If you’re subscribed to 99Bitcoins then you probably know that once in a while I ask my readers if there’s anything they’d like me to cover. The 1st most popular request is “how do I get free Bitcions” :) The 2nd most popular request is to cover cloud mining.
Cloud mining seems to good to be true
Since mining at home is so incredibly difficult many people are looking for cheaper solutions that don’t involve buying expensive hardware that will quickly become outdated. Cloud mining seems like the perfect solution – you “rent” some computing power that is (supposedly) located in a remote location and just enjoy the profits without all of the hassle.
Today if you google the term “cloud mining” you’ll find endless possibilities to jump on board. Most of these website will show you tons of confusing numbers (especially if you’re a newbie) and promise that cloud mining is “the easiest and most efficient way to earn Bitcoins”.
One of my earlier posts dealt with mining vs buying Bitcoins, and it basically showed why mining isn’t a cost effective way to obtain Bitcoins, mostly due to the hardware cost and maintenance. But if you take out these costs using cloud mining it suddenly becomes extremely profitable. You can use a mining profitability calculator to figure how much you’d earn using this method. So everything looks OK, except you can’t always rely on these companies to deliver on their promise.
The evolution of a scam
I want to digress for a second. In the financial markets sector there is something known as “Binary Options”, heck there are even Bitcoin Binary Options. Binary Options are a form of trading in which you predict if the price of Bitcoin will rise or fall in a certain amount of time. If you’re correct you earn the option’s payoff, if you’re incorrect you lose your investment. It’s basically gambling wrapped up in a pretty name (the term “binary” comes from the fact that there are only 2 outcomes – win or lose).
The same thing happened in my opinion with Bitcoin Ponzi schemes. When Bitcoin started to gain momentum a lot of ponzi schemes came to play, the most famous one being Bitcoin Savings and Trust which managed to steal almost $40m.
What’s a Ponzi scheme you ask ?
a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
It’s kind of like a HYIP (High Yield Investment Programs) where you pay a small amount and get paid tremendous returns. Another name for Ponzi is “Pyramid Scheme” – the first people to put in their money get paid by the ones that come after them. Eventually the payouts stop and the people at the bottom of the pyramid get screwed. Just like what happened with Bitcoin Trader a few months ago.
Great! But what does all of this have to do with cloud mining?
Well, in my opinion (and in many respected others as well) most of the cloud mining companies are plain Ponzi schemes. Meaning these companies don’t actually have any mining rigs set out in a remote location and the money that you pay is used for paying out older customers and the company itself. Of course most people won’t press charges against $100 that were stolen from them, so when the company goes bankrupt or just plain vanishes all that is left are a few angry people that won’t do anything about it.
You’re just a hater! There are some good legit companies out there..
True, for example I do believe the Cex.io is legit (currently the biggest cloud mining company). But here are some recent examples of people who lost their money in such cloud mining scams.
If you’re looking for past examples look no further than BitcoinTalk’s post about cloud mining – it seems that the majority of people on that thread claim that it isn’t possible to profit from cloud Mining.
If you still want to take your chances though here are some rules of thumb:
Tip #1 – look for references
For almost every website on the web that is a scam there’s always someone who already posted about it. Either search BitcoinTalk for information about that company or go to BadBitocin for a list of the top known scams. If you’ve already been scammed and couldn’t find any reference I advise posting on one of these sites to help other users out.
Tip #2 – Go with hardware creators
If you are going to invest in some cloud mining
scam, aahhhhm scheme, perhaps it would be better to look for a company that also creates their own miners. This makes it much more probable for them to actually own the mining equipment they are talking about and not just tell you that they do.
Having said that, even more respectable companies like GAW miners are being suspected of conducting scams as well, so see step 1 – look for references.
Tip #3 – Don’t invest more than you can afford to lose
Probably the most important tip – if you’re going to go into cloud mining do it little by little, and NEVER (and I mean NEVER) invest more than you can afford to lose. The way most of these companies work is that they lure you in little by little and once you get the big money in they close down without any notice. So never put any “big money” inside.
My personal opinion – buy Bitcoins
If you want my advise – stay away from cloud mining. There are too many question marks around this area to make it legit. I think that if you’re serious about investing in Bitcoin then you’re better off buying them than mining them. If you’ve had your own experience with cloud mining I’d love to hear about it in the comments section below.