this price of 0.011 btc / 1ghs. U should get ur money back in 60ish days. So everything after that for the next 5 years is pure profit. And also they are paying out evry week so u dont even need to check or cashout . Just forget about it and get btc in ur wallet evry week.

ez answer: u sell

Do the math. The price has dropped 90% in the last 4 months and mining has returned only 50% of the purchase price. Reinvesting would have only compounded the loss.

Use pbming.com, if you are serious about making money.

If we use pbmining can we make profit?

U will get invested money back in 60ish days. After that everything is profit for next 5 years .

Take a look at Hashnest (https://www.hashnest.com/). You can buy (and sell) hashing power and no one doubts legitimacy of Bitmain.

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