We all know that classic mining equipment like CPU and GPU-driven rigs are becoming irrelevant when it comes to mining many coins, because users do not make enough of a profit when compared to the price of the equipment. So, both companies that provide mining as a service and other mining participants need to try and find solutions, effectively an arms race. One of the options that emerged was cloud mining.
Cloud mining appeared to be a huge step forward for the mining of cryptocurrency. With cloud mining, a company purchases modern top-notch computing power that can mine cryptocurrency and sells this equipment back to a customer – it’s basically a rental agreement. This means that many more people could join the rush to cryptocurrency profits without the need to invest heavily in mining equipment.
That said, cloud mining is not profitable, considering how it currently works. Contributing factors include a mix of increasing network complexity amplified by the drop in cryptocurrency value – it’s essentially a bear market today. Cloud mining was more viable when Bitcoin was sold at much higher prices. The continuous drops in Bitcoin value has meant that mining Bitcoin barely covers the maintenance fees behind mining.
To illustrate how cloud mining has evolved we have analysed a host of open-source data covering the biggest players in the cloud mining arena.
Currently one can divide the typical models for cloud mining into two categories. In the first model, a cloud mining provider buys equipment for itself and then gives its clients mining contracts – directly. It is a simple model from one perspective but there is complexity in that the provider must manage both the mining equipment and the clients it acquires.
A second, different model looks more complicated because it has a longer chain. Instead of just one provider it is split into two: a reseller, and a hardware provider. Here, the level of service provided is really determined by the endpoint, in other words, the provider of the hardware. It is the most popular model for cloud mining because the expenses involved in founding the business is lower.
Neither model will work, however, if the costs of hardware and the servicing costs are higher than the profit from mining. As you may already know, the profit from mining depends on a huge range of factors and just a small change in any of these factors can mean that mining is suddenly unprofitable – and that the cloud mining business is no longer making profits either.
That happened to Bitcoin cloud mining, in fact – in the middle of 2018 the difficulty of mining Bitcoin jumped sharply. It basically tripled between Jan 2018 and Oct 2018, settling back to about double Jan 2018’s difficulty by January 2019. At the same time the value of Bitcoin dropped by 70%, compounding the difficulty of making a profit from mining Bitcoin. For larger market players this dramatic series of events had big implications.
Clearly, cloud mining is heavily affected by just how dramatically Bitcoin’s price and mining difficulty fluctuates. Is there a way mining services can resume – by increasing equipment power for example, or by reducing the cost of electricity?
For starters, mining was usually an activity done in bulk in countries where the electricity charges are low. Think about countries like Venezuela, Russia and Georgia. Reduced electricity costs can have a dramatic effect on the profitability of mining.
Another important development lies in the growing power of ASIC mining equipment – new mining rigs are regularly released and these rigs become more and more powerful – often offering much higher hashrates while the electricity consumption of the machine stays the same.
There is another variable that mining companies must also take into account: political stability. Consider Venezuela for example – while electricity is cheap, the political situation is not stable, and this can affect mining profits. Transporting equipment to a location can also be problematic, for example.
If you don’t have your own computing power or coins that use proof-of-stake and you still want to mine cryptocurrency you might be better of thinking about renting hashing power directly from other parties ( e.g. The Miners ), and to connect this power directly to a mining pool of your choice.