Topic: Cloudmining without proof of mining [poll] (Read 5867 times)

It is my understanding that this is what the ponzi cloud mining operators do. They essentially receive funds to pay for the mining contracts and use those funds to pay the "mining revenue". They continue this process in order to build up confidence in their company until it reaches a point that it makes sense for them to run away with customer funds.

I think up until now, many of the ponzi operators have been able to payout "honestly" because they have been able to command high enough prices that customers would not be able to profit if the mining equipment really did exist, however I agree that this would be very misleading as the customer is taking on risks they are not aware of, plus if the operator were to have to payout more then they received on enough contracts then they will likely decide it is time to run away

It sounds good in theory.  Is there proof that BDD is doing what you are saying?  If you want proof of mining from cloud miners, you probably want proof of what BDD is doing also. 

I'm not sure how you would prove it, but I'm thinking something similar to the below.
See this: https://iwilcox.me.uk/2014/proving-bitcoin-reserves

You buy 1 B.EXCH and can keep hold of it or exchange it for 1 B.MINE and 1 B.SELL. You then sell either B.MINE or B.SELL depending on how you think difficulty will change. The exchange system is automatic these days I think but it doesn't matter because the customer would be pretty pissed of if they only got B.MINE or B.SELL instead of both. BDD only sells B.EXCH. Only customers sell B.MINE or B.SELL. BDD will also buy back 1 B.MINE + 1 B.SELL.

Besides the way the system works, you can just look on the Havelock page for the "Units Outstanding", which is currently 19852 for both.

If you're still not getting it, picture B.EXCH as a Yin-Yang symbol, B.MINE as Yin and B.SELL as a Yang. No matter how many Yin-Yang symbols I give you or take from you, you will always have an equal number of Yin and Yangs.

Is there proof that issued B.MINE= issued B.SELL?  If not then whoever issues it could also be like a cloud miner.

ponzi's don't get more obvious than that.

Havelock does not run B.MINE or B.SELL, those are part of something called Bitcoin Difficulty Derivative (BDD) run by twentytwenty. Havelock is just a securities exchange platform which anyone can use. It's like the New York Stock Exchange.

BDD does not sell mining or even pretend to sell mining. What BDD sells is B.EXCH which you can exchange for 1 B.MINE and 1 B.SELL. So, the number of B.MINE and B.SELL are always equal.


Look at BDD's forum thread and see how it works. Cloud mining ponzis work similar to BDD but the operators just sell "B.MINE" and keep "B.SELL" to themselves.

I'm not aware of Havelock.  Had a quick look.  Their website looks organised but what you would still need is assurance that the books are balanced.  They need to prove that they are balanced on their mining contracts.  I.e. that they have enough miners and sellers. And that the values equal each other.  Are you sure they are not selling more B.MINE than B.SELL?  I can't see proof on the site, or on the thread, but I might have missed it.  They seem to be posting fund balances (which is more than most certainly), but lack proof?


Secondly I'm certainly not naive.  I have zero cloud investments for this reason.  Just trying to be accurate and truely understand the business models employed by these guys. 

The key problem is that mining is/has been over valued, and operating a mining contract seems to be the only way to truely capitalise on that. The markets that have short selling seem to get more accurate prices.  However mining continues to be overvalued on the big mining sites.  I guess portability of mining is required.  Anyone wants to code a sidechain for that?

Agreed with that, but you did in your previous post present the tracing of payments as some sort of proof.  I just pointed out that tracing of payments is not conclusive, which I guess you are agreeing with now.

Agreed, but it's a start.  Also agreed @ the fuelling of sales.

I have no problems with synthetic mining contracts that are presented as such, and have a provable way to generate the potential profits. For instance B.MINE and B.SELL on havelock. Thats not a ponzi scheme, even if difficulty drops by 50% tomorrow and remains there, investors in B.MINE will make a profit, the funds will be there, it just happens at the expense of B.SELL holders. Thats VERY different from a mining ponzi.

Secondly you are naive if you believe a mining ponzi operator will pay dividends from his own stash of coins just because he can. He is by definition scamming you if he doesnt have the hashrate he is selling. What makes you think an anonymous scammer will voluntarily give out his profits and potentially even make a huge personal loss on the entire scam,  instead of maximizing his profits by running away the moment divs > sales ?


You cant prove a ponzi. No more than you can prove the Nigerian princess that emailed you yesterday, isnt really a princess and didnt really inherent an oil concession.
An operator however, can easily disprove a ponzi. If he doesnt, the conclusion should be obvious.


Im not convinced that will make a big difference just yet. For all I know, it will fuel sales.

I just want to draw the distinction from someone selling you a mining contract as opposed to someone selling you real (!) hash power.  The mining contract sale may or may not have actual mining behind it.  As long as the seller is not presenting it to be actual mining I think it is more or less ok.

Also the mining contract may or may not be a ponzi.  Some are just bet's on difficulty and the buyer is betting in the other direction (often incorrectly).  I think some people are buying these and crying foul if they don't ROI, but they could have figured that out before they bought it...

EDIT: If I were investing in cloud anything (and I'm not) I would want see proof of assets and contracts written if it's a contract "miner".  Total BTC and total liabilities.  If it is real mining I want to see proof of that also.  


I agree that you could possibly trace that but it's no proof that they are ponzi.  I.e. it is no proof that they don't in total have enough bitcoin to cover their contractual committments.  Their wallet may simply be paying a from a random input.  In fact even if they had real hardware and be all above board this could happen though in that case it should not happen all the time.

It's interesting the difficulty has decreased.  To quote Warren Buffett:

Let's see if we see someone without pants

This is true, however in order for the mining operator to be profitable/not collapse they need to have some kind of "skin in the game" in the event that difficulty does rise slower then expected. I would also say that any cloud mining company that operates this way is also committing fraud as they are forcing their customers to take on risks they did not know they were taking

I truly am surprised how little proof some take.   Maybe I'm jaded but i want proof for any BTC investment.

^^^^++

Excellent post Puppet, these "cloudminers" are springing up like mushrooms, 'arbitrage' is sooo last year for the fashionable scammer.

Which is precisely what these mining ponzi's do. Often times you can even trace the payments from purchase to "dividend"'.

What makes a cloud mining ponzi different from many traditional ponzi's, is
1)  there is no risk of a bank run.You can not get your money out because these contracts are non refundable. You may be able to trade them with other users, but the operator doesnt risk a withdrawal rush. (But thats also the case for many traditional ponzi's where the investment is locked in for a certain period for the same reasons. Its just that with mining ponzi's, this sounds like a reasonable thing);

2)  Less than 100% ROI can be expected depending on how difficulty evolves, see below:

(most) cloudmining is Ponzi 2.0.


So what happens if difficulty slows down enough that these contracts ought to be profitable? Where is the ponzi going to get the money from ?
What you suggest could only work in theory if investors lose money supposedly due to increasing difficulty instead of theft, but they lose money nonetheless.
So either you lose money because the ponzi collapses, or you lose money because your contracts are unprofitable. There is no chance (on average) to profit.

Of course, in reality its far worse; regardless of difficulty,  do ask yourself, why would the operator pay out all or nearly all of what he collected? Considering virtually all these ponzi's are being run anonymously, use coinmixers to hide their tracks etc. What makes anyone think these people are lying about the business model and hiding their identity but will voluntarily pay out nearly 100% of their loot to fulfill their contract?

BTW, there are ways to gamble on difficulty that dont involve ponzi. You can trade B.MINE and B.SELL on havelock. Its a transparent way to let you bet on theoretical (un)profitability of mining. Unlike ponzi 2.0, its actually quite possible to make a profit that way.

Well I don't think ponzi is the right term here.  A cloud miner could not be mining and not operate a ponzi.

A ponzi is usually defined as something where new client money get's used to pay returns to existing clients.  The existing clients' money has been taken out as profit by the operator of a ponzi.

A "fake cloud miner" could be running a scheme where they keep a enough money to pay every single mining contract it has sold.  You can estimate the amount of money required to pay out for a mining contract.  Usually (if the prices were calcualted correctly) this would be less than the person paid for the contract.  So if you just kept their money until their contract closes you won't be operating a ponzi technically.  For cloud miners operating in this manner they are exposed to lower than an expected difficulty as they would have to pay out more than they have potentially.

Totally nice post and info about cloudmining. Better be safe than sorry

I would speculate that paycoin may actually help prove that gaw has actual mining hardware as I would imagine that much of the at least initial mining will be from gaw customers, via their cloud mining contracts

This is probably true if the cloud mining provider is in fact operating as a ponzi scheme, or a scheme that involves actual mining capacity being used. I think the difficulty would need to decrease substantially in order for any ponzi to collapse because of this however

Well the price is not really a problem directly for the fake miners.  If they are selling cloud mining in bitcoin they should not be exposed to price movements directly.  I think they do have indirect exposure as low prices may result in lower network hash rates end thus lower than expected difficulty.  This would then pose a risk to some of these "miners" as they would need to pay out more than they have bargained on  or priced for.

they will run into trouble with a btc price drop from say 350 usd to 199 usd.   these stable 325-375 numbers  help them if they are fake.  GAW/ZEN has a lot of money invested into them.  It would be interesting to see if the new move of 'PAYCOIN' works out for them.

I made a few bucks with them but I have very little invested with them.  Ever since I stumbled onto the nicehash-westhash = trouble for their genesis/s-3 setup I slowly sold off almost all I have with them.