Cloud mining is a service offered by huge mining companies that have data centers optimized solely for cryptocurrency mining operations established in cold, remote locations with relatively low electricity costs and favorable legal status.
The basic cost of mining rigs runs in thousands of dollars, millions in some cases. Due to the electricity cost associated with the mining operations, mining rigs have high maintenance demands to run efficiently and generate sufficient hashing power to keep the rig profitable.
Also, crypto mining equipment generates a lot of heat when carrying out hashing operations, which involves confirming blocks of transactions by solving complex mathematical puzzles. The efficiency of any mining rig is tied to its mining speed (i.e., how long it takes to confirm a block of transactions). This means that investment in cooling systems is also key to staying functional, driving up electricity costs, and eating into the miner’s profits.
Cloud Mining Services
A company offering cloud mining services will have one or more data centers set up with mining technology that makes mining accessible to anyone willing to remotely rent mining equipment. Customers can purchase mining contracts which are measured in hashes per second(H/s). Cloud mining contracts are such that miners simply pay for a certain amount of hash power offered by the cloud mining company for an agreed time period, the company allocates the computational power required to generate the agreed hash rate, and the mining rewards are shared between the cloud mining provider and the miners/users.
In essence, cloud mining operators take on the complexity of mining operations for a fee collected in mining rewards.
What are the disadvantages of Cloud Mining?
The trust factor remains the major disadvantage of cloud mining, and identifying a legitimate mining platform can be a hassle.
The cloud mining industry is rife with scams and fraudulent activities as mining activities are visible to the cloud mining provider, and miners have little or no control on how to protect their investments.