# How do cloud hashing companies profit? (leasing hashing power)

I think I'm missing something. There are a bunch of cloud hashing companies that lease hashing power. Let's take cointellect for example. They have contracts from 10 days to 24 months. If I buy a 10 mH/s of hashing power from this company for 99 euros, they guarantee a minimum of 2.2 euro daily return which makes 180 euros in return for my initial investment of 99 euros in the 3 month contract. How is this profitable for both me and the company? What's the math behind this?

• Maintenance fees are what they're in for. The 2.20 euros they promise to make for you might not what you're getting every day. They will take a hefty fee for electricity usage and pool fee. I'm not saying every cloud provider will do this, but some people even end up spending money on maintenance costs. Commented Dec 31, 2014 at 23:38
• @MrJones: You seem to have done your research on this topic. It would be great if you could expand your comment to an answer, I've been wondering as well, how Cloud Mining is supposed to turn a profit for the operators.
– Murch
Commented Feb 4, 2015 at 20:10
• This seems relevant: BCT: Cloudmining 101 (ponzi risk assessment)
– Murch
Commented Feb 5, 2015 at 23:28
• 10 mH/s??? Thats significantly low. You can achieve that by a GPU on your computer. Probably you mean 10gH/s Commented May 20, 2015 at 9:20
• oftentimes by fraud… Commented Oct 29, 2015 at 4:58

When you're calculating the profit from Bitcoin mining, you take into account the current bitcoin price, how much hashpower you have, and the current difficulty.

Difficulty rises over time. (Generally speaking.) Between Jan '12 and Jan '13, difficulty rose by a factor of 2.9x.

Between Jan '13 and Jan '14, difficulty rose by 407.2x.

Between Jan '14 and now, difficulty has risen by 33.3x.

Unless they're guaranteeing 2.2 euros per day over the course of the contract, in which case they're either morons or liars. (If you really could guarantee that kind of return, investors would be all over you.)

Of course, as David Schwartz notes, it could also be a scam. They could give you good returns, then vanish after lots of people invest.

• That's what I don't understand. How can they guarantee 2.2 euros daily while the difficulty always rises? Funny thing is, it's not a fraud, I have seen payouts of 600 euros for a 300 euro investment from a friend. Commented Dec 29, 2014 at 16:14
• But how does the company make money? That's the part I don't get from the description.
– Murch
Commented Dec 30, 2014 at 0:23
• The general consensus is that any such company that cannot actually prove that it is doing the mining it claims to be doing is a scam, most likely a Ponzi scam. This is a near certainty when the company promises an unreasonably high rate of return at a claim of low or no risk. If a business is either insanely, unreasonably generous to complete strangers based on their willingness to loan the company money or a scam, the latter is way more likely. Commented Dec 31, 2014 at 7:42

99.9% of such companies are frauds.. they simply gather money from new users and payoff the old users. They repeat this to get enough trust among users. To make it more lucrative they throw in affiliate or referral schemes. That ensures people refer friends and family or simply go social in promoting these sites with a story that they have earned (which they really did). People trust people when they see success stories. And have a tendency to go with the flow. Even if I knew its a scam, I would take a chance since the company initially pays off. To top this, these companies provide a lot of revenue to other review sites. These reviewers not only get money from ref links they post on their reviews but a direct income straight from the company for advertising their website.

At the end, eventually when this is all over.. The ones losing money are the ones who invested at the end. Many who invested first keep rolling the same money and if they did not exit in time, they lose all that was invested. REST EVERYONE makes money from this. From the founder of the firm to the initial investors & investors who were smart to remove profits to the advertisers all make money. Ones who joined the party late lose out.

I mine myself, and have been doing so for some time now. You can make the kind of money they promise in mining indeed. However there are ups and downs and you cannot keep getting the same income over and over. There are huge fluctuations in the coin prices that sometimes work for you and sometimes are a huge setback. If you can afford to sit tight on your investments, go mine or even better trade with the money you would otherwise invest in mining. Trade alt coins and bitcoins. There is much more money to be made there. Its relatively easier and make more with trading alone compared to first mining and then trading what you have mined. Plus it saves a lot of time for you and you can operate on the go with nothing to strap you down to one place. Also, you then have nothing to do with the power costs or equipment upkeep or upgrades.

I started off with cloudmining. then moved to physically mine coins. Then realized trading gives you a head start over physically mining coins. Now I do 90% trading and 10% mining - mining only unknown coins nothing specific. Keeps shifting depending on some factors.

In all, the returns from cloud mining companies are for a limited time. If they are operating for a long time, its only about time they shut and run away with the money. They are not here to stay. Make most while they are here. Stick to a strict ROI and take your initial investment out. Leave the rest in and let it build. You keep removing lets say 50% profits from there each month or whatever the timeframe is. Protect yourself from these cheaters.

My guess is like any business it's an interest loan that they take out. It's a bit of a risk if the difficulty of mining does not rise, but maybe that's a win win for both of you. Businesses sell bonds to people at interests rates where the people or the banks are guaranteed to make money. They can invest in newer equipment today while you have to wait 6-9 months for your year contract to make a profit. I'm currently mining through bitcoin cloud mining service and at the rate they are paying me I will get a return on investment for my two year contract in 6 - 9 months.

• So, did the ROI come to pass?
– Murch
Commented Oct 29, 2015 at 0:35

I find a summary the best way to explain this:

Company: +£99 from you. The company do not pay out anything but costs for power. Bitcoin 'creates' the money. You: +£All your earnings. 10Mh/s will not generate anything, 10Gh/s maybe...

• The company must have had costs for initial investments though, so since they are paying back more to the investor than they got from him, how does it turn profit for them?
– Murch
Commented Dec 30, 2014 at 0:22