Cloud computing mining, a “bottomless pit of wealth” or a “new opportunity to get rich”?

"With our own mining farm, ultra-low electricity prices, and real mining machines, you can mine with just one click without leaving your home!"

Since 2017, the “cloud computing power” rental service has been on the rise, and various cloud computing power advertisements have flooded media platforms and cryptocurrency communities. Investors who want to satisfy their mining addiction are starting to get excited and are ready to make a fortune.

In the real mining empire, miners are mostly stationed in areas with low electricity prices, such as Inner Mongolia, Xinjiang, Yunnan, Guizhou, Sichuan, Uzbekistan, Kazakhstan, and Texas, USA. They bear the risks of market fluctuations, mining machine depreciation, and industry policies, and earn meager profits.

Can the "cloud miners" in the virtual world really mine Bitcoin and make a huge profit by renting "computing power" and "mining machines"? What unknown secrets are hidden in the world of cloud computing power mining?

1. Those cloud computing power mining platforms have already run away...

Since the end of 2017, cloud computing power platforms such as Hashpower Cloud, Star Cube, BitPower, hash.Pro, and BitDeer have emerged, and cloud computing power leasing has entered the public eye.

With lower mining thresholds and more new ways to play, the "era of cloud mining for all" seems to be coming.

For investors in cloud computing mining, the process of participating in cloud computing is as simple and fast as shopping on Taobao. Investors only need to choose the corresponding cloud computing product according to their personal investment needs, and then pay BTC or cash to continuously obtain BTC during the period when the cloud computing is effective.

Therefore, cloud computing power mining can be understood as cloud mining or online mining. The cloud mining products purchased by customers are generally the right to use the agreed computing power within the agreed time, such as the right to use 100T computing power for 130 days.

BitDeer's cloud mining products

However, cloud mining is very different from Taobao shopping, because the latter stores the money in Alipay, which is used for fund custody, and the funds are paid to the seller only after the customer receives the product. But the miners of cloud mining directly hand over the money to the "platform".

Problems arise in the absence of third-party protection and supervision.

The most representative of these is the closure of cloud computing platforms, leaving investors with no way to protect their rights. Typical cases include the closure of early cloud computing service provider Kaomao and the disappearance of computing towers.

As early as February 2015, after FC lost contact, FC's cloud computing service platform AMHash published an English announcement on the bitcointalk forum: "The Announcement of AMHash Dividends Suspending", stopping dividends. It is understood that FC received a total of 6,250 bitcoins in the first batch of computing power sales, which is now worth more than 50 million US dollars.

The bankruptcy of FC Company resulted in investors losing all their money.

FriedCat is not an exception. In September 2018, in the communication group of the cloud computing power mining platform Computing Tower, many investors reported that "the Computing Tower cannot withdraw money", "cannot log in", and "the boss ran away".

The official account of the Calculating Power Tower stated that due to the continued decline in the price of coins, the current low mining profits are not enough to pay the electricity bills, and the actual income has been zero for 10 consecutive days. The company is preparing a solution. In order to protect the interests of users, the Calculating Power Tower decided to temporarily suspend services.

Judging from the response from the computing power tower, the main reason for the suspension of the platform's services was "actual income was 0 for 10 consecutive days", that is, the sharp fluctuations in the price of Bitcoin caused the cloud computing mining income to be reduced to zero, resulting in the termination of the mining contract.

But the investors did not get a "solution". The official of the hashing tower suddenly disbanded the communication group, and the customer service and staff could no longer be contacted. In the rights protection group spontaneously formed by investors, there were radical remarks such as "protecting rights" and "sending the boss to jail".

In addition, many cloud computing platforms that were launched at the end of 2017 have also stopped operating. Through Baidu and Google, it is no longer possible to find once popular cloud computing platforms such as Star Cube and Bit Power.

Of course, these are just problems encountered by small and medium-sized investors. Well-known miners will also use cloud computing power to "squeeze profits."

2. Even big miners are using cloud computing to make money

In the second half of 2017, when Bitcoin was at its peak, a well-known mining farm brand in Shihezi, Xinjiang sold cloud computing power to customers at a price of 13,500 yuan per mining machine. Later, due to compliance issues, the mining farm was closed down, and the mining farm directly refunded the original price of all users' mining machines and compensated customers with 2% interest.

This handling result seems to be honest, but in fact it is full of tricks.

Because when customers purchased cloud computing power, the price of a mining machine was 13,500 yuan. When the mine was forced to close, the price of the mining machine had reached 32,000 yuan. Therefore, the mine actually returned the goods worth 32,000 yuan to the customer at a price of 13,500 yuan, which is obviously unreasonable.

After that, these mining machines were transported to Heshtologai by the mine to continue operation. After the surge in prices, all the mining machines became part of this mine.

“As the price of coins has risen, the market price of mining machines has doubled. The customers were very happy because they had doubled their money before they even started mining, but they didn’t expect that a certain letter would default.” An investor in the BCH community complained.

Regarding cloud computing mining, Jiang Zhuoer said at a mining industry interview in April this year, "There are many pitfalls (in cloud computing). Not to mention small cloud computing providers, even some large cloud computing providers are cutting leeks from their customers in various ways."

Therefore, investors who want to participate in cloud computing mining must keep their eyes open. For investors who want to participate in cloud computing mining, the most important thing is to choose a reliable and capable cloud computing merchant.

In addition, since the total computing power of the entire Bitcoin network generally increases dynamically under normal circumstances, the proportion of computing power purchased by users in the total network computing power will become smaller and smaller, and the mining income obtained will also become smaller and smaller.

Bitcoin network computing power change trend chart

If there is a negative market situation and the price of Bitcoin plummets, although the network computing power will also drop slightly, it is incomparable to the increase in computing power caused by the increase in exchange rate. Therefore, the number of Bitcoins mined by miners will not increase significantly. However, due to the decline in Bitcoin prices, it will become more difficult for investors to get their money back on the gold standard.

Cloud computing mining also has a certain withdrawal threshold. For example, some cloud computing platforms will set a certain withdrawal threshold, requiring investors to mine more than 0.01 bitcoins before they can withdraw cash. If the number of bitcoins you mine is less than 0.01, it will be considered as a gift to the cloud computing platform for free.

In short, you must keep your eyes open when participating in cloud mining, otherwise, in this market with a lack of supervision, there are all kinds of pitfalls waiting for you.

Assuming you avoid all the pitfalls and meet conscientious merchants, will cloud computing mining really be a good business?

3. Will cloud computing mining be a good business?

Under the current mining landscape, cloud computing mining cannot be regarded as a good business, and there is a huge gap compared with offline mining.

OKEx Intelligence Bureau placed an order on a cloud computing platform for a 360-day rental period and a computing power of 95T. The fee required was 5,415 yuan, including 4,370 yuan for computing power rental and 1,045 yuan for electricity.

According to the regulations of the cloud computing power platform, when the contract expires, investors cannot obtain the mining machines behind the computing power.

So how much does this mining contract earn? According to the regulations of this cloud computing power product, each (1T) cloud computing power produces 0.00000831 BTC per day (this data will change with the changes in network computing power). Assuming the output remains unchanged, when the contract expires, the investor will receive 0.2842 bitcoins.

Based on the current market price of Bitcoin, investors' returns will reach 17,904 yuan, with a net investment return rate of up to 230%. At first glance, it seems to be a good business.

In fact, due to the dramatic fluctuations in the difficulty of Bitcoin mining in each cycle, according to historical experience, the difficulty of Bitcoin mining will increase at a rate of about 2% every 15 days. The computing power of the entire network is in a long-term rising state with the crazy influx of 7nm mining machines.

Combined with the increase in computing power, the return on investment in cloud computing power will inevitably drop significantly, and the final return on investment may be far less than 230%.

What's more, when trying to sign the contract, OKEx Intelligence Bureau encountered the mining farm's regulations on breach of contract, which stated that if the mining farm cannot operate normally due to "force majeure", the mining farm will not bear any economic losses to investors.

This regulation obviously avoids most of the responsibilities of the mine.

To think about it another way, assuming that an investor purchases an Ant S19 with a computing power of 95T directly from a mining machine manufacturer, what will be the investment return rate and mining outcome?

Currently, the Ant S19 futures mining machine on Bitmain’s official website has a computing power of 95T and is priced at 14,260 yuan.

First of all, let’s look at the investment. Generally speaking, the service life of such mining machines can reach 3 years. If you rent cloud computing power, it will cost more than 13,100 yuan, which is similar to the cost of purchasing a mining machine. However, since investors who buy mining machines can eventually get a second-hand mining machine, and the electricity cost is relatively low, it is obviously more cost-effective to buy a mining machine.

Secondly, let’s look at the revenue. An Antminer S19 mining machine with 95T computing power can produce 0.00086694 bitcoins a day. If the difficulty of the entire network remains unchanged, it can mine 0.9492 bitcoins in three years, which is worth about 60,000 yuan. When there is no computing power, the revenue far exceeds the cloud computing power mining.

Of course, there are still many factors that investors cannot control in cloud computing mining. For example, cloud computing contracts often stipulate that if the computing power output is not enough to pay the electricity bill for 30 consecutive days, the cloud computing contract will be terminated, and the investor's principal will be lost. Or there may be no mining machines behind the cloud computing mine, and investors are just participating in a takeover game. When encountering such a platform, they can only admit defeat in the end.

In short, for new investors, they need to keep their eyes open when participating in cloud mining.