This can't be right can it? If i was going to make a profit, they wouldn't hire it out, and just get the BTC themselves? can someone please explain?
Well, not exactly.
Let's place yourself in the shoes of the provider. You've just designed a cool new mining ASIC, and ordered a load of the thing from a foundry in South Korea or Taiwan. The chips will be manufactured and start arriving in 3 months.
Now, what will happen in that 3 months? You haven't the slightest idea. What will bitcoin difficulty be? Who knows? How much will a bitcoin be worth in greenbacks? Beats me! Maybe the Chinese are ready to deploy some datacenters the size of Manhattan, chock full of ASICs just as good as yours, and drown you in hashing power. Maybe the bitcoin price will collapse, and a single ASIC will eat more electricity than the generated bitcoins will be worth.
So you have invested a huge amount of money, and what do you have to show for it? A load of risk.
So, you need to offload that risk, hedge your positions. You start selling the chips in advance, for a reasonable price, and you start taking orders for mining contracts. This way, your buyers are taking part of your risk away, and you get instant money. This way, you can make sure that at least you recoup your investment.
Of course, you'll keep some cores to mine for yourself, but you no longer need to worry about being left dead in the water.
On the other side, as a buyer, you are buying risk. The reason you want it is the upside risk. You're expecting that the $3000 you spend on 4 months' profits of 1Th/sec will pay for itself and more. Bitcoin prices will climb, difficulty won't explode exponentially, and you'll still get back at least as much from the endeavor as a good risk investment would have brought in corporate bonds over a comparable timeframe.
Of course, you are accepting the downside risk too, that the seller wanted to get rid of. Maybe in 3 months, all the new ASICs will come online, and drown you in hashing speed - your 1TH/sec will be ridiculous, as obsolete as the GPUs are today. Maybe the price of bitcoins will collapse again, and you'll find you've paid 3 grand... for 1 grand.
It's business. You need the lobes for it.
