What is Cloud Mining?
To understand how mining contracts work, we must first understand the basics of cloud mining.
Cloud mining is a service where a user wishing to mine a specific cryptocurrency can rent hashing power instead of owning their own mining equipment. In essence, you “rent” the hashing power against a fee.
Cloud mining is done via a cloud mining contract.
There are two main types of mining contracts:
- Fixed-term contracts: Where mining services are provided over a specific, predetermined amount of time.
- Lifetime contracts: Mining services are provided indefinitely as long as the mining operations are profitable.
When mining contracts are fixed-term they can not be undone once initiated, even if the contract holder is losing money. On the other hand, lifetime contracts can be canceled once the cost of mining exceeds the cryptocurrency rewards received.
Is Cloud Mining Safe?
Cloud mining is not without its risks. Cryptocurrency price fluctuations and changes in mining difficulty can quickly eat into profits.
Another point of concern is the reliability of the mining provider. Thoroughly vet any cloud mining service before doing business with it. Look at factors such as its track record and the security measures it takes to protect its clients.
Why Does Cloud Mining Exist?
If a client can make money by mining crypto using the equipment leased by a cloud mining provider, why doesn’t the provider just mine the crypto themselves?
Cloud mining providers often sell their services to capitalize on extra mining capacity while mitigating some of the risks associated with large-scale mining operations.
Cloud mining contracts help them generate additional revenue while alleviating part of the burden of relatively fixed costs in markets where rewards can fluctuate.
Simply put, it’s a way for mining providers to get their money upfront by “outsourcing” the risk of mining to their clients and pocketing a fixed reward.
Conclusion
Cloud mining is a way for those who lack the experience or the funds to run their own mining equipment to participate in cryptocurrency mining.
