Thinking about purchasing a cloud mining contract? You'll change your mind after reading this.
I made this comment earlier but I decided it's worthy of it's own post.
There's people out there promoting cloud mining offering you discounts or bonuses to sign up with their affiliate link. You may look at these guys and think, "Well, if they're making money from it, then so I can I".
Before you purchase a cloud mining contract, do some research into mining and you'll quickly find that cloud mining contracts aren't profitable. For example, take Genesis Mining's Bitcoin "Max Profit" Diamond Plan.
Cost: $1950 (0.78 BTC at 2500 USD/BTC)
Hashrate: 15 TH/s
Maintenance fee: 0.00028 USD per GH/s per day
Maintenance Cost: 15000 * 0.00028 = 4.2 USD/Day
You can calculate your theoretical payout using the equation:
Payout = Hash Rate * Block Reward * TimeSpan * ((65535 / 2^48 ) / Difficulty)
The current difficulty is 804,525,194,568, so for 15 TH/s the theoretical payout would be 0.00468823 BTC/day. At 2500 USD/BTC, the maintenance fee comes to 4.2 / 2500 = 0.00168 BTC/day. So, that gives a daily profit of 0.00300823 BTC/day. At that rate, it would take 260 days to beak even.
The problem, is that difficulty isn't static, it pretty much always increases. The difficulty is recalculated every 2016 blocks to try and make the average time to find a block equal 10 minutes. If the difficulty was static, a round would last for 14 days on average. So, let's look at what a 5% increase per difficulty round would do.
To save with the calculations, we can just use one of the many sites that do this for you. By plugging the above values into this site we get the following:
| Date | Difficulty | Revenue | Profit | Return |
|---|---|---|---|---|
| 2017 | -0.78 | |||
| 7-21 – 7-31 (11 days) | 804 G | 0.03196 | 0.03196 | -0.748 |
| 8-1 – 8-31 (42 days) | 844 G | 0.07955 | 0.07955 | -0.6685 |
| 9-1 – 9-30 (72 days) | 931 G | 0.06389 | 0.06389 | -0.6046 |
| 10-1 – 10-31 (103 days) | 1026 G | 0.05394 | 0.05394 | -0.5507 |
| 11-1 – 11-30 (133 days) | 1188 G | 0.04115 | 0.04115 | -0.5095 |
| 12-1 – 12-31 (164 days) | 1310 G | 0.03276 | 0.03276 | -0.4767 |
| 2018 | ||||
| 1-1 – 1-31 (195 days) | 1444 G | 0.02392 | 0.02392 | -0.4528 |
| 2-1 – 2-28 (223 days) | 1592 G | 0.01464 | 0.01464 | -0.4382 |
| 3-1 – 3-31 (254 days) | 1756 G | 0.009347 | 0.009347 | -0.4288 |
| 4-1 – 4-30 (284 days) | 2032 G | 0.002723 | 0.002723 | -0.4261 |
| 5-1 – 5-31 (315 days) | 2241 G | -0.002876 | -0.002876 | -0.429 |
So, if the difficulty increases by 5% each round, the miner would become unprofitable in May 2018 and you would only earn 0.3539 BTC which is only 45% of your money back. Even with a constant difficulty increase of just 2.3% it's still unprofitable. Now, if you look at this site, you can see the historical bitcoin difficulty changes. For this year they are:
| Date | Difficulty | Change | Hashrate |
|---|---|---|---|
| Jul 14 2017 | 804,525,194,568 | 13.53% | 5,759,015,666 GH/s |
| Jul 02 2017 | 708,659,466,230 | -0.43% | 5,072,782,052 GH/s |
| Jun 17 2017 | 711,697,198,174 | 4.85% | 5,094,526,985 GH/s |
| Jun 04 2017 | 678,760,110,083 | 13.90% | 4,858,754,124 GH/s |
| May 23 2017 | 595,921,917,085 | 6.42% | 4,265,775,241 GH/s |
| May 10 2017 | 559,970,892,891 | 7.28% | 4,008,427,786 GH/s |
| Apr 27 2017 | 521,974,519,554 | 0.22% | 3,736,439,151 GH/s |
| Apr 13 2017 | 520,808,749,422 | 4.24% | 3,728,094,244 GH/s |
| Mar 30 2017 | 499,635,929,817 | 5.03% | 3,576,533,297 GH/s |
| Mar 17 2017 | 475,705,205,062 | 3.24% | 3,405,230,497 GH/s |
| Mar 03 2017 | 460,769,358,091 | 4.54% | 3,298,315,540 GH/s |
| Feb 18 2017 | 440,779,902,287 | 4.41% | 3,155,225,442 GH/s |
| Feb 04 2017 | 422,170,566,884 | 7.43% | 3,022,014,630 GH/s |
| Jan 22 2017 | 392,963,262,344 | 16.64% | 2,812,940,600 GH/s |
| Jan 10 2017 | 336,899,932,796 | 6.05% | 2,411,623,656 GH/s |
Rather than purchasing cloud mining, you would have been far better off just purchasing the coins directly.
Now, these guys advertising their affiliate links, they know full well that these services are unprofitable and that you're going to lose money by purchasing a contract. Furthermore, they're profiting directly from your loss. Take Genesis Mining's affiliate program for example:
Your affiliate code is the key. Share it with family, share it with friends, share it with the world! Anytime someone uses your code, you’ll both receive rewards – a 3% discount on the referral’s purchase, and an upgrade of 2.5% hashpower – or more – for you. Higher tiers give better rewards, and hashpower isn’t all you can earn: there’s special gifts to be earned.
So, you get a 3% discount and still lose half of what you paid. Meanwhile, the person whose affiliate link you used gets an extra 2.5% hash power. Imagine how much a trusted person with a lot of followers could make by swindling people who don't understand this.
If you've been unfortunate to lose money in cloud mining, please share your stories.
Original post with bad math, I stand corrected and will not buy mining contracts again, but I thought I would leave this messed up math version here to show how easy it is to screw this stuff up. I am not proud. LET TRUTH PREVAIL I SAY!!!
: )
I bought a 2 year mining contract for Litecoin on Genesis Mining on 2017-04-18 for 250 dollars. Litecoin was $11.14 that day. I could have bought 22.44 litecoin for that 250 dollars on that day. So far I have earned 3.69 litecoin and am coming up on the four month mark. Assuming that I would get about that every four months for two years means I will get 134.69 ltc. But that is probably not realistic as the price will go up and so then will the difficulty I assume, so let's say we get half that amount in year two, which is probably not that bad an estimate unless litecoin really goes up in price, then I would get 100.99 litecoin. Far more than the 22.44 litecoin the 250 would have bought. Even if I cut that number in half again, that would be twice the litecoin. Please advise.
#payitforward
24 / 4 = 6
6 * 3.69 LTC = 22.14 LTC
That's how much you would make over 2 years if you got 3.69 LTC every 4 months.
You can see from this site that on 2017/04/01 the difficulty was 87,421 and on 2017/07/31 the difficulty was 437,853. That a 400% increase in difficulty over those 4 months or an increase of 87,608 per month. If you had 20 Mh/s and if the difficulty increased by a mere 10k per month for the next 18 months, you'd make 10.22 LTC according to this calculator. So, with the 3.69 you've already mined, that would give you a total of 13.91 LTC. If the difficulty increased by 87.6k per month for the next 18 months you would make 5.41 LTC in that time giving you a total of 9.1 LTC over the 2 years.
As you can see, that's significantly less than what you would have if you just bought LTC.
Oops, got a little silly with my math there. I will see if I can edit that post, just goes to show it is easy to make mistakes. Thank you so much for your correction and all that info. Darn math.
#payitforward
Thanks for breaking this down for us, indeed it is clear that based on the potential ROI cloud mining is not a good idea to get into.
You're welcome.
Fantastic Article! Much appreciated! Follower!
Thanks for putting so much work into this post
You're welcome. I hate seeing people get ripped off with cloud mining.
This is why I quickly saw Craig-Grant as a near-scammer. He posts nonsense word vomit, and useless videos pushing everyone to keep buying Genesis mining contracts.
I don't know if he's a bad actor of oblivious, but he's a pied piper leading lemmings over the cliff.
I did this with Bitcoin before (a long time ago), just for the heck of it and never made a profit - maybe lost a bit. Saw similar ads for ETH mining contracts and did the math and I drew the same conclusion as you. The only way this might be worth it if you wanted to get some more anonymous "fresh" coins. But you'd have to be really careful about how you pay for the mining contract. If you can do that then you probably know how to get anonymous coins anyway.
Oh yeah, and for some coins like ETH never underestimate the potential of them switching to PoS and killing mining overnight. I actually wish they would! Lets focus on owning and using ETH not mining it and wasting energy.
The only time it seems to be worth mining is very early on before others are mining and you can quickly get ahead of the game. I've done this before with some early alt-coins. Made a few hundred $ - enough to pay for my graphics card. Oh, and if you can get the hardware and electricity for free - that'll help! Get your cards cheap on eBay during a crypto-slump and then run them at work with someone else paying ;-)
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STOPNice post, thanks for sharing :+1: