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I have tried one of the hashpower selling/buying website (nicehash) to buy hashpower. I have connected my order to a pool where I had one worker. However, despite all the advertisements, I could not make a profit! I do not know what to watch to know whether my order is profitable or not?

And what makes the profit at all? Is it the fact that the hashpower I buy will become more hashpower if I mine in a pool (I observed that sometimes that is the case, but not for the whole lifetime of the order)?

Thank you!

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    Do not invest in Cloud Mining: The scene is rife with ponzi schemes, and it is not clear how a legitimate business would be making profit: You can find an extensive treatise at Cloudmining 101. – Murch Mar 3 '15 at 11:07
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The short answer is cloud-hashing is not profitable as you might expect. You can still generate profit but its value is minuscule compared to the investment. To concretely answer this question, I'm going to share with you a model I developed to calculate profit from the cloud-hasing service (bit-miner.com).

Profit Model

Cloud Mining Profit Calculator

Google Sheets Link if you want to fiddle with the numbers.

The Investment

I bought a total of 30 shares for an investment value of 322$ (payment charges included) for 9.90$ a share. The service distributes dividends twice per month for the value of ~0.00128193 BTC per share.

The Math

Given the investment above, this service will put in my balance a total of ~0.0807714 BTC per month. Assuming the BTC/USD exchange rate is fixed at 255USD this means I will generate a revenue (not profit) of 20.59USD per month.

Now, let's assume my investment will span between February 2015 and December 2016, I will break even on June 2016 and make profit of the value of 17.35USD if the BTC/USD exchange rate is still fixed at 255USD.

There are 3 ways this situation could evolve (from today the investment date):

  1. Best Case Scenario: The BTC/USD rate will increase and I will break even sooner and actually make more profit. For this profit to be substantial the rate should double if not triple (highly unlikely).

  2. Normal Case: If the BTC/USD rate is still the same, by the end of this investment period, I would have generated 1.815 BTC for a cost of 322USD and a profit of ~140USD (exch. rate BTC/USD 255USD)

  3. Worse Case: The BTC/USD rate will drop and eventually I will be at a loss. Or, the service owners will decide it is not profitable for them anymore (given the increase of the difficulty factor) and they will sell the hardware and distribute the returns based on the number of shares owned. The catch is that this hardware deprecates quickly and everyone will be at a loss by the time the owners decide to sell.

Before concluding, it's important to note that the Dividends per Share value is likely to decrease with time as it is inversely proportional to the Bitcoin Difficulty value.

All in all, if you want to experiment and get involved in the bitcoin scene and have a few hundred dollars you want to spend here or there, go for it. If not, find other ways to procure/invest in bitcoins that are cheaper and faster.

Disclaimer: I'm not an economist or a financier, so please forgive any misuse of technical jargon.

  • Edit: I edited the Google spreadsheet to take into consideration the mining difficulty. The impact is not large, but it makes the projections more accurate.*
  • Do they give out constant dividends? – Murch Mar 3 '15 at 11:12
  • @Murch no, all values are approximated and all dividend values are bound to change (more likely diminish). – Bassem Mar 3 '15 at 17:20
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    I see, that might make a good addition in your evaluation at the bottom. :) – Murch Mar 3 '15 at 18:03
  • @Murch You are right and I added a statement describing the relation between the dividends per share value and the bitcoin difficulty value. – Bassem Mar 9 '15 at 13:11
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I use this analogy for cloud mining:

If you had a money printing machine would you rent it out or use it yourself?

Cloud mining -no matter how you consider it- makes no sense financially. If the company is making a loss, they'll be out of business, if they're making a profit, why aren't they making that profit directly?

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    Sounds reasonable. However, a company might decide to get more money by letting people invest in the company. If your statement would be absolutely true, there would also be no stock market ☺ – Attila Feb 25 '15 at 13:04
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    @Attila That's true, but if they could really make 2x your money back in 12 months with no risk, then venture capitalists would be all over them. The fact that they haven't gone this route (when it would be more profitable for them) is a major red flag. – Nick ODell Feb 26 '15 at 19:27
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The profit is the lesson: you got scammed.

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Cloud mining is basically banking on a coin, not an investment.

IF you believe a coin will have a substantially higher value then cloud mine. because if it doesnt, you lose your investment.

the companies basically are "selling" the risk. they get their pay either way using this method.

ill repeat

the companies buy the hardware, and sell its power at current value.

they get their ROI upfront for their expected return before the next hardware swap and sell the risk to investors.

thats it, you take a risk. will the coin go up? if not, net-loss. even if it stays the same, net-loss.

thats really it.

If you buy into say a contract, that is for bitcoin. and it goes up $400. youre going to make green.

if you say, buy into monero contract, and it remains unchanged youre going to lose.

in all cases, you lose if the value of the coin goes down. those contracts are priced for a duration, that they expected to earn during that time if they used it themselves.

and they took network difficulty rise into consideration when they priced. thats why even if the coin stays the same, you often lose.

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agree with tom drum.

Cloud mining can be profitable if you are betting that the value of a coin would be more than it is 24 hours 2 days, a week, 2 weeks from now.

Basically you pay 60 dollars for 60 dollars worth of hashing of another coin right? well if in 24 hours that coin goes up 15% then you have 70 dollars. its another way of trading for coins basically while playing a gamble with the volatility of a coin. Even 24 hours mining zcash and getting a loss may not be a loss if the next day zcash goes up 20%. because now you have that coin and not bitcoin.

Nicehash sells this service of betting on altcoins or even betting on Bitcoin based on the 24 hour mark you purchase. its a gamble if you make a profit because they will always sell the hash rate at the cost of what it would make if it was at that speed for 24 hours.

since your hash rate would not change... but the value of the coin would... you could make a lot if you knew what you were investing in. But the vast majority of people say its a scam because they tried it once, invested in bitcoin and got a loss because bitcoin value went down that day....

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For cloud mining company there are 2 main reason in selling contracts:

  1. It is the way of diversification risks - they have lot of operational spends to keep facility working, so money from contracts give stability, while coin prices can changes quickly and unpredictable.
  2. By selling contracts they can have fast money which they can use to buy more mining hardware right now, not in long time when mining will return the investments. It's same as when you take loan from bank - it's less effective than spend own money, but allow to use money right now.

For clients cloud mining can be profitable and ever well-profitable (some contracts have over 200% profit predictions) but you need to choose company and contracts wisely!

There is lot of scam on this market and ever trustworthy companies can have non-profitable contracts (like it happened with Dash contracts after ASICs for Dash mining were invented).

I have written detailed analytic article about cloud mining - Cloud Mining - FAQ, Profits & Risks .

It's big, detailed and explains most common questions, compare companies on the market and contracts available. There is also interesting profit calculations there which will help to choose wisely.

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