More and more cloud mining investments are springing up from the ground. They promise high profits and little risk. We explain why virtually none of these offers are legal in August 2018 and how you can protect yourself.
In the past few days, two cases of cloud mining fraud have emerged: in Macau, Forger CCMS promised to build a cryptomining center in Hong Kong. In private rounds, investors were offered shares in this mining. The local press reported benevolently on the investment. According to the police, 142 mining contracts with a total value of € 2.2 million were concluded. Customers were visibly satisfied until payments suddenly failed to materialize in July 2018. The CEO is now on the run.
This news comes just days after a similar case with Sky Mining and its unfortunate investors, in which Le Minh Tam, the Vietnamese CEO of Sky Mining, ran away with over $35 million in embezzled funds. The scam was the same: Investors were offered a wonderful investment in cryptomining in private talks, during which fixed amounts would be paid out monthly. For a time, the “proceeds” were actually transferred. It can be speculated that the payments were stopped when no more new investors were found. A classic Ponzi scheme.
Why Kryptomining is no good investment in 2018
Mining works roughly like this: You select the crypto currency you want to mine. Then you buy a physical device – a rig or a GPU. Then you join a mining pool for a fee to have a realistic chance of being paid out. Then you let the device work. So there are two cost points: the hardware that has to be paid once and the daily electricity.
Mining is quite transparent in itself, we can make a cost calculation. Let us take ether mining as an example.
Mining Hardware: € 2,999.50
Maximum term: 3 years
Capacity: 150 MH
Power consumption: 780 Watt
Electricity costs EU: 12 cents per kw/H
Ether per year: 3.96
per ether: € 350 (August 7, 2018)
Annual income: € 1,400
Electricity costs per year: € 819
Profit without hardware: € 581
Profit with hardware: € -419 (hardware written off from €3,000 over 3 years)
So it turns out that Central Europe Ether Mining currently brings real losses. What does the bill look like with Chinese or Icelandic electricity prices?
Electricity costs China: 5 Cent per KW/H
Annual income: € 1,400
Electricity costs per year: € 341
Profit without hardware: € 1,059
Profit with hardware: € 59
This means that a maximum return of 5.9% per year can be achieved even with the lowest electricity price at the current Ether price. (not yet included maintenance and installation costs) This always assumes that the Ether price remains the same.
How to Detect Mining Fraud
Bona fide investors are often promised a 10% return per month. Some even 10% per week. Let’s look at the Ether prices at which this return is possible:
10% yield per month: € 734 per ether
10% yield per week: € 2.078 per ether
It is therefore clear that the price for Ether would have to more than double in order to at least achieve the lowest return promised by many providers. These promises are fraud.
How Cloud Mining Investment Fraud Works
The unsuspecting customer is invited by friends and acquaintances to a lecture. There you should learn how to make money with Bitcoin and Co. After a boring introduction on crypto currencies the lecturer shows pictures of his car, his house and his yacht, which he could buy thanks to the system he is now introducing. He just wants to tell the honored audience about it. Then comes the pitch with cloud mining, the creation of money out of nowhere. Then the profit forecast: 10% per month.
But it gets even better: if you recruit someone who also invests, then they get percentages! And if she hires someone again, both of you get another percentage. And yes, this is network marketing and we do it exclusively because it is the marketing form with which companies grow fastest. You can start at 500 euros, but the really great returns start at 5,000 euros. I don’t want you to invest now. Go home, do the math, and we’ll talk on the phone these days. (The author had the pleasure of hearing exactly such a lecture.)
Identification features of an investment fraud
The U.S. Securities and Exchange Commission (SEC) has nicely summarized the features:
- High returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
- Overly consistent returns. Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions.
- Unregistered investments. Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.
- Unlicensed sellers. Federal and state securities laws require investment professionals and firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
- Secretive, complex strategies. Avoid investments if you don’t understand them or can’t get complete information about them.
- Issues with paperwork. Account statement errors may be a sign that funds are not being invested as promised.
- Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.
In 2018: hands off mining. The following applies at any time: Hands off Cloud Mining, where there is no clear, hard and fast evidence that there is actually mining. Evidence by a third party, not by a nice photo from the operator
Also published on Medium.