Cryptocurrency mining has become synonymous with a modern version of the gold rush that has created millionaire millennials. Cloud mining has taken this one step further, leading to a much larger participation in the phenomenon.
This article is your go-to guide for understanding the process of cloud mining. I will give you a brief introduction to the process, its relevance, benefits, and drawbacks, and finally tell you names of some good cloud mining services you can subscribe to.
What is Mining
Mining is a clever process first used in Bitcoin to create a virtual asset that has all the benefits of the fiat currency and solves some of its drawbacks. To understand mining you need to first have a brief understanding of what money is.
Understanding Money
Mining is a technological miracle. In its simplest form, money can be understood as primarily a medium of exchange that allows people to trade goods and services. Apart from this, money may serve as a unit of account and a store of value.
Purpose of Mining
Mining is a crucial process by which new cryptocurrencies come into existence. Not that, to serve as money, a cryptocurrency should have some form of mechanism that makes it scarce. This is what mining is. Like its name, the process simulates gold mining. Like digging for gold, mining is a resource-intensive activity, computing resources and time here.
However, in the world of crypto, mining also serves the purpose of transaction verification, thus maintaining the integrity of the money without having to depend upon a centralized authority.
Special Mention- Bitcoin
For some cryptocurrency blockchains like Bitcoin, mining is at the center stage of its existence. For Bitcoin, mining also releases new coins into the supply. These new coins will credited to the miner’s wallet, as a reward for their time, effort, and computing resources spent. However, mining cryptocurrencies can sometimes require exorbitant amounts of computing power. That’s where cloud mining comes in.
What Is Cloud Mining?
Cloud mining is simply the mining of cryptocurrencies with rented cloud computing power. As you can tell, the primary benefit of cloud mining is that it does not require miners to own expensive hardware or install mining software on their computers. Instead, you can open an account with a cloud mining provider and remotely do the mining, for a predetermined price of course.
Benefits of Cloud Mining
The following points make cloud mining an important part of the cryptocurrency space.
Accessibility
Mining software has brought mining to the masses. The technology has somewhat leveled the playing field for people of all backgrounds to participate in the crypto revolution.
Cost Effectiveness
Cloud mining allows miners to forego the massive upfront cash outlay to purchase hardware infrastructure, thereby reducing the entry barrier for prospective miners. Moreover, the mining servers that are built dedicated solely to mining are more energy efficient compared to all-purpose machines.
Resource Sharing
Individuals who rent out resources from the mining cloud form part of a mining pool. The cloud miners purchase a certain amount of hash power, thereby avoiding idle computing resources.
Cloud Mining Drawbacks
Scam Risk: Owing to the sky-high valuations of cryptocurrencies, cloud mining is plagued with fraudulent schemes and scams.
Smaller Profits: The returns from cloud mining are shared among all its participants, which will average out the yield.
Centralization: Concentration of mining resources on clouds can lead to centralization, which is against the core principles of cryptocurrencies and blockchain technology.
Limited Control: Users will have little control over the mining process and operations raising concerns about the legitimacy of the resources.
How Does Cloud Mining Work?
Cloud mining of cryptocurrencies has 4 major components. You can find a brief description of each below.
Service Providers
These are cloud mining companies with large data centers and specialized mining hardware.
Hash Power
Miners can rent hash power, a fancy term for computational resources in the context of mining from the service providers.
Mining Pool
The hash power rented by Service Providers forms a mining pool, where the combined efforts of miners are utilized in cryptocurrencies.
Reward Distribution
Every time the mining pool mines a new block, the rewards so obtained will be distributed among the miners, based on their hash power consumption.
How Do Service Providers Operate?
Mining service providers function based on a few aspects. Understanding these is important for choosing the right mining service provider and will affect the profitability of a miner.
Mining Infrastructure
Cloud mining service providers invest in large data farms with insanely powerful computers that are custom-assembled for cryptocurrency mining. In addition to bleeding-edge hardware, these high-performance computers also have industry-standard software, security infrastructure, and maintenance staff.
The service providers are responsible for the smooth operation of the mining infrastructure, which includes ensuring the electricity supply, troubleshooting software bugs, and rectifying hardware issues.
Mining Contracts
Interested individuals or organizations can buy mining contracts from these companies. A typical mining contract outlines the amount of hash power to be leased and the duration of the leasing period. The cost of mining may depend on factors including the market rate of mining resources and the market sentiment of the cryptocurrency market.
Transparency
Once the mining rigs successfully mine a cryptocurrency, the service provider must distribute the rewards earned to the mining pool participants. Hence, mining companies need to maintain their reputation. They need to be transparent with their operations and policies.
Continuing Investment
Mining service providers must adapt to the evolving cryptocurrency market. These companies should adjust their strategies to stay in operation. They should continue to invest in mining hardware and update the software based on changes in the algorithm of cryptocurrencies.
Why is Hash Power a Confusing Concept?
Hash power, or hash rate, is a pivotal component of cloud mining. It is the computational resources required to mine the cryptocurrencies. The hash rate is impacted by the following factors.
Marketplace: The existing supply and demand for computing resources in the prevailing market play a big role in the dynamics of hash power allocation.
Contracts: The terms of the contract the users sign will determine the price of hash power and the feasibility of the operation.
Pool Participants: Since the rented resources are used in conjunction with a mining pool, the pool efficiency, as a whole, affects the efficiency of hash power.
How Is Mining Reward Calculated?
The calculation of mining rewards varies from one service provider to another. Most mining pools follow a Pay-per-share (PPS) approach to reward their participants. This is a steady payout independent of the results of mining. Some others, on the other hand, use more complex models like Shared Maximum Pay Per Share or Equalized Shared Maximum Pay Per Share.
What Are The Best Cloud Mining Websites?
YouHodler
Cloud Miner by YouHodler is a mining simulator and incentive program. The website gamifies Bitcoin mining and encourages user participation. Users can get bitcoins by doing simple tasks.
KuCoin
KuCoin is a leading crypto exchange that also offers a cloud mining service known as KuCoin Pool. It is a high-performance mining pool with support for Bitcoin (BTC). However, it is relatively new compared to other entries in this list.
ECOS
ECOS serves over half a million customers globally with in-house data centers. The company offers a range of products including cloud mining. ECOS now offers a free demo to test its mining services before making a purchase.
Kelyminer
Kelyminer is an affordable cloud mining platform offering low low investment options and daily rewards. The platform also has a user-friendly interface making it ideal for beginners. Notably, Kelyminer uses solar power for its mining operations.
Binance
Binance exchange needs no introduction. They offer a mining pool service called Binance Pool. Binance claims that miners can take advantage of the platform’s infrastructure to up their mining efficiency and improve their chances of receiving rewards.
OKX
OKX is another cryptocurrency exchange that is also in the game of cloud mining. On the platform, you perform both staking and mining of cryptocurrencies, including Bitcoin.
Conclusion
Cloud mining has democratized the process of mining of cryptocurrencies. With large data centers maintained by large corporations and average Joes renting out their computing resources for some extra bucks, cryptocurrency mining has become more accessible than ever.
With all that being said, note that cryptocurrency mining is also plagued with scams, and not all cryptocurrencies deliver mining rewards worth the time and money spent on mining. The reader is advised to do a good amount of research before narrowing down on a cloud mining program.
Related Articles: How To Buy Bitcoin With A Credit Or Debit Card?
