DEFINITION of 'Cloud Mining'

Cloud mining offers a mechanism to mine a cryptocurrency such as bitcoin without having to install all the hardware and related paraphernalia. There are companies that allow people to open an account with them and participate in the process of cloud mining for a basic cost. However, the process makes mining accessible to a wider number of people across distant locations.

The process of cloud mining makes you a participant in a mining pool and involves buying a certain amount of "hash power." Each participant has a rightful share of the profits in proportion to the allotted hashing power. Since cloud mining is done via cloud, it negates issues such maintenance of equipment or energy costs.

BREAKING DOWN 'Cloud Mining'

Cloud mining facilitates the process of mining via cloud. Cloud computing is one of the fastest-growing trends wherein computing services such as servers, databases, software, and storage are accessed via the cloud (or simply over the Internet). Such companies charge on a usage basis just like we pay for our water or electricity usage.

On the other hand, mining is the backbone of the cryptocurrency model such as bitcoin. It is the process by which transactions are verified and added to the public ledger, known as the blockchain. It is also the means through which new coins are released. The combination of the two opens the world of mining to people at distant locations with little or no technical knowledge and hardware infrastructure. Broadly, there are three types of cloud mining models: a) Hosted Mining, b) Virtual Host Mining and c) Leased Hashing Power

The process is very simple and only requires a person to open an account with a cloud mining company via its website and select certain things like the contract period and hashing power. However, the presence of fraudulent companies or imposters cannot be refuted, and thus one must be sure of the cloud mining company.

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