Nothing looks more honest than mining cryptocurrency, a mechanism requiring a proof-of-work. “Proof” is in the title! In the case of Ethereum, mining is a staple in the cryptocurrency community.
Mining can still turn a profit even in 2018. And last year, newcomers to the crypto community may have seen mining as an opportunity to get “free coins”. Because solo mining for established coins is impossible, and owning mining hardware is not for everyone, various “cloud mining” schemes have appeared, promising returns.
Mining is much like a lottery game, and results are not guaranteed. Cloud mining, while cheap initially, has had mixed results, depending on mining pools and coins mined.
So when a mining scheme offers guaranteed results, no wonder interest picks up. A fixed reward from a mathematically sound activity sounded like a fair game, and Mining Max was not shy about offering the dubious opportunity.
The Origins of Mining Max
Mining Max claims to have originated in California in 2015, when Ethereum was just getting started and looked immensely more innovative in comparison to Bitcoin. GPU mining for altcoins was also a rather novel activity. Later, Mining Max evolved into the bigger entity that was accused of scamming at the end of December 2017.
Mining Max claims to be assembling its mining rigs, consisting of GPUs, in Korea. In the beginning, Mining Max worked with rigs consisting of just four GPUs- small by today's standards.
How Mining Max Works
Mining Max promises a bit more compared to cloud mining – selling a personalized mining rig, which is then placed in a data center, insured and producing mining rewards. In the early days of Ethereum, such an arrangement may have been quite profitable.
But lately, Mining Max has been promising returns above and beyond any reasonable expectations for mining Ethereum.
In addition to buying a machine, a client would be bound by a two-year contract, and no cancellations are possible, or returns of the machine. Entering the Mining Max program required a rather large initial investment, starting at $3,200 and exceeding the actual price of mining rigs, where even $1,000 could buy a reasonable GPU and allow users to enter a mining pool.
The Public Profile of Mining Max
Mining Max seems to have been running for years, and only meeting with justice at the end of last year. According to Korean investigators, a total of $250 million was swindled from upward of 18,000 small-scale investors. The main way that Mining Max spread itself was through aggressive direct selling, as well as an affiliate program that worked as a multi-tiered scheme of rewards.
And while the mining farm in Korea may have contained actual rigs, allowing users to mine several different cryptocurrencies, the overly aggressive promotion and the targeting of people who have little real understanding of the mining process, turned Mining Max into one of the prominent scams of 2017.
Mining Max has close to no social media presence, and most of the tweets relate strange language about “leaders”, suggestive of a closed society, tiers, and an outright MLM company.
My last #MiningMax leadership meeting in Ho Chi Minh City before heading to Hanoi for our last stop before coming home.
— Dave Baguyo (@powerachieversf) August 20, 2017
As for Facebook, the social media mostly spreads the story of the final crash of Mining Max.
Why Mining Max is a Scam
Mining itself is not a scam. The problem is, according to investigators, Mining Max spent only $80 million of the money it collected from new clients on actual rigs. And most of the earnings were not coming from the mining farm, or from a careful selection of profitable altcoins, but from encouraging buyers to buy memberships and then recruit new buyers, like in a typical ponzi scheme. In other words, the only way this company could profit was by recruiting new members. Eventually, you run out of new people!
Some of the promises were made in an over-the-top advertising video:
The guaranteed tiers of monthly payouts depended on the initial investment, and a lot of the money flowed upward, to leaders assigned to popularize the project.
Some of the proceeds were also paid to early adopters, as it usually happens with pyramid schemes. It is uncertain how much actual mining was done, and on what coins, but it is possible that Mining Max also sits on digital assets, if users have not withdrawn their mining rewards.
While there are very few scams comparable to the scale and blatant shilling of Mining Max, some believe cloud mining offers come close. At the moment, it is extremely hard for newcomers to make sense of the world of mining, as difficulty and machines are evolving very rapidly. Some coins or ICOs offer rewards only after a long time after you initial investment. The appear of earning stable money from mining is certainly attractive.
As a result, a lot of other businesses besides Mining Max are out to offer amateur mining to unaware clients. In some cases, there is even little to no proof of existing mining equipment, and the payout may be offered in cash, not in mined coins.
Similar scams have grown alongside legitimate cloud mining services. The best of the pack offer shares of existing hashing power in large data centers. But others don't bother with actual machines.
Why Best Avoid Mining Max
Mining Max still has a functioning site, but after the December debacle, it is possible no new customers are being added to the service. At the moment, Mining Max seems to have blocked new registrations, offering an update by download link. It would be better to avoid downloading any explanations – clearly, Mining Max is already defunct.
It is also better to avoid similar programs, especially ones that promise rewards in dollars. Mining, is about collecting digital assets, which may not be immediately cashed out. Crypto mining is not about getting a job that pays a monthly wage. It's about using work (your computer) to produce a coin (currency) that you can use to exchange for goods, or that you speculate will be worth some kind of value in the future.
Always check out if the mining company has the signs of a scam. Shady owners, a basic company incorporation, an unknown headquarters… all of those would pose worries. In the case of Mining Max, the firm had the appearance of a US-based company, while most of its recruitment and the mining facility happened in Korea.
It may pay to be extremely skeptical of any guaranteed payout system related to mining, an activity that is not always profitable for the user. Because of the latest trends in issuing proprietary currencies, similar cloud mining companies are going the route of the ICO, with projects like Ice Rock Mining and Affinity Mining, Mineum, and many others.
One last note! In my opinion, you must be especially skeptical when it comes to green energy mining, since a lot of the projects failed to deliver the actual data centers or have lied about the share of green energy used for mining. Amateur mining is a thing of the past, but offering mining to the wide public is still growing, with the potential to hide scams and inefficient projects.
For the vast majority of people looking put their dollars to work as passive income, traditional investments like a low-cost index fund is going to be the smarter choices. Even trading stocks is going to be less risky than investing in cryptocurrencies.
If you do want to get involved in the crypto world, and especially altcoins, be sure to do your homework. Know the developer, read the white paper, and invest only what you can lose. Above all, my recommendation is to avoid coins where the main value is derived from recruiting new members.
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Should YOU Invest?
Honestly, most people looking to invest in altcoins, tokens, and ICOs are hoping they discover the next Bitcoin or Ethereum. The chances of that are rare.
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