Meaning of Cloud Mining and the principle of its work
Since the whole industry is connected with the cryptocurrency blockchain, and this is a rather complex and high-tech process, it will be so problematic, although possible, for a person without an engineering education to understand all aspects of this kind of work on their own.
We will try to take you a shortcut and bring you to a general understanding of the process.
Let's start
The first thing you need to know is the meaning of Bitcoin, Blockchain and other cryptocurrencies in general.
There is a whole subsequence here, because in order to understand the meaning of bitcoin, firstly you must learn what cryptocurrencies are.
- Just in brief, a crypto is its digital version, which is decentralised.
- This means, that digital currency has no single payment system or regulatory "body".
- The main basis for cryptocurrencies is the blockchain technology.
- This word is translated from English as "block chain". The name reflects on what the blockchain is quite accurately.
Blockchain is compared to a necklace in which each bead (block) is a record of an action, and the chain cannot be broken. So, its concept is an unbreakable digital record of actions. Each block is a certain numerical code (not just digital), and any subsequent block contains the necessary information from the previous one. Thus, it should be considered not only as a base, but also as a way to encrypt and transmit data. This technology is actively used to transfer cryptocurrencies all over the world.
If you send it using blockchain, thousands of computers around the world will confirm and save all the information about the transaction. The process of sending a transfer takes minutes. Blockchain money cannot be lost or forged.
There are no intermediaries, and the accuracy of the calculations is guaranteed by the mathematical precision of the technology. Blockchain can be used not only for just crypto transactions. It is used in the banking industry, in cybersecurity identification. Basically, it's just a technology for organizing all sorts of data. Besides, the all types of cryptocurrencies can be roughly divided into three types, such as Bitcoins, Altcoins, Tokens.
Bitcoin
BTCs cannot be touched. They are not banknotes or coins. They also have little in common with electronic money of the bank cards.
Bitcoins are digital money with their own transaction guidelines that cannot be violated. They work on the so-called blockchain, which has just been compared to a big ledger containing all the records of what is happening with the cryptocurrency. As a result, each owner of bitcoin has an independent but identical copy of such a book. Therefore, the records in all these books and their copies are true and identical. Neither banks, nor the government and the cryptocurrency service creator can forge these records.
In another way, there is no single control in the blockchain, the system is controlled by many participants of the process. It is built on mathematical calculations that protect the digital currency from any counterfeiting or hacking. Bitcoins in turn are generated by a network of miners, which can be both large companies whose shares are traded on the stock exchange and individuals who mine at home or in the office.
While the limit of traditional currencies is unlimited, bitcoins cannot be more than 21 million. Most of them have already been generated and are in circulation. Some coins are lost forever, and, to be precise, it is about 30% of the total number of earned bitcoins (owners of some BTC-wallets have forgotten their password). This money is "born" by miners ("miners"). Mining is the process of generating cryptocurrency using computing equipment. Miners are rewarded for mining bitcoins.
The process of cryptocurrency mining
The only way to extract cryptocurrencies is mining, which is based on solving mathematical problems by computers.
The essence of mining is that computers in many different locations around the world perform calculations and thereby generate new blocks of the blockchain. The system is compared to a big book that contains all the records of what is happening with crypto.
This is the platform on which any cryptocurrency is based. Roughly speaking, the work of miners is to choose one hash (the result of some mathematical transformation of the block) from the previous block from millions of combinations so that another block can be "attached" to it.
At the same time, many miners compete for the reward. The one who did it first gets the reward. Mining of the most popular cryptocurrency — bitcoin — is no longer possible without special, expensive equipment. In the early to mid-noughties, even a home computer with a powerful video card was enough for this, but now industrial computing power is required.
The fact is that there cannot be more than 21 million bitcoins. Most of them have already been generated, and each new bitcoin requires more and more power. The miner's business is essentially to process large amounts of electricity in exchange for bitcoins. Cloud mining Cloud mining is a form of passive cryptocurrency mining using someone else's hardware.
The user rents computing power for a certain fee in a remote data center, and in return receives a portion of the mined coins. The final profit depends on the set of services and options offered by the cloud mining company.
The principe of Cloud Mining work
A company that opens a remote data center for cloud mining must go through several important stages: Purchase of mining equipment: video cards, processors, cooling systems, power supplies, etc. Creation of crypto farms. Each farm can consist of several interconnected units of mining equipment, and its work is controlled by special software. Only experienced specialists can make the correct installation. Launch of digital currency mining.
The company can offer mining of different types of coins, depending on the features of the farm. Creation of a website through which the company offers to rent the capacity of its farms. Usually, customers are offered several contracts to choose from. Their cost depends on the hashrate and mining speed. Miners buy a contract to rent capacity.
In return, they receive a percentage of the mined coins. The more expensive the rate, the higher the profitability. The company receives income in the form of commissions for renting out capacities. Part of the amount goes to the maintenance of the farm and staff salaries.
The rest of the money is net profit. As a result, everyone remains in the black. Miners receive their digital currency, and cloud services receive profit from renting out capacities.