Colocation Mining
MININGDEFINITION
Paying someone else's facility to run your mining machines. You own the hardware; they supply the power, cooling, bandwidth and hands-on maintenance, usually for a fixed rate per kilowatt-hour plus a management fee. Also called hosting.
Home mining runs into three walls quickly: residential electricity is expensive, a single ASIC is roughly as loud as a vacuum cleaner that never stops, and it dumps three thousand watts of heat into a room. Colocation exists to solve all three at once. You buy the machine, ship it to a facility built for industrial power and airflow, and pay for the electricity it consumes.
The economics are simple to state and easy to get wrong. Your revenue is set by hashprice — network-wide, identical for everyone. Your cost is the all-in rate the host charges. The spread between them is the entire business. A host at six cents per kWh and a host at nine cents are not competitors offering slightly different service; at typical efficiency they are the difference between a machine that earns and a machine that does not.
What you give up is control. The host decides when to curtail during price spikes, how fast a dead fan gets replaced, and — in the worst cases — whether your machines keep running at all if their own economics turn. Hosting contracts have failed repeatedly across mining cycles, sometimes with customer hardware stranded inside a bankrupt facility. Hosting converts an operational problem into a counterparty problem, which is exactly the trade bitcoiners are usually careful about elsewhere.
Read the contract for four things before the rate: what happens to your machines if the host defaults, who owns the mining rewards until they are paid out, how curtailment hours are billed, and what uptime is actually guaranteed rather than advertised. A cheap rate attached to no uptime commitment is a marketing number, and the difficulty adjustment does not care that your machines were offline.
IN A SENTENCE
"You own the miner; someone else owns the power bill, the airflow, and the risk of losing both."
Key facts
Common questions
Is colocation cheaper than mining at home?
On electricity, almost always — industrial rates beat residential ones by a wide margin. On total cost, not necessarily, once management fees, shipping, and downtime are counted. Model the all-in rate, not the headline one.
What happens if the hosting company goes bankrupt?
It depends entirely on your contract and where the machines sit legally. This has happened more than once in mining, and owners have waited months to recover hardware. Treat it as the first question you ask, not the last.