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What is bitcoin cloud mining and how it works?

What is bitcoin cloud mining and how it works?

April 2, 2019, | AtoZ MarketsBitcoin mining has remained the expertise for programmers and computer geeks for many years. That is, until the start of bitcoin cloud mining. The reason for this is that as a bitcoin cloud miner, you do not need to own any mining hardware or have any technical experience to mine Bitcoin anymore.

Bitcoin cloud mining has expanded the bitcoin mining pool, especially for those who are not technically oriented. However, there are a few things you should know before joining the world of bitcoin cloud mining.

What is bitcoin cloud mining?

Bitcoin cloud mining is a process by which you rent mining power on a remote system, or you lease a physical system in a remote location. Cloud miner needs your computer for communicating with the remote mining pool and its data center, and bitcoin wallet address to receive payment.

In the mining world, there are two types of mining – traditional mining and cloud mining. With the conventional bitcoin mining system, the user sets up and maintains the bitcoin mining rigs. This also needs good technical knowledge as well as adequate ventilation for cooling and will increase electricity costs.

On the other hand, with Bitcoin cloud mining, the mining rigs are housed and kept in a facility owned by the Bitcoin mining company. The user needs to register an account and purchase Bitcoin mining contracts, which provides hash rates. These Bitcoin mining contracts immediately start to mine bitcoin, which could be paid regularly. Here, the user does not have to concern for order, setting up or maintaining bitcoin mining hardware. Nor for a big initial investment. For less than $50, the user can begin bitcoin cloud mining.

Pros:

  • No electricity costs
  • When mining ends to be profitable no equipment to sell
  • No ventilation problems
  • Reduced chance of let down by mining equipment suppliers.

Cons:

  • Risk of fraud
  • Opaque mining operations
  • Lower profits
  • Lack of control and flexibility

Types of Cloud Mining

In general, there are three types of cloud mining, which are as follows:

Hosted mining: You grant your mining machine to the host.

Virtually hosted mining: In this type, you create a general private server and install your bitcoin software according to your choice.

Leased hashing power: It is one of the most popular methods, where you grant some amount of hashing power, without the presence of a computer.

How to determine the profit

There are various ways of calculating the profit for mining. You have profitability calculators like the ‘Genesis Block’, which helps you to calculate your profit by asking your ongoing costs and your investments. All you need to enter is the cost of electricity and the initial investment in hardware. In the case of bitcoin cloud mining, since your provider is the one paying for the electricity, you can enter the monthly mining bill instead of the electricity.

Risks and rewards

When you do mining for cryptocurrencies, there are risks involved, but you can benefit from some profit provided you make the right decisions. When you calculate the result for cloud mining, you’ll notice that cloud mining gives you a better profit for the first few months. But when the level of difficulty rises, you’ll see the loss in 4 to 6 months beyond. You do have the option of re-investing in cloud mining, but this doesn’t make much sense.

Moreover, some miners charge some fees on top of the initial payment, which may get expensive and hamper your expectations on your returns. And sometimes there are few miners which can be scammed. In bitcoin cloud mining, there are risks and rewards involved, and hence, you must make the right decisions before investing.

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