What is a Mining Farm/Colocation?
By: Luxor Tech
Tags: Colocation, Cryptocurrency, Bitcoin Mining, Bitcoin, Mining Concepts

Is it Skynet’s headquarters? Is it the Matrix? No, it’s a mining farm! Many of you have seen images of mining farms in China and Iceland; rows and rows of futuristic machines packed into a warehouse. So what do these machines do? Why are they all in one building? Who owns the machines? Are they plotting to overthrow us?

What is a mining farm?

A mining farm is a computer data centre (warehouse) that hosts machines that mine different cryptocurrencies. The machines are used to generate revenue for their owner. They do this by finding blocks for cryptocurrencies that use a Proof-of-Work system such as Bitcoin.

What type of machines are stored in mining farms?

The two most common types of machines hosted in a farm are GPUs and ASICs. GPUs (graphics processing units) are specialized electronic circuit that are commony used in computers and video games systems. They can be used for a wide range of activities including mining cryptocurrencies. ASICs (application-specific integrated circuits) are integrated circuits customized for a particular use, rather than for general-purpose use. Typically ASICs are much more powerful at mining cryptocurrencies than GPU’s given their focused functionality.

Bitmain S9- Bitcoin ASIC

Why would someone send their machines to a colocation?

ASIC machines can be intrusive in your home. When they are operating they are loud (think a vacuum cleaner). In addition, they take up a lot of electricity so adding a few to your existing home appliances may fry your circuit board. So if you want to get into mining it makes sense to buy your machines and send them to a mining colo to deal with for you. The mining colo sets them up, makes sure they are running properly and provides maintenance.

How do mining farms make money?

There are two main business models for mining farms.

The first are farms that buy all of their own machines (GPUs & ASICs) and place them in their own data center. Their revenue comes from all the coins the machines generate for them. Usually only companies with large balance sheets may set up a mining farm with all of their own equipment given how expensive it is (S9 retails for around 3K USD).

However, some mining colocations do not have the capital to invest in the machines themselves. Rather they set up the facility and charge a hosting fee to anyone that wants to send their machines to be put in the colo. These fees generally range from 40–80$ Kw/month depending on the colo’s electricity cost, the services they provide and the size of the customer.

Conclusion

Mining crypto is an interesting concept. You are taking electricity (resource) using it to produce something of value (hashing power leading to validation of transactions) in return for monetary reward (coins). We think that hashing power will become a very valuable commodity in the future.

If you want to get involved in this process the first step is to identify a crypto that you want to mine. Most large cryptos have mining profitability calculators like this one. Once you pick a profitable coin, buy a machine and send it to a mining colo. Or if it is a GPU you can set it up in your home.