The best part about cloud mining is that it allows you to mine cryptocurrencies without the need to purchase a mining hardware. However, there are a few risks associated with cloud mining. What are they and how can you minimize them? Here’s a quick insight.
1. Make Sure That It Is Not A ScamThe greater part of cloud mining facilities, the ones which you find on the internet, are basically ‘Ponzi’ schemes. In simple words, these are scam projects which involve fraudulent investment operations. Herein, the old investors are paid with the money funded by the new investors. After a certain point of time, this project ceases to exist- the cloud mining website is nowhere to be found. This simply implies that the service providers have either faced a major loss or have simply run away with your money. This is an unfortunate event and more so, if you have paid for the cloud services with a cryptocurrency such as Bitcoin or any other altcoin. There is no way in which you can recover your funds.Nevertheless, you can easily evade such a trap. Here are a few tips using which you can differentiate between a legit business from a fraudulent project.If there are no images or videos of the actual mining infrastructure on the website, it is an obvious sign that it may be a scam. If there is no separate section on the website which speaks about the company or its team, then there is plenty to be suspicious about. It is better not to pay in cryptocurrency as you will have no way left to recover the funds if things go astray. One must trust only those companies which have received positive reviews on open forums and offer a reasonable deal- neither more nor less. HashGains is exemplary in this regard. You can check out their website for more information.
2. Difficulty In Mining May IncreaseIt is not possible to predict how much return you will get on your cloud mining investment. Most of the cloud mining contracts provide a fixed computing power, but one cannot really foretell whether the mining difficulty will increase or not in the due course of time. Thus, the number of crypto coins that you mine may decrease with time. You must take into account this uncertainty before plunging headfirst into cloud mining. The best possible way to reduce this risk associated with the difference in mining difficulty is by choosing short-term contracts over the long-term ones. One more way to moderate such an effect is by mining different crypto coins. It is advisable not to put all your eggs in one basket.
3. Crypto Coins Are Extremely VolatileYou may have already discerned the fact that the crypto market is highly unstable. Admittedly, a cryptocurrency’s market capitalization may be divided or multiplied by a constituent of 2 in just a matter of few days. Thus, it denotes that your coin’s value may fall considerably in just a few hours. Acknowledging that the majority of cloud services provide direct returns for the currency that you have mined, it is sensible to diversify the assets you possess the moment you get hold of them. This may be done to reduce the short-term risks associated with volatility.
4. Altered ProtocolsIn case an exchange protocol which has been implemented by a community is declared ‘mining free’, then your cloud mining operation may be at risk. Given such a scenario, you must ensure that there isn’t going to be a notable adjustment in the exchange protocol throughout the course of the contract. Do bear in mind- such modifications may be rare occurrences; nonetheless, these are hypothetically possible and can lead to major damage.
5. Understand the Terms and Conditions of the ContractRead the terms and conditions of the contract carefully before you proceed to sign it. Some contracts are flexible while some are not. Some allow you to mine multiple cryptocurrencies while some stick to only one. Take into account the management costs as well as the electricity charges.
Conclusion
Cloud mining may or may not be a risky choice depending on your awareness of the same. After you have considered all the probable risks and done a market research on the same, you can very well go ahead with a cloud mining investment.
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