- Editor Rating
- Rated 1.5 stars
- Bitcoin Cloud Services
- Reviewed by:
- Published on:
- Last modified:
- Potential ReturnsEditor: 28%
- TransparencyEditor: 35%
- OriginalityEditor: 36%
- Follow-upEditor: 20%
Bitcoin Cloud Services was founded at the start of this year, and provides customers with Bitcoin Cloud Mining contract as the company name implies. Contracts are sold for a fixed amount per GH/s and cover a period of five years. In return, customers receive a variable daily payout depending on their proportional contribution to the total Bitcoin network computational power.
Update June 9, 2015: The details in this review have not been updated recently, but be aware that Bitcoin Cloud Services was founded by a known scammer and that the service appears to have stopped paying out as of June 7, 2015. A full fraud risk assessment can be found here.
As customers pay for their contracts with Bitcoin, it would only make sense to enter in a contract that returns more coins than the number of coins invested. This could be interesting for investors who expect limited growth in the total network hashrate. At the same time, investors should benefit from carrying credit risk on Bitcoin Cloud Services due to the upfront payment for the full rental period.
Whether this product is really interesting depends on whether the price is fair. Given the inherent credit risk, this means the product should be sold at a discount even if the network hashrate grows exactly as expected. Since the contract covers a finite period of five years, it is possible to extrapolate the current growth of the Bitcoin network hashrate and determine how many coins would normally be mined over the lifetime of the contract. This is done by taking the historic development of the network hashrate over the past year as below.
Three trend lines have been added. “Trend-L “and “trend-E” represent a pure linear and a pure exponential trend respectively. It can be observed that the hashrate tends to follow an exponential trend. The last line, “trend-I”, represents the “real” trend and is used to extrapolate future mining revenues. This yields the following result for a 1000 GH/s contract:
So the customer will get almost two Bitcoins in return for a 1.5 Bitcoin investment. This corresponds to a profit of 32 percent in total, or a little less than six percent annually. It should, however, be noted that more than 99% of the Bitcoin mined will be generated in the first two years due to the (exponentially) increasing hashrate. Effectively, it should thus be seen as a two-year contract with an annual return of 15 percent.
But in order to determine whether this is a fair return it is also required to make an assumption about the included credit risk. For start-up companies in general a default rate of 30 to 40 percent is not uncommon. The loss given default is also expected to be high, as the value of the inventory of a Cloud Mining company decreases as fast as the network hashrate increases. This means the risk/reward ratio will be well below 1:2, which is roughly the minimum for most investors.
Whatever the final outcome may be, Bitcoin Cloud Services did not attempt to disclose various scenarios and risks themselves. Only the costs are sufficiently transparent, as everything is included in the selling price.