What is Colocation?
When cryptomining started, it was mostly individual crypto miners used their small mining set up known as the “mining rig”. These were mostly located at their home. These individual mining rigs used CPUs (computer processing units) or GPUs (graphic processing units) to generate enough computer processing power required to perform crypto mining. The core principle behind mining is to solve complex computational problems to gain rewards in the form of crypto coins. The cryptocurrency network benefits by having the transactions in their system validated, sorted, and secured by the miners. The hash rate of the computer determines the speed at which these computational operations can be performed. As cryptocurrency gains more attention, the landscape is becoming more competitive. There is so much upgrading you can do to your hardware along with additional maintenance and electricity costs before the cost starts to outweigh the revenue.
The growing competition has forced miners to find ways to gain an edge over the competition. The concept of colocation was born to scale up mining operations. Other innovations such as cloud mining were also created to find solutions to increasing congestion in the mining space. Colocation allowed miners to increase the processing power and resources while keeping costs to a minimum. As the name suggests, in colocation the miners are sharing space with other miners. Miners rent space from a third-party data center to host their mining rig. The third-party provides the physical space, electric power, cooling system, internet connectivity, and security. Furthermore, the server racks at the data center are designed in a way that each server can be easily removed and replaced without any interruption to service. The design also allows for a better cooling mechanism by allowing space all around the server and certain companies offer more advanced cooling techniques such as immersion cooling, which uses a liquid cooling mechanism.
How it works
Miners need to rent space at a third-party data center and give the mining hardware to the data center and they will install it at their facility. There is also the option to rent a server from the colocation facility. The data center provides all infrastructure needed for the mining rig to perform at its best. Apart from optimum performance, data centers also provide options for maintenance of the equipment and security from any software intrusion or hardware theft. The data center is designed to allow machines to work without any kind of interruption. There are trained and experienced IT professionals that assist in troubleshooting any issues that may arise in the mining rig.
Benefits of Colocation
One of the greatest benefits of colocation is improving the ROI of investing in crypto mining. Whether you are a hobbyist or a professional miner, companies that offer colocation solutions can provide a favorable ROI for miners through a lower cost for individual miners. These companies can offer lower costs through economies of scale and scope. Keep in mind that with an increase in the number of miners there is also an increase in the difficulty of mining. The mining network is designed for a steady flow of blocks. This means as the competitions get tougher, the difficulty has to be increased to stop from an overflow of blocks. Colocation facilities provide access to an extremely reliable internet connection with stable bandwidth. The cooling mechanism offered at these locations ensures the equipment is kept at ideal temperatures. There is also a high degree of peace of mind with a reputable and trusted colocation partner. Colocation facilities are designed with layers of redundancy in place. From the dual power chillers and HVAC systems to the fire control system, there is back up for everything. There is also added security at colocation buildings. This includes CCTV surveillance, biometric scanners, guards, internet network security protocols, and other state-of-the-art security features. One issue with a mining rig at home is the level of noise generated by them. This can put a lot of added pressure on the HVAC system. Having your system at a colocation facility, such issues are resolved. With less hardware at home, there is more space that can be used for other items.
Another advantage of colocation is that certain facilities offer protection against natural disasters. No one can predict when these natural disasters can occur. At a mining data center, a lot is at risk when it comes to natural disasters. Natural disasters include earthquakes, flooding, lightning, tornadoes, fire, hurricanes, pandemics, and more. Certain colocation facilities offer underground facilities that can protect from such disasters. Cloud services are another solution to this issue and are gaining popularity amongst crypto miners. The location of the colocation facility is also important as certain locations are more prone to natural disasters. There are also automated back systems that kick into action if natural disasters affect the infrastructure feeding the facility. A set of trained professionals is also an asset as a manual intervention might be needed if automated redundancy systems don’t work.
The core objective behind crypto mining is making a profit and using a colocation service facilitates this objective by reducing downtime and allowing your machines to work at their best to generate the highest processing power. Electricity cost is one of the most significant costs to the bottom line of a mining operation. Several miners search for locations with the lowest electricity tariffs per usage. In the United States, the cost of energy can be as low as 8 cents per kilowatt-hour to as high as 20 cents per kilowatt-hour. This is still cheap compared to Germany which charges up 35 cents per kilowatt-hour. Argentina charges only 1 cent on average per kilowatt-hour. However, for most miners, it is not possible to just pack up and move to that location. Colocation facilities can offer miners rates that are more competitive than the local electricity tariffs. This will of course depend on many factors such as how much electricity is being used by miners, the location, and tariffs of the local electricity provider.