Why does "cloud mining" service work?

[ethantaylor]

I don't know much about cloud mining, and I had heard that many cloud mining services are scams. But I had also heard that there are some legitimate cloud mining services, which rent out their hardwares for their customers to mine Bitcoin.

I have a question: Since mining is profitable, why do those companies rent out their hardwares for other people to mine Bitcoin and don't simply use the hardwares to mine Bitcoin for themselve?

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[TryNinja]

I'm not sure if that's correct but IMO it makes sense.

There's ONE reason for a large mining operation to rent capacity in a customer-profitable way: Reduce negative float and let them see a return on their investment sooner. By collecting an upfront rent they get immediate cash,  and the cost of getting that cash early is their profit is reduced  (Shared with the people buying the contracts)  ----  so they could finance a large amount of equipment and other capital costs by selling contracts,  and the contract seller can go home with profit on month 2 or month 3,  instead of month 12;   Whereas the delay to profit is transferred to the buyer of the contract,  And  their profit is small....

The problem is that there is so much demand for cloud mining, and people buy these contracts without regard to profitability and risks --- that they are able to actually sell under terms where the people buying these contracts don't have enough built-in profit to make up for the risk they are taking.

In other words: Cloud mining WOULD make sense,  But  the demand-hype in the marketplace prevents this from happening,  since there are too many other people willing to buy these mining contracts even if they will lose money --- that it is almost impossible to buy a mining contract  that is likely to have high profits for you,  or alternatively,  that guarantees any profit  or offers any protection of your investment against difficulty changes.

TL;DR: Because you giving them money upfront allows them to buy more equipment to get more hashpower. They're basically taking out a loan.

https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dip4kzu
https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dipltwy

[Proton2233]

I would not dare to give my money to loan to people whom I don't know. Cloud mining too good for the crooks to I trusted them. I think it is better to spend your money to buy equipment than give it to scammers.

[fanatic26]

One reason for cloud mining over mining for a company only is with cloud mining you have guaranteed income on the books that looks better to potential investors or if you are trying to get a loan. It is much harder to prove a stable income when you are only mining and being paid in crypto as its value changes second to second. TryNinja is also correct, it enables you to build out quicker if you have a facility that is in need of more hardware.

[makulo123]

Well, the buying the coins is a hell of a lot better than renting cloud mining services.
1. No problems with mining equipment.
2. No complications with mining difficulty (which would make cloud mining less effective)
3. You can store them wherever you want on a safe place
4. It's more profitable, since you don't have to wait in order to have these coins actually
However, if you already have mining equipment or you found some cheap rig then it's actually the same...

[BitMaxz]

Well, the buying the coins is a hell of a lot better than renting cloud mining services.
1. No problems with mining equipment.
2. No complications with mining difficulty (which would make cloud mining less effective)
3. You can store them wherever you want on a safe place
4. It's more profitable, since you don't have to wait in order to have these coins actually
However, if you already have mining equipment or you found some cheap rig then it's actually the same...

You got the point i think buying altcoin is much more profitable and you can gain instantly than you are investing in cloud mining site or rent a miner..
Well if you plan to buy almost 2700 euro per mining rig for ethereum 150mh/s or bitcoin miner i think it takes long time before you can recover your investment unlike you are buying a coin sample you buy bitcoin when the price of bitcoin is around $1,800-$1,900 and the price today is $2,700
You already made almost $800-$900 such a large price if just invest 1 btc when the price is low.. past few days and these days we seen the price movement is really fast.. compare just to invest our money to buy a miner that it takes few months before you can recover your investment..
Except if you can build a own custom mining rig..

[shinratensei_]

I don't know much about cloud mining, and I had heard that many cloud mining services are scams. But I had also heard that there are some legitimate cloud mining services, which rent out their hardwares for their customers to mine Bitcoin.

I have a question: Since mining is profitable, why do those companies rent out their hardwares for other people to mine Bitcoin and don't simply use the hardwares to mine Bitcoin for themselve?

But they will never give ROI for your investment. How cloud mining site works? You just send your money to the scammer as a free loan without interest to make the scammer can cause the business become large than before. As the result, the scammer will be sent you some decimal worth of hashpower.

But your total investment will never be reached due to the maintenance fees. The possible think that you are mining the altcoin which has the low price and in the next week, the price of the coin will have increased some hundreds of percents. 

[Rahar02]

I'm not sure if that's correct but IMO it makes sense.

There's ONE reason for a large mining operation to rent capacity in a customer-profitable way: Reduce negative float and let them see a return on their investment sooner. By collecting an upfront rent they get immediate cash,  and the cost of getting that cash early is their profit is reduced  (Shared with the people buying the contracts)  ----  so they could finance a large amount of equipment and other capital costs by selling contracts,  and the contract seller can go home with profit on month 2 or month 3,  instead of month 12;   Whereas the delay to profit is transferred to the buyer of the contract,  And  their profit is small....

The problem is that there is so much demand for cloud mining, and people buy these contracts without regard to profitability and risks --- that they are able to actually sell under terms where the people buying these contracts don't have enough built-in profit to make up for the risk they are taking.

In other words: Cloud mining WOULD make sense,  But  the demand-hype in the marketplace prevents this from happening,  since there are too many other people willing to buy these mining contracts even if they will lose money --- that it is almost impossible to buy a mining contract  that is likely to have high profits for you,  or alternatively,  that guarantees any profit  or offers any protection of your investment against difficulty changes.

TL;DR: Because you giving them money upfront allows them to buy more equipment to get more hashpower. They're basically taking out a loan.

https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dip4kzu
https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dipltwy

Of course, you're right about that.
Except for, it won't works for newbies who wants to get easy money by investing small amount of bitcoin to cloud mining.
You need at least BTC0,5 to invest on them, make sure the contract mention about how much you get in return and how long your money return fully?
In my opinion, it's not worth to risk your bitcoin and get small payments every week and require a long time to get your money back, and there is a risk which the owner run away., you can't stop them.

[Yuhee]

I'm not sure if that's correct but IMO it makes sense.

There's ONE reason for a large mining operation to rent capacity in a customer-profitable way: Reduce negative float and let them see a return on their investment sooner. By collecting an upfront rent they get immediate cash,  and the cost of getting that cash early is their profit is reduced  (Shared with the people buying the contracts)  ----  so they could finance a large amount of equipment and other capital costs by selling contracts,  and the contract seller can go home with profit on month 2 or month 3,  instead of month 12;   Whereas the delay to profit is transferred to the buyer of the contract,  And  their profit is small....

The problem is that there is so much demand for cloud mining, and people buy these contracts without regard to profitability and risks --- that they are able to actually sell under terms where the people buying these contracts don't have enough built-in profit to make up for the risk they are taking.

In other words: Cloud mining WOULD make sense,  But  the demand-hype in the marketplace prevents this from happening,  since there are too many other people willing to buy these mining contracts even if they will lose money --- that it is almost impossible to buy a mining contract  that is likely to have high profits for you,  or alternatively,  that guarantees any profit  or offers any protection of your investment against difficulty changes.

TL;DR: Because you giving them money upfront allows them to buy more equipment to get more hashpower. They're basically taking out a loan.

https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dip4kzu
https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dipltwy

Except for, it won't works for newbies who wants to get easy money by investing small amount of bitcoin to cloud mining.
You need at least BTC0,5 to invest on them, make sure the contract mention about how much you get in return and how long your money return fully?

So it is very advisable that newbies must read and not just risk big amounts of money to some blind investments. And from what i have observed, i have not yet seen a legit contract buyer who could really brag own how much they have earned during the period of there contract. Maybe big time contracts had some profit but it really is not a promising business for a long term unless you are the one giving out contracts. To be honest i don't want to risk cloud mining because of some security issues.

[Avirunes]

TL;DR: Because you giving them money upfront allows them to buy more equipment to get more hashpower. They're basically taking out a loan.

https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dip4kzu
https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dipltwy

Absolutely correct. They never own that rental until they get money from us. Later on shares a part of their profit accordingly with the share we have. Just like TryNinja said "It's a loan"....but a no collateral one.

Even though they are giving you a share of their profit daily they are not transparent and sometimes you might not get the your actual part(they may take some more portion for themselves) ultimately making your ROI period long.

[Ctn]

I would not dare to give my money to loan to people whom I don't know. Cloud mining too good for the crooks to I trusted them. I think it is better to spend your money to buy equipment than give it to scammers.

Indeed it is the case with me. Why would invest money on something that you can do yourself at the same expenses that you are going to risk on something "Unknown". Yes they are like that, cloud mining always turn to be scammer once they realise they are not profiting much or the cost of maintenance is surpassing the cost of earning. You can bring new miners to your house by yourself and earn decent money in a year if period. Trust me it not worth.

[klf]

Well, the buying the coins is a hell of a lot better than renting cloud mining services.
1. No problems with mining equipment.
2. No complications with mining difficulty (which would make cloud mining less effective)
3. You can store them wherever you want on a safe place
4. It's more profitable, since you don't have to wait in order to have these coins actually
However, if you already have mining equipment or you found some cheap rig then it's actually the same...

In most of the developed countries, electricity charges are higher and that makes mining is not profitable even though you get cheap miners. These could mining companies offer higher hash rate to attract people and that's why many people end up trying these services. Instead, as you said it is better to buy coins directly and wait for two years to appreciate your coins to make a decent profit.

[sunsilk]

I have a question: Since mining is profitable, why do those companies rent out their hardwares for other people to mine Bitcoin and don't simply use the hardwares to mine Bitcoin for themselve?

It's just the mindset they give to the people by letting investors rent out their hardware and in return of a contract.

But cloud mining is just a scam, I won't give enough time and interest with it anymore, it's proven by a lot of people here.

The ROI is even slower these days, better start to dream about your own mining hardware.

[wantjokull]

I think you heard and taken things in completely wrong way or from wrong sources. There are no companies which you think will give you hardwares to mine yourself.  

legitimate cloud mining services, which rent out their hardwares for their customers to mine Bitcoin.

No they don't. There are service which gives you rented miners and note that they are not profitable.

If you really want to know how cloud mining works then you should visit genesis and hashflare. Those are the only (known to me) sites which are currently paying to their shareholders. So you may wanna risk your money there.

[frowsiter]

Cloud mining is not legit and who says that they give away rented hardwares. There is no connection at all between a cloud service and renting the miners.  Both the entities are different.  Cloud mining is the one where you put your money on the miner site to buy hash rates.  Depending upon these rates your return of investment can be calculated.  Everything can be seen and calculated from the dashboard of your mining site.  This is actual cloud mining. Renting the hardwares is different thing.  Cloud mining is behind the scenes and you only see interactive websites with data processing on it.  Anyway cloud mining thats why is noy much trustworthy because we dont see any physical presence. 

[ethantaylor]

Thanks all for your insightful inputs. Now I have a deeper understanding of cloud mining. I will open a new thread to ask more questions in order to decide whether I would dabble into such a thing or not.

Cloud mining is not legit and who says that they give away rented hardwares. There is no connection at all between a cloud service and renting the miners.  Both the entities are different.  Cloud mining is the one where you put your money on the miner site to buy hash rates.  Depending upon these rates your return of investment can be calculated.  Everything can be seen and calculated from the dashboard of your mining site.  This is actual cloud mining. Renting the hardwares is different thing.  Cloud mining is behind the scenes and you only see interactive websites with data processing on it.  Anyway cloud mining thats why is noy much trustworthy because we dont see any physical presence.  

Yes. I meant to say cloud service, not renting out actual hardwares.

[lottery248]

in a nutshell, if you are unable to buy miners and mine online, cloud mining is often a way to solve your problem, but legit sites are few.

for actual cloud mining, those companies are providing their own miners and you gotta buy those hash for the profit as they gained, normally after deducting those mining maintenance and/or electricity fee. however, they normally won't ask for extra commission other than their cost. they have no referral program either.

for ponzi, it is to lure people to 'mine' bitcoin and receive those bitcoin from the user who 'invested' later. once operator gained enough fund they run out and your fund if you did not withdraw is gone.

[Avirunes]

in a nutshell, if you are unable to buy miners and mine online, cloud mining is often a way to solve your problem, but legit sites are few.

And what about mining with rentals? You can buy small rentals if you have few coins. Will you choose something in which you trust some other with your balance and have no control over mining configuration or where you have control over the mining configuration and in same way is transparent as well (showing the proof of mining)

[Vod]

I have a question: Since mining is profitable, why do those companies rent out their hardwares for other people to mine Bitcoin and don't simply use the hardwares to mine Bitcoin for themselve?

THAT is the exact reason every cloud mining operation is a scam.  :/

[xypos]

I don't know much about cloud mining, and I had heard that many cloud mining services are scams. But I had also heard that there are some legitimate cloud mining services, which rent out their hardwares for their customers to mine Bitcoin.

I have a question: Since mining is profitable, why do those companies rent out their hardwares for other people to mine Bitcoin and don't simply use the hardwares to mine Bitcoin for themselve?

Your questions are exactly why you shouldn't invest in any form of cloud mining site.

You got something wrong though, mining is only profitable when there is cheap electricity, you run your own pool, you don't need external cooling because your area is already so cold, and you manufacture your own equipment or you have a company that wholesales these to you.

But services like genesis mining, all they're trying to do is to get their share in maintenance fee and sell as many overpriced contracts as they possibly can, and offer it as an investment opportunity.

As you said if it is profitable for them then why are they offering contracts to the public? After all they're here to make $$$. So all cloud mining is either unprofitable or a ponzi scheme.