In the early days of cryptocurrency, when mining difficulty was low, many users mined from the comfort of their homes. That began to change as more powerful computers began to appear. Now, the typical future miner needs an expensive specialized miner, optimized electricity rates, as well as technical knowledge to be able to compete.

Alternatively, they can use cloud mining services.

There are a number of advantages to cloud mining, especially for those who are interested in cryptocurrency mining but do not have the funds or technical knowledge to set up their own mining rigs. This method does bring rewards to miners, but at the same time, it is rife with scammers.

In the following paragraphs, we will take a closer look at what cloud mining is, how it works, and what its advantages and disadvantages are.

Quick Fact: Cryptocurrency mining is a procedure used to verify transactions before adding them to the blockchain. It serves as a mechanism to ensure security, decentralization, as well as the issuance of new coins.

The cloud mining process allows users to mine cryptocurrencies such as Bitcoin without having to buy or maintain their own mining rigs. Thus, the problem of setting up, operating and maintaining specialized equipment is eliminated and transferred to the other party.

Instead, users use remote data centers and pool computing power that is usually offered by third-party cloud mining companies. Since cloud mining is a simpler process than traditional mining, it is quite popular for this reason alone.

Depending on the amount of computing power they want to use, users pay a fee to the cloud provider. By receiving a certain amount of hashrate from a service provider, each miner essentially joins a mining farm (a remote server that specializes in mining cryptocurrencies).

In return, the provider gives them access to payouts based on the hashing power that the miners have chosen. This allows people from remote regions with little to no physical infrastructure and limited technical skills to participate in the mining process.

Quick Fact: Hashrate is a measure of the computing power per second used in mining. Simply put, it's the speed of mining.

Types of Cloud Mining

Let's break down the two methods of cloud mining so that you can make a more informed decision.

Host Mining

One of the most commonly used remote mining methods is host mining. This is the process where you need to purchase the hardware and pay for the maintenance of the mining rig. However, the installation itself is hosted in a host center that does everything for you.

These facilities are designed specifically for the placement and operation of mining equipment. You can remotely, from the comfort of your home, monitor the performance of your installation, usually through software or interfaces.

Hash power lease

On the other hand, renting hash power is comparable to buying shares from a cryptocurrency mining company rather than using host mining. With this method, cryptocurrency miners can only rent a fraction of the hash power of a crypto mining farm.

You don't have to pay for the installation and maintenance of the installation, unlike host mining. In doing so, you will pay a subscription fee and receive a corresponding revenue share.

As payment for finding new crypto blocks, the mining farm mines cryptocurrency. Then, depending on the portion of hash power you rent, you'll get your portion.

Similar to cloud mining services, hashrate contracts operate without an intermediary. Through the proposed interface or application, customers and miners communicate directly and conduct business.

What cryptocurrency can be mined?

When deciding whether or not to mine cryptocurrency, people mostly consider profitability. However, these statistics don't just depend on the price of the coin, which some novice miners may misunderstand. You also need to consider the fees for using the cloud mining service.

Alternatively, you can check which coin is currently offering the highest payouts and is the most valuable by using a site like Whattomine.com, but don't aim for quick profits as mining is more of a long-term investment.

What can be successful now does not necessarily guarantee that it will be profitable tomorrow due to the huge volatility of the cryptocurrency market.

While there are hundreds of coins available for mining that use some version of the Proof-of-Work mechanism, here is a list of some popular coins that you will be able to use for cloud mining in 2023:

1. Bitcoin (BTC)

2. Dogecoin (DOGE)

3. Ethereum Classic (ETC)

4. Litecoin (LTC)

5. Monero (XMR)

6. ZCash (ZEC))

7. Bitcoin Gold (BTG)

8. AEON (AEON)

9. Caspa (KAS)

10. Ravencoin (RVN)

In the early days of Bitcoin mining, everyone was mining from their personal desktops and laptops. Over time, professional enterprises began to appear, which led to the production of specialized mining equipment and an increase in the level of competition. Professional mining businesses specialize in finding the cheapest energy available in order to reduce its costs.

Cloud mining can be a great way to earn passive income. This is due to the ease of mining cryptocurrency with cloud mining. In addition, you can usually reinvest your profits in a cloud mining service to increase your computing power or rent more resources.

When using cloud mining, all you have to do is choose a contract that suits your level of risk, and you're already well on your way to making money.

Investing in cloud mining provides a variety of contracts to choose from depending on the expiration date, the size of the investment, the degree of risk, and even the predicted price of Bitcoin. This eliminates the need to spend money on the purchase, maintenance and renewal of equipment, as well as on electricity bills and rent of premises.

In an ideal scenario, by investing in cloud mining, you guarantee regular maintenance of the data center and constant hardware updates to limit the chance of failure.

On the other hand, users need to be aware that it can be difficult to achieve consistent profitability in cloud mining as it is a highly competitive industry. If a cloud mining company charges a fee on top of the price of electricity, it becomes more difficult for it to compete with miners who only pay for electricity.

You need to make sure that the cloud mining services you use are within your budget. Always keep track of your expenses and keep track of them. This involves tracking unusual spikes in resource usage or network traffic.

Pro Tip: Be sure to read the cloud mining contract carefully. Some companies have provisions according to which a contract is canceled in just one unprofitable day.

How do I calculate if my investment will be profitable?

The revenue generated by miners entering into hashing contracts to mine cryptocurrencies determines the profitability of cryptocurrency cloud mining.

The amount of hashing power available, fees, cryptocurrency exchange rates, initial investment, and choice of currencies with promising prospects in the virtual coin market are just a few of the factors that affect these returns.

Potential profits can be calculated using numerous sites that offer profitability calculators, such as Hashmart or CryptoCompare. You'll just need to enter your contract details – hash rate, electricity cost, and included fees.

Bitcoin Hashrate | Source: CoinWarz

The hash rate of a proof-of-work (PoW) cryptocurrency network is a measure of its computing power. The higher the hash rate, the larger the blockchain network. The difficulty of mining a particular blockchain is also affected by the hash rate.

Pro tip: Be sure to take into account the average increase in mining difficulty, as what is profitable today may not be profitable in six months.

Of course, in any discussion of this topic, it is necessary to highlight the advantages of cloud mining. Let's take a look at the benefits of cloud mining Bitcoin or any other cryptocurrency.

Benefits of Cloud Mining

Many sources only highlight the negative aspects of crypto mining, making this technology a minor area in the world of cryptocurrencies. Of course, there are many benefits to using this type of mining.

These include:

1. The first advantage is the lower starting cost. While they do charge more in the long run, cloud mining companies help small businesses get started with much less start-up capital than they would need if they bought their own specialized hardware and adapted their mining capacity.

2. Further, no experience or knowledge is required. To set up, run and maintain devices, as well as to carry out cryptocurrency mining, traditional mining requires certain skills. It can take a long period to master these skills.

Cloud mining of cryptocurrencies does not require any special knowledge as it is the responsibility of the cloud provider.

3. No customization. Since they are managed by a cloud service provider, cloud mining reduces the burden of setting up and maintaining the crypto mining infrastructure. Hence, you can start mining without having any technical knowledge.

4. Cloud mining is very efficient. Cloud service providers are equipped with the latest mining hardware, making it possible to mine cryptocurrencies efficiently.

5. And the last thing is scalability. Scalable and adaptable cloud services are designed to be accessible to many users. Without any manual intervention, they can automatically change the mining power to suit your mining needs.

Risks of Cloud Mining

While there are many positives to cloud mining, unfortunately, there are some red flags for many cloud mining service providers.

1. The fact that many cloud mining organizations claim inflated returns on investment is one of the main reasons why cloud mining is considered to be a scam.

Such companies often make unrealistic promises of significant returns with minimal risk in the cryptocurrency world. In many of these ventures, rewards are paid to early investors using the investment of new investors rather than the actual mining revenues.

2. Many of these companies don't disclose their business practices – this is another reason why cloud mining is seen as a "gray area" of cryptocurrencies.

3. In addition, as more miners join the network, the difficulty of cryptocurrency mining increases and competition intensifies. As a result, the amount of computing power required to mine cryptocurrency is growing, making it increasingly difficult for individuals to mine profitably.

However, a few days of unprofitable mining are almost inevitable in any market.

Cloud mining holds a unique place in the crypto industry as it offers users an alternative method of interacting with cryptocurrency without traditional barriers such as high energy costs, equipment maintenance, and technical expertise.

Like any other investment, it comes with certain risks and rewards. Potential miners need to do their own research when looking for providers, understanding the terms of contracts and the ever-changing cryptocurrency system.