Of all the ways how to buy bitcoins, cloud mining may be the most unusual.
With Bitcoin cloud mining, you don't buy bitcoins or the actual hardware used to "mine" it.
You buy a contract for a certain amount of mining power, known as "hashing power," for a certain period of time. You then earn a portion of bitcoin every day for the duration of the contract.
This is a twist on conventional Bitcoin mining (see sidebar). Today Bitcoin mining involves the purchase of one or more dedicated mining machines (essentially computers designed specifically to mine Bitcoin). Small-time miners run their machines in their homes, but large operators will have many mining rigs running in their own building or buildings.
That's where Bitcoin cloud mining enters the picture. A few of the large operators sell a portion of their massive hashing power to folks who like the idea of mining Bitcoin but would rather not buy and run the rigs themselves. (The rigs consume a lot of electricity and generate a lot of heat. Plus, to get a decent return, they need to run 24/7.)
Many people just learning about Bitcoin (a January Coin Center study showed 65% of the U.S. population had never heard of it) become fascinated by the mining aspect of it. You can actually create money with a computer!
That was one of my first thoughts when I discovered Bitcoin in 2011. Back then the difficulty was low enough that you could mine Bitcoin on a personal computer.
Why People Mine Bitcoins
I invested $300 in a graphics card - the mining rig of its day - and managed to generate about 20 bitcoins in six months before the card burned out. The Bitcoin price slumped to under $5 in the meantime, so my mining experiment looked like a big money loser at the time. (Luckily I kept my bitcoins.)
Mining today is no less risky. Even cloud mining is an unusually involved and time-consuming way of how to buy bitcoins.
Yet Bitcoin mining has a certain romantic appeal, particularly for those who love tech. And many Bitcoin fans also like the idea of being an active participant in the network that supports the digital currency.
So here's how it works - and a look at the pros and cons...
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
My 3 years experience and research has taught me that at least 80% of the current cloud mining websites are ponzi schemes. The other 20% is comprised of cloudthink.io and cex.io.