Why are cloud mining providers selling mining contracts and not keep the profit for themselves?

Is cloud mining profitable? If so, then why are you providers not just mining themselves? We get this question all the time, and it is not easy to answer it as the answer depends on each provider and his interests. Nevertheless, we asked a few bitcoin and ethereum cloud mining vendors this simple question: “Why don’t you mine yourself if cloud mining is profitable“? Here are a few answers we were able to get.

They make a profit by selling hardware

One of the providers told us that they are selling mining contracts to grow their hashrate. Even though their prices are the lowest in the cloud mining industry, they still make a slight profit from each sale. They will also use the sales revenue to immediately purchase more mining hardware. GigaHash provider added: “We believe that mining is highly profitable. However, our capital is limited. Also, we make a profit from assembling ASICs and discounts on PSUs and hardware, without the need to ship the product.”

Money to scale up

One of the Engineers also said, that mining is capital intensive and you need to purchase expensive equipment, power supplies, and cooling. Once you’ve set all of that up, your electric bills are high, and your profit margins are tiny. Mining is brutally competitive, and the equipment is always evolving to become more efficient, so time is critical. For example, the bitcoin network adjusts the mining difficulty every two weeks to match the amount of mining going on, which adds, even more, time pressure.

ethereum mining in the cloud

That is why an honest cloud mining firm will seek outside investors to enable them to scale up, which they might not have the capital to do by themselves. If they didn’t sell mining contracts, they would have to use their money to buy more mining-equipment or get a bank loan. Selling the contracts at a discount of what they will actually earn allows them to leverage their working capital to grow much much faster than they would be able to otherwise.

Avoiding the risk

The stance from Genesis Mining is publicly known: besides the fact that they mine with the very same hardware that they offer to their clients, their capital is limited. Although they believe that Bitcoin and altcoin mining is highly profitable, they do not want to “put all our eggs in one basket.”

Because mining is profitable today, it does not mean that it is going to be tomorrow. Profitability depends on the coin price and mining difficulty and the person who buys the contract takes all risks. The person who is dealing with hardware is not necessarily willing to take risks, and some of them rather make money by selling hardware.

Or as Pow8 said: “Since clients have different anti-risk ability, some people want to buy hashrate to get profit, while others want to sell them. Thus there comes the trade. Customers can choose between stable profits and or high profits with high risk.”

Cloud mining is also a mission

We got the similar answer from ViaBTC, but they also added a visionary idea. “As it requires a tremendous amount of investment for large-scale deployment of mining farms, we’d like to give away a part of our mining profits to users to reduce our risk. And also, we support “decentralization” in mining, so that global users will all have an easy chance to take part in mining.”

Bulgarian MyCoinCloud added, that they contribute to the development of mining services and subsequently to the development, establishment, and adoption of Bitcoin, both as a currency and as an economic system. Cloud mining is an investment in high technologies, and you are renting a computing power for holding up the meshwork.

Related

  • Don’t like the idea of cloud mining? Start mining Ethereum on your own.
  • Please note that some of the cloud mining operations are frauds, sometimes operating as pure Ponzi schemes, where they use new investor funds to pay returns to previous investors, then abscond with the funds later.