How Does Cloud Mining Work?

Cloud mining is a way to earn cryptocurrency by outsourcing computational work required for cryptocurrency mining.

How does cloud mining work?

Cloud mining is a convenient and cost-effective alternative to conventional cryptocurrency mining. With cloud mining, miners can participate in the generation of cryptocurrencies without the need to own and maintain expensive mining equipment and software. All mining operations happen through the cloud, allowing miners to participate from the comfort of their own homes. It is, however, important to note that while cloud mining offers clear advantages in terms of cost savings and convenience, it is still vulnerable to scams and risks. As such, it is crucial to do your own research and select trustworthy cloud mining providers.

Types of cloud mining

There are two types of cloud mining models:

Host Mining

Host mining involves buying or leasing a mining rig from the farms of cloud mining providers. While there are maintenance and setup fees, miners will save on electricity bills. Moreover, miners will have more control over their mining rigs and can choose to redirect the hashing power to mining pools. Most importantly, miners will have complete control over the rewards generated.

Leasing Hash Power

Like the name suggests, leasing hash power involves renting hashing power generated by a mining farm. Miners do not need to pay maintenance and setup fees. Instead, they subscribe to a plan by the cloud mining firm to receive a share of the mining farm’s profit. Rewards generated are distributed amongst users based on the share of hashing power they have.

Benefits of cloud mining

Cost-efficient

Miners can save on setting up, running and maintaining expensive mining equipment and software.

Technological Support

Miners do not require prior technical knowledge about cryptocurrency, protocols and mining to earn cryptocurrencies.

No Maintenance Required

Miners do not need to worry about maintaining and upgrading mining equipment.

Mining Rewards

Cloud mining provides miners with opportunities to earn attractive rewards and payouts.

Risks of cloud mining

While crypto cloud mining has its advantages and opportunities, its associated risks cannot be ignored.

No Control Over Mining Equipment

With cloud mining, miners do not own the mining rigs and equipment.

Profits Vary Greatly and Are Not Guaranteed

Cloud mining providers provide miners with hashing power over a contracted time period.

Frauds and Scams

Cloud mining remains a challenging sector as it is ripe with scams and fraudulent behavior.

Bitcoin cloud mining

Bitcoin is arguably one of the most popular cryptocurrencies to mine given its demand and value. To illustrate, when bitcoin was first mined in 2009, mining one block would reward miners with 50 bitcoins. Bitcoin rewards are halved every four years. This means that in 2012, mining one block would reward miners with 25 bitcoins. By 2020, rewards halved to 6.25 bitcoins. Taking bitcoin’s price to be approximately 46,000 USD (as of April 2022), completing a block would grant miners 287,500 USD. That being said, miners should take note of the costs and effort required to mine bitcoin. While potential rewards for mining bitcoin are high, the actual return of investment (ROI) is still dependent on cloud mining service fees as well as bitcoin’s current market price.

What is cryptocurrency mining?

Cryptocurrency mining is the process of verifying cryptocurrency transactions to be added to the public ledger, ultimately leading to the creation of new coins. Also known as proof-of-work, transactions are verified by solving complex cryptographic hash puzzles which require powerful computing power and dedicated equipment. In return, miners are rewarded with new coins, which are then added to the overall circulation.

What is hashing power?

Hashing power, or hash power, refers to the power that your computer or hardware utilizes to solve different hash puzzles. It is a measure of the cryptocurrency miner’s performance.

What is the difference between proof-of-work and proof-of-stake?

Proof-of-work and proof-of-stake are consensus protocols cryptocurrencies use to verify new transactions to be added to the public ledger. Proof-of-work blockchains, pioneered by bitcoin, are verified and secured by miners using great computing power to solve cryptographic hash puzzles. On the flipside, in proof-of-stake blockchains, validators stake their cryptocurrency for a chance to verify new transactions and be rewarded. Proof-of-stake, compared to proof-of-work, is a faster and less resource-intensive way to verify cryptocurrency transactions.

What is a mining pool and how do they work?

A cryptocurrency mining pool is essentially a group of miners who combine their hashing power to mine blocks of cryptocurrencies. They are often operated by third parties that coordinate groups of miners and distribute mining rewards. OKX’s mining pool offers a 24/7 mining service that is flexible, transparent and backed by top-tier security. Learn how to earn cryptocurrency with OKX Pool.

How to identify cloud mining scams?

When engaging with cloud mining providers, it is important to pay close attention to a provider’s terms and conditions. Be cautious of those that require a hefty service fee upfront as well as those that promise astronomical returns with little to no effort. Always review mining farm addresses and ownership details of cloud mining providers and avoid those that hesitate to disclose photos and details of their mining farms.