Cloud Mining – Profitable or an Evolution of a Scam ?

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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many people are looking for cheaper solutions that don’t involve buying expensive hardware that will quickly become outdated.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. Here’s a good short read about Bitcoin Ponzi schemes if you want some more information.

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.

Ofir Beigel

Owner at 99 Coins ltd.
Blogger and owner of 99Bitcoins. I've been dealing with Bitcoin since the beginning of 2013 and it taught me a lesson in finance that I couldn't get anywhere else on the planet. I'm not a techie, I don't understand "Hashes" and "Protocols", I designed this website with people like myself in mind. My expertise is online marketing and I've dedicated a large portion of 99Bitcoins to Bitcoin marketing.

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22 Comments on "Cloud Mining – Profitable or an Evolution of a Scam ?"

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Peter
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Peter
Pls I came across a proposal proposing to me on how I can link antiminer S9 to blockchain mining network and get 40% of my initial bal in my wallet within 9hrs. Pls is this for real? Here’s they proposal I got First you open a new blockchain account, make sure there’s no transaction in the wallet,(an empty wallet) send the details(wallet ID and password) which is required for the connection to the machine, I’ll link it up to the machine, once it’s connected then u change ur password for safe purposes, fund it within 9hrs to 10hrs to avoid… Read more »
Zsofia Elek
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Zsofia Elek

Hi Peter, giving out your password is never a good idea, also this return seems extraordinary high which should warn you. Of course, I cannot know for sure if this is scam or legit, but it definitely raises too much red flag, I would stay away. Here you can read more about Bitcoin investments if you want to learn more about the topic: https://99bitcoins.com/should-i-invest-in-bitcoin-heres-what-you-need-to-know/

Luis
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Luis

any update on LEGIT cloud mining sites? thanks

Occrest
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Occrest

I am using cloudminr.io and i am happy with them. I am too broke to buy bitcoin with cash, so i had to get up the satoshies by hitting lots and lots of faucets. I reinvest my mining profits to increase hashing power. At the moment, i am getting approx 0.02126523 BTC per week with 282 GH/s, or 0.00303789 BTC average daily income. So far, i have made 0.08357302 BTC.

Josh
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Josh

Thanks for another great article Ofir! OCCREST may i ask how you make/ made so much from faucets? Only made 0.001BTC so far, any hints appreciated. Thanks!

CloudMining SG
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CloudMining SG

Hey Ofir,

Great write-up and guide for newcomers into the mining space. At CloudMining.SG We’ve only been around since May of last year and since day one transparency has been one of our biggest concerns. From a service provider’s perspective, I would be interested to hear any ideas you might have on how a mining company can best provide that transparency and trust to the community. Thanks again!

Cheers,

Neal, Co-founder

http://www.cloudmining.sg

David C
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David C

Nice article Ofir. keep up the good work sir.Your articles are informative, and useful.

Jerry B
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Jerry B
Jeferson Cordeiro de Mello: At cex.io you don’t get any BTC, that’s right, their fees are higher than what you earn in BTC. Hashnest (the old S2 miners farm) has run into Minus several times after the BTC plunge. AMHash currently doesn’t sell any hash power, return of existing accounts is about 500 Satoshi / GHash/sec / day, payout limit at 0.01 BTC. Thus you have to mine several weeks before reaching the payout threshold on smaller accounts. Has anyone experiences with • GRMining.com (https://blockchain.info/address/1CFdRe62RL3MqheBQoRuLakEQTPipn9Xx3) • Cloudminr.io ( ??? ) • Cloudmining.website (https://www.blocktrail.com/BTC/tx/bc952de2c9670425e3904d55d6f6d69846b80335280d34d799d51074bd46ef28) All three are reported to be paying… Read more »
Jerry B
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Jerry B

Hmm — after what timespan of consistent and reliable payments you would assume a cloud mining service to be no scam?

Dave J
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Dave J

Got burned by PB Mining.

Jeff
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Jeff

article is full of BS cex.io was a legit scam just like eobot . both are scam cloudmining . charge you for ghs then charge you for electricity . so you dont get any mining time . double charging . not offering what speeds they say they are giving .

Marco
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Marco

BIT-X and AMhash are the only reputable cloud mining companies left.

Dana
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Dana

Very good article that proves once again why cloud mining is not a good idea. I’ve been slowly buying up Bitcoins whenever I am happy with this strategy.

Landon
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Landon

I had money invested with the Bitcoin Savings and Trust and lost it all! I can’t believe I’ve been so trustful and just allowed strangers to “take care” of my money accepting huge returns! When it comes to money, I think most of us just don’t think straight :(

Tyler Gonzalez
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Tyler Gonzalez

Cloud mining is never going to pay off for most miners. They will invest thousands of dollars and hey pennies in return. I can’t understand why people are still doing this.

Brandon
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Brandon

Never liked cloud mining; didn’t want to invest my money or time in something that might give me something in return, somewhere down the road.

Bernie
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Bernie

Stop wasting your time with cloud mining and just do what
Ofir suggests: buy Bitcoins!

Benjamin Lee
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Benjamin Lee

I’m so pissed off that the Government doesn’t seem to care about all of these ponzi schemes and doesn’t do anything about them! Why aren’t they just put an end to this phenomenon?

David C
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Member
David C

Benajamin, why would you want the Government to do anything about these ponzi schemes? If the government(s) get involved, you can throw out the decentralized and non-coercive aspect of the digital currency and monetary system.
What you are asking for is more of the same failed, manipulative, coercive, fiat money , centralized banking scam we’ve had for centuries.

Joshua Anderson
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Member
Joshua Anderson

I’ve had my share of mining and while I didn’t get scammed it’s just not profitable at all. I lost so much time and some money trying to make this happen – I eventually realized it wasn’t going to work and just quit.

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