Serious qestions about CEX.io and other cloud mining services

[daledaledale]

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:

Cloud mining or cloud hashing is a brand new concept, which allows users to form groups (pools), where their joint efforts are rewarded with greater income, in comparison with individual mining with own equipment.

Now, everybody can earn additional income with little to no risk and frequent payouts.

Cloud mining with CEX.IO is an easier, more convenient and vastly more profitable way to get Bitcoins.

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. 

[1714810435]

1714810435

[mjc]

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.

[daledaledale]

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.

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.

[Itun]

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.

[smooth]

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.

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.

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

[bitcoindigi]

cex is a was of money and time imo

[BCB]

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.

[Itun]

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.

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.

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

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.

[smooth]

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.

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.

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

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.

[odolvlobo]

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.

[desert_beagle]

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.

[smooth]

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.

[LoTodelo]

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.

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.

[kuzetsa]

((...snip...))

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. 

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

Just sayin'

cex is a was of money and time imo

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/)

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.

[moribana]

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.

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. 

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..."

[kuzetsa]

((... snip ...))

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

((... snip ...))

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.

[siameze]

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.

[Vexatious]

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.

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.

[kuzetsa]

There are several alternatives to cex.io, I hope the new one that is creating a buzz eventually forces cex lower on the scale.

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

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)

[gracesfall]

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.

What are some viable, reputable alternatives to CEX?