Hey buddy, wanna buy some bitcoins?

It’s buyer-beware in the world of bitcoin cloudmining, with as many as 75% of those purporting to provide the service being fraudulent, according to a bitcoin mining industry expert. Cloudmining allows users to invest money up front in mining operations and get bitcoins out the backend when they are successfully mined.

But it seems the industry is rife with bad actors that accept money and pay out to earlier investors when new investors come on board — Carlo Ponzi would be proud.

Bitcoin still suffers from the taint of Mt. Gox and Silk Road, and some question its place in a legitimate economy in any form. This news about mining schemes will not help change that perception.

“At most of these places, there is no mining going on,” said Marco Streng, CEO of Genesis Mining, an industry leader in cloudmining. Streng recently attended a conference at the US Bank Tower in Los Angeles and discussed the pressing need for more regulation in the space.

Bitcoin enthusiasts are seldom enthusiastic about regulation, but when three-quarters of the operators in a space are fakes, well, something has to happen. Streng estimates that 26 of the 38 cloudmining operations he knows of are fraudulent.

“There needs to be agreed-upon criteria to check out how a cloud operator is valid,” Streng told Bank Innovation. “Regulators should regulate cloudmining, and people need to be educated.”

Streng believes regulators should be empowered to perform audits in order to identify operators and confirm the hashpower, or mining capacity, of the networks, and verify ownership of those devices. A registry of legitimate, approved providers, would be a boon to both the industry and consumers, Streng said.

The warning signs of a possibly fraudulent operator, Steng said, are if the provider is anonymous and does not show pictures of his facility. Because bitcoin mining is now done on an industrial scale (and mostly in cold climates, where mining machines can be cooled inexpensively,) it is standard practice to show off the capabilities of the facility in photographs. Some operators, Streng said, show obviously phony images, or use images of legitimate rivals’ operations, so investors must exercise caution.

Investors should also make sure the deliverable and the price are realistic, Streng said, because, to those that understand mining, some of the offers out there don’t make sense.

“You know what they say, if it seems too good to be true?” Streng said.