Cloud mining: what it is and the risks it carries
Cloud mining rents a provider's hardware to earn crypto, and the biggest risk is a provider that scams you or shuts down before paying. Payouts can shrink.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20264 min readFact-checked
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- A contract usually needs an upfront payment.
- You do not own the mining hardware you rent.
- Mining rewards are taxable as income when you receive them.
Mining is how some crypto networks create blocks, and miners compete to earn the coins that come with them. The chance of earning new coins depends on how much computing effort a miner puts in. Renting a provider's machines suits people who do not want to buy their own.
What is cloud mining?
Cloud mining means paying a company to mine crypto for you. The company owns the hardware, runs it and pays for the power. You typically do not see the machines or control how they run.
How does a cloud mining contract work?
A contract usually requires an upfront payment. The provider then credits you with hashrate, a share of its computing power, and pays out on a schedule.
What are the main risks?
Two things can go wrong: the provider and the mining market. If a company takes your payment and stops paying, you have little practical recourse.
- Provider scam: the company collects your money and stops paying.
- Falling payouts: as more miners join, the same hashrate earns less.
- Price drops: coins mined later can be worth far less.
- Fee changes: providers can often raise fees or end a deal early.
How is it different from mining yourself?
Cloud mining is not the same as owning a machine, and not the same as buying crypto. With your own hardware you control the setup and can sell it later.
Are cloud mining payouts taxable?
The IRS treats cryptocurrency as property, and mining rewards are generally taxable as ordinary income at their fair market value the day you receive them. If you sell the coins later for more, you may owe capital gains tax. Whether a failed contract gives you a deduction depends on your facts, so ask a tax professional.
Frequently asked questions
Yes. Renting mining hardware is legal, but federal agencies do not oversee most virtual currency cash markets, so providers are not supervised like banks.
Look for a real company address, a contract you can read before paying, and payment that does not start with sending crypto to an anonymous wallet. A promise that you cannot lose money is a warning sign.
Staking uses coins you already hold to help secure a proof-of-stake network. Cloud mining pays you for rented computing power, and the provider can fail.
Most say payments are final with no refund if payouts disappoint. If you paid by credit card, federal billing dispute rules may let you challenge the charge.
