Cryptocurrency Cloud Mining Scams

Cryptocurrency coins are created through a process called ‘mining’. Miners receive the coins as a reward for completing 'blocks' of verified transactions, which are added to the blockchain. These coins are then traded in the crypto market with the aim of earning a profit.

Mining crypto coins is prohibitive for most people as it is highly resource-intensive. A cryptocurrency mining rig requires a GPU (graphics processing unit) or an application-specific integrated circuit (ASIC). This equipment can be very expensive and a mining rig will also consume tremendous quantities of electricity which significantly adds to the cost.

To make cloud mining affordable to individuals, the concept of ‘cloud mining’ was created. According to Dummies.com:

Cloud mining operations are mining farms — data centers dedicated to mining — that sell or lease hashing power to cryptocurrency miners. The essence of the service is that a third-party hosts mining equipment and provides access to the rewards associated with the equipment.

Thus, several individuals can make an investment to mine crypto coins using shared equipment. Each miner will get a share of the mined coins as per their investment.

Investors might never actually see the mining equipment in operation as the companies are generally located in countries like Armenia and China. Such a set-up makes it incredibly easy to create fake cryptocurrency cloud mining companies.

Signs of a Cryptocurrency Cloud Mining Scam

It can often be difficult to spot a cryptocurrency cloud mining scam due to the reasons mentioned above. Nevertheless, there are some telltale signs that can help you identify a scam. Crypto cloud mining scams usually display the common warning signals associated with Ponzi or Pyramid schemes:

• Unclear or Missing Company Information: Fake company information might be shared to create an illusion of authenticity. There might be no names mentioned of anyone associated with the company. Scammers also commonly claim that their company is registered in the UK. However, this means next to nothing as registering a company in the UK from any part of the world is as easy as paying £12 and waiting 24 hours.
  
  
• Unsustainable Returns: As demonstrated in this video by Mike Winnet, mining cryptocurrencies is not guaranteed to be a lucrative pursuit even if you have your own mining rig. Investing in cloud mining means that your profits fall even further as you need to pay the company a commission. Scammers promise impossibly high returns such as 1% per day or 40% per week that are simply not achievable in real life.
  
  
• Guaranteed Quick Profits: Cloud mining contracts offered by legitimate companies can be long-term commitments with high risks involved. Crypto markets are highly volatile and cryptocurrencies can lose their value within days. In the world of scams, however, risks are unheard of and investments supposedly double within weeks. 
  
  
• Referral Commissions: Fake cloud mining companies do not really have any mining equipment. They depend on the deposits made by new investors to pay off the investors who joined early. As a result, there is a heavy emphasis on recruiting new investors with commissions being awarded for roping in more people to invest in the fraudulent scheme.

Take a look below at the ‘Investment Plans’ of a fake cloud mining company promising quick, unsustainable returns like 16% in 26 hours:

The same company also has a ‘Partnership Program’ that clearly resembles a pyramid scheme with three tiers of referral bonuses:

I Fell for a Cryptocurrency Cloud Mining Scam, Now What?

Sadly, there is not much that can be done if you have made payments using cryptocurrency. Don’t fall for fake ‘recovery agents’ or ‘hackers’ who claim that they can recover lost crypto. Read our article Can Cryptocurrency Be Recovered From Scammers? to know more.

For other payment methods, follow our guide How to Get Your Money Back From a Scam.