What is Cloud Mining?


What’s up, party people? Chris DeRose here,
community director of the Counterparty Foundation.
And today’s video we’re shooting from Diamonds
& Doggies here at Lauderdale-by-the-Sea. Diamonds
& Doggies is your one stop shop for jewelry
and little puppies. Today I’ve got Elizabeth
Taylor with me. It’s a female and is looking
for a new home, so maybe if you’re in the
area, go check her out. In any case, this
is where all the celebrities come to buy their
jewelry, their dogs in one stop, one shop.
We even have Adam Sandler here at the walls,
I think it’s one of his preferred places to
get his girlfriend’s presents.
But let’s get started. So today’s question
is “What is cloud mining?” So cloud mining
is something that comes up semi-regularly,
and it’s kind of a controversial solution
in the Bitcoin space. Cloud mining is when
you buy from a provider some amount of hashing
energy that is devoted to mining for you.
They do all the management of the mining and
they take care of all of the operations and
all of the work involved in mining. So on
the surface, it looks really great. It’s like,
“Okay, wow, well, they take care of all the
hard stuff for me, and all I do is pay for
the infrastructure, they manage it.” But in
practice, it’s a little bit less spectacular.
So like all things in Bitcoin, at first, you
gotta realize what is the other side of the
bed? What is it that they’re actually betting
on and what are you betting on? What is it
that they’re doing and what is it that you’re
saying? In the case of cloud mining, it’s
a little bit nebulous, really, what you’re
getting, and it’s hard for a rational actor
to really express, I think, in good terms
what it is that they’re doing. Probably what
you’re doing is you’re betting that the mining
difficulty will remain the same or decrease
over time. That’s the bet you’re making. Now
you may think what you’re doing is you’re
betting on Bitcoin going up, but that’s not
actually true. What you’re betting on is that
the mining infrastructure will weaken over
time. That is a bad bet. And in fact, what’s
happening in the cloud mining end is that
cloud miners bet in the opposite. He’s betting
that mining strength will increase. So he’s
sticking you with the fees to run the network
and he’s sticking you with the cost to do
the mining, and meanwhile you’re absorbing
that yourself, thinking you’re going to get
some Bitcoin.
Now you won’t necessarily lose money. You
won’t necessarily get robbed, but there’s
a lot of risk in that transaction. There’s
a lot of risk because what you’re doing is,
certainly in many cases, is you’re giving
them the private key, not always, but often.
But then in addition to that, they have the
ability to flip the switch. They have the
ability to divert some of the output to another
address, say, depending on how the structure
is arranged in the contract. So there’s a
lot of risk involved in that transaction.
And it always kind of says “Well, why not
just buy the Bitcoin?” Typically that’s your
best bet in all things Bitcoin. If you’re
going to make some exotic, double-play where
you try to hit two bases on one hit or something
like that, that’s fine, but your risk goes
up extraordinarily so, perhaps even exponentially
so, I don’t know.
But in the case of cloud mining that’s typically
true. A lot of people get burned on cloud
mining for these reasons. There’s possibly
a place for cloud mining, but in the mining
infrastructure in general, there’s really
only one specialty which is “How good are
you at mining?” It’s a total commodity product
that they’re offering, and there’s not a lot
of differentiation between providers, and
right now, that efficiency is typically, or
exclusively within the realm of people who
are ASIC designers. These ASIC designers are
doing great, and they’re the ones who are
probably making most of the money, but in
addition, there are the guys who are getting
cheap power contracts as well. You’re not
anyone to be in either of those cases, so
when you do the cloud mining, you have to
ask yourself, “Well, why aren’t they making
the money? Why are they offloading it to me?”
And the answer is typically that they’re actually
not very good miners either, they’re just
taking the bet that the mining difficulty
will go up, for which you’re willing to take
the opposite end of the bet on.
So cloud mining is probably a bad deal. If
you like it, because it’s interesting, great.
But I don’t think that in any amount of time
that I’ve ever heard of cloud mining anyone’s
really ended up that well in doing it. It’s
typically not the best decision, but I don’t
know, maybe your experiences have differed.
Maybe you’ve done really well with cloud mining.
If you have, make a comment below, weigh in
on the controversy here and tell me what you
think.
And if you like this video, you want to see
some more, subscribe to my channel. Later,
party people.

10 thoughts on “What is Cloud Mining?

  1. Good Advice. Additionally, Most cloud mining companies are really "fractional reserve mining" or running a ponzi and will run off with your investment. Even large respectible companies have been known to temporarily stop payments when they claim it isn't profitable to mine when those claims don't add up.

    https://bitcointalk.org/index.php?topic=878387
    https://www.cryptocoinsnews.com/gavin-andresen-suspects-ponzi-schemes-bitcoin-cloud-mining

  2. Thanks for making these videos. People who want to get involved should really hear these things before they invest. Kudos!

  3. Have you ever looked at Genesis-mining, they offer lifetime contract's. Better for a longer profit run in my opinion. but i do agree with your intelligent observation but slightly differ. Because its not a get rich quick scheme yaknow. its well.. And investment which people should treat it like so.

  4. The best way to mining Bitcoin,Ethereum,Dash and Zcash online https://hashflare.io/r/17B296CC
    Join and become a member of the best team.

  5. I've read Wikipedia, some blog posts, seeing this video and such still didn't get what is cloud mining exactly! isn't there any clean pure definition of what is that and what it does?

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