The truth is that cloud mining companies actually make money by selling contracts even when they have the means to mine cryptocurrencies themselves. Miners who are not keen to invest in costly mining hardware and pay the huge electricity bills for such hardware choose to sign up for cloud mining. So, cloud mining is the perfect alternative for people who want to mine cryptocurrencies but do not wish to bear the responsibilities of managing mining rigs on their own.
Cloud mining companies will have to find ways to diversify their risks. They must spend a fortune to ensure that the mining facility works optimally. So, they choose to get money vis-à-vis contracts from their clients. These contracts also help them to sustain themselves because coin values keep changing with time. With the help of cloud mining contracts, they enjoy access to quick money which they may use up for purchasing hardware for the time being. So, cloud mining services actually make money by selling their contracts just like people take loans from the banks. It is better than spending your own funds because you can use up that money right at that moment.
Some of the cloud mining companies turn out to be scammed because they soon realize that they can make more profits when they mine on their own. They offer contracts initially simply to make money to buy the dedicated mining hardware. Once they have this hardware, they can mine independently and make more money. So they will accept payments from clients, giving them small payments in return for a while, and then suddenly sacrifice all the investors and use the facility they have built for their own mining needs. This is what cloud mining is all about and this is also why one should be aware of the risks of cloud mining.
While cloud mining services seem to offer you a good way of earning quick rewards you will have to be wary of the scams doing the rounds. There are many companies which build Ponzi schemes to cheat the customers. Such companies will not actually own mining hardware. In a Ponzi scheme, the previous investors will be given money for their contributions from funds brought in by the new investors. Eventually, when these new investors have dried up, the scheme ends and the most recent investors lose out. So, cloud mining services end up making huge profits for themselves.
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