If you are interested in mining cryptocurrencies, you might have heard of two options: crypto cloud mining and mining pools. But what are they, and how do they differ in cost and profitability? This article will compare these two methods and help you decide which suits your needs and budget better.
What is Cloud Mining?
Cloud mining is crypto mining done through servers accessible remotely over the internet rather than physical rigs. The method still uses specialized hardware and software to solve the hashes, but the gear is housed and managed by independent mining operators on your behalf.
Participants in cloud mining can rent mining equipment or hash power from a cloud mining facility or data center located anywhere in the world rather than investing in expensive hardware.
You pay a fixed fee or a percentage of your earnings to the provider and receive your share of the mined coins.
Furthermore, most cloud mining operations include a phone app that makes it simple to keep tabs on your revenue and hash rates. The method requires minimal setup for you to start, making it one of the most beginner-friendly mining techniques.
You should, however, note that cloud mining only applies to proof-of-work (PoW) systems that mainly rely on computational brute force, such as Bitcoin (BTC) and the original Ethereum (ETH) blockchain.
Types of Cloud Mining
Host mining is when you buy or rent an entire rig from a mining farm or data center. The cost of renting a rig is often determined by its power, measured in Gigahashes per second (Gh/s) and Terahashes per second (Th/s).
The key benefit of host mining is the opportunity to lower overhead expenditures, such as electricity and rig costs, that are generally associated with having your own mining operation. Also, you can adjust your rig’s hash power and strength by contacting your service provider. However, the most appealing aspect of hosting mining has to be how it gives you complete control over your earnings.
Hash Power Leasing
As opposed to hosting mining, where you hire a rig, hash power leasing allows you to rent a portion of the hash power generated by a mining farm.
You will not be charged any setup or maintenance fees because there is no rig to maintain. You’d have to pay a subscription fee proportional to your income every time the farm discovers a new block and receives crypto assets in exchange.
The mining farm distributes any earnings a block generates in proportion to the percentage of hash power rented from it. Hash power leasing is similar to buying stock in a company, with your portion of the block reward akin to company dividends.
Merits and Demerits of Cloud Mining
Cloud mining is the best option if you are more interested in mining crypto than in the technical and hardware elements behind it. The cost of mining is substantially lower because you don’t need to purchase or maintain any hardware.
Also, consider the time saved from operating the rig or adjusting the hash power. In short, it can save a ton of time, effort, and, most importantly, money.
There are also hazards associated with cloud mining, just like any other type of investment. The most considerable risk is fraud. Since cloud mining comes off as being beginner-friendly, it could be challenging for new investors to validate a service provider’s promises because they may not be familiar with how to evaluate a crypto-mining farm properly.
We caution new investors to look out for pyramid schemes disguised as cloud mining farms, which usually work by taking deposits from new investors to pay off previous investors. A strategy like that could put new investors at risk of losing money.
What is a Mining Pool?
Mining pools are groups of miners who combine their computing power over a dispersed network to increase their chances of finding new blocks and earning rewards.
The reward is divided among pool members by the amount of processing power each person contributed.
To be part of a mining pool, you must have your own mining equipment, software, a reliable internet connection, and copious amounts of electricity.
You join a pool by connecting your rig to its server and following its rules and protocols. You may also pay a small fee to the pool operator and receive your share of the rewards based on pre-established terms and your contribution to the hash rate.
Mining Pool Methods
Although mining pools operate in a variety of ways, most protocols that permit them follow these fundamental guidelines:
Proportional Mining Pools
This type of mining pool lets you contribute to its computational power in exchange for shares until the pool successfully discovers a block. In this scenario, your payout is based on the number of shares you have locked up in the operation.
Pay-Per-Share Mining Pools
These types of pools function according to the same principles as proportional mining pools. However, they allow you to immediately get shares in exchange for your contribution, regardless of when the block is discovered.
You get paid from the pool’s current balance and can trade your shares in this pool for an immediate payout.
Peer-to-Peer Mining Pools
This type of mining pool works to keep the pool structure from being centralized by creating a peer-to-peer (P2P) network of miner nodes. As a result, they lessen the chance of the mining pool experiencing a central point of failure.
P2P mining pools are vital to preventing the degradation of Bitcoin’s core tenet, decentralization. They also help minimize the risk of theft by pool operators, which is sometimes nearly impossible to detect.
Advantages and Disadvantages of Mining Pools
By fostering cooperation with others, mining pools give individual miners a better chance of successfully finding new blocks and earning mining rewards while lowering overhead costs and boosting profitability.
Conversely, participating in a mining pool gives it your custodial power. You are often obligated to share possible earnings and adhere to strict regulatory guidelines established by the pool itself.
Data from Blockchain.com shows that mining pools like AntPool and F2Pool are the industry leaders in bitcoin mining. These organizations frequently impose specific guidelines and norms to control the bitcoin protocol, casting doubt on the network’s decentralization concept.
Mining Pools vs Cloud Mining: Head-to-Head
As we have enumerated above, both crypto cloud mining and mining pools have advantages and disadvantages. But how do these two practices compare to each other? Let’s look at some factors affecting their cost and profitability.
In crypto cloud mining, you do not need to buy or maintain any equipment, which saves you a lot of money and hassle. You’ll need a mobile app that keeps track of the mining farm’s operation and production.
However, you also have less control over the quality and performance of the equipment, as well as the choice of coins and algorithms to mine.
In mining pools, you must invest in your own equipment, which can be expensive and require technical skills and knowledge. As long as you have enough power, you can use various equipment to mine cryptocurrencies.
A graphics processing unit (GPU) and a central processing unit (CPU) are required for mining programs to function. These two parts are present in almost all computer systems. However, the rising demand for crypto mining may mean that GPU and CPU mining are less effective than they once were.
Instead, look for an application-specific integrated circuit (ASIC). It is a dedicated piece of equipment designed solely for crypto mining. Some of the best ASIC miners include the Antminer S19 Pro, the Whatsminer M30S++, the AvalonMiner 1246, and the Ebang EBIT E11.
Antminer S19 Pro | Source: ASIC Miner Value
You can also build multi-GPU systems expressly for mining, although these systems sometimes lack raw processing capacity and are substantially less potent than ASICs.
Mining pools give you more flexibility and freedom to choose the best equipment and settings for your mining goals.
In crypto cloud mining, you pay the provider a fixed fee or a percentage of your earnings to cover the cost of the equipment, maintenance, electricity, cooling, security, etc.
The fee can vary depending on the provider, the contract duration, the coin, the algorithm, the difficulty, and so on.
In mining pools, you also pay a small fee to the pool operator, usually around 1–2% of your earnings. This fee covers running and maintaining the pool’s server, software, security, and various overheads.
The fee can vary depending on the pool, the coin, the algorithm, and the difficulty.
In crypto cloud mining, your profitability depends on several factors, such as the coin’s price, the network’s difficulty, the equipment’s hash rate, and the service provider’s fee. You can use online calculators to estimate your potential earnings based on these factors.
As a result, before selecting a cryptocurrency to mine, it is crucial to do your homework. Although other digital currencies can provide a better return on investment, bitcoin mining is the most lucrative.
However, you should also be aware of the risks involved in crypto cloud mining, such as scams, fraud, hacks, contract termination, fluctuating cryptocurrency values, and rising electricity rates.
In mining pools, your profitability depends on similar factors as in crypto cloud mining but also on your own equipment’s performance and efficiency, as well as the pool’s size and reputation. Likewise, you can use online calculators to estimate your potential earnings based on these factors.
Mining pools also involve risks such as hardware failures, power outages, internet issues, and pool downtime that may eat into expected profits.
Crypto cloud mining and mining pools are two different ways of mining cryptocurrencies that have their own pros and cons. Crypto cloud mining is more convenient and hassle-free, but there’s always the risk of falling prey to a scam.
Mining pools, for their part, are more flexible and independent but also more complex and demanding.
As a beginner in the crypto mining space, or if you have a more cautious investing habit, cloud mining could work best for you. Its most significant selling point, as opposed to a mining pool, is that you won’t have to spend thousands of dollars on high-spec mining equipment to get into the game.
Some cloud mining services offer contracts for as low as $150, meaning you can be a bonafide crypto miner for that price.
Typical cloud mining contract | Source: ECOS
On the other hand, a good ASIC miner, which you’ll need to get into a mining pool, will set you back anything between $1000 and $12000. And we haven’t even factored in the sizable energy costs needed to keep the rig running.
It is a considerable investment, especially if you are inexperienced or have no mining background.
You can find mining hosting services near you on specialized websites such as mininglisting.com, which makes it even easier for you to get started. For mining pool participants with their own rigs, the same website provides a comprehensive list of miner repair centers that you can contact in case you have issues with your equipment.
Ultimately, the best option for you depends on your personal preferences, goals, and budget. It would help if you did your own research before choosing a crypto cloud mining provider or a mining pool to join. Happy mining!