In simple terms, cloud mining is when you lease someone’s mining hardware, mine with it and keep the profits for yourself. The person or company that rents the hardware, takes care of setting up, maintaining and all other costs associated with mining, in exchange for a fee. Cloud mining can be an interesting way to get involved with cryptocurrency, but the real question is, is cloud mining profitable?
Is Cloud Mining Profitable?
Let’s look at Genesis-Mining to determine if cloud mining is profitable. Genesis-Mining is one of the most well-known cloud mining services today. They offer cloud mining services for Bitcoin, Ethereum, Dash and few other cryptocurrencies. As of now, Genesis-Mining offer 18 month Bitcoin mining contracts. The platinum plan will give you 25 TH/s and costs $1,443.75.
To calculate the total expected mining rewards, I use the Coinwarz calculator. There is no power cost associated with cloud mining, so all I need to enter is my hash rate, which in this case its 25 TH/s. Bitcoin difficulty, the block reward, and BTC to Dollar amounts are filled for me automatically. The hardware cost field should be left blank. Instead of hardware cost, what we have is the cost of our plan, which in this case it’s $1,443.75. After I hit calculate, I see a breakdown of estimated mining rewards like the following:
Our mining contract with Genesis-Mining is only for 18 months. By the above calculation, I’m expected to earn 0.3779835 BTC ( $3,789.22) when the contract ends. But we need to account for maintenance fees of Genesis-Mining. As of now, they charge USD 0.17 per TH/s per day. For 18 months at 25 TH/s, it will cost me USD 2295.
So, if I deduct the total estimated mining rewards of $3,789.22 with total maintenance fees of $2295, I’m left with $1494.22 profit when the contract ends? No. I must take Bitcoin mining difficulty and the upfront fee into consideration.
Bitcoin’s difficulty has been doubling itself each year. It will likely do so in the coming years. When the difficulty of the Bitcoin network increases, your mining payout is lowered. So, by the time my contract with Genesis-Mining ends, I’m expected to earn much less than the calculated amount.
The upfront fee of my contract with Genesis-Mining was $1,443.75. If I deduct this amount from the total estimated mining reward of $1494.22 (after fees), I’m left with $50.47. This is the amount that is left to cover reductions in payouts when difficulty increases.
It is likely that you make a loss and never break-even. Although on some occasions, it can be profitable. Like the following:
What if Bitcoin Price Increases?
Anyone could say there’s a chance that Bitcoin’s price will increase in the future and cloud mining contracts can become profitable. If Bitcoin goes to $50,000, I will recoup my initial investment very fast right?
No. When the price of Bitcoin increases, more miners join the network. The outcome is an increase in mining difficulty. When the difficulty of the network increases, you will be mining less Bitcoin. You will see a sudden drop in Genesis-Mining payouts. But the Bitcoin you mine is worth a lot more now, even though you are mining less of them.
So, you will be earning roughly the same amount in dollar value. There will be sudden spikes in the amount of money you make when BTC price increases, but eventually, the network will adjust itself so that you earn the same in dollar value.
The difficulty of the Bitcoin network increases no matter what happens to the price. Although it is possible that Bitcoin’s difficulty can decrease, it is very unlikely. The difficulty of the Bitcoin network more than doubles each year, in fact between 2016-2017, it tripled. You can expect this pattern to continue in the coming years.
This is bad news for people that opt into cloud mining. This means, your mining payout will gradually decrease and eventually, the fee of cloud mining will be higher than the payout. Genesis-Mining has 18 month Bitcoin mining contracts. There is a fair chance that this mining contract will become unprofitable before it ends.
So, does it mean cloud mining is unprofitable?
No. Although your payout is gradually decreasing, it can also be very profitable if the price of Bitcoin increases. As mentioned above, you will earn less Bitcoin when price increases, but the value of Bitcoin you have mined in the past also increases. The value of Bitcoin you have accumulated from the cloud mining contract increases with a price increase.
So, cloud mining is profitable if the price of cryptocurrency increases exponentially. This way, you can recoup all investments and cloud mine at profit. But at this point you may wonder, is it better to just buy Bitcoin rather than mine? You can check out this article here. If you want to buy Bitcoin or other cryptocurrencies with a credit/debit card, you can do it using the following exchanges:
Cloud Mining Cryptocurrencies other than Bitcoin
Okay. Cloud mining Bitcoin is not profitable unless Bitcoin price increases. But, what if you mine other cryptocurrencies? Cloud mining services like Genesis-Mining and Eobot offer cloud mining services for Ethereum, Litecoin, and other cryptocurrencies. Is it profitable to cloud mine an altcoin?
Unfortunately, it has a similar fate to Bitcoin. The majority of cryptocurrencies follow the price of Bitcoin. When the price of Bitcoin increases, cryptocurrency price increases, when Bitcoin price decreases, cryptocurrency price decreases. The only way you profit by cloud mining an alternative coin is again if the value of the cryptocurrency you have accumulated increases exponentially.
If any cloud mining service guarantees a profit or has implausible mining rewards, it is likely to be a scam. Cloud mining is the favorite of scammers. Scams posing as legit cloud mining services will not allow you to withdraw your mining payout. Please read reviews before you invest in any cloud mining service. Also, avoid all cloud mining services that give you free hash power for signing up. It is not profitable for a cloud mining service to give free hash power to thousands of customers. After all, any cloud mining service offers services only if it’s profitable for them.
If you are interested in mining cryptocurrency and want to learn more about it, cloud mining can be an easy way to learn the language of cryptocurrency. Cloud mining cannot guarantee a profit but it can be profitable on some occasions like mentioned above. If you look at cloud mining, thinking you can double your money, do not cloud mine. If you want to cloud mine as a hobby, go ahead!