In the blog post All You Need To Know About Bitcoin And Cryptocurrencies I briefly mentioned cloud mining and my investment in HashFlare.
Since I published that post roughly half a year has passed and I think it’s a good time to review my results, analyze them and show them to you to help you take the decision whether cloud mining is for you.
What Is Cloud Mining
Before we get into the nitty gritty details, I want to touch on the basics first.
To run a blockchain like Bitcoin, Ethereum or any other there need to be computers connected to a network that processes all the information in the blockchain.
In the traditional world, there are centralized servers, that are very powerful and one server can host multiple websites.
In the crypto world, there is a huge network of smaller servers or just computers that are processing the information in the network.
In the traditional world, the server is paid by the users of the server.
In the crypto world, it’s basically the same the small servers or miners get paid by the users of the network.
To be a miner and get paid for running a blockchain network you need to have a very powerful computer or if you want to mine Bitcoin you need to use ASIC’s, these are specialized chips designed for one purpose – mine Bitcoin.
So, mining is using a computers processing power to process data on a blockchain network.
It’s a profitable business, but just as risky because cryptocurrencies are very volatile in price.
There are several cons to start mining yourself. You need a dedicated computer or an ASIC. That computer has to be running 24/7 and it generates a lot of heat and noise so, it’s a mild inconvenience to mine at home.
Also, electricity prices are a huge factor for profitability so, if you don’t have access to cheap electricity you might be losing money.
Cloud mining is when you buy a contract from a company where you agree on the processing power that they will rent for you to mine a cryptocurrency.
What’s in it for them, why can’t they just use the miners themselves and take all the profit?
Well, outside investments help them to have a stable income because cryptocurrencies are very volatile.
Also, it helps to grow the mining farm faster as they can invest in new mining equipment.
Of course, cloud mining is less profitable than mining yourself, but it eliminates all the cons, like heating, noise, etc.
Yet there’s a huge con of cloud mining is that you don’t own the mining gear!
The cloud mining field is full of scams and you should be very careful before investing. There are only a handful companies that I know of that are legitimate so, do proper due diligence before investing.
My Results With HashFlare
I have bought 4 different contracts on HashFlare: Bitcoin, Litecoin, Dash, and Ethereum.
Let’s start with the king of cryptocurrencies – Bitcoin. Due to the stability of the coin and a clear vision of how it should work you can get lifetime cloud mining contracts.
This means you pay to buy the hashing power and a daily maintenance fee and the contract goes on forever or until stays profitable. So, it sounds like a really great investment, because no matter how long it takes it should still bring a positive return on investment.
I bought the contract on 19.01.2017
I invested: $20.52
If I had invested into BTC instead of the contract I would have bought: 0.0229 BTC or at today’s prices that would be worth $91.25.
It’s very difficult to calculate my returns because Litecoin contract also pays in BTC and those two get mixed up together.
Litecoin is another very stable coin, in some ways it’s better than BTC, but it has less of an adoption because it wasn’t the first. Litecoin is considered to be the silver of cryptocurrencies.
There’s also a lifetime mining contract for Litecoin.
I bought the contract on 19.01.2017
I invested: $24.6
If I had invested this money into LTC instead of the contract I would have bought: 6.373 LTC or at today’s prices that would be worth $297.49.
Results for BTC and LTC
It’s really hard to calculate everything because I had reinvested some of the revenue and bought $31.2 worth of BTC cloud mining contracts and also recently I took out $44 worth of BTC.
Probably, if I had been holding all the payments I would have had better gains, but overall from mining, I earned $75.2. Compare it to $388.74 if I have instead bought the currencies, that’s more than 5 times less.
Still, within 7 months I have got most of my investment back. My total investment including reinvesting is $76.32 and I took out $44. So, not a bad investment until you compare it to buying the coins themselves.
Ethereum is the second biggest cryptocurrency by market capitalization. Most of the ICO’s are running on Ethereum smart contracts.
I haven’t seen a lifetime contract in the market. I did see longer contracts, but I did invest with HashFlare where they give 1-year mining contracts.
The reason why there are no lifetime contracts for Ethereum is that they are planning to change from Proof of Work to Proof of Stake sometime in the future. The adoption of proof of stake would mean that there’s no need for miners anymore.
I bought the contract on 26.03.2017
I invested: $41.58
Currently, I have mined: 0.26995265 ETH which is worth $84.08
So, within 5 months I have doubled my investment, which is crazy and there’s still more than half of the contract time left.
On September a hard fork for ETH is coming and one of the updates is going to be a massive increase in mining difficulty.
So, I’m not expecting to reach 0.5 ETH in the last half of the contract. I’m guessing I will get in total around 0.35 ETH and probably there will be a significant price increase as well.
But what if I had bought ETH instead of the mining contract?
I would be holding 0.834 ETH which would be worth $259.81, which is 3 times more than what I currently have.
The situation is better than with BTC and LTC contracts.
Obviously, my contract isn’t over yet and as I said I will be getting around 0.35 ETH, which will still be more than 2 times less.
It’s an interesting cryptocurrency. It has anonymous payments, instant transactions, a big community and more.
The mining model of this currency is very unique. 10% from mining rewards goes to the Dash company budget. 45% of rewards go to regular miners and 45% goes to master node owners that approve instant and anonymous transactions so, it’s a mix of proof of stake and proof of work.
There are no lifetime contracts for Dash as well. So, I have invested in one-year cloud mining contract.
I bought the contract on 22.03.2017
I invested $63.8
Currently, I have mined: 0.37898982 DASH which is worth $106.25
So, within 5 months I have earned $40 in profit and I’m quite close to doubling my investment. It’s quite good return on investment.
During the second half, I will likely not going to mine as much, because the difficulty keeps increasing ever so slightly, but I’m expecting to get 0.6 – 0.7 DASH in total from this contract.
Also, recently there was a huge price spike for Dash and I do see the potential of it going even higher.
How about the what if scenario?
If I had bought Dash instead of the contract, I would be holding 0.64 Dash, which would be worth $180 so, that would be 3 times return.
Now, out of all the contracts Dash is most likely going to be the closest one to outperform the coin because I’m expecting to mine around 0.6 -0.7 Dash and if that proves to be the case then I would have gotten more than what I could have bought with the money.
As you could have seen from 4 of my examples, cloud mining is less profitable than buying the coin itself.
Sure, in a lifetime I might earn more from the BTC and LTC contracts, will see how that goes.
Now, I’m not saying it’s a bad investment. Cloud mining is perfect if you want passive income and honestly, you can never know if a cryptocurrency will go up or not.
If the prices haven’t gone up it would have been a whole different story.
So, if you are planning to invest really weigh all the pros and cons and most importantly do proper research for the cloud mining company you’re investing in.
I’m likely going to do a follow-up post when the 1-year contracts expire and see how my predictions went.
Have you invested in cloud mining? What are your results? Let me know in the comments below.