How to choose a Bitcoin mining service?

Mining of Bitcoin and other cryptocurrencies requires significant investments that do not pay off quickly, meanwhile, many who still believe that mining is easy and fast may agree to contracts with incredible returns.

Let's take a closer look at what cloud mining is, what pitfalls it has, and how to recognize a fake.

Cloud mining is a financial service that offers to earn money by investing in mining through a third-party mining company. A company providing cloud mining services must engage in real mining in volumes that reduce wholesale costs enough to make profitable retail offers.

Only large enough players with the appropriate infrastructure can afford such a scheme. In practice, anything can be hidden under the guise of cloud mining: from outright financial pyramids to schemes that entail randomly renting mining facilities and adjusting the “mining rewards" payouts to current successes or failures.

1. A range of cloud mining contracts

Cloud mining always requires some kind of contract that needs to be bought. The longer the contract, the more expensive it is. The higher the expected return, the higher the risk of the contract. While in a bank it is typically possible to close a deposit ahead of time and withdraw money without profit,  it is usually impossible in cloud mining.

By purchasing a cloud mining contract, you won't know what's going on with your money, how it's being used, or if it's being used at all. For instance, when buying a one-year contract worth $1,000, you fairly expect mining to bring you $1,500 or more. When, in the middle of the year, it turns out that due to various market (or non-market) reasons, you have $500 in your wallet, it's quite unpleasant to realize that you will have to wait another six months to go back up to zero.

As in the case of banks, contracts do not imply the option of the bank’s “loss”. A high-quality financial service may not engage in any real activity at all, except for financial management, and make money on the difference in interest rates between more or less risky assets under any available guise.

Here is a list of contracts for one of the fairly popular cloud mining services of 2023, where, in addition to BTC and ETH contracts, relative “exotics,” such as DOGE, DASH, and even FILE, were offered. At the same time, the rates on these contracts exceed 2% per day! The entry threshold was quite high: $3,000 for DOGE, $6,400 for DASH, and $9,600 for FILE (who else remembers this coin?!) for 30, 60, and 90 days, respectively.

2% per day adds up to about 700% per year! In order to understand that mining never brings such yields, it is enough to look at any mining calculator, e.g., Asicminervalue.com:

By specifying the SHA-256 Bitcoin mining algorithm in the search bar, we get a sample of mining equipment: how much daily profit each ASIC is able to rake in.

Even the “coolest device" of the May release MicroBT Whatsminer M53S, generated $28.35 in revenue with $12.98 in electricity costs, that is, $15.37 net per day, providing a return of no more than 120% (excluding the cost of the miner) in the growing market in late 2023!

Let's take a look at the same site in a couple of years. We will see a similar picture, but with other actors:

You can also estimate the profitability of mining Dogecoin and Litecoin by entering the Scrypt algorithm into the search bar - in any case, neither then nor now is there a place for anything close to 700%.

Anyway, such contracts are more like betting in a casino, where the outward attractiveness of the offer hides the meticulous work of a market analyst team.

In addition, mining any cryptocurrency requires a separate, very expensive infrastructure that cannot be created out of the blue overnight. If yesterday some service offered exclusively Bitcoin cloud mining, and today there are suddenly a dozen cryptocurrencies, it is worth asking a fair question - where did the required mining power come from?

2. Transparency of mining rewards payments

The payout of mining rewards is always a set of absolutely transparent transactions, information about which is present on the network: these are payments to the service from the mining pool and payments from the service itself to its customers.

It makes sense that if the service works honestly, it does not need to hide these transactions, the name of the mining pool to which it is linked, or any other information related to the movement of funds. If you found this information on the cloud mining service's website, it is a good sign in its favor.

However, the interface of a cloud mining project may also look like this:

Here, even in your own personal account, you will not find a single reference to either the hashrate or transactions. It's just a black box inside which anything can happen to your money.

3. Withdrawal of funds from cloud mining services

Financial services usually have a KYC - (know your client) procedure. To register with the service, you need to present your passport and sign a contract. This approach is widely used on centralized cryptocurrency exchanges and allows them to identify the account holder, transfer personal data to the competent authorities, etc. In general, this is a fairly familiar scheme.

Cloud mining services also sometimes implement KYC, which may well be one of the reasons why you won't be able to get your money back. For example, something may be wrong with your jurisdiction or the origin of your funds. As in the case of CEX, you do not control your assets when you purchase a cloud mining contract, which means you have no way of influencing the situation, except for prolonged correspondence with technical support (if any).

In general, there is nothing wrong with KYC, but generally speaking, it is simply not needed for cloud mining services. Very often, the presence of KYC is used precisely to ensure that the refusal to refund funds looks totally solid and appeals to higher powers, rather than to the cloud mining platform itself.

So, the ideal cloud mining service should offer contracts with reasonable parameters, the ability to control the project’s hashrate and transactions. If you have found such a service, your money is most secure.

However, life shows that what is hidden under the guise of cloud mining is often not mining at all, but some kind of financial manipulation designed to ensure the service’s viability while it collects customers’ money.

It is important to understand that no matter what a financial service is called, if it does not have the appropriate infrastructure, it will go down sooner or later, even if it was not initially intended to mislead anyone and appropriate other people's funds. The laws of the market are quite cruel and only the strongest survive, namely those who are willing to work for a long time and create all the conditions for this by investing in infrastructure and the future.

Such services are usually very transparent, because they have nothing to hide: a thoughtful user will judge the project and make a decision about working with it, taking into account the availability of mining capacity.

Take a look at the Cuverse dashboard, and you will find everything you need in a transparent cloud mining service based on real mining capacities!