Gavin Andresen, perhaps the most respected and well-known Bitcoin developer today, made a rather interesting statement about Bitcoin cloud mining the other day, and the strange thing is that it went basically unnoticed by the community as a whole. Redditor /u/zapt0 asked the /r/Bitcoin community about mining contracts and whether or not they could be solid investments, and most of the responses were rather negative when discussion came to the long term prospects of earning money through one of these cloud mining contracts. Gavin echoed the general sentiment found in other responses, but he also took his view on the subject to the next level by stating, “I suspect many of [the Bitcoin cloud mining companies] will turn out to be Ponzi schemes.”
Although many will find this kind of statement from Gavin to be nothing more than hyperbole, the reality is these kinds of Ponzi schemes wouldn’t be out of the ordinary in the Bitcoin ecosystem. There have been plenty of scams and frauds in the Bitcoin community over the years, so it wouldn’t be crazy to think that these kinds of bad actors could also find their way into the Bitcoin cloud mining space. There have been fraudulent investment schemes promoted on the Bitcointalk forums, Bitcoin wallet providers who have gone missing overnight, and ASIC mining hardware manufacturers who seem to have no intention of shipping their products on time, so finding scam artists in the Bitcoin cloud mining marketplace wouldn’t be much of a surprise.
CEX.IO is the trading platform that brought cloud mining to the masses through their GHS asset on their cryptocurrency exchange. 1 GHS is equal to 1 GH/s on the GHash.IO mining pool, and the popularity of this simple mining process is what ultimately led to the 51% attack concerns related to the large pool of miners. Plenty of people in the Bitcoin community have denounced GHash.IO due to the large share of the Bitcoin network hashrate that they were able to attain in early 2014, but these kinds of cloud mining companies should not be blamed for simply reacting to the economic incentives created by the Bitcoin protocol. Bitcoin is supposed to be a trustless ecosystem, which means changes need to be made at the protocol level rather than in the minds of people who we’re being forced to trust with the integrity of the network.
The requirement of trust is something that is being slowly removed from the Bitcoin ecosystem as a whole, and companies who continue to force their customers to trust them will find it difficult to succeed in this highly competitive market. The best way to avoid any kind of fraud or scam in Bitcoin is to remember that you shouldn’t need to trust someone else with your money. When you’re looking for a place to store your bitcoins, try not to use a service that takes control of your private keys. At the end of the day, whoever holds the private key to a Bitcoin address is the one who actually owns the bitcoins. When it comes to Bitcoin mining, it may be a better idea to simply sit on the sidelines. Trusting a hardware manufacturer to deliver your equipment on time has proven to be a rather unwise decision. Keep in mind that one of the most incredible features of Bitcoin is that it removes the need for trusted third parties in many different areas of finance.
This post was last modified on (Eastern Time): 14/08/2014 17:59