Community
Education
ENG
Blog  /  Capital raising  /  What is mining as a service and how can it benefit from tokenization?
What is mining as a service and how can it benefit from tokenization?
#Capital raising

What is mining as a service and how can it benefit from tokenization?

Learn the pros and cons of cloud mining and how can tokenization help it.

Mining based on the POW protocol is losing its popularity. Undoubtedly, the first way to achieve consensus, devised by Satoshi Nakamoto, is worthy of mention and respect, but it wastes too much energy. A single device on ASIC chips consumes 2-3.2 kWh and costs $5-15 thousand, noted in BitRiver.

The outdated POW (Proof of Work) was replaced by POS, a protocol of proof of ownership, better known as staking (Proof of Stake). It solved the problem of large-scale electricity consumption by mining farms. However, not all cryptocurrencies have switched to a new protocol. Some continue to work on POW; the most striking example is Bitcoin. The second most capitalized DeFi system, Ethereum, has not yet given up on video mining too.

Again, there are two challenges: costly equipment and extensive electricity tariffs, which burn the net profit from mining every day. Data mining as a service is designed to solve this problem.

Crypto mining as a service means buying computing power, which is used for mining coins such as bitcoin and litecoin. After the coins are mined, you can think about exchanging them for fiat or other cryptocurrencies or waiting for Bitcoin to soar to the moon.

What is cloud mining, its advantages, and its drawbacks?

The cloud mining model is quite simple. You have to rent mining equipment, pay a fixed price, which includes maintaining the capacity, and get a reward in cryptocurrency according to the equipment’s capacity. It means that you buy hashrate, not the equipment itself.

What are the benefits of this kind of mining?

Indeed, process mining as a service has its advantages:

  • No equipment purchase costs. You buy only a tariff plan, the cost of which depends on the computing power used.
  • No downtime: the service provider maintains all the equipment and software needed for mining.
  • You can choose how long you want to mine and turn the equipment off at any time. For the long term, you can buy contracts to fix the exchange rate, which guarantees your profit.

Сrypto mining as a service has some drawbacks:

  • Cloud mining companies rely on external sources for equipment and facilities maintenance. Because of this, you need to check the information thoroughly before buying the services.
  • Cryptocurrency is a highly volatile instrument, which makes it difficult to achieve stable income indicators. Even if the service provider promises a guaranteed income, at one point, that promise could collapse, as well as quotations.
  • Ordering a tariff from a service provider, the user often can’t choose the algorithm. You will be forced to use the mining that a company will choose for you. In this case, even if you will extract coins you are interested in, due to the high level of complexity, there is no guarantee that you will ever really see these coins in your wallet.
  • Cloud mining as a service may shut unexpectedly. At the same time, many suppliers offering high-return investment options may not be real.
cloud mining as a service

Uneasy fate of cloud mining

Cloud mining in 2017-2018 was highly discredited due to a large amount of fraud. Many services worked as a Ponzi scheme, paying older participants at the expense of new members’ investments. 

In addition, another significant drawback is legal contract conditions, which protect the service provider in every way. Since the revenue from mining accumulates in BTC, and the service fee is paid in fiat (monetary equivalent), in case of a Bitcoin price drop, the income may not be enough to cover the service.

Here’s an exact quote from Genesis Mining:

«In case the contract becomes unprofitable (i.e. the payment cannot cover the service fee), the total daily payment will be zero. After that, the contract will continue mining for 60 days… If the contract does not return to profitability, it will be terminated…»

Not sure where to start and how much will it cost?

Consult with the Stobox expert

Jason Jones
Jason Jones
Head of Sales
SCHEDULE CALL Schedule a call

On the other hand, if the Bitcoin price goes to the moon, the mining complexity also tends to increase, making your mining less profitable. To sum up, in both cases, you are probably better off just buying and keeping Bitcoins, either losing less or learning more.

On the one hand, data mining as a service has advantages. Unlike classical mining, when the equipment needs to be bought by the owner, cloud mining provides special cloud services that accumulate power in their data centers. On the other hand, drawbacks include high volatility, specific contract terms, and low trust in cloud mining services.

A situation on the market requires a financial proxy both for the client renting equipment and the renting business. Fortunately, the realm of decentralized finance offers a versatile solution for both parties: tokenization.

Tokenization as solution for mining-as-a-service challenges

Tokenization is the process of ensuring asset rights are transferred to the blockchain. Different corporate assets can be tokenized in both complete and partial tokenization processes. As a result, the company creates security tokens that are governed as securities by important international authorities. Each token represents a certain share of the company’s assets and grants the holder of that token a given set of rights, such as the right to a share of the company’s operating earnings.

Tokenization benefits for a mining equipment provider include an opportunity to attract retail and risk-hungry investors. Additionally, the possibility to trade your company’s shares during an STO (Security Token Offering) will open a new revenue source that will keep a company afloat during the crypto winter when selling a minted currency is not as beneficial.

Related: Current mining challenges and ways to overcome them

Final word

Although cryptocurrency mining is still a lucrative industry, many businesses are having trouble selecting the right jurisdiction, buying equipment, and raising money. To continue to be lucrative, mining firms must continually modernize and enhance their machinery and facilities. Without approaching banks and individual investors directly, tokenization can assist in raising the required capital. A legitimate and relatively quick method for mining businesses to attract new investors is the creation of an STO. Sign up for a free 30-minute consultation with our specialists to learn more about tokenization.

Share this post if you like it!
Join Stobox Community
Follow us on social networks, learn, share insights, and become a part of the Community