There is no doubt that the world is going crazy with the exponential growth in both numbers and the value of cryptocurrencies. Real-life people have become overnight millionaires by investing in Bitcoin and in other Altcoins. For this reason, the whole industry, which up to now is largely unregulated, has become a great playground for scammers. Most of the cloud mining services are scams because it’s easy for companies to take peoples’ money, and then not payout. Also, a company can claim to be a cloud mining platform without any proof of actually owning any hardware. So remember: 99% of cloud mining companies are frauds.
Take notice criteria to help you reveal a cloud mining fraud
We have prepared a list of “red flags” that you should watch out for before investing your hard-earned cash.
- No relevant pictures of their mining hardware and data center: All legitimate cloud mining companies are able to provide you with details of their data center and even pictures of all the bitcoin miners that they have. Some even go so far as to provide proof of their electricity consumption. Although it’s easy to fake pictures, it should be even easier for a company to walk into their data center and record a video of all the equipment running, and take a few pictures to prove its existence.
- Public mining address: No public bitcoin mining address or no user selectable pool. When you buy hashing power from a cloud mining company, you should be able to direct the hashing power to a mining pool of your choosing. The cloud mining company should also have a public mining address that proves that they are mining bitcoin on the network, and they should be able to sign blocks to prove they own an address. If they cannot do this, they are very likely a scam.
- Unlimited processing power: The amount of GH/s you can sell is limited by the amount of mining hardware you have in the data center. Getting more hardware in order to sell more GH/s takes a long time to order, arrive and deploy. Legit mining companies will have limitations on the amount of GH/s they can sell and will make public how much they have (provably) access to, and how much has been sold. Any company that doesn’t limit sales or makes public how much hashrate they sold vs what they have deployed should be considered highly suspicious.
- Cloud mining Ponzi and pyramid schemes: Frauds set aside funds and use initial funds from clients to make payouts to again give an illusion of respectability and honesty that then will generate more clients. They show a Bitcoin address that they make payouts from that is verifiable. One day the address stops paying.
- No option to withdraw earnings: If a website offers to rent hashing power without providing a clear way to withdraw your earnings, it is likely a scam.
- Company registration: A number have done so in London to give the illusion of prestige – but the Directors are often registered as foreign residents where identity requirements are easily faked.
- Domain name ownership: A legitimate business in this space should make their contact information readily available. This applies to domain name registration, as well. Anonymous or concealed domain name ownership is a red flag that a cloud hashing operation is likely a scam.
- No endorsement from any ASIC miner vendor: Legit cloud mining companies have a lot of very expensive hardware and the ASIC vendors who supplied them will gladly make a public post or acknowledgment to show that the company in question is one of their customers. This is free advertising for the ASIC company and the endorsement gives confidence to the cloud mining company so everyone wins. There is no reason why any ASIC vendor would not happily do this and real cloud mining companies usually ask this of them right in the beginning to get off on the right foot. If there is no endorsement, then you can assume that the cloud mining company simply does not have the hardware they protest to have.
- Scammers use a promotion: For example, videos using fake representatives and offices – again with no proof of equipment.
It is recommended that you do your own research and understand exactly what you are signing up for before entering into a contract with any cloud mining service. There are legitimate and reputable operations out there, and they can be profitable under the right circumstances, but it is important to be aware that this is a high-risk space with no guarantees and many dubious players.
So as you can see cloud mining while being a good idea on one hand can be a risk on the other hand. Just like a normal stock investment, never risk more than you can lose, and do your homework first before investing.
Many cloud mining companies are actually Ponzi schemes that eventually will become unsustainable and collapse. There are a few cloud mining companies that do have real data centers and can provide proof of all their hardware.