Topic: Cloudmining without proof of mining [poll] (Read 5865 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.

Yes, thats why these are the best ponzies to run. Considering that difficulty keeps going up, the investors may never get RoI, so the ponzi schemers don't even have to run.

Here's a nice overview of cloudmining companies:

https://bitcointalksearch.org/topic/cloudmining-101-860400

+1

It will take a lot longer for a cloud hashing scam to fall apart than a regular ponzi scam. If you give me 1 btc for enough "hashrate" to earn .9 btc I can pay you back without buying a miner or getting off my couch.

The legitimate ones are letting you pay up crazy maintenance fee while the ponzies offer good deals which is so sad....

I don't believe they are mining.  They are simply paying back the money they got.  Given their pricing this should in reasonable scenarios result in them always being left with some profit at the end of the contract.  Of course if difficulty starts dropping more than they allowed for in their pricing they may be in trouble. 

If they are honest, they are keeping the money until the contract is closed and then taking profit.  They might be a ponzi if they are paying releasing profits before the end of their mining contracts, or if they become dependent on new money to pay out older contracts.

These things exist because people are willing to overpay for mining.  If people stop and do the calcs these type of things won't exist. 

I wanted to add that with the recent slow down in diffculty might help to expose people who are underfunded.

I really can't see why people don't see the obvious:

Some may not be a ponzi but still not actually mining.  Given the prices and likely difficulty growth rates they are simply paying you back your own money using a difficulty formula but not actually mining.  The reason they do this is because so many people are willing to pay for cloudmining at crazy high prices.  You should be able to run such an operation reasonably well with limited risk.  One could take in someone's money, and keep it in reserve paying them back until the contract ends.  If you price conservatively you may not ever need money and you should have some money left over once the contract ends.

In essence it's a futures *contract* and basically a bet on future difficulty.  The big risks (to the operataror) is pricing accurately and dynamically and of course the risk that difficulty drops unexpectedly.  With an unexpected difficulty drop, you may have an issue as you will suddenly have to pay out more but will have no additional income.  Of course you can probably hedge your position slightly by buying some real mining capacity just in case.  The extent to which you hedge will determine potential downside (and upside of course).

The big risks to the investor is that the operator is not competetent enough to do the above, or is greedy and starts eating into reserves early (i.e. becomes a ponzi).  The biggest risk to the investor though is their own poorly conceived research in paying overpriced rates for mining. 

For cloudminers I would require either proof of mining, so I know they actual run the right amount of miners.  Alternatively I want assurance that they have enough money on hand to pay out all future contractual committments at a reasonable future difficutly growth assumption.

Of course one could easily be tempted to turn such an operation into a ponzi by paying out from incoming funds and taking the rest as profit, but these guys should already be making money so no need to be crazy.

It's so fricken obvious.  I mean if you read some of the sites they sell you a mining *contract*.  They don't actually say they will be mining.  They payout is not based on actual mining but a formula.  Another clear hint. 

In an overpriced mining market this may well be the only way to effectively sell mining short.  I would do this as well, but feel slightly guilty in doing this.  I can see that you can stay on a slightly grey line by selling contracts and not correcting people when they assume you are actually mining.  I think it's ok to do it, but I would not feel 100% comfortable doing this.  But really the investor is just buying something that's essentially over priced. 

You might think you are safe buying the actual hardware, but I believe the margins of the companies are just adjusted to just reflect the likely profitability, because let's face it, if a company is selling a miner that's going to be extremenly profitable at their marginal electricity cost they'd be sellling a gold, sorry I mean, bitcoin mine. 

I agree, it really is the perfect market for a ponzi. I think it might be the only market where a well set up ponzi can last indefinitely.

Not only are the returns piss poor for the risk you take (just talking about mining here, not being a ponzi), but a massive portion of the bitcoin/crypto community are completely uneducated/misinformed when it comes to bitcoin/bitcoin mining and no matter how many eye opening scams make the headlines, plenty more naive/gullible noobs will fill their place.

The bitcoin difficulty derivative on havelock makes it clear how profitable a cloudmining ponzi can be. It operates similar to a ponzi but instead of pretending to mine, they make it very clear that it's all an equation and as soon as the reserve fund runs dry, the game is over. Because you know exactly how much btc is left in the reserve, you can price the shares accordingly and nobody gets ripped off.

But the important thing to take from it is how long the derivative has lasted. With no mining and payouts only from the original payments, it's been 7 months already and there's still ~200 days worth of mining payments before the reserve fund runs dry(at the current difficulty). That doesn't even consider the fact that B.sell has had ~0.028 btc/gh in dividends. (B.sell would basically be the ponzi operators cut if they want to keep the reserve at 200 days.)

0.028 btc/gh leftover after paying out mining earnings for 9 months means that if they don't spend any money on advertising/drugs/cars then the ponzi could easily last 6+ more years if difficulty remained at the current level. (which we all know won't happen)

Cloud mining ponzis are actually a smart move. Direct ponzis which claims some 'investment' and high returns don't last for even a month. With cloud mining they don't have to give big returns, and slowly accumulate over a period of a few months.

The lead bitcoin developer seems to think many are ponzis. https://www.cryptocoinsnews.com/gavin-andresen-suspects-ponzi-schemes-bitcoin-cloud-mining/



You must be new here. There have already been many cloudmining ponzis that have collapsed. Lunamine was a pretty successful/recent one I can think of.

I am not sure about "quite a few" (this implies it is man/most of them) but I would say that a non-zero number of them are ponzis. I would especially consider LTCgear to most likely be a ponzi.

I think that once the first cloud mining site proves to be a ponzi, it will be much more difficult for other sites to continue to sell their mining capacity (and it may be a good time to invest in cloud mining if you are certain the company you are buying from is not a ponzi)

I have no doubt that quite a few of these are ponzis. Once these blows up it will be a good exercise to see what percentage was legitimate.

I believe they were selling some form of cloud mining before they sold what they called 'hashlets' although IDR what they were calling it.
It is possible that they are mining on various pools and that if they could be linked to specific pools then they would be at risk of having their pool accounts hacked. I would somewhat doubt this would be the case as the hashrate they claim to have should be enough to solo mine. Also using a mixer would effectively be a fee their customers would be paying as pbmiing would need to pay a fee to the mixing service. 
I really do not understand why cloud mining services do not do this. I would think that this would actually reduce costs as it likely cost them a non-zero amount to run their own pool and keep track of each users' balance. This is especially true for pbmining as their customers must prepay 5 years wroth of electricity

The cloud mining company don't want some competitor to come and cut their wires to reduce the difficulty.

Well since they started selling hashlets on August 16 it's more like 2.5 months. Either way it's nowhere near long enough for a ponzi to collapse.

You're wrong. They started selling hashlets in August. So it's more like 3 months, and they've been hosting miners before that.

https://www.cryptocoinsnews.com/gawminers-hashlet-sells-bitcoin-sales-per-day-overstock/

Angry is the wrong word. I just don't support their shady business model.


That's not how it works. You cannot prove a company is currently mining by providing an address that is not currently mining.

Look at https://www.antpool.com/poolStats.htm . Every day new blocks are found and signed with "mined by antpool".


So basically what you're saying is that because there are so many scams, you might as well invest in the best priced offering regardless of how sketchy/untrustworthy?

Why would you willingly invest in something that has a 50/50 chance of being a ponzi? That's like playing roulette and betting on red, but instead of doubling your money if you win, you will maybe earn 10% profit after 6 months.

Just go to a casino where the risk is the same but the reward is 10 times greater.

^ The PBmining hashrate price is indeed at 0.0014 BTC / GHs now instead of 0.0021.

I can see u r affectionate towards BitFury and angry at PB Mining. Moreover, one does not need to continue maintaining the same address to show they are mining. They can simply rent an address for a few days and show it as 'proof' for months. Regarding 'unknown entity', its a vague concept in bitcoin world. What will u do if CEX goes out of business tomorrow ? What u have been able to do to MK after the Mt. Gox fiasco. Everyone is always at risk and the concept of vague certainty should be abolished. While choosing the service I'll simply go through the rate chart and this is what I have now...

1. https://cex.io/ => 0.00268387 BTC/GHS

2. http://pbmining.com/ => 0.0021 BTC/GHS

3. http://www.cloudmining.website/ => 0.001 BTC/GHS

I really don't understand why any cloud mining services offer this. I don't think it would cost very much for a cloud mining company to point incremental hashrates at the pool of their users' choice, and this would probably cause people to be much less skeptical about if the mining actually exists or not, which would allow them to sell more mining capacity at likely higher prices.   

Did they offer cloudmining before hashlets? Hashlets have only been around for ~2 months.


You are mistaken. Many have tried, but nobody could attribute a mining address to PBmining.


I agree that would be the best. That would eliminate the need for proof via their mining address because you would be able prove it using your own address.

Nah, but I agree it is a nice website.

Following btc using a blockchain explorer can be tedious.

GAW's cloudmining service has only been around for a month or two.

PBmining has been around for much longer but because they have had a steady increase in new investments, they could have easily survived this long being a ponzi.

Look at the "sent" graph to see how their "hashrate" has steadily increased over the past year: https://www.blocktrail.com/address/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z


If you can trace the BTC payments back to recently mined blocks, I would consider it being open about their mining address. The problem is that it's impossible for companies like GAW or PBmining.

GAW is mining altcoins and converting them to btc. (btc would originate from whoever is buying the altcoins)

PBmining on the other hand implemented a coin mixer specifically to hide the source of their payments. Before implementing the coin mixer they were sending btc directly from new payments to the mining payout fund.

See here:

https://bitiodine.net/a2a/1BaconNYiSsZoq79K9LuEEp7RyGjKuwodJ/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1HammmJ8zaGVHicRxTPRDMdfGCujrfZc8y/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1PBackwRV1rHvDpqkYRTR9WCEEEMEwuSrJ/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1Bacon6DCo11jrXMvm39sgTxhRG9bRjQWy/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1FeedQtUArhfWVGuVH13dX8dbf5XqqqJSq/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1Porky8h4XMoM1RbtTHe7ZpPAe7DpE79Hb/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1BaconH9L8CQ9eGJkjDqN28Pw8v8Rzbp6f/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1Bacont6QxTg3SxfqEG5gfiqefGMCeSNqs/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1PiGgYR36C3VdCP9k2zQLrp1ZvDQNdQsre/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1BaconV3vARfyvKDMCbfZ5rE6acstH6GFV/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z
https://bitiodine.net/a2a/1PorkyB6s8Tb7JU8QiBpreD159iW6aaSWt/1Payday1sm5wGqtatKscfXnxARZ2B2MF3z

ASICMINER has been around for long, and their rates are quite sensible. I would be inclined to trust in this one but not invest in it (poor RoI).

GAWminer may actually turn out to be legit after all. I was quite convinced it was a ponzi.

PBmining has been around but they have ramped up their marketing and started offering big discounts. Either they are going big or this is the endgame.

LTCgear is extremely suspicious.

Both GAW and PBmining are spending a large amount of money in advertising and have been in business for a long time (while active on this forum). I would argue that if either of these companies were a ponzi they would have collapsed by now. LTCgear has has an online presence for <1 year however not on this forum (I think), plus people who are vouching for them always have an affiliate link which is also suspicious.

You should also be able to trace any payouts received through a short number of "hops" through the blockchain to find a coinbase TX of a found block

I agree.  Although I still like to see a picture photoshop or not, it makes me feel safer. I stick more to hardware the clouds.  So many companies have went down scam lane with just renderings.  At least with a good quality photo it adds one more hurdle.

Miningrigrentals has around 2000 T worth of SHA power, Leasesrig maybe 50-100 TH, betarigs 400 TH.  So it would be VERY time and money consuming but 2600 or so T could be gotten if you corner the market.  I agree its not  very likely though.

It's really not that simple.

To fake a picture all you need is a miner and a bit of photoshop wizardry.

To fake hashrate you need to find a company with several PH/s that is willing to support a ponzi scheme. Maintaining the illusion of a constant hashrate when you're buying newly mined coins daily is much easier said than done. The only company I know that is selling freshly minted coins in mass is Bitfury, but they have integrity and want to see bitcoin succeed instead of plagued with scams.

If you were going to go through all the trouble of paying a premium for freshly mined coins every day for months on end, you might as well just buy the hashingpower from Bitfury/whatever company because it would be cheaper, less hassle, and less risk to actually mine the coins.

Freshly mined coins are not really ideal for cloudmining ponzi schemes, but they are great for money laundering. Besides, PBmining almost never pays out "mining earnings" that originate from recently mined coins so it appears it's not even necessary to pay a premium for newly mined coins.

New cloudmining offering AMHash has disclosed their mining addresses:

Pictures are not proof because there are many ways they can be faked.

Bitmain confirming their 5PH/s purchase is a step in the right direction but still requires trust in a third party. (although Bitmain is pretty trustworthy)

I have no doubt that GAW will let everyone know their mining address as soon as they get the 5 PH/s online.

GAW for example is leasing their hash, so if they are mining themselves it's just with a fraction of their total power. They showed a lot of pictures and recently bought a lot of hardware from Bitmain, which was confirmed by the seller.

I wont get into this..... but one off these companies seems to have more than their share of low activity posters.

I think likely if they do not provide IP or there are no pictures.   I believe what I can see. For example hashnest you get no ip, but they have pictures to back it up.

One of the companies above..... their picture is a chip looking animated thing.  I think that leads into ponzi.

Personally I am lucky I have been able to host at home with decent priced electricity.  I love having control to point it to any pool, specifically on scrypt.

Gawminers, LTCgear and PBmining are the noticeable absentees. I am almost sure that LTCgear is a short term ponzi, don't see it giving such a huge returns for a long time.

Here are a few others that are visible on the network:

Hashnest (antpool)
KNC
Cointerra
Cloudhashing
Bitfury
Bitfinex
AMHash

Zeushash has always been visibly mining on the Litecoin network 

As most of us know, the great invention known as the blockchain gives us the ability to see exactly how much BTC any address holds and where it came from without requiring trust in a third party.

Strangely enough many cloudmining companies are not taking advantage of this incredibly easy way to prove their legitimacy which requires practically no time and effort.

Just curious to hear some thoughts/opinions.

If you haven't already I would check out this blog to get a better understanding of how the blockchain and mining works: http://organofcorti.blogspot.com/2014/10/october-28th-2014-weekly-bitcoin.html

Bitcoin lead developer Gavin Andresen's take on cloudmining: https://www.cryptocoinsnews.com/gavin-andresen-suspects-ponzi-schemes-bitcoin-cloud-mining/