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THE DEFINITIVE BITCOIN MINING COLOCATION BUYER’S GUIDE

Updated: Nov 28, 2023


Bitcoin Miner Hosting Buyer's Guide
Bitcoin Miner Hosting Buyer's Guide

This guide will help you choose the right bitcoin mining colocation hosting service for you. The selection of your bitcoin mining colocation partner is important. Do not be overwhelmed. We will give you the tools to find the right provider for you including a checklist to use while evaluating your options.


Section I. Understanding your Bitcoin Mining Colocation Options plus Pros and Cons of Colocation

Section II. Bitcoin Mining Colocation Service Selection and PRO TIPS

Section III. Checklist to Follow to Evaluate the Best Bitcoin Mining Colocation Solution


SECTION I. UNDERSTANDING BITCOIN MINING COLOCATION — PROS AND CONS OF COLOCATION


Bitcoin mining is a process of verifying and adding transaction records to the public ledger called the blockchain. The bitcoin network releases new bitcoins every 10 minutes which are then collected by miners. For a miner to be successful, they need two things — cheap electricity and a lot of computing power. This is where colocation comes in.

Colocation is a service provided by data centers that offer miners the ability to host their mining rigs in a secure, temperature-controlled environment with around-the-clock support. This allows miners to focus on other aspects of their operation without having to worry about the infrastructure. In addition, colocation facilities usually have access to cheaper electricity rates which can further increase profits.



PROS AND CONS OF BITCOIN MINING COLOCATION


PROS


  • Increased security: Data centers have state-of-the-art security measures in place to protect your equipment from theft and vandalism.

  • Reduced downtime: In the event of a power outage or other unforeseen event, data centers have backup systems in place to keep your equipment running.

  • Cheaper electricity rates: Data centers often have access to cheaper electricity rates which can save you money on your monthly power bill.

  • Scalability: As your mining operation grows, it’s easy to add more rigs to your colocation space without having to worry about finding additional space or upgrading your power supply.

  • Increase your mining return on investment: You can also invest in additional miners vs the (a) CAPEX, (b) OPEX, and © maintenance of managing your mining farm infrastructure. Spending your precious capital solely on miners — the very thing that makes you money — likely increases your ROI over the long term.

  • Peace of mind: When you entrust your mining operation to a colocation facility, you can rest assured knowing that your equipment is in good hands. You do not need to be a technical expert to manage your equipment. The colocation facility will have trained technology professionals to manage your mining equipment.


CONS


  • Not All Colocation Services are Created Equal: First of all, it’s important to note that not all colocation services are created equal. Some facilities are better-equipped than others to handle the specific needs of miners; others may be less reliable or more expensive than others. It’s important to do your research and choose a reputable provider who can offer you the quality service that you need at a price that you’re comfortable with.

  • No Direct Access to Miner: Another downside to consider is that renting space in a colocation facility means that you won’t have direct access to your equipment. This means that if something goes wrong with your miner, it may take longer to resolve the issue since you’ll have to go through the facility’s support staff instead of being able to fix the problem yourself. Additionally, some facilities have strict rules about what types of modifications tenants are allowed to make to their equipment; if you want to make any changes or upgrades to your miner, you’ll need to get approval from the facility first.

  • Risks at a Colocation Provider: It’s important to understand that there is always some risk involved when entrusting somebody else with your expensive mining equipment. While most reputable providers take measures to ensure the safety and security of their tenants’ gear, accidents can still happen; in rare cases, tenants’ gear has been stolen from colocation facilities. Before choosing a provider, be sure to ask about their security measures and policies so that you can make an informed decision about whether or not entrusting them with your gear is worth the risk.

  • Contract Terms — Most colocation service providers require a 12–60 month contract. You need to think about what happens if you are not happy with the service you are receiving during the contract term. There are benefits to longer contracts as well though. For example, you may be able to lock in a rate for multiple years. Regardless, pay careful attention to the provider to get comfortable with the contract term.

  • Finding a Good Colocation Provider Finding a reliable data center to host your equipment is an important but not always easy task. A simple google search will deliver a vast amount of search results. Make sure to use the checklist below and ask the right questions before selecting a provider.




TYPES OF BITCOIN MINING COLOCATION FACILITIES


There are many different options for bitcoin mining colocation services. The different options include contract structures, payout provisions, types of facilities, types of cooling technologies, locations, and more. The process of choosing the right bitcoin mining facility can be daunting. Do not despair, we will break down the key points below to help you select the right hosting option for your mining business. Let’s start with the types of facilities that are common.

  • Air Cooled: Most bitcoin mining colocation facilities use air cooling. In air cooling facilities, the mining facility uses large fans to circulate the air within the facility as the primary cooling method. When selecting an air-cooled facility it is important to take into consideration (a) the location and ambient temperatures where the facility is located, and (b) the quality of the air cooling engineering. For example, it is not advised to mine bitcoin in an air-cooled facility in a hot region like the Nevada desert. The miners will simply overheat on hot days. In West Texas in 2022 — where many bitcoin mining facilities have been built — miners have reported low operational up-time during the summer because temperatures can reach 100–110+ F. Check the ambient temperature at the location of the air-cooled facility to understand what the summertime uptime may be. You do not want to see many average temperatures above 100 degrees.

  • Liquid Immersion Cooled: A newer and increasingly popular form of cooling is liquid immersion due to its noise dampening, increased cooling capability, and ability to safely overclock your miner. In liquid immersion, the miners are submerged in a dielectric fluid that directly cools the miner. Liquid immersion is becoming popular because it provides the ability to overclock the miners — thereby increasing the hash rate by 20–50% comfortably. Liquid immersion facilities can be located in warmer areas if designed appropriately. Liquid immersion also is expected to increase the lifespan of the miners because it removes the constant barrage of particulates that smash into the chips associated with fan/air cooling.

  • Modular Facilities: A popular design for bitcoin mining colocation facilities is the use of modular (shipping container size) structures. These structures can be built in remote locations easily. If designed appropriately, these modular designs are popular and efficient. Not all modules are built the same. Hence, it is important to ask about the design of the module when evaluating a modular facility. With limited space in a modular facility, it is also important to understand where miners will be stored upon delivery and if / where the miners may be repaired. For example, the repair shop or storage may be in another shipping container on-site or could be miles away at another location.

  • Standalone or Pre-built Structures: Another popular design for bitcoin mining colocation facilities are inside existing or newly built buildings. These can be warehouses, existing commercial buildings, or steel structures purpose-built for large-scale deployments. Since standalone facilities are often existing buildings that are retrofitted, it is important to understand the improvements made to these structures with careful attention to the cooling infrastructure.


SECTION II. UNDERSTANDING COLOCATION OPTIONS TO MEET YOUR GOALS AND PRO TIPS



QUANTITY OF MINERS: Knowing the size of your operation now and where you want to be is important. Different bitcoin colocation & hosting service providers have different levels of service and different minimum quantities. Generally, the larger the number of miners, the better the rates.


PRO TIP: Discuss your expansion plans with the bitcoin mining colocation and hosting provider. Colocation facilities want to understand your growth plans. If you are starting with 5 miners but plan to expand to 50, 500, or 5,000, let the company know that. You may be able to reserve future slots ahead of time or negotiate a better deal. You also want to make sure the colocation facility will be able to accommodate your expansion plans in the future.


COOLING TECHNOLOGY: Most mining facilities are air-cooled. An increasing trend is to use liquid immersion cooling. Liquid immersion offers many advantages including the ability to reduce noise, reduce heat, operate in warmer climates, and overclock the miners.


PRO TIP: If you are considering liquid immersion, make sure the facility tests the miners in the air for at least 24–48 hours before submerging the miners. If an issue is found after the miners are submerged, it is time-consuming and operationally intense to remove, clean, and reinstall fans to do repairs and tests. A good liquid immersion company should have a defined process to accommodate these actions efficiently.


HOSTING RATE: One of the most important factors a miner typically considers is the hosting rate. After all the rate hits the bottom line. Make sure to understand what you get for that rate. Ask questions about diagnosis and repair costs, set up fees, tear-down fees, and other costs that may be included over the life of the contract. Different structures exist in the market as well. The most common is a set monthly hosting fee. Other structures can include hash rate split, profit split, and other unique structures. If choosing a split structure, make sure you understand the transparency of the data that will be used to determine the split. Generally, the more straightforward, predictable, and transparent the structure the better.


PRO TIP: Sometimes a lower rate doesn’t always mean more profitability if the company is inexperienced or unorganized (i.e. you get what you pay for). Make sure to understand the company’s back-end processes and procedures for communication/support, accounting, uptime/downtime, and handling repairs The decision should be holistically based on all the factors mentioned herein, not just the rate. For example, If you choose to save 1 cent a kWh on your hosting rate, you save ~$20 per miner a month. Over a year, the $240 in savings can be wiped out quickly with downtime, extra charges, or bad management causing miners needing repairs.


NEW OR EXISTING FACILITY: Many new bitcoin mining colocation companies have been launched recently and new data centers continue to be launched. If you are working with a new facility that has an expected start-up date but is not running today, try to understand the path to starting up as best you can.


PRO TIP: If the facility is not running yet, ask for some concessions to account for the risk you are taking. It is not uncommon for delays to occur with new facilities. Waiting an extra 2–3 months can be costly to your ROI.


SECTION III. BULLETPROOF CHECKLIST TO HELP YOU FIND THE PERFECT BITCOIN MINING COLOCATION PROVIDER FOR YOUR NEEDS


  • Evaluate the data center’s infrastructure: inquire about the type of facility, the types of components, how it was built, certifications of the equipment (i.e. are the electronics UL listed), how robust is the cooling, etc.

  • Understand the background of the management team: Find out if the management team is doing this full-time or if it is a part-time endeavor. Find out if they mine themselves (you want a provider that mines themselves). Learn about their background to understand how they think about customer service and support, their technical capabilities, and their accounting capabilities, etc.

  • Ask about repairs and maintenance technical capabilities: Ask about the capabilities to undergo repairs on-site vs off-site. For example, it is common for simple repairs (i.e. PSU replacement) to be completed on-site and more complex repairs (i.e. chip level) to be sent to a third-party repair company. Ask about warranty repairs and how those are handled / costs associated with warranty repairs. Ask about the amount of staff that is available and timeframes to complete repair tasks.

  • Make sure there are no additional hidden fees: Read your contract in depth. Specifically understand the monthly hosting rates, repair fees, set-up fees, tear-down fees, processing fees, etc. Ask about credits for downtime and their process to determine and award credits. Also, watch out for providers that charge a lower per kWh rate but then tack on other fees. Do the math to understand your all-in rate. Very often structures with enticing headline rates and add-on fees like this are designed to entice the miner to a low kWh rate but the all-in rate can be higher.

  • Understand the contract: Understand your obligations within the contract beyond fees. For example, what is the timeframe you need to give the provider if you want to terminate your contract? Or, what rights do you have if up-time is not meeting your expectations?

  • Talk to the management team to feel them out: This is an important one. Make sure to speak to the team to get a sense of whether or not they are trustworthy and competent. Ask digging questions to get a sense of how they will be to deal with. Trust your gut here. You want to feel good that the company will communicate well with you when you need it and will treat you well if an issue arises.

  • Ask about the company’s future plans: Understand where the company is today and where they are going. Are they building ten sites at once in different locations? Do they have massive debt financing the operation or is it equity funded? Are they growing at a reasonable pace? If they are taking small orders today but that is not the long-term plan, you want to know these things.

  • Ask for pictures of the site: Get some photos of the site. Make sure it is clean and organized. Look for any red flags with the site design or disorganization.

  • Evaluate materials provided: You want to be on the lookout for signals of unprofessionalism wherever you can. Look at the professionalism and quality of any materials, communications, and websites. For example, sloppy contracts or poor marketing materials usually translate to lower quality in the operation as a whole. You want to spot signals for professionalism or lack thereof in any place you can. If anything is off, that means you need to dig in further to find out why. You want to find a provider that focuses on the details in everything they do.

  • Analyze the entire offering, not just the rate: Again, look at the entire deal taking into account all of the above — not just the rate. Mitigating the risk of potential problems with the management of the operations, unscrupulous ethics, up-time / down-time, and unfavorable contract terms are all considerations that will increase your chances of success or major, and costly, headaches. You are better off going with the team that you feel will treat you well and can execute the hosting service you expect.



FINAL NOTE


We hope this guide helps you find the right bitcoin mining colocation provider.

If you have questions or would like a quote on our 5-star rated colocation service, contact us at sales@digitalbridgemining.io and speak with a representative at Digital Bridge Mining to host your miner today.

Digital Bridge Mining offers bitcoin mining colocation and hosting in the United States.

We are devoted to the success of the digital asset mining industry. Accordingly, we are here to help you achieve success in your mining business in any way we can. Do not hesitate to reach out and have a conversation.

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