Let’s take a quick dive into the world of Crypto Currency Mining; Mining Contracts or Cloud Mining Contracts are issued to a prepaid user. This user receives a high compute instance of a large cluster of machines so that the user can generate crypto currency using that instance.
If I were a customer, I’d be asked to invest approximately 1$ per Mega Hash for scrypt mining (Bitcoin Like Mining algorithm). Costs per hash-rate for GPU based algorithms are much higher than these.
So that’s a lot of technical terms right? Let me break them down for you :
- Hash – A measure of computing power that will be locked to the Blockchain network in deciphering & validating the encrypted data in a blockchain.
- Kilo/Mega/Giga/Tera/Peta/Exa Hash –
1 kH/s is 1,000 (one thousand) hashes per second
1 MH/s is 1,000,000 (one million) hashes per second.
1 GH/s is 1,000,000,000 (one billion) hashes per second.
1 TH/s is 1,000,000,000,000 (one trillion) hashes per second.
1 PH/s is 1,000,000,000,000,000 (one quadrillion) hashes per second.
1 EH/s is 1,000,000,000,000,000,000 (one quintillion) hashes per second.
This is what your typical Mining Contract ads will look like :
Looks eye catchy, tempting and almost too good to be true? 9 out of 10 times, it’s a scam.
All over the internet you’d find reviews like this :
It’s not really about luck or bad luck. It’s about common sense and having done your due diligence, exactly like you’d follow before any investment.
Here’s a checklist of what you need to be aware of before you go in for a cloud mining contract.
- Verifiable mining operation. This is not necessarily proven so much by photos or videos of mining operations (any idiot can get their hands on some photos of a Bitcoin mining rig operation and post them to a website, and videos can be faked as well), but by a service’s presence on the Blockchain. (Are they actually mining for coins?) Odds are, if a service isn’t actually mining for coins, you’re either subsidizing their mining rigs (still reasonably legit) or, just as likely, they’re running a Ponzi.
- Accepts at least one method of payment for purchasing hashpower other than Bitcoin or Altcoin. Reason being is that it gives the person buying hashpower at least a little bit of sense of security if for some reason the operation goes bust three days after buying hashpower. You’re not going to find a lot of services who accept PayPal anymore, because it’s too easy for those purchasing hashpower with PayPal to scam the seller. Anyone who has ever tried to sell Bitcoins on eBay knows what I’m talking about. People will pay with PayPal, and after they get their Bitcoins, will file a chargeback, and PayPal always takes their side because, well, the eBay “digital goods” policy sucks.
Signs to watch out for include:
Anonymous operator. Do a WHOIS search on any cloud mining service. Is there contact information other than the webhosting service? Has someone put a real name and address behind this, or is it just anonymous?
Unrealistic promises…or for that matter, ANY promises at all. There are no promises in Bitcoin mining. There is no guarantee that you will make a return. If someone is promising you a specific rate of return, you should be very suspicious…especially if it’s more than 0.5% per day. I’ve seen ads for some so-called Bitcoin sites that promise 3% a day (anyone remember BitMinister or HashOcean?)
Promoted mainly via posts in Bitcoin forums.
Posts on Bitcoin forums trash other sites while promoting theirs. HashOcean was notorious for calling sites like Genesis Mining, Eobot, Hashflare, scams and telling people HashOcean paid faster. Everyone I know who had anything to do with HashOcean lost Bitcoins, or at least Satoshis. I personally lost over 1,000,000 Satoshis to them (about $6.20 at the time so no biggie and I only “invested” in them for research purposes) but I was lucky…I knew people who lost hundreds or even thousands to them.
No endorsement from ASIC Vendors. Not an absolute determining factor of a scam or potential scam, but most ASIC vendors will happily give an endorsement for the asking. An exception to this might be if an operation is buying old ASICs from Amazon or somewhere else and connecting them to free, renewable power sources…but so far, nobody is doing this to my knowledge. (Please correct me if I’m wrong, I’d love to hear about such a service.)
This is going to sound like a weird one, but offers free hashpower. A lot of scam operations will offer free 50 GHS so you can see the illusion of Bitcoins being mined, but more often than not, will shut the free hashpower off after a certain amount of time. Also, you won’t be able to withdraw until you make a deposit. So far, every service I’ve seen offer free hashpower (so far) has never lasted more than six months.
No pool mining address. If a service is legitimately mining, it would seem they would want people to connect to their pool…after all, the more hashpower they have connecting to their pool, the more they benefit…right?
So remember, cloud mining contracts get expensive, very fast. We made an internal calculation based on our mine at cryptX, even reputed providers like Genesis Mining give out contracts at about INR 1800 / Megahash. This has already become unsustainable in a matter of just 3 months due to the rise in Ethereum difficulty.
The actual value should be somewhere around 2600-2800 INR / Megahash on Dagger hashimoto (Ethereum Algorithm), based on a very conservative model of rig setup with about 10 GPU’s on average per motherboard. (Including Electricity, Maintenance, Rentals, Services etc.)
We at cryptX recommend that you ensure that you get your paperwork done on this contract and get a “Minimum Assured Returns” term incorporated somewhere in there.
Though we make about 2.5GHash / Sec on Dagger Hashimoto, we are currently NOT issuing cloud mining contracts to customers due to these various reasons. When a better model is devised, we will be out with a model that gives you a price to price contract (Invest “X” INR and get a return of “Y” INR after “Z” Months of time elapsed) stay tuned to Cryptx.in/blog
Thanks for reading!