What Is Cloud Mining?

Cloud mining is the process of mining cryptocurrency by using shared hardware output from remote data centers. Cloud mining contracts eliminated the need for home-based mining rigs.

Understanding Cloud Mining

Cloud mining leverages cloud computing to produce blockchain-based cryptocurrencies. Cloud computing, more generally, is one of the fastest-growing technology trends wherein computing services such as processing, server capacity, database services, software, and file storage are accessed via the cloud over the Internet. Such companies charge on a usage basis just like we pay for our water or electricity usage.

On the other hand, mining is the backbone of the cryptocurrency model, such as bitcoin. It is the process by which transactions are verified and added to the public ledger, known as the blockchain. It is also the means through which new coins are released. Combining the two opens the world of mining to people at distant locations with little or no technical knowledge and hardware infrastructure.

Cloud Mining Models

Hosted mining is the most popular form of cloud mining. In this model, the customer purchases or leases mining hardware located in a miner's facility. The miner is responsible for maintaining the equipment and ensuring that it functions as performed. Through this model, customers have direct control over their cryptocurrency. The economies of scale of a mining farm ensure that expensive costs associated with mining, such as electricity and storage, become manageable. But there is a considerable upfront cost associated with this type of mining.

Leased hash power is another model that is used in cloud mining. In this model, hash power, or computing power associated with a cryptocurrency, is leased from a mining farm. Customers get a share of the farm's overall profits from mining cryptocurrencies. According to reports, leased hash power is a popular form of mining for altcoins (i.e., cryptocurrencies other than bitcoin). The process requires a person to open an account with a cloud mining company via its website and select certain things like the contract period and hashing power.

While there are advantages to cloud mining, such as less hardware and recurring costs investment, the process also has several disadvantages. For example, industry scams have increased rapidly with the popularity of cryptocurrencies. Then there is the prospect of diminishing profits. Altcoins are especially vulnerable to demand, and reducing their hash power could lead to fewer profits for miners. Cloud mining models also promote the centralization of cryptocurrencies, otherwise a decentralized ecosystem.