I'm not sure if that's correct but IMO it makes sense.
TL;DR: Because you giving them money upfront allows them to buy more equipment to get more hashpower. They're basically taking out a loan.
https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dip4kzu
https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dipltwy
Quote
There's ONE reason for a large mining operation to rent capacity in a customer-profitable way: Reduce negative float and let them see a return on their investment sooner. By collecting an upfront rent they get immediate cash, and the cost of getting that cash early is their profit is reduced (Shared with the people buying the contracts) ---- so they could finance a large amount of equipment and other capital costs by selling contracts, and the contract seller can go home with profit on month 2 or month 3, instead of month 12; Whereas the delay to profit is transferred to the buyer of the contract, And their profit is small....
The problem is that there is so much demand for cloud mining, and people buy these contracts without regard to profitability and risks --- that they are able to actually sell under terms where the people buying these contracts don't have enough built-in profit to make up for the risk they are taking.
In other words: Cloud mining WOULD make sense, But the demand-hype in the marketplace prevents this from happening, since there are too many other people willing to buy these mining contracts even if they will lose money --- that it is almost impossible to buy a mining contract that is likely to have high profits for you, or alternatively, that guarantees any profit or offers any protection of your investment against difficulty changes.
The problem is that there is so much demand for cloud mining, and people buy these contracts without regard to profitability and risks --- that they are able to actually sell under terms where the people buying these contracts don't have enough built-in profit to make up for the risk they are taking.
In other words: Cloud mining WOULD make sense, But the demand-hype in the marketplace prevents this from happening, since there are too many other people willing to buy these mining contracts even if they will lose money --- that it is almost impossible to buy a mining contract that is likely to have high profits for you, or alternatively, that guarantees any profit or offers any protection of your investment against difficulty changes.
TL;DR: Because you giving them money upfront allows them to buy more equipment to get more hashpower. They're basically taking out a loan.
https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dip4kzu
https://www.reddit.com/r/Bitcoin/comments/6gbf9x/cloud_mining_is_a_scam/dipltwy
Except for, it won't works for newbies who wants to get easy money by investing small amount of bitcoin to cloud mining.
You need at least BTC0,5 to invest on them, make sure the contract mention about how much you get in return and how long your money return fully?
So it is very advisable that newbies must read and not just risk big amounts of money to some blind investments. And from what i have observed, i have not yet seen a legit contract buyer who could really brag own how much they have earned during the period of there contract. Maybe big time contracts had some profit but it really is not a promising business for a long term unless you are the one giving out contracts. To be honest i don't want to risk cloud mining because of some security issues.
