In the early days of mining anyone with a modern PC could run a version of the blockchain and verify transactions. As the popularity of networks grew, however, so did the demands the network placed upon the machines mining. That's lead to huge mining companies who run thousands of machines to reap the rewards mining gives. But what about those solo miners? That's something mining contracts hopes to solve.
We explore more below.
What is a mining contract?
A mining contract is for those who want to reap the benefits of solving very complicated math problems without investing or running the necessary server hardware to do so.
If you're new mining, we've got a page that explains how it works, here. Guide to mining.
Mining is a very energy intensive endeavor that might prove challenging for the less technical savvy to set up. Two of the biggest networks, Bitcoin and Ethereum rely on the proof of work algorithm which most mining contracts are used for. As a network becomes more difficult, the difficulty rating, an automatic measure designed to prevent transactions from being verified too quickly, goes up, meaning more computing power is required, hence the giant mining pools that have no appeared.
Read more about mining pools, here.
For those looking to get in on reaping the reward by mining blockchain blocks, your answer is in mining contracts.
How does a mining contract work?
A mining contract is an agreement where a customer pays for the output of mining power from hardware placed in remote data centers.
They would pay a certain amount upfront to a server company with the hopes of seeing their money return in a few months or however long it takes to answer enough complicated math questions to break even. It's like investing in mining.
You no longer have to man your servers, deal with excess heat or the loud whirring of fans to keep everything cool. For the right price, that’s now someone else’s problem, granted there are maintenance and service fees that are associated with this practice to consider. Otherwise, you can be making money while you sleep!
To borrow a line from Admiral Ackbar, it’s a trap! At least there have been a number of scams where it’s been difficult for customers to get their money back.
If you’re a purist, you won’t get to build your own machine and geek out on building something with your hands. If you’re a business person, you’ll potentially be making slightly less than if you built and maintained a rig on your own with added risk—again, there are a lot of scams out there.
There’s also the volatility associated with the price of certain coins, you could sign up early for a mining contract and a few weeks later, you’re paying for tulips that no one values.
Plus, you’ll want to consider the return on investment. If you successfully mined a bitcoin block back in 2009, you’d receive 50 bitcoins, granted the price was very low. Now, if you successfully mine a bitcoin block today, you can expect to receive 12.5 bitcoins, though that number is expected to go down to 6.25 by 2020.
There’s still some profits to be earned by helping carry out transactions, though you’ll want to consider what makes most cents and sense for you.
Mining contracts are a fix to networks that rely on giant mining conglomerates to do the bulk of the verification process. Bitcoin and Ethereum are the two largest currently relying on the proof of work consensus mechanism. Ethereum is currently planning to move to a Proof of stake which could see the popularity of mining contracts decline.