To learn about cloud mining, first we need to talk about cryptocurrency and bitcoins.
Bitcoin is the first and most popular digital currency, which exist only in electronical state. Stored in the electronical wallets on owner’s computers or smartphones, it will never be printed.
It was created by an unknown person/group called Satoshi Nakamoto. He/They invented a Bitcoin protocol back in 2008 and then released first btc software for mining in 2009. Interesting fact is no one still knows true identity of Satoshi.
There are some rumours and theories about who he/they might be, and you can find them here.
Miners (ordinary people and organisations across the world) produce bitcoins. To be more precise, by their computers, as they have installed software for mining. What they actually do is solving mathematical problems and being rewarded for that.
Great video about how Bitcoin works
So what makes Bitcoin so popular?
Actually, a few things…
- You can buy stuff with BTC. Every day there are more and more stores and services which accept this kind of payments. Hey, don’t take it from me, this guy travelled the world using only bitcoin 🙂
- Naturally, you can exchange it for conventional money. There are several online exchange services like Coinbase or Xapo. All are easy and fast but exchange rates can slightly vary.
- It is not centralised. There is no some kind of organisation who controls transactions. Every miner or trader is a part of bitcoin network and they all have information about all transactions in the network. We call this network the blockchain. In order for a transaction to succeed, thousands of miners have to confirm it. That is how transactions stay public and transparent.
Even though transactions are public, they aren’t connected to names so users remain anonymous.
- Unlike with conventional currency, transaction fees are reduced to minimum. We cut off third man (sort of…)
- Ability to use computer power to make profit – bitcoin mining & using cloud mining services
Other than BTC, there are less popular cryptocurrencies like Litecoin, Doge, Ether etc. We call them altcoins and they can be mined and stored the same way as Bitcoin.
The question is, how to get bitcoins? Yes, we all know we can buy them, but is there a better, cheaper way to have them… well, yes there is.
To explain bitcoin mining first we must understand how the blockchain works.
As I said, to cut off the trusted third parties we must have some kind of mechanism to confirm crypto transactions. So instead of having centralised list of transactions, every node in bitcoin network has the info about all btc transactions.
Blockchain logs all transactions. Using complicated mathematical principles, bitcoin miners verify transactions. If anyone tries to corrupt the transaction, miners will not confirm it and nodes will refuse to incorporate it in the blockchain.
So miners verify the block of transactions and store the result at the end of the block. That result is combined of numbers and letters which is called hash. Also, miners use hash from the previous block to make sure no one can corrupt the block sequence. To make it harder, blockchain will not accept any hash generated by a miner. It has to follow certain rules, called proof of work. If the hash does not match, miners must change the certain data and try again. This data is called nonce.
One more parameter is imported to equation and its called mining difficulty. This parameter determines how hard it will be to find a new mining block. It changes every 2016 blocks. Every day new miners are entering the game, new bitcoin farms are being built and new cloud mining platforms opened. This has a great influence on block creation, and naturally, on mining difficulty. See the mining difficulty chart.
When a miner closes the block, he gets reward in amount of 12.5 bitcoins. The reward was 25 btc before the halvening in July, 2016. Halvening occurs every 4 years and next one will be in 2020.
If a miner closes the block on his own, he will not have to share the reward with anyone, but nowadays, this is highly unlikely. In most cases, miners join the mining pools and together they are trying to find the right hash, and when they do, everyone in the pool gets reward from the 12.5 btc.
Generally, there are two approaches to BTC mining. You can build a miner at home, or rent it (cloud mining). We measure its strenght in hashpower. The more hash power you have, the more powerful your hardware is and you mine more coins.
Building a miner is a whole new story and I will cover it in one of my next posts. We will focus on other method of earning coins.
What is cloud mining and why is it so interesting?
To start mining, you need expensive hardware and software, then you need to spend some time to configure and learn how to optimise it, keep it from overheating paying the electrical bills… it can be real hassle.
What if someone else do this for you in their own environment and in places where electrical costs are not too expensive. The hardware is already assembled, miners are configured and optimised, waiting to start…
Cloud mining services offer just that. This is how it works:
- Make an account with them (I suggest Genesis Mining, see why after this quick guide)
- If they offer multiple algorithms like sha256 or Etherium, select the one that suits you.
- Buy desired hashpower (If you chose Genesis Mining, use this promo code to get 3% discount: 33DISCOUNT )
- Select BTC or other altcoins you want to mine
- Add your wallet addresses
- Sit down, relax, drink a beer or watch Game of thrones while mined coins automatically arrives to your wallets.
Yes, it’s that simple, you don’t need to know anything about configuration, mining pools, hardware and so on. And the best thing, you start mining instantly, right after you bought the contract. I’m in the cloud mining and, instead of buying equipment and paying for electrical bills, I have invested that money into cloud hashpower. I think it is a better approach.
Several companies offer those services and you can find them easily online. At this moment, Genesis Mining is the most popular (genesis-mining.com). After the Hashocean disappearance, I’m being more careful and they seem like safe and legit platform. This is my honest opinion based on the facts that they are live for more than 2 years, they survived btc price jump and halvening this month, we all know the people behind Genesis…
Investigate before buying a hashpower
As in all investing, mining in cloud has its risks too. Return of investment depends on many factors, like coin/USD rates, mining difficulty, services that want to scam people and sometimes even luck (closing the block). Luckily, there are some mechanism to ensure you are in profit. you can use mining calculators for cloud mining too, there are ways to roughly predict difficulty and coin price. So I suggest to investigate the market conditions before investing. You are close to end of this article, you are on the right track 🙂
In long term, no one can predict what future will bring us. But I feel this cryptocurrency world will only be bigger. Some say that 1 Bitcoin will reach the price of one ounce of gold soon. That’s about 1300 USD right now. Some say it will be over 2000 USD in a few years. And altcoins will follow. Think about it, Ether has passed $10 today. And not so long ago, BTC was 10 USD. If you choose to use cloud mining services today and keep the coins in your wallet, in a few years you could have a fortune. Don’t forget to use Genesis Mining promo code: 33DISCOUNT