Topic: Advice for new users regarding CLOUD MINING - page 20. (Read 44381 times)

Scams? Plenty of them.

https://cloudmining.guru/scams/

this one is the most famous:
https://en.bitcoin.it/wiki/Pirateat40

I think the main focus of the thread was to discuss the risk of fly by night entities claiming to offer cloud mining - not whether or not cloud mining would be profitable or not.

Have there been any reports of any other failed cloud mining entities or scams like lunamine?

Not quite. Mining is really two investments: an investment in BTC, and an investment in mining equipment. This separation makes the analysis is much simpler.

Whether you are mining bitcoins or buying bitcoins, you are investing in bitcoins. The only reason to mine is to get bitcoins for a lower cost than buying them.

I find it interesting that you have danced around the last several posts in this thread. I have yet to see any cloud mining company address the dilemma. I don't think it can be addressed without admitting that they want their customers to lose money.

A nice analysis, but you are assuming that BTC:$ stays fixed. That removes one huge variable which of course everyone knows isn't going to stay fixed. It might go down, it might go up, but one thing it won't do over a year is stay where it is today.

It's therefore a hedge. No different than our approach in multinational companies that buy/sell product and services in £, $, € and RMB. You forward sell and spot sell to spread the currency exposure.

People will of course make their own mind up, which is cool. If people don't think mining (physical or cloud) is worth it then they won't buy either kit or cloud services, but others will take a more wide view not just on difficulty but also on where BTC:$ will go.

It's a 3 dimensional problem, not a 2-d one that your analysis portrays. If you don't think it's worth it then that's fine, just like buying shares or any other 'future value' based instrument which also aren't simple 2-d problems.

J

The dilemma is really simple actually.

If a company sells hashing power for less than the income from the mining, then selling the hashing power is a bad business decision because they could make more money from mining than from selling the hashing power. On the other hand, if the company sells hashing power for more than the income from hashing, then the service is a money-loser for the customer.

Either way, the business makes sense for either the company or the customer, but never both.


In Megamine's case, the customer expects to have an income of at least 4.375 BTC ($2100/$480) over the next year. Otherwise, they lose money. Doing the math, the customer will make a profit if the difficulty rises less than 6% every 2016 blocks.

That seems unlikely given that the difficulty has been rising at a rate between 10% and 20% over the last 6 months. So, the reasonable prediction is that Megamine will earn more from selling hashing power than from mining, and the customer will lose money.

When the cloud mining company sells the hashing power for more than the income it will generate, it raises a new question. Why would the company bother to buy the mining equipment? All they have to do is pay the mining income out of the money raised from the initial purchase according to the contract and they make money.

Because then you have a mining operation. Not a business.

And the problem with a mining operation is your "customers" are the people willing to give you fiat currency for your mined bitcoins to pay your building, electricity, sub contractor and generally staff costs because none of the aforementioned yet accept bitcoins, and even if they did they'd use something like BitPay to turn it into fiat immediately (so you may as well do it and cut BitPay out of the loop).

So you become totally reliant on the 'spot' price of BTC.

So we decided to build a business that essentially offers a contract that gives the customer a bunch of benefits over buying and running mining kit themselves (after all, if they just wanted bitcoins they could just go and buy them, although mining may be a better way for many than just buying them) as well as giving them an earning stream that the customer can take a view on.

It's the difference between buying stocks, and buying futures against a stock where you 'borrow' someone elses stock and hope down the line that the stock is actually cheaper and so you can make a margin by buying the stock from someone else (the 'stock short' as people will generally know it as). The latter may seem mad to some people, but it works for both parties, the person lending the stock (the mining company) gets a known return, whereas the person doing the 'lending' (the person buying the mining contract) gets upside if his view is better than the loaning company.

So people do say 'why do people loan stock, why don't *they* just sell it and buy it back later and make the profit that the other person did'? Well what if the other person is wrong, or that the person with the stock is taking a much longer term view of the stock performance than the person that wants to borrow it for a few months, or maybe a year.

So we essentially sell you a slice of our hardware because then we get a known return, and if difficulty or BTC:USD doesn't go the way we think, but the way you think, then you can get the upside of that. We don't mind, because we have got the return that makes our business work (and the kit will earn whatever it earns, so we don't take a BTC risk), and we also have an engaged customer base.

If you run a business then you have a customer base that you can provide more services to over time. Businesses succeed because of customers, not because of operating in a wholly insular way, and so we are building a customer base that has trust in our offerings which then we can add additional services on (more of that soon with some forthcoming announcements).

So, you could say that we are 'passing risk', but we are also 'passing upside'. Some 'risk' we'll take, but as we guarantee to never have contracts that we don't have kit for, we also are 100% transparent about that risk.

Hope that helps?

J
www.megamine.com

Thanks DrG for this amazing post. Interesting, useful, and confirming my own experience. Tried a few cloud mining services and the least I can say is that you need to be careful...

You are of course entitled to your own opinion, but that is not reflective of our business model.

We operate the same way I've run businesses over the last 20 years, that the economies of scale of large operations mean we can divide it down into chunks that make sense to other smaller people, and essentially arbitrage the fact that whilst you could do it yourself, it doesn't make sense.

Having built, bought and run data centres with over 10MW of capacity in the last 20 years with thousands upon thousands of servers in them it's a business we know well.

It's just like in the early days of the Internet you could run your own mail server to do that funny 'email' thing. Then people like us built massive servers, sliced them up, and sold them to small business and end users and eventually no-one ran their own mail server any more because the total cost of running them didn't make sense.


Again, we don't agree.

We are just taking delivery of our Neptunes which take around 1500W at the mains. If you run one of those in the UK at 12ppkWh the electricity bill for the year is $2600 for 3TH, and you would have paid somewhere around $9995 to be in a position to have that kit now. Even if you assume that price is half because of the KNC 2:4:1 offer (which ignores the fact that the free one is some weeks/months away) compared to doing it yourself we feel our costs are highly attractive, so lets be generous and say $5k for kit, so that's a total year cost of $7200.

Even if you can get power at, say, $0.10/kWh somewhere else in the world, then that just means your electricity bill is $1300 per year for 3TH, so let's say $6300 including kit.

So '1TH' worth is somewhere between $7200/3 = $2400 and $6300/3 = $2100.

Of course this ignores the following

• Outages (we guarantee service)
• Low Pool luck (we guarentee 100% luck with 5% pool charge (=95% luck with no charge)
• Variable hashing rate over time (we give you exactly your %age of the global hash rate)
• PSU capital cost
• Cooling cost (maybe you can get away with it depending where you live)
• etc. etc.

and the cost of the space (but if you are doing it at home, maybe that's free)


1TH is $2100 for a 1 year contract. $2400 for a 3 year contract.

So we are the 'same' as the $0.10 case, and cheaper than the 12p/kWh case of the UK, with many benefits above the DIY.

If you take the 3 year view, then it's no competition. 1xNeptune in the UK over 3 years (keep the $5k for kit) is $12800 all in, we are $2400.

So are we mad? No, of course not, because it's like selling a 1 year or 3 year's worth of cloud storage on the same basis. Sure, today 1Tb of hard disk costs 'X', but in 3 years time it will be probably 1/10th of X - and the overall storage system will have been upgraded at least twice so the costs all work.

Similarly 3TH will cost you around $5k in hardware, but in 1 years time it's going to be a fraction of that, because we'll probably be buy 16nm or smaller kit running at 20-50TH 'per box' so a 1TH slice of that will be very cost effective. Because of who we are backed by we can therefore take these 2/3 year views, which is another reason we don't just mine ourselves, because then we'd need to take those views on both BTC:USD and global hash rates. We might be good, but we aren't that good, but one thing we do know is Moore's law does apply to hardware, so that's a good bet.

So how can we do this. Simple, our costs are much lower because we forward buy massive amounts of kit, we have Hydro power, we host in the middle of nowhere where it is cold, and we have built huge automated systems that keeps everything alive and working all the time.

Just like those email servers all those years ago. Then web servers. Then Internet transit. Then voice minutes. Then [insert your favourite telecoms arbitrage analogy]

So, why do we sell contracts? Because we believe that:
a) we can better the pricing that people can do it themselves when they take the full costs into account (of course if people get free electricity, or just run a miner in their bedroom then that may not be right)
b) Our scale gives us inherent advantages, and by offering a compelling product then we can build a sustainable business that enables us to continue those advantages
c) We don't have to sell the bitcoins generated, which helps everyone as distributing amongst end users means they will use a variety of methods to monetise them (including spending them as bitcoins, not fiat)

Yes, customer's are taking a risk, but then so are we, because who actually knows what is going to happen in a years time, never mind 3 months. This again is no different that buying any sort of service from a large company - sure, you might be able to wait a few months and get those hard drives, processors and everything else that makes up a server to run your email cheaper, but then there might also be a factory fire which pushes the costs up massively.

As I've said on this thread and elsewhere, we aren't interested in making any wild claims about what may or may not happen, we just build the best possible service we believe we can, price it at what we believe is a compelling price point, and then provide as much information that we can to ensure customer's can make an informed choice.

Hopefully we also provide a balanced view across the views, because given the examples where our costs are below kit+electricity, if it's "mad" to send money to us, it's "madder" to buy kit and do it yourself.

Thanks for informing the debate though.

Justin
www.megamine.com

Because the companies make MORE profit by selling to you at inflated prices.  These companies are just as capable of doing the mining calculations as the rest of us.  They've spent quite a bit of time analyzing things to come up with a price point that minimizes their own risk, and transfers it solely onto the shoulders of the consumers.  Let's look at the latest offering from Bitmain/Hashnest.  They are offering 0.00135BTC per GH/s, and $0.0032422/GHS/Day in maintenance fees.  If you break that down, you'll see it translates into the same thing as purchasing an S2 for 1.35BTC and paying somebody $98.62 a month to host it.  In order for you as the consumer to have a prayer of turning a profit, the network difficulty adjustments must be 5% or less consistently at current USD->BTC conversions.

This is the game they play, and how they transfer that risk to you.  They are betting the difficulty adjustments will be greater than 5%, and also that the fiat->BTC conversion does not inflate dramatically at present.  By purchasing such a contract, you are betting against the house and hoping that either the difficulty adjustments stay absurdly low, or that BTC increases dramatically in value at the beginning of your contract and then continues to trend upwards throughout the timeframe of your contract.

Other cloud mining providers offer a fixed rate contract.  They're doing the very same thing, except charging you everything up front instead of amortizing the "maintenance" fees over time.  As an example, let's look at MegaMine.  They are charging $3100 for a 12 month contract of 2TH/s.  That's actually a bit cheaper than the same from HashNest (2TH/s at HashNest = 2.7BTC@$479 + 197.24*12 = $3660.18).  Regardless, the outcome is the same: you are betting against the house (in this case, you're betting that MegaMine is wrong in their predictions).

That's less risk for the company selling the hashes.  bmoscato was asking what is the benefit to the buyer of the hashes.

Less risk. Would you rather invest 1,000,000 into mining hardware yourself and risk that BTC falls off/the difficulty makes it non-profitable or would you rather sink 1,000,000 into hardware but sell hashes of it so that the risk is far less while still taking a cut from each hash as well/they pay for electricity/maintenance/etc.

No matter how many times I look at this, I’m still confused.  If an individual, company or organization has the capital to purchase mining equipment as well as fund the operation of a facility, than, why are they offering a service of selling/renting hashing power?

Why wouldn't these entities just mine away and make their profit and be happy?

GAW/Zen made sense to me originally when it was used as a collocation type center, but, now they are doing the same thing as everyone else.

On the 'are we real, do we really mine' point often talked about - here is the latest delivery of miners to our data centre that turned up this morning.



The guys are rapidly unboxing and racking (time is bitcoins after all), so once it's all nicely running we'll do some more photos of these lovely new miners running. This is just the first in a whole batch of deliveries but hopefully gives people a bit more confidence that we really do exist and really do mine for our customers.

J
www.megamine.com

I know my account is new but I've had some good experiences with GAW lately with their Hashlets. I've made back 20% of my initial investment in my first week with it and their customer service (which was lacking) has really been picking up in reply time to my tickets (I've had a few questions).

That said, I will hold further judgment over the next few weeks to see what they bring about.

Johhny,

All good points, and ones that we would want everyone that makes a decision to enter mining to appreciate.

On the "premium" point, it's interesting where various companies have positioned their pricing.

We are at $3100 for 2THs for a 12 month, $3600 for a 3 year contract (after 3 years it's really not going to be worth mining 2TH).

Compare that to CEX.io
Current price is $1.891/GHs which means 2TH/s is $3782
1 year "maintenance" fee at $0.18/GH/month is $4320 for 1 year, $12,960 for 3 year.
Total cost 1 year : $8102 and for 3 years : $16742

So we'd probably argue that we aren't 'premium', and that if you do a "TCO" then we are cheaper, plus if you follow our pricing we directly reduce in-line with difficulty increase so for a continuous investor we would argue that we offer a very good deal.

As I said, if you are happy with your 4TH then cool, and if you got your kit at a price that is working for you then well done. The thing is that people aren't guaranteed to get their kit if they order now (exactly who do you order from....), and every week it's late can make huge differences to the returns.

I would be interested to see how your 4TH is earning to be honest - one of the other advantages that we give is to remove all 'luck' issues - we pay exactly 100% of your percentage of the global hash rate and charge 5% to cover our risk.

As we like to be transparent I'm posting regular updates on this thread
https://bitcointalksearch.org/topic/m.8537900
which shows our earning rates and the returns against a 1TH/s contract bought when we launched, thereby giving people a good feel to what's going on. In less than 3 months it's returned over 50% of the cost, despite the BTC:$ moving against us.

Finally, we are always happy to show off the kit that runs our service - we do it on here and on twitter
https://bitcointalksearch.org/topic/m.7233984
https://twitter.com/MegaMineBitcoin/status/483641972490780672

It's real, it really exists, and once we've got the rest of the next order that's turned up we'll post some pictures of that as well (we are just about to double our capacity early next week).

As always happy to answer any questions.

Sorry, seems the link 'times out'.

Here is Companies House's main link to it's 'webcheck' portal.

J

Neither Megamining Ltd or company number 08849351 was found with the companieshouse.gov.uk website suggested.

This website, http://companycheck.co.uk/company/08849351/view  did come up with some info however.

Have anyone tried scryptsy cloud mining? Was thinking of going into it

I'll get that done for you.

Yep.

http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyInfo

Company name is Megamining Ltd and company number is 08849351

A quick google of "Justin Fielder" will throw up a whole load about me and my background - prior to this I was CTO of Easynet (www.easynet.com) for 16 years so we are indeed real and not running anywhere.

Our sister company that hosts Megamine's kit is Hydro66.com which is making a very large investment in Sweden ($millions) in building a physical 150MW capable datacentre. The local governments development agency in Sweden's announcement of that is here http://thenodepole.com/2014/05/13/hydro66-build-new-wholesale-data-centre-node-pole-region/

Justin
www.megamine.com