The classic method of mining digital coins became popular in 2017 during the virtual asset hype. It involves the use of computer equipment for cryptographic calculations. But the price of the equipment is high – not everyone can buy it. Therefore, it is worth learning what cloud mining is. This is the process of mining cryptocurrencies with the help of rented computing power. That is, for mining with this method, you do not need to buy equipment. The hash rate is rented by intermediaries.
Principle of operation
A cloud miner does not need:
- Buy computer equipment.
- Customize the equipment.
- Control the mining of cryptocurrencies.
- Pay taxes on electricity.
You can rent hashrate from intermediary services. Clients only use their free computing power. Intermediaries themselves maintain their own mining equipment. However, monitoring the equipment is expensive. Therefore, providers include production costs in the price of their services.
Cooperation between the client and the hashrate intermediary is supported by a contract. It prescribes the terms of the lease:
- The price of the contract.
- The value of the rented hashrate.
- The term of the contract.
After signing the agreement, the miner can use the set part of the provider’s equipment capacity. Upon completion of the contract, the right to use the hashrate ends.
Usually the developers of such services themselves produce computer hardware. They use part of the manufactured mining equipment to rent it out to tenants. This is the only way to make cryptocurrency mining contracts profitable for both parties.
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Many providers are scammers. They take away their clients’ investments, but do not fulfill their obligations. It is difficult to find an honest intermediary.
Is it possible to work on cloud mining services in 2024?
In 2024, cooperation with such platforms is not prohibited. But it is important to work only with proven and honest services. It is difficult to find such services. This is due to the rapid withdrawal from the market of many intermediaries due to losses. As a result, the niche is occupied by fraudsters. For 2024, some of them have been working for several years.
It is better to use the services of hashrate marketplaces, for example NiceHash. This is a platform for buying and selling free power. All participants in the trade are cryptocurrency users. But there are a lot of scammers among hashrate marketplaces as well.
Risks of investing
Risks are usually associated with the inability to recoup the investment. Often providers offer miners unprofitable contracts. This is because of high costs: service developers spend a lot of money on equipment maintenance.
Also, the risks are associated with a large number of malicious people in the niche. Fraudulent services often offer customers high profits. Beginners believe the promises and lose their investments. To avoid getting caught, you need to know how cloud mining works. Fraudsters almost always use the same scheme. They forcibly terminate contracts with users under the pretext of unprofitability of cryptocurrency mining.
Confirmed scam sites
By 2024, dozens of attackers have been uncovered. Here are 3 examples.
| HashInvest | An example of a classic pyramid scheme in the world of cryptocurrencies. The service was created in 2016. The first users managed to earn and withdraw profits. But HashInvest quickly stopped paying new customers. |
| HashPoke | This service is also a pyramid scheme. The platform was registered in Belgium. In 2024, the cryptocurrency platform was closed. The situation with HashPoke is the same as with HashInvest. |
| CoIntellect | One of the largest fraudulent power providers. To attract new users, representatives of the service even traveled to cryptocurrency conferences. But after a while, customers brought CoIntellect to the clean water. After that, the platform closed, and the remaining investors lost their investments. |
Top 5 alternatives to cloud mining in 2024
Hashrate renting is dangerous. Earning money from cloud mining is almost impossible. Therefore, it is better to use alternative methods of getting profit from cryptocurrency investments. Among such ways:
- Staking.
- Liquidity pools.
- Farming.
- Cryptocurrency deposits.
- Lending of digital assets.
Staking
As of 2024, there are 2 methods of depositing cryptocurrencies to earn passive income:
- Invest in a blockchain smart contract with a Proof-of-Stake (PoS) consensus algorithm. In this case, the investor will become a validator – a verifying node of the chosen cryptocurrency network. The investor will start receiving rewards for his work. But becoming a validator sometimes requires a large investment. It can be thousands of dollars.
- Invest your savings in a staking pool. These are created by validators. Pools collect investors’ investments and use them in steaking. In return, investors receive a portion of the validators’ rewards. That said, some steaking pools accept small investments – from $1 or even less.
Income from depositing varies greatly. Usually, the value of the profit is from 5%. But you can find staking programs with annual returns of 100% and higher.
Liquidity Pools
This term (Liquidity Pools or LP) refers to smart contracts with cryptocurrency backed trading pairs inside trading platforms. Liquidity Pools only exist on decentralized exchanges (DEX).
Investors provide Liquidity Pools with their savings. As a result, DEX users are able to quickly make cryptocurrency transactions without slippage (changes in the prices of selected assets during decentralized exchanges). This is what is referred to as liquidity. For investing in a particular Liquidity Pool, investors receive rewards – a portion of the decentralized exchange ‘s trading commissions from transactions within that pool.
There are usually hundreds of different LPs on the DEX. Among them, investors can choose the most profitable Liquidity Pools. When calculating the income, you need to consider your share of investment from the total Liquidity Pool collateral.
Profitable farming
In the past, investing in liquidity pools yielded low returns. For this reason, few investors were willing to invest in them. Then the developers of decentralized exchanges began to give them LP tokens in return for investments. These altcoins are designed for staking for the sake of additional profits in the form of service cryptocurrencies of trading platforms. This is what is known as farming. Profitable farming is beneficial to both parties:
- Investors. Farming generates additional profits for investing savings in liquidity pools.
- Exchanges. With farming, platforms incentivize investors to provide liquidity pools and issue utility altcoins.
The yield of LP token steaking varies widely. It can be 2% or even 500% per year. But it is the potentially high returns that attract investors. With the help of income farming, some investors manage to earn 100% or more in a month.
Farming has a nuance: the lists of available pools for depositing LP tokens change from time to time. Because of this, depositors have to follow the offers of exchanges and periodically reinvest savings in other Liquidity Pools.
Cryptocurrency Deposits
Some exchanges and dedicated cryptocurrency platforms provide customers with simple deposit features. Such options allow you to make digital currency deposits at interest. They are similar to traditional bank deposits, only they are not linked to fiat money. Digital asset deposits are safe and require no activity on the part of those who make them. However, cryptocurrency deposits offer small returns, ranging from 0.50% to 20% in rare cases.
Usually, virtual asset deposits are only available on centralized exchanges and other platforms.
Cryptocurrency lending
Lending in this case involves digital lending. But the loans are not provided by cryptocurrency platforms. Lending involves the issuance of loans by some investors to others. To conduct such a transaction and exclude fraud, an intermediary is needed. In the role of a broker can be an exchange or a special crypto platform. Such platforms hold deposited funds (credit collateral of the borrower) and guarantee the fulfillment of obligations by both parties to the transaction.
With the presence of intermediaries, issuing loans to other investors is safe. At the same time, borrowers are required to post collateral. If a particular client becomes insolvent, the lender will receive their deposited amount. This levels out the risks and allows both parties to earn, provided that mutual fulfillment of obligations is ensured.
Conclusions
Cloud mining of cryptocurrencies allows users not to buy expensive equipment. This method involves renting computing power from intermediaries, which is very easy to do.
However, many providers are scammers. At the same time, mining with the help of honest cloud services rarely brings profit. Therefore, it is worth using other methods of passive earning with cryptocurrencies:
- Staking.
- Investments in liquidity pools.
- Farming.
- Cryptodeposits.
- Lending.
Frequent user questions
π What are the advantages of mining through cloud services?
Mining digital assets using this method does not require the purchase of expensive equipment, its configuration and maintenance. Usually, this method is used by beginners.
π² How to earn money from cloud mining?
In theory, it is possible. However, many providers are scammers who cheat their customers with the method of forced contract termination or other dishonest ways.
β Is it worth using a cloud-based cryptocurrency mining alternative?
At the very least, you can try it. But you need to choose popular cryptocurrency projects with high security of investments.
π» Is it worth using hashrate marketplaces?
There are a lot of scammers among such platforms too. You should use hashrate marketplaces with caution, realizing the potential risks.
β What is the best alternative method of earning money?
One of the most popular and easy ways is steaking. Therefore, it is better to try it first.
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Author: Saifedean Ammous, an expert in cryptocurrency economics.
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