2 months ago I decided to finally take a dip into playing around with crypto currencies. It all started with doge coin. I had been following bitcoin for a while with the market ups and downs. From a mining perspective it is impossible to get into.
The problem with bitcoin mining is the level of equipment it takes to be profitable. That awesome high GH/s appliance you bought today is obsolete within a few weeks. That is because the difficulty doubles about every 3 weeks. That also means your returns are cut in half every 3 weeks.
Cex.io advertises a solution to this by providing cloud mining. Instead of worrying about equipment. You are purchasing instant compute.
They also offer the ability to resell that compute when you are done with it. They have an instant market that allows you to sell your compute to other users based on demand and price of the market.
This sounds like an awesome idea right ? It’s not, it’s a total rip off and you will never back your money back. In fact, it’s near impossible to even break even!
Here is how I got screwed over. A friend came over my house to let me know about this awesome idea. He was explaining it like getting interest on money just sitting in your wallet. Exactly like a bank account. Well, sure that makes sense to me. He went on to explain how the cloud mining service cex.io worked and honestly I was very skeptical.
My gut instinct was to not do it. After a few drinks talking about it, I decided to go with it. You know, for science! And also, this was money I mined from a computer sitting at idle. Sure, if you take those dogecoin. Convert it to bitcoin, then determine based on current market rate. The value was $150 USD.
I converted the 100k DOGE to BTC using Cryptsy. After paying the 0.3% cryptsy exchange fee, I was left with 0.1838468 BTC. Transferred it over to cex.io. Watched the graph go down a little more and bought 5 GH/s worth.
Sweet! I am now mining on bitcoin with very little effort and nothing to monitor. Within an hour I had my first reward and reinvested it. I did this a few more times before bed, and when I woke up the next day.
For the next few days I reinvested my earned BTC into GH/s. Very quickly a pattern started to emerge. The price of GHS keeps going lower and lower each day. My initial though was that we were about to switch difficulty and that the prices would need to stabilize shortly after that.
On cex.io they have a graph with the time ranges of 1 day, 1 week and 1 month. I searched and searched but couldn’t figure out how to increase the time range more then a month.
I put together a spreadsheet to determine my starting point and my profit even with the price drop. My stomach sunk once I started seeing the values. I am hemorrhaging BTC! I put my GHS up for sale right away at a number I felt would be a reasonable loss and allow me to walk away with most of my shirt.
The next day I noticed the price drop even more. Updated my spreadsheet and realized that overnight I had lost another $10 USD. It’s really my fault for not properly researching this before hand. I should have dug into the reviews on them to realize how bad of an idea it was.
It really bothered me, why do they only have 1 month displayed ? Every exchange shows tons of different charts. Even if it only had daily summarized data for values over 1 month. Why doesn’t this exist ?
After searching around I found a chart that basically confirmed the reasoning. If anyone saw this graph it would instantly scare them away.
I contacted their support, and after a few emails back and forth it went no were. Here was their first response to me questioning the shady nature of their service
“CEX.IO is an exchange, the price is mostly controlled by the users it is comprised of.
Also, as the price of hardware decreases due to increases in mining difficulty, it works the same for cloud hashing.
However, it still remains that the user base is the biggest contributing factor to prices on the exchange.
Lastly, you are still receiving mining payouts for GH/s in your possession, unlike a typical exchange.”
Of course the price is controlled by the users. But cex.io damn well knows that this price will continue to drop. They are the middle man making money by selling you access to hardware that is obsolete within a few weeks.
You are absolutely still receiving mining payout while you GH/s is up for sale. But that is a very misleading statement. First off, you will never sell it back for even close to what you paid. While you wait for this to happen, the amount you are earning will never fill the gap. Every week this gap gets bigger and bigger.
The last straw was when they said they are working on offering the charts for longer periods. Really ? This isn’t very complicated, it’s maybe a few hours of dev work. As a developer I have to call out this excuse.
Business wise of course they don’t want to show you the charts, you wouldn’t even consider using the service. And I strongly believe this is a very deceptive business practice.
In the end it was an interesting experiment. It was a strong reminder of just how shady virtual currencies can be. When I finally transferred out, I lost approximately $40 USD. This all happened a few weeks ago. Had I tried to sell it today, I would have been out another $20 USD. In a few days the difficulty will increase again, they the value will plummet some more.