Cloud Mining Rating System

eightcylinders (OP)

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Cloud Mining Rating System

November 04, 2014, 09:06:32 PM
Last edit: November 05, 2014, 04:40:36 PM by eightcylinders

#1

***PLEASE DO NOT POST REFERRAL LINKS ON THIS THREAD, THEY WILL BE REPORTED TO MODS AND REMOVED AS SPAM**
*** IN CASE YOU HAVE ADD AND CANNOT READ BEYOND THIS POINT ***
*** REFERRAL LINKS ARE INDICATORS OF FRAUD/PONZI/MLM AND ARE A NEGATIVE FACTOR IN RATING ***

EDIT: Decided to add top 3 and bottom 3 rankings up front for those who just want the bottom line. NOTE that this is not a ranking based on ROI solely. Please read full explanation before making any decisions with your money/BTC. In fact, 2 of the 3 best cloud services by my ranking will not ROI under current market conditions, but that is NOT the purpose of this ranking.

BEST:
AMhash - score 142
CEX.io - score 115
Umisoo on hashnest - score 74

WORST:
Zeushash - score -3
Zoomhash - score 1
GAW Prime/Zen Hashlet - score 13

EXPLANATION BELOW:

I am developing a scoring system for cloud mining companies. My intent is to make this a community based system with discussion here about the right scoring methods, and scores for each cloud mining company to be determined and posted here. Feel free to add, criticize, or propose additional components. My second post in this thread will be my scoring of the companies that I am familiar with as a customer and that will change over time obviously so I will do my best to keep the grid in the second post up to date. This first post is purely explanatory.

I am convinced that cloud mining is the future - for better or more likely for worse - of bitcoin, litecoin and any future coin that can be hashed at high rates using ASICs. The reasons for this are the ability to scale massive farms and reduce investment in both capital (cost of miners) and operations (hosting and electricity) far more than any solo miner can achieve. Pools were just one early form of collective action, then came hosted group buys, and now cloud mining. All paths seem to lead inexorably to collective action to keep costs low and achieve economies of scale.

On the flip side, cloud mining in bitcoin and scrypt is a perfect setup for ponzis, pyramid schemes and outright fraud. Anyone can make a pretty web site and run a simulation showing virtual mining activity while having no miners or fewer miners than the hashrate sold... Given the long ROIs now even for high end miners, payouts can be easily made from new investors (ponzi scheme), and with extensive use of affiliate and reseller programs (pyramid scheme) a good huckster can ensure a long term inflow of capital even while making larger than market payout returns - at least until the scheme collapses and the last round of investors are left with nothing more than a bankruptcy claim!

Mt.Gox also proved that even established cloud services (not even mining in the case) can start out legit and end up as massive frauds when there is no transparency and only a few people in charge.

Unfortunately, with difficulty skyrocketing, and coin prices in the toilet right now, cloud mining is the only viable alternative if you want even a chance at ROI.

So, in sum, cloud mining seems to me to be here to stay, but the fraudsters and hucksters will have their bloody romp through the flocks of sheep before the legit operators actually shake out and/or some kind of monitoring system gets put in place to prevent bad people from taking advantage.

With all that in mind, I have put together a little system that I find useful in "scoring" cloud mining companies. The scoring features are broadly grouped into 3 categories: Legitimacy and Transparancy (100 points), Remedies (50 points), Relative (Static) ROI (50 points), and Red Flags (-50 points).

So the score can range from -50 to +200 points.

Here is my description of how I score each component:

(a) Legitimacy and Transparency: 100 possible points. The most important category, as ROI and remedies don't matter if the whole thing is a scam.

--> Demonstrated mining activity consistent with claimed ghs or mhs (0-20 points). Pictures of a few racks of miners don't count. Proof of mining can be in several ways: disclosure of mining addresses, disclosure of mining pools and workers on those pools subject to public monitoring, proof of ownership of mining capacity, or ability of the customer to control pool selection/mining. A perfect score can only be achieved if the mining company can demonstrate capacity/hashrates equal to or greater than the hashrate sold.

--> Backed by known and trusted manufacturer or disclosed, established, major financial partner (0-20 points). While not a perfect guarantee, an established manufacturing partner or major financial backer means that there are likely to be internal controls, and even if not public, audits to prevent fraud.

--> Mining hash rate is subject to audit/verification (0-20 points). Ideally, a mining service that claims to provide 1 Th/s of hashing should be able to prove that the customer is getting at least 1 Th/s. For example, a score of "20" would given if customer could direct mining to specific pool and/or enter mining BTC/LTC address directly and monitor hash rate of purchased cloud mining. A service that mines directly into the customer's wallet is much less likely to be a scam versus a service that sends out coins from a mixer and/or coins from other customers who purchased miners. A farm that discloses and published real time "farm" hash rate and discloses total hash rate should get at least a 10 as there is some ability to audit hash rate as a percentage of the farm at least, though the audit trail in that case requires trust in the rates being disclosed so it is not entitled to a full score of 20.

--> Longevity of service (0-20). 1 points for each month of public operation up to a maximum of 20 total points (operation for 20 or more months). Most scammers want to get out while the money is good, so a 1+ year record is a decent (though definitely not 100%) indicator of legitimacy.

--> Peer review and response to criticism (0-20). Subjects its service to peer review on Bitcointalk, cryptocointalk and actively participates in a generally respectful and customer-oriented manner in a generally unmoderated public discussion of its service on one or both public forums. Answers questions raised with detailed responses, etc. Private and/or heavily moderated forum posts do not count. A legitimate operation should not be defensive or opaque when asked questions about its legitimacy - it should understand that cloud mining is a trap for the unwary and any legitimate operation should go out of its way to prove itself legit.

(b) REMEDIES: Ability of Miner to take Legal Action in case of fraud and/or easily exit the purchase (refund or market): 50 points

--> Resale market or buy back exists and is verified to be working with net sale prices close to cost of purchase (0-20 points).

--> Legal compliance/T&Cs (0-20). Has enforceable contractual commitment with clear and well drafted mining agreement, with no overreaching terms, penalties, etc. (best example would be Genesis Mining).

--> Ability to enforce mining contract (0-10). Requires disclosure of legal entity or person(s) responsible under contract, place of incorporation and legal entity name, governing law in a jurisdiction like the United States of Western Europe where a lawsuit by a consumer has a chance in hell of success). Companies in China or other jurisdictions with virtually inaccessible court systems (to foreigners at least) would get a low or zero score.

(c) Relative ROI/Static ROI (relative to others in same grouping): Up to 50 points

To calculate relative ROI, I first compute STATIC ROI: the number of days it would take to break even on the purchase of mining hash power, at the current rate of return (minus applicable fees), assuming no change in difficulty and no change in bitcoin/litecoin exchange rates. This is ONLY a **static** ROI and can only be used to compare LIKE SERVICES. In other words, if static ROI is 190 days for an SHA256 coin, it is virtually IMPOSSIBLE to ROI in 190 days because difficulty will rise exponentially in that time and further reduce ROI. However, comparing apples to apples (e.g., SHA256 mining services compared to each other, and scrypt services compared to each other), a static ROI is a good way to compare ROI possibility among competing services.

After computing static ROI, I assign points as follows based on the number of days to static ROI, halving the points each 50 days due to increased uncertainty from longer time periods:

0-50 days: 50 points
50-100 days: 25 points
100-150 days: 12 points
150-200 days: 6 points
200+ days: 0 points

(d) Red Flags: established indicators of fraud, ponzi or pyramid scheme according to Federal Trade Commission criteria: Down 0 to -50 points (adjustment down). NOTE that merely because a service meets the Red Flags does NOT prove that it is a ponzi or pyramid scheme. It only signals heightened caution, possibly greatly heightened caution. That is why I decided to make the red flags a negative adjustment - they take down a score but do not necessarily determine the score. Also note that several of the "Legitimacy" items could be in the red flag category but I did not include them here because that would double count the adjustment. These criteria are adapted from the FTC's guidance on avoiding ponzi and pyramid schemes.

--> Repeated problems exist with withdrawing payouts over period of more than a week (-20 to 0 points, negative adjustment indicates possible ponzi scheme).

--> Below market rates per ghs/mhs and/or above market payouts promised (-10 to 0 points, negative adjustment indicates possible ponzi scheme, pyramid or outright fraud).

--> Extensive reliance on MLM, resellers and affiliate marketing techniques for sales (-20 to 0, negative adjustment indicates possible pyramid scheme). Especially problematic for affiliate programs where payouts are MLM (lifetime purchases of a customer and/or referrals of referrals would all be -20) or where there are substantial referral fees or substantial reseller programs (a legit operation should not need resellers since the "product" is a cloud service and there is little need for after sale customer service) which would be at least a -10.

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eightcylinders (OP)

Sr. Member

Offline

Activity: 434
Merit: 254