What is Cloud Mining?

What is Cloud Mining?

Cloud mining is a service whereby Bitcoin miners are rented and managed by an expert. Cloud mining providers extract the complication of maintaining a ...


What's up, party people? Chris DeRose here, community director of the Counterparty Foundation. And today's video we're shooting from Diamonds & Doggies here at Lauderdale-by-the-Sea. Diamonds & Doggies is your one stop shop for jewelry and little puppies. Today I've got Elizabeth Taylor with me. It's a female and is looking for a new home, so maybe if you're in the area, go check her out. In any case, this is where all the celebrities come to buy their jewelry, their dogs in one stop, one shop.

We even have Adam Sandler here at the walls, I think it's one of his preferred places to get his girlfriend's presents. But let's get started. So today's question is "What is cloud mining?" So cloud mining is something that comes up semi-regularly, and it's kind of a controversial solution in the Bitcoin space. Cloud mining is when you buy from a provider some amount of hashing energy that is devoted to mining for you. They do all the management of the mining and they take care of all of the operations and all of the work involved in mining. So on the surface, it looks really great.

It's like, "Okay, wow, well, they take care of all the hard stuff for me, and all I do is pay for the infrastructure, they manage it." But in practice, it's a little bit less spectacular. So like all things in Bitcoin, at first, you gotta realize what is the other side of the bed? What is it that they're actually betting on and what are you betting on? What is it that they're doing and what is it that you're saying? In the case of cloud mining, it's a little bit nebulous, really, what you're getting, and it's hard for a rational actor to really express, I think, in good terms what it is that they're doing. Probably what you're doing is you're betting that the mining difficulty will remain the same or decrease over time. That's the bet you're making. Now you may think what you're doing is you're betting on Bitcoin going up, but that's not actually true.

What you're betting on is that the mining infrastructure will weaken over time. That is a bad bet. And in fact, what's happening in the cloud mining end is that cloud miners bet in the opposite. He's betting that mining strength will increase. So he's sticking you with the fees to run the network and he's sticking you with the cost to do the mining, and meanwhile you're absorbing that yourself, thinking you're going to get some Bitcoin. Now you won't necessarily lose money.

You won't necessarily get robbed, but there's a lot of risk in that transaction. There's a lot of risk because what you're doing is, certainly in many cases, is you're giving them the private key, not always, but often. But then in addition to that, they have the ability to flip the switch. They have the ability to divert some of the output to another address, say, depending on how the structure is arranged in the contract. So there's a lot of risk involved in that transaction. And it always kind of says "Well, why not just buy the Bitcoin?" Typically that's your best bet in all things Bitcoin.

If you're going to make some exotic, double-play where you try to hit two bases on one hit or something like that, that's fine, but your risk goes up extraordinarily so, perhaps even exponentially so, I don't know. But in the case of cloud mining that's typically true. A lot of people get burned on cloud mining for these reasons. There's possibly a place for cloud mining, but in the mining infrastructure in general, there's really only one specialty which is "How good are you at mining?" It's a total commodity product that they're offering, and there's not a lot of differentiation between providers, and right now, that efficiency is typically, or exclusively within the realm of people who are ASIC designers. These ASIC designers are doing great, and they're the ones who are probably making most of the money, but in addition, there are the guys who are getting cheap power contracts as well. You're not anyone to be in either of those cases, so when you do the cloud mining, you have to ask yourself, "Well, why aren't they making the money? Why are they offloading it to me?" And the answer is typically that they're actually not very good miners either, they're just taking the bet that the mining difficulty will go up, for which you're willing to take the opposite end of the bet on.

So cloud mining is probably a bad deal. If you like it, because it's interesting, great. But I don't think that in any amount of time that I've ever heard of cloud mining anyone's really ended up that well in doing it. It's typically not the best decision, but I don't know, maybe your experiences have differed. Maybe you've done really well with cloud mining. If you have, make a comment below, weigh in on the controversy here and tell me what you think.

And if you like this video, you want to see some more, subscribe to my channel. Later, party people.