Simply put, Nicehash miner software works by you giving Nicehash permission to use your computer hardware to "mine" cryptocurrencies.
-The Contract System-
However, Nicehash does not mine itself. It gets paid in contracts where it says to a potential buyer, "Hey, I'll sell you THIS MUCH mining power for the cost of $XX. Typically paid for in Bitcoin. The cost as well as the amount of mining power varies day to day with the value of certain currencies and the current demand. No, you are not mining Bitcoin. You are mining other cryto's for other people and being paid in Bitcoin as compensation.
-Why I use Nicehash-
In my personal experience, Nicehash has given me more money per day than any other mining I have tried. I tried Kryptex when Nicehash went down, and the website was mostly in Russian, and the returns were 1/3 to 1/4 that of on Nicehash. Nicehash maximizes your income by automatically picking for you what coin to mine at that time by selecting the most profitable for your hardware. That was a long sentence. It works like this: Nicehash checks starts by benchmarking your system, seeing how your hardware performs mining using different algorithms. Then it checks real time charts for what is being paid for each algorithm at that time. It then calculates how much you can make with each algo and picks the most profitable. I have tried mining XMR, VivoCoin, Feathercoin, and a few others, but these required much more setup, know how, and maintenance to keep working. If you are a BAT file God, you possibly could make more money outside of Nicehash but you would have to know exactly what you were doing and in my experience it was hard to find good info on configuring BAT files for different cryptos. I also was not making as much. On Nicehash using 4 RX 580's I make an average of $12 to $14 a day. Mining Monero before, I was making about $8.50 to $9.00 a day.
-Wallet Warning-
The biggest thing to be warned of is that you MUST, I mean MUST use an external wallet. Do not under ANY circumstances use their inhouse ledger wallet. The fees are higher and it just got hacked in the beginning of December. Personally, I got burned by the hack. I did not personally lose too much money, but reading forums I have seen that some people lost thousands. Luckily, everyone will eventually get all of their money back its just a matter of when. From what I can tell, the fees for removing your money to an external wallet is 4% and leaving it inhouse is about 7%. Even with these fees, I still make more money using Nicehash than trying to configure a BAT file in an attempt to Pool Mine. I do think it might prove to be more profitable speculating on a new coin trying to mine it before it gets popular, then holding and selling when the price goes up substantially. This is more work though and less guaranteed.
-A Suggestion For An External Wallet-
I learned my lesson, and installed a lightweight wallet called Electrum. I chose a lightweight wallet because I did not want to download the entire blockchain to keep my wallet up to date. All transactions ever in Bitcoin have been through the blockchain, and in its current form, it is very large. "Lightweight" just means your wallet communicates with a server to be up to date on the status of the blockchain. I also liked Electrum because it had a pnemonic key recovery system. However, this is not advice, just what I did. Do your own research and pick a wallet outside of Nicehash that best meets your security and ease-of-use requirements.