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Up In The Cloud: Cloud Mining
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Up In The Cloud: Cloud Mining - Executive Leadership Articles

Up In The Cloud: Cloud Mining

Executive Leadership Articles

Up In The Cloud: Cloud Mining

Cryptocurrency such as Bitcoin and Litecoin has (sort of) gone mainstream, possibly peaking this past winter with near-daily updates on exchange rates. Seemingly everywhere you looked, someone was asking someone else what Bitcoin is, what it can be used for, and how you get ahold of it. While the mainstream coverage has ebbed a bit and Bitcoin’s exchange rate has dropped to about half its highest value, many who anticipate the alternative virtual currency’s sustainability are doubling down on their infatuation and investment while welcoming curious speculators to the fold.

Chickens, Horses, and Houses: An Oversimplified Metaphor

Any currency, whether it is the American dollar, Bitcoin, or a couple of chickens you raised in your back yard, is worth only as much as someone else is willing to exchange for it. If someone’s willing to trade a house for your two chickens, and if that house could be sold for $1 million in cash, you can reasonably value those chickens at half a million dollars each, although if you don’t pull the trigger on this transaction immediately and word gets out, other people who own chickens can jump in and offer more chickens to the house owner, driving the value of your chickens down while the house’s value (in chickens, anyway) goes up. If there’s enough interest now in the exchange of houses for chickens, sellers of other goods and services might be willing to trade in chickens as well, since a chicken now represents some appealing fraction of the value of a house.

This crazy volatility is driven not by the inherent usefulness of the chickens themselves, but by some perceived potential trade the chickens might bring. Others sensing the shift in attitudes about currency and houses will raise their own chickens, while others might try to convince a house-seller to trade the property for a couple of horses, and if some house-sellers, preferring horses to chickens for whatever reason, make the exchange, now there are chickens, horses, houses, and other goods and services involved in what’s becoming a crowded landscape of currency.

While some chicken farmers and horse breeders have plenty of land on which to raise their currency, some who wish to own houses someday but don’t have the property might purchase new property specifically for raising chickens and horses, while others might lease property for this purpose, while still others might pay a landowner for a share of any chickens and horses raised on the property.

This new market for livestock-raising property or for the services of people who own and run the property for the pupose of raising livestock is the heart of cloud mining. We’ll present an everything-you-ever-wanted-to-know-about-Bitcoin (and its sibling, the blockchain) in later articles. For now, this long chickens-and-horses metaphor sets up our quick and dirty explanation of cloud mining.

Paying Someone Else to Raise Chickens and Horses

While the demand for Bitcoin continues its overall upward trend, the interest in mining it grows as well. Bitcoin itself is created out of nothing, a reward given to computers who successfully contribute to the complicated process of verifying and validating other Bitcoin transactions. The process involves lots of computing power and lots of time, and as serious miners of Bitcoin and other cryptocurrencies apply more muscle to the compuation, more computers with more muscle are needed. Lots of computers running difficult processes at the same time generate heat and burn electricity. Casual miners can’t afford this kind of infrastructure, so they pay for shares of someone else’s infrastructure.

Cloud mining has a few popular models, the most basic of which charges you a monthly amount of real currency in exchange for a proportionate share of any Bitcoin mined by the operation. A slightly more hands-on option simply leases you the computing power, allowing you to run the mining software of your choice. This is like leasing the land so you can raise the chickens and horses yourself, rather than simply paying someone for a share of any livestock the landowner raises.

Cloud mining is a popular option because it requires far less technical know-how, because damage to hardware is taken care of by the provider, and because if investors decide they are just not meant to be in this game, all they have to do is stop paying for the service, rather than figure out what to do with an expensive computer setup.

Drawbacks are pretty obvious. The less involved you are with the mining of your Bitcoin, the more you have to pay other people for the service, which means there’s a point where your investment may not generate a return worth your effort. Of course, the volatility of the market and the uncertainty (that is, unreliability) of mining Bitcoin mean you never know how much currency your month of paid service will generate. And, as has been publicized a bit lately, there’s always the possibility of being scammed, wither by mining that doesn’t exist or by someone running off with your currency.

There are several cloud mining services out there today, with variations in price structure and flexibility, so the casually curious with a little bit of money to play with should decide ahead of time how much they’re willing to lose and when they’ll know to pull the plug. Shop around for the service you feel most comfortable with. There are a few side-by-side comparisions out there which can be helpful.

From the provider side, large pieces of inexpensive land and infrastructure are being snapped up near power farms, where many servers can be crammed into old factories and warehouses. The trend has caused economies in some unexpected locales to boom, while in other places cloud mining services have been banned for the way they alter the culture of their localities. It seems that cheap land, existing structures, and inexpensive electricity are the target areas, but look out for areas where a sense of losing historical identity is a sensitive issue.

Periods of volatility aren’t for the faint of heart, but they mean lots of people are trying to get in while lots of people are trying to get out, which means you never know where you’ll find a good deal.


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Up In The Cloud: Cloud Mining - Executive Leadership Articles

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