How Does Bitcoin Cloud Mining Work?
Bitcoin is unlike any currency. It is different in every aspect of traditional fiat currency. The money in our wallet is issued by a government and regulated by a central bank or institution. Fiat currencies in most countries are stable and controlled. Sometimes things go wrong. Economic downturns or recessions have shown the weakness of fiat currencies. Perhaps it is no coincidence that Bitcoin was introduced to a world that was still reeling from the 2007–2008 Financial Crisis.
Satoshi Nakamoto developed Bitcoin as a peer-to-peer system for transactions without the usual third-party institutions. Cryptocurrencies are not controlled by any central bank. The feature of decentralization means there is no central server. Fiat currencies are printed and issued by central banks. The supply of fiat money is unlimited which means central banks can produce as many as they want. Bitcoin, on the other hand, is mined. Being a digital or virtual currency, it uses cryptography to process, secure and verify transactions. The total number of Bitcoin is capped at 21 million — no more, no less.
Bitcoin Mining
Mining is the practice of adding new transaction records to the blockchain and releasing new bitcoins. The Bitcoin blockchain confirms to the rest of the network that a transaction has taken place. A transaction is considered secure and finished only if it is included in the blockchain. The bitcoin nodes also use the blockchain to distinguish legitimate transactions and prevent attempts to use coins that have already been spent elsewhere.
The only way to reverse a Bitcoin transaction is to control more than 51 percent of the network’s hash power. Mining is an important process for bitcoin because it keeps the network secure and steady. The more miners, the more secure the network. Altering or hacking a block is next to impossible because the hash power is distributed amongst the miners.
It is estimated that about 17 million Bitcoins have been mined. That has not stopped miners from mining. The rationale is that the scarcity of Bitcoin will increase its value. So, the race to mine the remaining 4 million goes on. Miners must solve complex mathematical codes. The miner who succeeds in cracking the code is given with the right to authorize the transaction. The miner is rewarded with Bitcoins. The reward for a verified transaction is around 12.5 Bitcoins.
Bitcoin miners use ASIC hardware specifically designed for Bitcoin mining. The ASIC industry has become very competitive. The hardware alone can cost tens of thousands of dollars and operate 24/7. Nowadays all Bitcoin mining is performed in places that offer cheap electricity.
Cloud Mining
Don’t even think of using a desktop computer. Even the latest laptops are not up to the task. One computer can’t compete with the mining pools. The electricity you’ll use will exceed the revenue you generate.
Advances in technology have made storing data possible without the need for physical servers. Cloud Mining offers a way to mine Bitcoin without the expensive and energy-consuming hardware. The process of cloud mining makes you a member of a mining pool. It also makes mining open to more people anywhere in the world.
There are three types of cloud mining available:
- Hosted Mining. The user essentially has their cryptocurrency mining hardware hosted by a provider. The provider shoulders the equipment and maintenance needed for mining. The user gets full control over the equipment remotely reducing the risk of fraud or theft. The cryptocurrency is never managed by the provider.
- Virtual Hosted Mining. This involves creating a virtual private server and installing your mining software.
- Leased Hashing Power. The user leases an amount of hashing power, without a physical or virtual computer.
The process of joining is easy enough. It only requires an interested user to open an account with a cloud mining company through its website. It is important to consider the contract period and hashing power. Be forewarned: the return on your investment can be longer due to the fees involved, the time it takes to mine, the cost and the price of Bitcoin at that period. If the price of Bitcoin falls, it is recommended that you wait until the price of Bitcoin rises. You may also purchase contracts for other major cryptocurrencies to diversify your holdings. Earnings will be transferred to your account.
Be wary of scams or fraud. Cloud mining is unregulated. There have been cases where bogus platforms sell fake contracts or do not pay their users. I encourage you to check out forums and cryptocurrency news sites. They are rich sources of customer feedback. People will share their experience. Here’s a couple of cloud mining companies you may want to look into:
- Bitcoin Pool. This is directly backed by Bitcoin.com. You can monitor your account using mobile apps for iOS and Android. There are three plans available, with the 1-month plan starting from $59.99 which offers 10 TH/s for $5.99 per TH/s, with an additional daily fee of a dollar. There’s a sliding scale so that if you want to scale up you can. There are no discounts for higher volume use.
The 6-month plan offers from 3 TH/s at $32.99 per TH/s, with a total cost over the six months of $98.97 plus a daily fee of 30c. You can book as much as 2570 TH/s, but that would entail an initial cost of $84,784.30 plus a daily fee of $257. A third option is a 2-year plan, which offers from 2 TH/s at an initial cost of $199.98 including a daily fee of 20c. Again, a sliding scale offers an increase of up to 2708 TH/.
- Hashnet. This cloud mining firm is run by Bitmain. Aside from being a well-known maker of ASIC hardware, Bitmain also operates Antpool — the world’s largest mining pool.
The company offers a Payout Accelerated Cloud Mining Contract (PACMIC). The PACMiC is an electronic contract structured in such a way that Bitmain pays the costs of maintaining the mining rigs (i.e. such as electricity). The mining revenue will be used to pay the holder of the PACMiC. It will share profit with buyers when the principal is not fully paid back. It offers 6.0 TH/s of hash power for the price of 1 BTC. This result in pay-outs for each block found with an annual ROI of 14 percent.
Cloud mining is a convenient way to mine Bitcoin minus the need to purchase, set-up and maintain ASIC hardware. If you decide to go into this arrangement do your due diligence first.
Source:https://michaelcao.net/how-does-bitcoin-cloud-mining-work/
