<p>Although the particulars involve bitcoin, the central issue in this question is more of a Money SE question. You're being asked to invest in [industry], you just have to put up the capital, and [people] will buy [stuff] with your money which will create income because of [reason]. In this case, apparently industry=bitcoin mining, people=miners, stuff=mining rigs, reason=mining reward.</p>
<p>Two important concepts in investing are alpha and beta. Beta is a measure of risk. Higher beta will generally mean higher returns, as people will accept more risk if they're getting more of a reward. Alpha refers to when one is receiving returns above what the beta of your investment warrants.</p>
<p>Supposed alpha is a big red flag that something is a scam. There are cases where it's possible to get alpha, but it requires special skills or resources etc., and people don't just hand it out to anyone. If the person you're talking to has found a way to generate alpha, sharing it with you is just handing you free money. Why would they do that for someone they just met on a discord server?</p>
<p>2% daily interest compounded over a year is 1277%. That is, if you put in $1000 and let it compound over a year, you'll have $13,770. That's a massive rate of return. That's either a huge alpha, or a huge beta. Investment scams sometimes are beta fraud, where something is sold as being low risk, but in reality the person running the scam is putting your money in very risky investments, and then if the investment tanks they tell you that's just the risk of investment. Mostly, though, they'll just take your money and run.</p>
<p>If someone is offering 20% yearly interest, it's quite possibly beta fraud (the investment does legitimately generate 20% yield, but it's a very risky investment), but at 1277% it's almost certainly pure scam. If you invest your money, you'll probably get back statements showing your money steadily growing, and be pressured to put more in (after all, if you had more money invested, 2% of that would be a larger dollar amount), but if you ask to withdraw your money, there will be roadblock after roadblock until this person just disappears.</p>
<p>It's probably not even a Ponzi scheme; in a Ponzi scheme, early investors are allowed to withdraw their money to make the program look legitimate and entice more people to invest. But here, they're probably not planning on playing a long game. You're probably not able to bring in more investors, and 2%/day is a large interest rate to keep up for a significant amount of time; most Ponzi scheme run in around 20-40% (I think Madoff's was only 10%, but kept that up even in bear markets).</p>

CC BY-SA 4.0
2022-01-18T08:36:27.527Z
Thanks a lot ! This explanation about alpha and beta is really helpful to get a clear overview of the topic. I'll keep that in mind !
Baloo
CC BY-SA 4.0
2022-01-18T04:57:43.580Z
2022-01-18T04:57:43.580Z
Acccumulation
<p>The only legit place which you describe is probably Nicehash.</p>
<p>This is a market place where you can directly buy hash power (hash-rate of somebody else). I'm a hobby miner and for some time i would resell my hashing power in exchange for bitcoin on Nicehash (Reason why somebody would do this is simply mining Bitcoin is only really profitable on ASICs which are a big expense up front and a lot of risk). You can look into that, but my understanding is that usually people buy hash power on Nicehash to strengthen a network and/or to get the coins they mine. The price is sometimes higher to buy the hashing power than you get in coin. So your profitability is not a fixed rate (in crypto no price or return on investment is fixed). And nobody will sell you their hash power if it is a lot below the value of direct mining.</p>
<p>I want to stress that what @Murch said is exactly right. If somebody needs to do this for you it's most likely a scam. There are a lot of scams in crypto be warned. Cloud mining is extremely risky because you trust somebody to run your money printing machine for you, often without being able to verify anything. Also beware crypto is an up and down, everybody who tells you otherwise is not to be trusted.</p>

CC BY-SA 4.0
2022-01-18T08:27:03.473Z
Thanks for your time writing this answer, this is very instructive! :)
Baloo
CC BY-SA 4.0
2022-01-18T10:09:45.070Z
sure thing please consider up voting answers you think are helpful, so people can see that it is worth reading ;-D
AnafiFlyer
CC BY-SA 4.0
2022-01-18T16:44:40.710Z
*people buy hash power ... to strengthen a network* - or if they're from the flip side, they can buy hash power to execute a 51% attack on a weak network
Caius Jard
CC BY-SA 4.0
2022-01-17T20:50:13.247Z
2022-01-17T20:59:51.650Z
2022-01-17T20:59:51.650Z
AnafiFlyer
<p>&quot;Buying hash rate&quot; is a synonym for a concept called <em>cloud mining</em>. In proof of work-based consensus systems, mining refers to a process of expending computational power to secure the network. As the integral computation is performing a cryptographic hash function, this is also referred to as <em>hashing</em>, and the amount of computation you can perform as your <em>hashrate</em>. To participate in mining, people acquire mining hardware, situate it in the vicinity of cheap power sources, and usually join mining pools to smooth out revenue. A large part of the global hashrate is contributed by specialized businesses that focus on exactly that.</p>
<p>Cloud mining promises to do all the heavy lifting for the miner: instead of acquiring hardware, setting it up, and sourcing power, you only provide investment capital but then get a steady stream of income.</p>
<blockquote>
<p>The daily interest rate he told me about is 2%. […] This sounds too beautiful to be so profitable.</p>
</blockquote>
<p>Your instinct is exactly right. If their business were that dead-sure, they would get an actual credit or investment at a much lower interest rate, take on the risk to build out a mining facility themselves, and make all that much more money.</p>
<p>So, why would they sell to retail investors instead? Great question. Because <a href="https://bitcointalk.org/index.php?topic=878387.0" rel="noreferrer">more often than not</a> they're not actually running a mining business but a Ponzi scheme. And in the cases where they are legit, more often than not, it's still a terrible investment. Someone promising a 2% daily interest is definitely a huge red flag implying a Ponzi.</p>

CC BY-SA 4.0
2022-01-17T15:05:01.620Z
Thanks a lot for this great answer ! :)
Baloo
CC BY-SA 4.0
2022-01-18T21:01:41.567Z
Note that "vicinity of cheap power sources" must be evaluated based on marginal cost.  In areas using electric heating, the mining hardware produces heat with the same efficiency as a resistive purpose-built heater, so the marginal cost is only running a fan to move the heat, and the electric consumption of the computing system bears no cost since it is 1:1 replacement of electric consumption of purpose-built electric heaters.
Ben Voigt
CC BY-SA 4.0
2022-01-19T15:08:32.827Z
@BenVoigt "the mining hardware produces heat with the same efficiency as a resistive purpose-built heater" but no where near as efficient as a heat pump.  Also, there's summer.
JimmyJames
CC BY-SA 4.0
2022-01-19T16:09:27.007Z
@JimmyJames: Right, that's why the caveat "locations using electric heating".  Some locations are only good mining sites during the winter, when they otherwise use electric heat (particularly good where heat pumps fail because the outdoor temperature is too low to effectively extract heat from).  But even where comparing to a heat pump, the marginal cost is still less than the total electricity cost.
Ben Voigt
CC BY-SA 4.0
2022-01-19T17:17:35.417Z
@BenVoigt Maybe if you are mining at home.  My understanding is that most of the mining in question is happening in facilities that exist for primarily or solely for this purpose.  More likely they are exhausting the heat away from the equipment i.e. to the outside.
JimmyJames
CC BY-SA 4.0
2022-01-19T18:18:02.193Z
I hear that mining at home is especially popular among people that either do heat with electrical heaters in the winter (e.g. in Finland), or that produce some energy themselves that they alternatively could sell back to the grid at about 4¢ per kWh. It's more palatable now that that the life-cycle of ASICs is getting longer.
Murch
CC BY-SA 4.0
2022-01-17T15:01:52.490Z
2022-01-17T15:01:52.490Z
Murch
<p>I'm sorry if this question may sounds like a newbie question (well, it is).</p>
<p><strong>Introduction</strong></p>
<p>I'm 23 years old and I would like to generate money with my money to eventually invest in stock market after some time. I was really interested in day trading, and I joined a discord server (Saphire) to gather some knowledge and experience from competent traders. After some time watching (I don't invest anything before I'm sure it's a good idea and before I know how to minimize risks), I discussed with someone who is a crypto trader. He talked to me about hash rate, and about how much it is profitable to buy hash rate (the platform used is xtradeclient). What I understood is the following: I don't have to buy gear such as graphic cards or similar to become part of the chain. I just put money in to contribute to things like fees, and then I get money back according to a fixed interest rate. The daily interest rate he told me about is 2%.</p>
<p><strong>Question</strong></p>
<p>After hours spent on the internet to know what &quot;buying hash rate&quot; is, I didn't find anything relevant. My first question is then what is hash rate, how to buy it, and what it means to buy it?</p>
<p>My second question is what interest rate can I expect from such an investment? And how risky is it? It seems like there is no risk, just getting back my money with interest. This sounds too beautiful to be so profitable.</p>
<p>Finally, are there any taxes I should be aware of about this? (I'm in Belgium.)</p>

CC BY-SA 4.0
2022-01-17T13:51:19.867Z
It's almost certainly a  complete scam. Stay away from people offering get rich quick schemes
RedGrittyBrick
CC BY-SA 4.0
2022-01-17T13:54:09.323Z
Does this answer your question? [How to tell if a cryptocurrency exchange or trading platform is trustworthy?](https://bitcoin.stackexchange.com/questions/98743/how-to-tell-if-a-cryptocurrency-exchange-or-trading-platform-is-trustworthy)
RedGrittyBrick
CC BY-SA 4.0
2022-01-17T14:01:42.833Z
@RedGrittyBrick I don't think so. I'm not asking if a website or a trading platform is trustworthy, I'm asking about hash rate and "buying it". Furthermore, it looks not like a scam, because this person was not trying to make me invest into something.
Baloo
CC BY-SA 4.0
2022-01-17T14:37:53.657Z
Possible duplicate: https://bitcoin.stackexchange.com/a/41088/5406, https://bitcoin.stackexchange.com/q/52166/5406, https://bitcoin.stackexchange.com/q/95182/5406
Murch
CC BY-SA 4.0
2022-01-17T14:50:50.330Z
@Murch You are probably right, it seems that by "buying hash rate" he meant "cloud mining". Thanks, and sorry for the duplicate !
Baloo
CC BY-SA 4.0
2022-01-18T00:25:57.200Z
'Buying hash rate' (cloud mining) is pretty much *always* a scam. A 'daily interest rate of 2%' is the obvious red flag in this case.
chytrik
<hashpower><fraud><cloud-mining>
What is "buying hash rate" and how could it be profitable?
Baloo
# What is "buying hash rate" and how could it be profitable?

(Asked by: username_0 on 2022-01-17)

I'm sorry if this question may sounds like a newbie question (well, it is).

**Introduction**

I'm 23 years old and I would like to generate money with my money to eventually invest in stock market after some time. I was really interested in day trading, and I joined a discord server (Saphire) to gather some knowledge and experience from competent traders. After some time watching (I don't invest anything before I'm sure it's a good idea and before I know how to minimize risks), I discussed with someone who is a crypto trader. He talked to me about hash rate, and about how much it is profitable to buy hash rate (the platform used is xtradeclient). What I understood is the following: I don't have to buy gear such as graphic cards or similar to become part of the chain. I just put money in to contribute to things like fees, and then I get money back according to a fixed interest rate. The daily interest rate he told me about is 2%.

**Question**

After hours spent on the internet to know what "buying hash rate" is, I didn't find anything relevant. My first question is then what is hash rate, how to buy it, and what it means to buy it?

My second question is what interest rate can I expect from such an investment? And how risky is it? It seems like there is no risk, just getting back my money with interest. This sounds too beautiful to be so profitable.

Finally, are there any taxes I should be aware of about this? (I'm in Belgium.)

**Tags:** hashpower, fraud, cloud-mining

> **Comments:**
> **username_1**: It's almost certainly a  complete scam. Stay away from people offering get rich quick schemes  
> **username_1**: Does this answer your question? [How to tell if a cryptocurrency exchange or trading platform is trustworthy?](https://bitcoin.stackexchange.com/questions/98743/how-to-tell-if-a-cryptocurrency-exchange-or-trading-platform-is-trustworthy)  
> **username_0**: @username_1 I don't think so. I'm not asking if a website or a trading platform is trustworthy, I'm asking about hash rate and "buying it". Furthermore, it looks not like a scam, because this person was not trying to make me invest into something.  
> **username_2**: Possible duplicate: https://bitcoin.stackexchange.com/a/41088/5406, https://bitcoin.stackexchange.com/q/52166/5406, https://bitcoin.stackexchange.com/q/95182/5406  
> **username_0**: @username_2 You are probably right, it seems that by "buying hash rate" he meant "cloud mining". Thanks, and sorry for the duplicate !  
> **username_3**: 'Buying hash rate' (cloud mining) is pretty much *always* a scam. A 'daily interest rate of 2%' is the obvious red flag in this case.  

---

## 3 answers

### Answer by username_2 on 2022-01-17. Score: 20 | Accepted answer

"Buying hash rate" is a synonym for a concept called *cloud mining*. In proof of work-based consensus systems, mining refers to a process of expending computational power to secure the network. As the integral computation is performing a cryptographic hash function, this is also referred to as *hashing*, and the amount of computation you can perform as your *hashrate*. To participate in mining, people acquire mining hardware, situate it in the vicinity of cheap power sources, and usually join mining pools to smooth out revenue. A large part of the global hashrate is contributed by specialized businesses that focus on exactly that.

Cloud mining promises to do all the heavy lifting for the miner: instead of acquiring hardware, setting it up, and sourcing power, you only provide investment capital but then get a steady stream of income.

> The daily interest rate he told me about is 2%. […] This sounds too beautiful to be so profitable.

Your instinct is exactly right. If their business were that dead-sure, they would get an actual credit or investment at a much lower interest rate, take on the risk to build out a mining facility themselves, and make all that much more money.

So, why would they sell to retail investors instead? Great question. Because [more often than not](https://bitcointalk.org/index.php?topic=878387.0) they're not actually running a mining business but a Ponzi scheme. And in the cases where they are legit, more often than not, it's still a terrible investment. Someone promising a 2% daily interest is definitely a huge red flag implying a Ponzi.

> **Comments:**
> **username_0**: Thanks a lot for this great answer ! :)  
> **username_7**: Note that "vicinity of cheap power sources" must be evaluated based on marginal cost.  In areas using electric heating, the mining hardware produces heat with the same efficiency as a resistive purpose-built heater, so the marginal cost is only running a fan to move the heat, and the electric consumption of the computing system bears no cost since it is 1:1 replacement of electric consumption of purpose-built electric heaters.  
> **username_8**: @username_7 "the mining hardware produces heat with the same efficiency as a resistive purpose-built heater" but no where near as efficient as a heat pump.  Also, there's summer.  
> **username_7**: @username_8: Right, that's why the caveat "locations using electric heating".  Some locations are only good mining sites during the winter, when they otherwise use electric heat (particularly good where heat pumps fail because the outdoor temperature is too low to effectively extract heat from).  But even where comparing to a heat pump, the marginal cost is still less than the total electricity cost.  
> **username_8**: @username_7 Maybe if you are mining at home.  My understanding is that most of the mining in question is happening in facilities that exist for primarily or solely for this purpose.  More likely they are exhausting the heat away from the equipment i.e. to the outside.  
> **username_2**: I hear that mining at home is especially popular among people that either do heat with electrical heaters in the winter (e.g. in Finland), or that produce some energy themselves that they alternatively could sell back to the grid at about 4¢ per kWh. It's more palatable now that that the life-cycle of ASICs is getting longer.  

---

### Answer by username_4 on 2022-01-18. Score: 6

Although the particulars involve bitcoin, the central issue in this question is more of a Money SE question. You're being asked to invest in [industry], you just have to put up the capital, and [people] will buy [stuff] with your money which will create income because of [reason]. In this case, apparently industry=bitcoin mining, people=miners, stuff=mining rigs, reason=mining reward.

Two important concepts in investing are alpha and beta. Beta is a measure of risk. Higher beta will generally mean higher returns, as people will accept more risk if they're getting more of a reward. Alpha refers to when one is receiving returns above what the beta of your investment warrants.

Supposed alpha is a big red flag that something is a scam. There are cases where it's possible to get alpha, but it requires special skills or resources etc., and people don't just hand it out to anyone. If the person you're talking to has found a way to generate alpha, sharing it with you is just handing you free money. Why would they do that for someone they just met on a discord server?

2% daily interest compounded over a year is 1277%. That is, if you put in $1000 and let it compound over a year, you'll have $13,770. That's a massive rate of return. That's either a huge alpha, or a huge beta. Investment scams sometimes are beta fraud, where something is sold as being low risk, but in reality the person running the scam is putting your money in very risky investments, and then if the investment tanks they tell you that's just the risk of investment. Mostly, though, they'll just take your money and run.

If someone is offering 20% yearly interest, it's quite possibly beta fraud (the investment does legitimately generate 20% yield, but it's a very risky investment), but at 1277% it's almost certainly pure scam. If you invest your money, you'll probably get back statements showing your money steadily growing, and be pressured to put more in (after all, if you had more money invested, 2% of that would be a larger dollar amount), but if you ask to withdraw your money, there will be roadblock after roadblock until this person just disappears.

It's probably not even a Ponzi scheme; in a Ponzi scheme, early investors are allowed to withdraw their money to make the program look legitimate and entice more people to invest. But here, they're probably not planning on playing a long game. You're probably not able to bring in more investors, and 2%/day is a large interest rate to keep up for a significant amount of time; most Ponzi scheme run in around 20-40% (I think Madoff's was only 10%, but kept that up even in bear markets).

> **Comments:**
> **username_0**: Thanks a lot ! This explanation about alpha and beta is really helpful to get a clear overview of the topic. I'll keep that in mind !  

---

### Answer by username_5 on 2022-01-17. Score: 2

The only legit place which you describe is probably Nicehash.

This is a market place where you can directly buy hash power (hash-rate of somebody else). I'm a hobby miner and for some time i would resell my hashing power in exchange for bitcoin on Nicehash (Reason why somebody would do this is simply mining Bitcoin is only really profitable on ASICs which are a big expense up front and a lot of risk). You can look into that, but my understanding is that usually people buy hash power on Nicehash to strengthen a network and/or to get the coins they mine. The price is sometimes higher to buy the hashing power than you get in coin. So your profitability is not a fixed rate (in crypto no price or return on investment is fixed). And nobody will sell you their hash power if it is a lot below the value of direct mining.

I want to stress that what @username_2 said is exactly right. If somebody needs to do this for you it's most likely a scam. There are a lot of scams in crypto be warned. Cloud mining is extremely risky because you trust somebody to run your money printing machine for you, often without being able to verify anything. Also beware crypto is an up and down, everybody who tells you otherwise is not to be trusted.

> **Comments:**
> **username_0**: Thanks for your time writing this answer, this is very instructive! :)  
> **username_5**: sure thing please consider up voting answers you think are helpful, so people can see that it is worth reading ;-D  
> **username_6**: *people buy hash power ... to strengthen a network* - or if they're from the flip side, they can buy hash power to execute a 51% attack on a weak network  

---

