Cloud mining profitability research

Cloud mining profitability described. Research on cloud mining, based on open source data.
The rapid obsolescence of mining equipment and its high price made professional mining not profitable for most users. And this forced both mining service providers and those left behind as a result of this “arms race” to look for alternative solutions. The exit was found quickly enough. Cloud mining.

It seemed to be the revolutionary step in the world of cryptocurrencies. The company buys high-quality and modern equipment for mining, makes it set up and sells to its customers (rents out). Such kind of service made possible for people to join crypto rush without buying and maintaining expensive mining equipment.

However, in the current state, cloud mining business is not profitable. With a growing network’s complexity and “bearish” market it was more or less viable while Bitcoin’s exchange rate stayed high. But after it’s price fall more than in twice - mining rewards are barely enough to cover maintenance fees, not to mention any valuable profit.

As an example of cloud mining industry development, we have collected and analyzed the open-source information about major players of the market and market itself.
Two business models
Generally, there are two main models of the cloud mining business. First, when the company buys equipment itself and provides its customers with cloud mining contracts directly. At first glance, it’s very simple, yet quite complicated for the business, because the company needs to combine both hardware and customers management.

The second one makes the chain longer, replacing one providing company with two different subjects: reselling business and hardware facility. In this model, the quality of service of the re seller directly depends on the endpoint - hardware provider. However, it’s the most popular scheme, due to lower business founding expanses.

Nevertheless, both these models won’t work if the hardware maintenance and service fees are higher than the final profit. And in a case when the final profitability depends on several values, even a small change in one of them may cause the overall business unprofitable. And that was a case of Bitcoin cloud mining. In middle 2018 the network difficulty of the Bitcoin blockchain raised significantly (from 2.6031T in January 2018 to 7.455T in October 2018 and finally to 5.814T in January 2019), while the exchange rate of the cryptocurrency went 70% down.

Jan 2018
Jan 2019
Electricity price*
$0,11
$0,12

Difficulty
2.6031T
5.814T
Net hashrate
15 171 P/Hs
41 339 P/Hs
Profitability per day*
$20.30
$3.68
Price for 1 BTC (in USD)
14000
3500