HashFlare's Exit and the Future of Cloud Mining

Cloud mining - a service that enables individual users to lease hashing power from dedicated cryptocurrency mining operations - came forth as professionalization and cartelization of the mining business began to drive out smaller and insufficiently equipped players from the scene.

Perhaps the only way to steer clear of fraud is to rely on the reputation of the established cloud mining brands.

HashFlare, one of the leading names in the business, announced on July 20 that it has dropped its mining service of active SHA-256 Bitcoin contracts, pursuant to a clause of the platform's terms of service reading the following: "The Mining process will stop if the Maintenance and Electricity Fees will become larger than the Payout. If mining remains unprofitable for 21 consecutive days the Service is permanently terminated."

The cost structure for participating in the HashFlare enterprise consists of two types of payments: a one-off investment in the processing power itself, and recurring maintenance fees - normally covered from mining profits.

One of the several poignant circumstances accompanying the announcement is that the cloud mining operator decided to terminate the contracts without reimbursing users for the remainder of the annual contract fees, which they had paid upfront.

The Twitter user who goes by the moniker 'Madoff wasn't on the blockchain' and specializes in exposing crypto fraud, gloated over what he considered evidence that HashFlare never really had actual mining facilities - despite boasting a brand new data center just a few months earlier.

Users on another major cloud mining platform - Genesis Mining - reported getting payouts on their contracts as usual.

In the long run, the fallout from the demise of one of the most prominent cloud mining operations could prove a massive blow to the whole industry.

Cloud mining already has a reputation of a risky endeavor: While contracts are usually long-term and initial payments fixed, fluctuations of crypto prices render such investments a roulette.

Why engage in an increasingly precarious activity that promises fewer payoffs, especially when you cannot be entirely sure that the platform facilitating your engagement is trustworthy? If HashFlare's case entrenches in mass consciousness as a poster for cloud mining services, the model is unlikely to survive the ongoing hashrate rush.