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Why you shouldn't choose cloud mining

09 October 2017 13:46, UTC
It is not a secret anymore that today it is practically makes no sense to mine bitcoin at home. Only large-scale hardware like ASIC can handle the increasing complexity of block processing.

Therefore, those who want to get virtual coins, most often tend to buy them on exchanges. However, many think that there is another option - "cloud mining". What is this phenomenon, and why is it better not to mess with it? The idea of ​​cloud mining is simple - the user pays money for using the capacities of the company that provides services.

It is possible to rent a remote hardware or simply stream of processing power. The pros are obvious: you do not need to buy, build and maintain expensive "farms", pay for spacious rooms and huge volumes of electricity (which is especially important in countries with high prices, like Germany). Many websites advertise cloud mining as "the easiest and fastest way to get acquainted with cryptocurrencies".

However, these are almost all advantages. Service administrators are responsible for the above-mentioned problems but they must be paid by a client: from replacing burned or outdated hardware to paying bills. This reason alone can take many months in order to recoup the invested funds. And during this time the bitcoin price may drop sharply - if that happens it would be practically impossible to recoup investments.

Even without the cataclysms, the increase in complexity can make bitcoin mining absolutely unprofitable. So, if a user buys an annual Ethereum contract for a capacity of 1 MH/s on one of the most popular websites hashflare.io, then his annual income will be... just under $8 - and he will have to pay about $11! Passive income turns into a passive loss. In addition, these websites are vulnerable to the common threats such as hacking - in 2015 Cloudminr.io was attacked, that resulted in a leak of personal information from tens of thousands of users: some data was published, while other was put up for sale.

But even such serious problems can happen in the best case scenario. According to the popular website bitcointalk.org, 95% of all cloud mining services are nothing but classical Ponzi schemes.

There may be even a higher percentage. Scammers create a good-looking website which attracts more and more customers. They are paid at the expense of newcomers wishing to obtain a cryptocurrency. Since there is no refund here unlike with securities scams, this Ponzi scheme can operate a long time even without having any equipment at all!

Scammers can be distinguished from a few real services with specific details. First they are unlikely to show their own "farms" in detail - since there is simply nothing to show. Lack of capacity limits is another reason to be suspicious - the order and delivery of a new "hardware" always takes time, so the honest web sites publish the ratio of available capacity and the number of participants. Besides, numerous referral links are another sign of a typical Ponzi scheme.

Of course, it is necessary to check the reviews on different independent websites - but, as already mentioned above, this does not provide a sufficient guarantee. The above-mentioned website made an analysis of still existing and already closed cloud-mining services, each of which was checked for "suspiciousness" on seven counts. Most of the already closed fraudulent websites failed the test with 7 points out of 7 - these include Pbmining.com, Cryptomine.io, GenerateBTC.com and others.

On the other hand, websites like hashnest.com (0/7) and pow88.com (2/7) still work to this day. So is it worth to choose cloud mining, if the risk of being scammed exceeds the acceptable limits, and possible success does not guarantee a significant profit?..

It is much easier and safer to buy bitcoins on the exchange.