Half a trap, Half a windfall: The Research of Cloud Hash Investment Market

Abstract : “Bitcoin prices have risen to $8,000 and then fell below $6,500.” The rapid pull-up and plunge have made cryptocurrency leading by Bitcoin once again become the focus of the market.


May 28

 “Bitcoin prices have risen to $8,000 and then fell below $6,500.” The rapid pull-up and plunge have made cryptocurrency leading by Bitcoin once again become the focus of the market.

However, no matter how the cryptocurrency market fluctuates, the “cloud hash” business of the mining industry always remains stable.

The so-called cloud hash is an indirect mining form in which users are able to buy the hash of the cryptocurrency by purchasing a mining machine and obtains the income. Users purchase the cloud hash, which is equivalent to purchasing a fund product with a profit expectation. As the price of cryptocurrency rises, users can recover the cost and earn growth income in a short period of time.

This kind of leasing power investment method goes well in bull market but doesn’t underperform in bear market. Lei Geng from Rawpool told ChainDD that even in the case of $3,700 for Bitcoin price, mining can still make money.

However, as a kind of business based on physical mining machines, cloud hash is filled with the atmosphere of speculation and pyramid schemes. Behind it is a simple admission mechanism, imperfect exit mechanism and blank legal protection.

Cloud hash investment and attractive profit expectations

At present, there are many platforms providing cloud hash products on the market, including Oxbtc, Bitcoin.com mining pool, Clouding Family, 58coin, and HC.top. Moreover, Bitdeer of Bitmain is also targeting this market.

These cloud hash platforms have a distinctive fature, which emphasizes “high returns, short periods” and weakens “mining concepts”.

Screenshot: @ Bitdeer website

Screenshot: @ Bitdeer website

On the Bitdeer website, ChainDD noted that cloud hash contract products with periods of 120, 180, 240 and 360 days are provided. For the users, purchasing the cloud hash contracts means paying the hash fee and the electricity fee. The hash fee is the rental fee. The electricity fee includes the operation fee, the operation and maintenance of the mining machine, and the heat treatment.

One of the contract products has a period of 180 days and a hash of 50TH/s, with the hash fee of $0.0716/T/day, and the electricity fee of 0.0970/T/day. If you purchase 50T hash in a single purchase, you will need to pay $644 for the hash fee and $847 for the electricity fee, totaling $1,491.

According to $0.2961/T/day——the theoretical gain of Bitcoin at the BTC.com pool, this cloud hash contract will generate $2,665 in 180 days. In other words, users can earn a net profit of $1,174 within 180 days, getting their money back for no more than 100 days with a yield close to 80%. Of course, if bitcoin prices continue to rise sharply, this theoretical gain will be higher.

Xuejian Li , founder and CEO of Rawpool,calculated that miners can make the money back in one and a half years under the price of Bitcoin is $3,700 if the mining difficulty is 5.7T in January 2019 and the reference electricity fee is 0.37 yuan / kWh,.

Lei Geng explained: "The logic behind mining is very complicated. You need to calculate what machine to dig, how much it will cost, how much the electricity will cost, etc. In all costs, the price of electricity accounts for more than 80%."

There is no doubt that mining can make money from the very beginning. It’s just a question of how much money can be made.

If the risk cannot be controlled, how to identify the fake cloud hash products in the beginning?

The money-making effect of cloud hash has attracted a large number of newcomers to enter the market, and many of them even previously worked in the P2P industry.

Therefore, two types of platforms have gradually evolved in the cloud hash market. One is a platform supported by physical mines such as Bitdeer and Oxbtc; the other one is a platform that does not have physical mining machines, and uses cloud hash as a gimmick to sell financial assets.

Lei Geng said: “While the platform supported by the physical mining machine is reliable, the latter just borrows the concept of cloud hash, and the risk is very high." She points out that these enterprises will give users a year of promised income, but the user is not clear about how the money is used. People with conscience will do quantitative transactions, while people without it will just give up.

There are the same “disclaimers” agreement on all cloud hash platforms. These terms state that if the mining revenue on the day is not enough to deduct the maintenance fee, the hash contract will be automatically terminated. If there are irresistible reasons such as changed legal policy, war, earthquake, fire and power failure, the contract will be terminated early and the platform will not bear liability.

Under this agreement, if a platform does fraudulent business, it will definitely become a game of getting something for nothing.

An industry lawyer told ChainDD that if the platform does not intend to give users digital currency from the beginning, and aims for illegal possession, making up facts and stealing money, it can be considered as "suspected fraud", which is very clear in law.

However, for the cloud hash platform with physical mining support, although there is no original intention to defraud money, the risk is not small.

The mining machine is an eternal topic in the mining circle, because the cost price of electricity should be controlled. The Middle East, Russia and other places have become the ideal locations for mine owners. For them, if they can start up their businesses smoothly in these areas, 80% of the electricity cost can be controlled within 20%, and the profit margin will be greatly improved.

But things are not as smooth as people think. Based on the principle of government protection,many countries will not easily contribute energy resources such as electricity bills to “outsiders” as soon as knowing that mining is a profit-making business. In addition, even if the mine owner signs an electricity fees agreement with the local government, it does not rule out the occurrence of power outages and network disconnection caused by some human factors. In some countries where the political situation is turbulent, it is also happening from time to time that you are robbed by local people who are armed with bullets.

Mining machines, such electronic devices, have been listed as banned imports by many countries. According to Lei Geng, Iran has become popular site of mines at the beginning of this year because of the cheap electricity fee. However, people are unclear about mining in the sea. The mining machines that go out through formal channels are detained in the customs, so the formal channels don’t work.

Therefore, for the cloud hash platform deployed by the mining machine overseas, you will never know whether the accident or tomorrow will come first.

Formal cloud hash service system

Bitcoin fell 80% in 2018, and people who have woken up from the bear market are looking for a more robust way to make money. Everyone in the industry thinks that getting money is more important than anything else. The cloud hash is the fastest way to get money.

In order to obtain rapid returns, one month, three months and half year cloud hash products are available one after another. The platform side actively emphasizes user benefits, and the financial attributes of the products are strengthened.

On the other hand, "user participation with no threshold" service appears correspondingly. Users only need to register and log in with their mobile phone numbers to participate in the subscription of cloud hash products. The exit of the product may happen as a result of the automatic withdrawal of the contract expiration, or because the contract is terminated early due to the fall of the currency price.

Before being established in the perfect investor protection mechanism, the cloud hash platform attracted a large number of brand-new users to participate.

" There are only payment terms and no protection clauses in the terms of many cloud hash platforms, which is a speculative act without a protection mechanism." Lei Geng points out that there are very few real cloud hash businesses that do well and are not platforms for financial attributes.

The so-called purchase of "cloud hash" should be the purchase of a fixed asset of a machine, which is a kind of permanent contract. "Permanent" here defaults to the life cycle of a mining machine. If a mining machine can operate for two years, the revenue generated by the mining machine within two years is attributed to the user of the corresponding contract.

You can’t tell users that they can't generate revenue because of power outages and network disconnection. This obviously cannot be counted as a "contract." In this process, the platform side needs to restore the entire process of “mining” to the user, instead of providing the user with an unsecured wealth management product.

A correct cloud hash service system should be that the platform is responsible for operating the mining machine, and the user is responsible for paying the corresponding electricity and machine costs. If the mining machines enter a recession period, cloud hash platforms should give a warning to remind the users of the income and whether it is necessary to replace the new mining machine, which means renewing a new contract.

Even in unexpected situations such as power outages or network disconnection, a cloud hash platform should have sufficient resources and capabilities to supplement the broken hash. However, we can't always make it.

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