Lying on the expected return is a scam in my book. As you said, those projections WON'T HAPPEN, and very likely their "investors" won't even get back the money they put in this venture. So, cloudhashing has two options:
1) run a one time, "hit-and-run" business, cashing in the huge mark-up they have on the hardware (1GH/s costs them aprox. $20 and they are selling it for $149, PLUS the commision of 10%), and screwing up the first investors that will very soon realize they are getting peanuts for their $. In this case new money will stop flowing in as soon as they start hashing and the clueless people who invested start spreading the word that they are receiving much less than they expected.
2) be very greedy and start making payments according to their fairy-tale projection using the huge mark-up they have on the machines, so people start spreading the word that this indeed is a business that gives you 500% return per year, and new investors pour in en masse.
1 or 2 it's not so different for me. From a legal point of view, probably 1) is not considered an outright scam, while 2) is a ponzi, so I agree that they will likely just go for 1). It not be a *scam* from a legal point of view, but it's a scam in my book, as they are sucking in money with blatantly false assumptions.
1) run a one time, "hit-and-run" business, cashing in the huge mark-up they have on the hardware (1GH/s costs them aprox. $20 and they are selling it for $149, PLUS the commision of 10%), and screwing up the first investors that will very soon realize they are getting peanuts for their $. In this case new money will stop flowing in as soon as they start hashing and the clueless people who invested start spreading the word that they are receiving much less than they expected.
2) be very greedy and start making payments according to their fairy-tale projection using the huge mark-up they have on the machines, so people start spreading the word that this indeed is a business that gives you 500% return per year, and new investors pour in en masse.
1 or 2 it's not so different for me. From a legal point of view, probably 1) is not considered an outright scam, while 2) is a ponzi, so I agree that they will likely just go for 1). It not be a *scam* from a legal point of view, but it's a scam in my book, as they are sucking in money with blatantly false assumptions.
They can't really do 2 - as everyone can work out what they should be paying for the hashing power per contract. That's why it almost certainly isn't a ponzi - as they won't ever be paying out the 500% to anyone.
Hit and run would be if they took in the money and didn't pay anything. That's also unlikely in the short-term - as they make more by paying out and continuing to sell more contracts. Don't underestimate the stupidity of people here - they'll continue reinvesting in crap that will never make a profit even after the proof it won't make a profit has been rubbed in their face by the tiny returns they've actually got.
I'd bet investors on this forum have lost more BTC investing in mining companies than they've lost in all the actual scams put together (including Pirate). If you run a mining company you don't have to steal - you just skim a big margin off turnover leaving investors with a loss. Mining is only marginally profitale most of the time - it's impossible for investors to make a profit if the operator takes any sort of significant cut from turnover rather than from profit. There HAVE been a few exceptions to that - but anything that isn't already mining (or manufacturing chips) isn't one of them at this point in the cycle.
It IS possible that they will make a 'profit' (in USD) for investors if BTC rises a lot. But that's deceptive and irrelevant for users of this forum (returns need to be compared to just buying and holding BTC - with 0 counter-party exposure to both cloudhashing AND their hardware suppliers). For those buying in USD it may be more relevant - but is still horrible value compared to buying and holding BTC.
Well, I have to say what you wrote was incredibly accurate. You've nailed it, I pretty much agree on everything. But in any case I still think they may be able to run the business like a Ponzi - who is going to check how much hashrate are they really deploying? Are they going to be transparent as ASICminer? They say they are reinvesting 30% of the "profit" EVERY MONTH to increase the hashrate of each customer. But as you said very well, people is so stupid that will probably keep buying mining contracts even if they are unprofitable, so they will not need to do many tricks to suck in suckers. At the end of the day, Bitcoin is a growing ecosystem, with a constant influx of newbies, who will just do not understand that mining is only marginally profitable, and that they would just be much better by buying and holding BTC instead of throwing away money investing in mining companies.
