Cloud mining to me is quite ironic. I often see the cloud as the first generation of the blockchain, the younger sibling that the blockchain wants to compete with, yet, a large majority of blockchain activity takes place through cloud mining, interesting right? Or perhaps I’m over thinking it.
What exactly is cloud mining? In essence, cloud mining allows users to mine for cryptocurrencies like Bitcoin, Litecoin and Ethereum without actually having to fork out and pay for very expensive cryptocurrency mining hardware, such as graphics processing units. By engaging in cloud mining, users are able to ‘rent’ the hashing power of machines within purpose built data centres. So in essence, you are able to lend the services of a data centre, who will mine on your behalf for a set rate or fee.
Because of this cost, cloud mining is less profitable than one might think. Most importantly, with the Bitcoin price down, it’s actually very difficult to make a profit mining Bitcoin in this way, unfortunately, it costs more to utilise cloud mining services than the actual value you get back out of it. According to new reports, this balance will remain in favour of the cloud miner suppliers until Bitcoin reaches $8,900.00, even then, users will only break even.
Therefore, Bitcoin could need to reach $9,000.00 before cloud mining becomes even remotely profitable once more.
A part of this, comes from the increase in mining difficulty that comes with the reduced supply of Bitcoin. As blocks become more complex to solve, more power is required which inflicts a greater cost on the cloud miner. Since the reward is of a low price, the entire system seems to be pointless.
According to Cryptovest, mining difficulty is up significantly, both through the weekend and over the previous three months:
“The one-day difficulty change is 14.88%. What is more significant, the streak of increased mining power has led to a 47.92% difficulty growth over the past three months. The effect of mining difficulty affects mostly cloud mining, which relies on preliminary contracts hinging on the expectation that the Bitcoin market price would offset the higher difficulty and lower rewards. Some analysts see the current break-even price at $8,900, to make cloud mining contracts profitable.”
See the full article for yourself, here.
The take home message here is that for now, cloud mining is no longer a lucrative move, as a matter of fact, it may cost you more than you could possibly earn. Of course, then the price of Bitcoin moves up again, so will the potential reward via cloud mining but remember, when the reward increases, so will the number of cloud mining service users. You’ve got to consider what sort of impact that will have on your rewards. Ask yourself, are you spending too much, is it worth it?