Welcome to the school of hard knocks where every dollar wasted is a lesson learned, and if you can’t stand the heat you better stay out of the kitchen.
Back in the heat of the late 2017 crypto bull run, I, much like everyone else, was feverishly watching dollars turn into thousands on paper before my eyes. I was desperate to get my hands on as much crypto as possible and I was not capable of thinking clearly and logically at the time.
If you weren’t in crypto back then, youtube shills were trending through the roof, most of whom had little to no experience in cryptocurrency, little to no experience in investing or economics, and couldn’t decode a programming language if their life depended on it. But the money was flowing and there was A LOT to be made from putting out whatever content would generate clicks. Clicks translated to affiliate bonuses, which translated to exponential growth on free money in an already absurdly euphoric market.
This led to some…well…suffice to say shady characters engaging in questionable practices. Bitconnect was all the rage at the time, you couldn’t watch a single cryptocurrency youtube video without getting a screenshot of their daily payouts and a link to an affiliate code to get started on your ponzi scheme dream today…Thankfully I never fell for that one, somethings really are just too good to be true!!! Bitconnect really deserves it’s own write up, or even its own book or documentary so I don’t want to get into it here.
The other scam that was wildly popular, and yes I am now fully ready to admit it is indeed a scam, was cloud mining. If you’re unfamiliar with cloud mining you are essentially leasing hashing power from a mining farm. On paper it sounds wonderful, you pay them an upfront fee for a predetermined amount of hashing power, they do all the hard work including managing the equipment, paying the electricity bills, and facilitating the payouts…all you have to do is sit back, relax, and enjoy those sweet, sweet crypto gains!
Yeah…I’m honestly really ashamed to admit I fell for this. You can say it until your face turns blue but you MUST internalize it in a wild west market like this…”when something sounds to good to be true, it probably is. ”
My first cloud mining investment was Hashflare. I was seeing the amount of returns people were getting on paper for their hashflare contracts (projected 4X your money NOT COUNTING APPRECIATION OF ASSETS) and I was sucked in immediately. It’s win, win, I thought, buy hashpower, start earning bitcoin, revinvest that bitcoin to buy more hashpower, and earn more bitcoin. Generate clicks for affiliate links, help other people make money too, and earn money in the process. (Yeah, yeah I know it sounds like a pyramid scheme all over again).
I started out small with a $500 purchase on a hashflare SHA-256 mining contract. I set up my daily reinvestment into more hashrate, and I built out a spreadsheet to determine my optimal reinvest to withdrawal rates to maximize my earnings. The gains on paper were so good, that I was losing money by NOT buying more (or so I thought), so over the course of the next month I proceeded to dump more and more money into my BTC hashpower and even ended up buying some ETH hashpower as well. I was all set to between double and quadruple my investments in a year and it required literally no effort what so ever on my part…then the February market correction came around, and suddenly those gains on paper started looking a lot less realistic.
Now, by this point I was already starting to internalize the 1 BTC = 1 BTC, regardless of it’s price in USD mindset, so I was willing to accept the relative value of my BTC and ETH contracts going down in USD for the time being. No big deal, I thought, just hold onto the crypto and wait for it to appreciate and you’re golden. I wasn’t planning to cash out the ETH or BTC to USD anyway, I just wanted to accumulate crypto.
But…then I realized, slowly, day by day, the amount of BTC and ETH I was getting paid out was going down. My 2.5 ETH after 1 year went down to 2…then it went down to 1.5…and recently now its down closer to 1, after only about 5 months. The exciting, seemingly unbelievable projected gains on my dashboard that had convinced me to keep dumping money into new contracts was starting to disappear and now, even the concept of breaking even on my cost basis is starting to look like a pipe dream. My only solace is that the bull market was so over extended when I bought the contracts, that if I had instead purchasing pure crypto at the time, I would be down 60-70% on paper right now, whereas my current payout estimates put me around breakeven if I had just bought that crypto at the prices of today. That is one HELL of a pullback. Such is the nature of nascent technology.
If you’re new to cryptocurrency, here’s what you don’t know about cloudmining.
-Hashpower of mining rigs decays over time, and newer and more specialized mining hardware comes out, older machines will be less viable, and unless they are replaced, relative hashpower becomes essentially worth less. This means that while your 10 Terra hash looks super impressive now, it might not be so lucrative in a year or even 6 months. If you need more context to understand this, look at the BTC pay out to hashpower ratios in the early days of bitcoin compared to where they are now.
-Behind the scenes maintenance fees eat into your profits. The projected earnings on the dashboards cleverly never show you that you get charged little nickel and dime fees out of your payouts everyday, they just show you the gross estimate.
-You are placing your trust entirely into a 3rd party in a space with little to no regulation
-Crazy high payout thresholds, making it harder for your to actually take control of your own private keys as often as you might like
-Terms of service on contracts always cleverly reserve the right to change the terms of your contract at any time with no warning or right to a refund (securities fraud lawsuits incoming)
And on that note, my experience with hashflare has at least been relatively positive, they haven’t tried to scam me or anything and I’ve been still getting a steady stream of payouts from it. Genesis on the other hand is an entirely different story and I’m certain they are committing fraud. I also purchased a monero mining contract with them around the same time period and I can’t even begin to explain the problems I’ve had.
-No transparency, payouts not showing up at all on the payouts tab, so I’m in the dark as to how much I’m getting per day, support claiming “its a known issue were looking into it”
-A half baked transition to mining electroneum and converting it to monero following the ASIC fork.
-Such severe degradation of daily payout that I may never see a second payout…on a contract with a full 1.5 years remaining, it is likely I will never reach 0.4 XMR again, when I’ve only thus far had a single 0.4 XMR payout prior to the huge degradation of rate of pay
-unacceptably buggy and broken website and weak user interface
Anyways, this post has dragged on long enough. If you get anything out of this, learn from my mistakes…DO NOT invest in a cloud mining contract, no matter how lucrative it may appear. If you really want crypto that bad look into building your own rigs (GPU prices are still massively overinflated for the time being) or just buy it outright. I know the KYC and exchange regulations can be frustrating, so better yet purchase BTC locally if you have the option.