NEW YORK (InsideBitcoins) — Mining bitcoin has become a big manufacturing game, run by deep-pocketed investors. Gone are the days of desktop mining. Instead, home players interested in buying into “cloud mining” operations are drawn to collective mining farms, some of which claim to use “renewable hydroelectricity” and polar plants cooled by sky-blue Arctic air for advanced supercomputing support.
You can buy all the hashing power you need and they will do the rest. No need to buy expensive hardware or worry about electricity, hosting fees or maintenance costs.
For those hoping to get rich in the cryptocurrency craze, it sounds particularly attractive. However, scammers are numerous and profit margins are slim, so many people are looking for opportunities.
One cloud mining pool shut down this weekend, and at least one other has amassed a growing number of unhappy users.
No payments, just music and Morse code
Photo: PeerNova
Hashie.co – Amid growing complaints about non-payment, the company’s homepage suddenly became an alternate reality game complete with music and Morse code that launched just two months ago.
CloudHashing.com is another collective mining operation that is also facing non-payment issues. One user told Inside Bitcoins that he started buying CloudHashing contracts in January last year, when he attended the Inside Bitcoins conference in New York.
“For the first six months, mining produced results every day, but starting in November, the results started to become erratic, with eight days without new Bitcoins being mined,” he told us. “It was the same in December. There was no movement in my account for eight days. Also, they stopped the income reinvestment program in early December without any explanation.”
[Read more: What is Bitcoin Mining? ]
Our inquiry to CloudHashing's parent company, PeerNova, elicited a quick response from Emmanuel Abiodun, PeerNova's president and chief compliance officer.
"Due to the size of the Bitcoin network, we have seen some significant time differences in block discovery across our services," Abiodun told Inside Bitcoins. The company said this variability in results impacted regular payouts and rewards. "To mitigate this issue, we will be moving our machines to other larger mining pools until our own pool size increases," Abiodun added.
This fragility in generating revenue is a concern not only for cloud mining consumers, but also for mining pools themselves. Less than two weeks ago, PeerNova announced the completion of nearly $9 million in Series A equity and debt financing, led by Mosiak Partners. The company said the funds will be used to "accelerate the development of blockchain-based enterprise products."
This could be interpreted as a shift in the company’s business plans, perhaps focusing less on consumer cloud mining contracts and focusing resources on the development of “multiple” commercial applications in the new year.
Find an anti-cheat program
But while CloudHashing’s customers may feel temporarily reassured, and Hashie’s customers are apparently being ignored, how can consumers differentiate between collective platforms that offer real profits and those that are simply Ponzi schemes?
Cloud mining is the easiest way to scam Bitcoin. Don't trust the promises of returns and large farms. Photo depicts the Pojet gold mining farm
– Andreas (aantonop team) (@aantonop)
December 29, 2014
Gavin Andresen
Gavin Andresen, lead developer of the Bitcoin protocol and chief scientist at the Bitcoin Foundation, has been a staunch opponent of cloud mining.
“I haven’t seen a good way to differentiate between an honest cloud mining company that actually owns and operates the hardware and a Ponzi scheme that simply pays out earlier ‘investors’ with bitcoins taken from later ‘investors,’” Andresen told Inside Bitcoins.
“It’s not clear if it’s possible to have an anti-cheat scheme for cloud mining companies to prove they’re honest; some of the ‘hash verification’ schemes I’ve seen could be fooled by temporarily renting some hashpower,” he added.
So, are the days of hooking up a computer to two fans and an open window to keep the whole setup cool gone?
“I used to do a little CPU mining when I first heard about Bitcoin in 2010,” Andresen said. “I stopped mining because I connected a Kill-a-Watt meter to my computer and calculated that it was cheaper for me to buy Bitcoin produced by others than to pay for the electricity required to produce my own Bitcoins.”
How to Make Money from Bitcoin Mining
Andresen said that to make money in Bitcoin mining, you have to have your own advantages.
“My advice to people considering mining is the same now as it was before: Don’t mine unless you have some kind of competitive advantage. If you have very cheap or free electricity, that’s a competitive advantage and you can probably mine profitably. Or if you have early access to cutting-edge mining application-specific integrated circuits (ASICs), which are much more energy efficient. Or if you have very cheap ASICs.
“Bitcoin mining is a zero-sum game.”
“Bitcoin mining is a zero-sum game, so you’re competing against everyone else trying to create Bitcoin. You can only make a profit if you have some advantage. This was true in 2010 and it’s still true today. There have been a few times in between where people got lucky and got early access to cutting-edge hardware (first GPUs, then ASICs), but you shouldn’t count on getting lucky.”
But Andresen added that there are exceptions.
“For example, if you live in a country where it’s very difficult to buy Bitcoin and you have no other way to earn Bitcoin, then it might make sense to mine Bitcoin at a loss,” he said. “Or if you value your financial privacy very much and don’t want to hand over your personal information to an exchange, then it might be worth it to spend the extra hardware and electricity costs to mine your own Bitcoin.”
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