There are many ways to mine Bitcoin and other cryptocurrencies. If you own expensive mining hardware, you can solo mine or join a pool and start mining. If you can’t afford expensive hardware or have high electricity fees in the area you live, there are still ways to get into mining. One common way is cloud mining.
Cloud mining services allow you to rent hash power directly from mining rig owners and allocate that hash power to mine the cryptocurrency you want. There is another type of cloud mining service where you buy hash power from a cloud mining company and receive payouts proportional to the amount of hash power you own. These services lower the barriers to entry, as newcomers can easily signup and start mining cryptocurrency in a few clicks.
This all sound promising, but the real question is, is buying hash power profitable?
To answer in short, Yes! It can be profitable, but there are many factors of consideration here. Price and difficulty of the cryptocurrency can determine to a great extent if you are going to profit from this venture.
When you buy hash power, the cost of electricity is completely eliminated, but there are other fees like maintenance fees if you invest in a cloud mining company or seller’s rental fee if you buy hash power directly from a rig owner. When you add all these fees and deduct from your mining reward, you will find that the only person that profit is the cloud mining company or the seller of hash power. This is because, if mining is more profitable to them, they would do it otherwise. By selling hash power, they earn more.
When you buy hash power from a rig owner, you will find that your mining reward will almost always be lower than the rental fee. In the case of investing in a cloud mining company, your initial investment plus all fees are usually higher than the mining reward. The buyer loses on every occasion. But, it does not mean buying hash power is not profitable. There are a few ways the buyer can profit. This is how you profit buying hash power:
1) Mining a Cryptocurrency that is Likely to increase in Price
The most common way to profit from buying hash power is to mine a cryptocurrency that is likely to appreciate in value in the future. By renting hash power, you are losing on the short term, but if the cryptocurrency appreciates, you can recoup all that investment and a nice profit. Finding a cryptocurrency that is going to increase in price is a bet you should be willing to take. At this point, you must consider if buying cryptocurrency is a better alternative to mining.
2) Mining a Cryptocurrency with Decreasing Difficulty
Another common way to profit as a buyer is by mining a cryptocurrency that is decreasing in difficulty. When difficulty decreases and the price of cryptocurrency stays fixed, you get higher and higher rewards. For this strategy to work out, you must buy hash power for a long period of time.
You may lose in the short term, but in the long term, your reward will be higher than the rate you are renting it. When you rent a mining rig from MiningRigRentals or Nicehash, the rate you will be paying at remains constant until the contract expires. The seller is unable to change the rate while being rented. Although, it is important that you keep an eye on the price of the cryptocurrency you mine as it can determine if this strategy is going to work out.
To find cryptocurrencies with decreasing difficulty, check here.
3) Pool Hopping
In some pools, the reward system makes it susceptible to pool hoppers. Pool hopping is when people monitor pools and allocate a massive amount of hash power as soon as it hit a block. When they do this, they get more out of the pool than the value they contribute. They jump from pool to pool during the good times at the expense of others.
One type of pool that is susceptible to pool hoppers are the pools that use the proportional method to reward miners. Many pools nowadays use PPS, PPLNS reward system which is immune to pool hopping. But, nevertheless, people do it on smaller pools with susceptible reward systems.
This practice is unethical and I ask anyone reading this to refrain from doing it. But, nevertheless, this is one way to profit as a buyer of hash power.
4) Mining Unknown Coins
Sometimes, the only way to obtain a coin is to mine it. Mining a newer coin, even at a loss can be profitable sometimes. By buying hash power, you can allocate a massive amount of hash power to mine and accumulate a new coin in large quantities. When these newer coins get added to exchanges, they can 10X or 100X sometimes, bringing you a nice profit.
5) Mining instead of Buying Cryptocurrency
This is not exactly a method to profit as a buyer, but it is surely a way to save some money on transaction and withdrawal fees. Hash power exchanges like Nicehash or MiningRigRentals have very high fees for using their services. If you mine a coin directly to your wallet rather than buying it from a cryptocurrency exchange and then sending it to your wallet, you are sure to save some money.
This is also a good way to own cryptocurrency if buying cryptocurrency is not possible in your country. In that case, mining could be the only way to obtain cryptocurrency. In addition, buying hash power and mining coins is an anonymous way to earn cryptocurrency if you do it right.
Watch out for Cloud Mining Scams
The above-mentioned strategies can only be applied when you rent hash power from a rig owner. If you invest in a cloud mining company, the only way to profit is if the cryptocurrency increases in price at relatively low difficulty rates. But again, these companies must adhere to the fluctuations of difficulty rates.
In the short term, the seller of hash power always earns more than the buyer. But, in the long term, there is potential for the buyer to earn big, especially if the price of cryptocurrencies increase. Above mentioned methods are some of the ways you can profit as a buyer.