Cryptocurrency seemed to take a jump this year to a new level of internet hype. Bitcoin hit $60,000 and Elon Musk’s tweeting about Dogecoin made millionaires out of memelords. Alongside this new wave of interest there has been a heightened interest in mining crypto-currency.
Mining cryptocurrency industry is the process of building the blockchain – slowly adding data as users make transactions on the network. It involves solving math problems called hashing and is how crypto-currencies process transactions- this requires an outrageous amount of computing power and is the reason Bitcoin and other cryptocurrencies need so much power. Satoshi Nakamoto, the creator of Bitcoin incentivized people to maintain Bitcoin’s blockchain by rewarding them with newly-minted Bitcoin. This helped to give miners confidence their work will be rewarded.
The pandemic and the increase of crypto mining has led to a worldwide shortage of GPUs. A GPU is a Graphics Processing Unit, a specialized processor designed to accelerate graphics rendering. It can process many pieces of data simultaneously, making them useful for machine learning, video editing, and gaming applications – as well as for mining cryptocurrency.
So as crypto began to boom through the beginning of the year and more and more people began to try to mine it for themselves GPUs became highly sought after items. The pandemic exacerbated the problem, as pcmag.com detailed, “as new GPUs hit the market, scalpers—some of whom were trying to make ends meet after having lost jobs during the pandemic—used bots to scoop up the sought-after cards and sell them at inflated prices.”
So with this GPU shortage frustrating the crypto miners, a new opportunity has presented itself. Mining cryptocurrencies in the cloud.
The fundamentals of cloud computing actually make this a rather brilliant combination. Since with the cloud, computing power is designed to be rented out on a temporary, flexible, and scalable basis. Just as companies have made the leap from using massive in-house computing systems, so too can mining setups now outsource their massive rigs to a cloud mining firm – or even rent their own servers and build a system themselves.
Where cloud mining really comes into its own is with its potential is with individuals who are seeking to pool resources – but this is also fraught with risks. Cloud Mining is a way to mine cryptocurrency like Bitcoin without having to buy any hardware and without the need to own mining hardware. With cloud mining, a customer can purchase hardware mining capability provided in a data center for maximum efficiency.
Mining makes up a huge part of how cryptocurrency and blockchain networks operate.
For many, mining is a gamble – it’s risky. That risk coupled with the huge outlay turns many potential miners off. So pooling together can help alleviate some of that risk. The platform handles all of the dirty work. They’ve got dedicated mining farms established and ready to go. All they need is the funding to pay for maintenance and other operational costs.
But many cloud mining providers charge upfront fees or subscriptions to allow you to participate in their operation – this is where the scams come in.
Ofir Beigel from bitcoinmining.com warns that 99% of cloud mining companies are a Ponzi scheme. In a post on the topic he writes, “How do I know this? Well, I run a website dedicated to helping people get started with Bitcoin and every day I get another complaint about another cloud mining company that does not pay and the website seems to have gone away.”
Gavin Andresen, the former chief scientist of the Bitcoin Foundation, once said of the idea, “I suspect many of them will turn out to be Ponzi schemes.”
So whilst the idea is great in theory, there are the things worth keeping in mind if you’re considering jumping it.
- The crypto market is volatile and a sudden drop in price can make serious dents in your profit – if there is any at all
- There may be a lot of good mining companies out there, but there are also a whole bunch of amateurs, not to mention scams and ponzi schemes looking to profit off the internet’s newest fad.
- You have no control over your investment or any of the equipment – you’re at the mercy of the company to stay solvent and profitable.
By Josh Hamilton
Josh Hamilton is an aspiring journalist and writer who has written for a number of publications involving Cloud computing, Fintech and Legaltech. Josh has a Bachelor’s Degree in Political Law from Queen’s University in Belfast. Studies included, Politics of Sustainable Development, European Law, Modern Political Theory and Law of Ethics.